Oskar Morgenstern, The Experience with Public Regulation and Public Monopoly Abroad (1939)

Morgenstern’s published address examines European public monopolies and regulation as instruments of depression policy. He distinguishes the older fiscal monopolies, such as tobacco, from institutions created to stabilize commodity prices and production. His concern is with the latter: government-controlled bodies whose efforts to protect producers generate surpluses, restrict consumption, and require increasingly comprehensive intervention. The address moves from this general mechanism through Austrian milk regulation and the Czechoslovak grain monopoly, then extends its argument to foreign-exchange control and the corporate state. Morgenstern acknowledges that his compressed treatment risks caricature, but regards the absurdities he describes as consequences of policy itself.

The central conceptual move is to judge monopoly by its effective control over markets rather than its formal institutional definition. Semi-independent agencies may differ organizationally, yet their legally enforceable prices and restrictions substantially diminish private property and enterprise. Their limited publicity also makes their operations difficult to scrutinize. More important than these administrative differences is the cumulative logic of intervention:

There emerges from many examples one principal phenomenon. I am thinking of the fact that, once price control has set in, new controls of far-reaching scope and importance have to be piled up one above the other.

A price fixed above the market-clearing level encourages production while discouraging demand. During a depression, producers have an additional reason to expand the protected commodity: prices for their other products are falling. An agency committed to buying at the fixed price must therefore purchase the surplus, restrict output, or introduce further monopolies. Morgenstern treats this expansion of control as structurally compelled by the original commitment, not simply as an administrative mistake. The alternative—abandoning the policy—is repeatedly refused.

His criticism also distinguishes price stability from economic stability. Public monopolies join private cartels in sheltering particular prices, but leave employment and the remaining competitive sectors to absorb adjustment:

However, it should be borne in mind that they stabilized only prices, thereby inducing wide fluctuations in employment.

The narrowing of the sphere in which prices can adjust becomes, in his interpretation, an obstacle to recovery. Government support, particularly through tariffs, entrenches these protected arrangements. Stabilization thus redistributes instability rather than removing it: consumers pay higher prices, competitive sectors face greater adjustment pressures, and employment fluctuates.

The Austrian Milk Marketing Board provides the clearest account of this mechanism and its political reinforcement. Established to prevent milk prices from falling, it confronted declining consumption as incomes contracted. A levy financed purchases of surplus milk, but protected returns encouraged farmers to keep more cows. Excess milk was converted into butter and cheese and exported at dumping prices, while the Board’s deficit grew. Restrictions on cows held by larger estates followed. Domestic prices nevertheless remained high, partly because small intermediaries in distribution exerted sufficient political pressure to resist reductions. The impasse therefore involved not only excess supply but interests that had become dependent on maintaining the arrangement.

The Czechoslovak grain monopoly reveals the same sequence on a larger administrative scale. Tariffs and import quotas raised domestic wheat prices, encouraging supply and weakening demand. Obligatory-use regulations proved insufficient, and a comprehensive trading monopoly followed in 1932. Wheat cultivation expanded at the expense of less-protected grains. Acreage supervision and meters at mills could not eliminate illicit trading, so the reported fall in consumption partly reflected activity outside official channels. Meanwhile, accumulated stocks deteriorated despite expensive storage, and peasants were eventually required to repurchase wheat previously sold to the monopoly. Improvement came with rising world prices and armaments expenditure in 1937–38, rather than through a demonstrated success of regulation.

Morgenstern generalizes these cases cautiously in geographical coverage but emphatically in judgment. He mentions comparable arrangements elsewhere in Europe without supplying equally detailed accounts:

In particular it must be asserted that there is no shade of proof that these monopolies have contributed in a positive manner to help overcome the depressions in the respective countries.

This is a forceful conclusion within a deliberately selective address, not a comprehensive comparative demonstration. Its supporting argument is that producer protection burdens consumers precisely when incomes are already falling, while administrative expansion fails to resolve the imbalance it perpetuates.

Foreign-exchange monopoly carries the argument beyond agricultural markets. Initially introduced to supervise capital movements, exchange control becomes control over imports and exports because every foreign-currency transaction requires official approval. Maintaining the currency’s nominal value thus entails an extensive bureaucracy and unprecedented supervision of trade. The corporate state supplies a further institutional expression of the same tendency: compulsory cartels acquire control over investment and suppress potential competition. Here stabilization becomes a means of protecting established producers against new entry.

The address’s relevance lies in its insistence on following a regulatory commitment through its incentives, administrative consequences, and political supports. Morgenstern closes by placing these experiments in the “pathology of economic policy”: institutions intended to stabilize prices become costly, bureaucratic, and expansive. His fundamental objection is not merely that particular monopolies were badly managed, but that preserving non-market prices repeatedly requires widening coercive control.