Karl Pribram’s short rejoinder to Myron W. Watkins’s review of Cartel Problems defends a market-conditioned explanation of cartelization and its implications for economic policy. Watkins had characterized the book as preoccupied with capitalism’s instability and questioned whether its supposed remedies might worsen the disease. Pribram answers by distinguishing the explanation of collective monopolies from their endorsement. The central question is whether effective regulation is possible without understanding the economic circumstances that generate them.
Pribram defines collective monopolies as combinations of separate profit-making interests formed to suppress competition and preserve each participant’s market share. Their plurality of interests distinguishes them from unified monopolies, while their emergence follows a different economic pattern:
Fundamental to my analysis of cartel tendencies and cartel policies has been the general thesis that collective monopolies, as a rule, owe their existence to conditions prevailing on depressed markets, whereas creation and development of strong single monopolies (by mergers, combines, trusts, interlocking directorates, etc.) are fostered by expanding markets and prosperous business conditions.
He presents this thesis as grounded in the characteristics of cartelization and supported by European, especially German, experience. Its validity does not depend on treating capitalism as inherently unstable. A second thesis concerns conduct: collective monopolies generally pursue policies, particularly price policies, different from those of single monopolies; cartel behavior also changes between contracting and expanding markets. Economic fluctuations are therefore integral to the subject, not evidence of a prior ideological commitment.
The rejoinder next explains why contraction encourages defensive cooperation without making that cooperation beneficial to the economy as a whole:
However, insight into and acknowledgment of these forces are not to be confounded with biased predilection for collective monopolies.
Cartels reason in terms of partial or sectional equilibrium: they treat particular markets as bounded outlets capable of absorbing only limited output at profitable prices. Restricting competition can consequently appear necessary for survival, especially where heavy fixed investment causes unit costs to rise as production falls. Yet the resulting rigidity can obstruct the restoration of general equilibrium. Pribram’s conceptual move is to hold these two judgments together: cartelization may be intelligible as economic self-defense while remaining damaging to recovery.
The policy discussion connects European experience with the United States. Pribram interprets the N.R.A. as a temporary official accommodation of combinations animated by a philosophy resembling cartelization. Severe, prolonged future depressions could revive pressures for similar departures from antitrust policy. His purpose was to prepare debate about that possibility, not to prescribe cartels as a cure for instability. Classification supplies the bridge from explanation to regulation:
To prepare and facilitate this discussion I started from a systematic grouping of all kinds of collective monopolies; the principles of classification underlying this grouping were derived from the risk concept and the various methods adopted for shifting the risk resulting from contracting markets to other economic groups.
This risk-based taxonomy differentiates organizations otherwise obscured by the broad label “cartels.” A corresponding classification of state policies identifies the social and economic philosophies informing regulation. Against Watkins’s dismissal of such work as taxonomic, Pribram argues that regulation beyond outright prohibition requires distinctions among organizational forms and their effects.
The closing challenge reverses the charge of myopia. An analysis premised on uninterrupted expansion would minimize precisely those conditions in which collective monopolies become most consequential. The rejoinder’s significance lies in its insistence that policy must explain both the defensive motives behind cartel formation and the wider costs of cartel conduct. Understanding contracting markets is, for Pribram, a prerequisite for judging collective monopoly rather than an argument for accepting it.
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