Fritz Machlup · 1967
Machlup’s book treats monopoly as an institutional problem rather than a merely technical market form. Its concern is not only the textbook case of a dominant seller, but every arrangement by which alternatives are restricted: business combinations, buyer power, union controls over labor markets, and government policies that shelter favored groups from competition. The result is a compact political economy of exclusion, entry, privilege, and public authority.
His assessment of antitrust is deliberately double-edged. Machlup credits the law with changing the atmosphere surrounding explicit collusion and making cartel agreements less secure.
It has succeeded in creating a climate less favorable to cartelization than would exist without it.
But this limited success does not rescue the larger project. In his view, antitrust has not prevented monopolization, trusts, or mergers from reshaping competitive conditions. The point is not simply that enforcement has been uneven; it is that the legal campaign against monopoly has failed to produce the competitive order it promised.
Nothing then can be said that would in any way qualify the verdict that the law of monopolization, the prohibition of trusts and mergers, has been a dismal failure.
The argument then turns from private power to public policy. Machlup insists that government is not merely an external umpire correcting monopoly after it appears. Through licensing, regulation, subsidies, controls, trade restraints, and other interventions, the state may itself create scarcity, protect insiders, and obstruct entry. The political economy of monopoly therefore asks how coercive authority is used: to preserve competition, or to confer privilege.
The economic policies of government are far-flung and many-sided. On many fronts, therefore, could government fight for competition and against monopoly if it so desired. It has not seen fit to do so.
This is the book’s central reversal. Monopoly is not only a product of private acquisitiveness; it may also be a product of public permission. Machlup’s defense of competition is therefore not an uncritical defense of business conduct. He evaluates institutions by whether they keep entry open, prices flexible, and resources mobile, or whether they freeze advantages and shield organized groups from market discipline.
The same logic governs his discussion of labor monopoly. Machlup does not deny that unions may have moral, social, or organizational claims. His objection is to the economic argument that wage monopoly can raise general prosperity by increasing purchasing power. A wage increase secured by restricting labor-market competition, he argues, is not equivalent to an autonomous increase in investment or aggregate demand.
The purchasing power theory of wage rate boosts is an illegitimate extension of the theory of the effects of increased investment outlays upon consumption and employment.
Such wage gains may benefit employed insiders while excluding outsiders, reducing mobility, or pricing some workers out of jobs. The question is not whether higher wages are desirable as an ethical aim, but whether coercive restriction can be justified as a general remedy for unemployment, output, or inequality.
Machlup is equally skeptical of the claim that labor monopoly offsets business monopoly. When a monopolistic firm bargains with a monopolistic union, competition is not restored. Restrictive powers accumulate, and their costs are shifted to consumers, unemployed workers, and less protected sectors.
The effect of such interplays between business monopoly and labor monopoly are not compensatory but additive.
The book’s lasting value lies in this unified analysis. Machlup follows monopoly across business, labor, and government rather than confining it to industrial concentration. Competition, in his account, depends on open entry and the absence of legally or organizationally protected exclusion. The enemy of competition may be a cartel, a merger, a union rule, or a government program; the common feature is the restriction of alternatives.
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