Monopoly Is As Monopoly Does
Sidney J. Abelson
[Reprinted from The Freeman, August, 1940]
Whereas someone sapiently remarks that the "capitalistic system
has broken down" it would be well to inquire what is meant by the
term "capitalistic system.."
Thanks to the Dictatorship of Marxism over Economic Terminology words
no longer have precise meanings; they have, rather, implications which
in turn are shadowed by judgments. Thus capitalism does not mean in
people's minds the predominant use of capital in production - a broad
and natural meaning - but it signifies an alleged arrangement of
capital ownership and control - a narrow, restricted description which
has led to epochal confusion and caused incalculable damage to social
Be that as it may, the question remains, "What do people think
the caoitalistic system is?" Perhaps if we could delimit this
faltering apparatus the task of analyzing our economic problem would
be more clearly defined.
It is not the purpose of this article to examine the good or the bad
points of the "capitalistic system," whatever it really is.
It is plainly impossible to do that without first being in agreement
on a definition of the term. But there is no such agreement anywhere;
there is only confusion, a confusion made the worse confounded because
economics, struggling to take its place among the sciences, has been
subjected to terrific pressure by political ideologies and battered
out of shape.
At one moment the Marxist will speak as if "capitalism"
referred to unrestricted competition - wasteful duplication of effort
and a cut-throat contest for business. At another moment it will suit
his political line better to emphasize the monopolistic character of
our present economy. Thus on the one hand we are told that the "capitalistic
system" is economically wanton because it is too competitive and
on the other, by the same people, that it is unfair to the masses
because through monopoly control it deprives them of equal opportunity
to enter into competition.
Now the Marxist is not alone in entertaining this contradictory
attitude. Economists to the "right" who defend the status
quo are equally to blame, for they too have special purpose to serve.
They too are unable to analyze the questions of competition and
monopoly from a fundamental standpoint; being close to particular
forms of competition or particular forms of monopoly they cannot
arrive at conclusions divorced completely from their background. From
neither leftist nor rightist economists is it possible to obtain a
clear-cut description of the "capitalistic system."
To understand this confused state of affairs it is necessary to refer
to an historic phase of the laissez-faire doctrine upon which the "capitalistic
system" is supposed to be based. This is done very briefly, but
just as much to the point, by Harry D. Gideonse, President of Brooklyn
College, in a pamphlet on Organized Scarcity and Public Policy
(subtitled, "Monopoly and its Implications." Published by
The University of Chicago Press).
"A wide area of confusion in economic literature and discussion
has been created," writes Dr. Gideonse, "by assuming that
perfect competition existed in the nineteenth century because
economists then began to approach the problem with the concept of
perfect competition. A whole library has therefore been written to
prove that there has been a decline of competition, but this really
should be entitled 'the decline of the idea of competition.'"
Indeed,, competition never existed in a pure state, and whenever it
did approach such a state its tendency was short-lived. The history of
laissez-faire is not so much the record of a reality as of an ideal.
There is abundant proof in economic history for substantiation of
this conclusion. It is not necessary, however, to go far back to the
past; the present and the immediate past tell the story more
eloquently than ever. For example, Professor Ely in one of the earlier
editions (1919) of his Outlines of Economics wrote:
"Everywhere in the industrial field the tendency
toward monopoly is present. Business men endeavor so far as possible
to shelter themselves from the effects of the competitive struggle
by means of some privilege, but if none is to be found, and if
competition becomes very keen, they endeavor to combine with other
In the days when this was written the "trust-busting" laws
were supposedly sufficient protection of the public against abuse of
this "tendency toward monopoly." The laws are still on the
statute books, but cancelling them out to a large measure is the
record of the NRA, an adventure in the creation of super-trusts which
made the ideas of the private tycoons look puny by comparison.
Today, of course, the NRA policy has been itself cancelled out, and
another trust-busting government adventure is under way. The Temporary
National Economic Commission has gathered unto itself some scores of
volumes of testimony revealing in microscopic detail the machinations
of big business. Alas, if instead of scores of volumes there were only
one devoted to fundamentals!
What is the fundamental situation? Is the so-called "capitalistic
system" competitive or monopolistic? The trust-busting attitude
implies existence of a system in which competition is the rule and
monopoly an evil exception. Facts furnished by the United States
Government answer this question quite precisely - but too
fundamentally for "trust-busters" to understand.
Before presenting these facts which reveal the monopoly situation as
of today, it is worth noting the situation as Professor Ely reported
it in 1919 in his textbook: "We have not the precise data which
will enable us to state the exact influence of monopoly upon the
distribution of wealth. We have, however, sufficient data to warrant
the opinion that the high monopoly prices and the gains resulting from
the exclusive position of the monopolist give us a large privileged
class in countries of modern civilization, and especially in the
Since this was written the "precise statistical data" have
become available and it now can be determined exactly how monopoly
affects the distribution of wealth. In addition to revealing the
precise power of monopoly these data help establish an answer to our
question whether the "capitalistic system" is competitive or
"Profits in American industry," writes E. D. Kennedy in a
remarkable book entitled Dividends To Pay, "are almost in
direct proportion to the extent to which competition has been
eliminated." A brilliant array of government statistics, based on
the direct reports of corporations, substantiate this conclusion. Mr.
Kennedy has had the courage to let facts speak for themselves and he
has taken the trouble to get the significant facts.
The Statistics of Income of the Bureau of Internal Revenue of the
States Treasury Department tell this story: In 1925 three tenths of
one per cent of all American corporations (those earning $1,000,000 or
more a year) made 65% of the net profits earned by all corporations.
In 1929 this selected group of $1,000,000 still numbered about
three-tenths of one per cent of all corporations, but in this year the
big companies made 80% of the net corporate profits.
The following tables, assembled by Mr. Kennedy from government
statistics, show what "prosperity" meant to business as a
whole and what it meant to a favored few businesses:
||NO. OF CORPS.
||NET INCOME OF
Let us know see how well the $1,000,000 profit-makers fared during
this period of "Coolidge prosperity":
||Corps. with $1
million yearly Net Income
||Total Net Income
of these corps.
||% of their net
profits to net profits of all corps.
Then came the depression. It was popularly supposed that its effects
were shared by all business enterprises. But what are the facts? Again
a simple set of figures gathered by the government from corporation
reports and assembled by Mr. Kennedy, reveals the true situation:
Net Income Reports of All Corporations
||No. of Corps.
Yet during this period when corporations as a whole where reporting
minor profits at best or else serious deficits, the top-flight
companies were enjoying substantial profits. The figures show:
Reports of Corporations Earning $1,000,000 Or More Annually
||No. of Corps.
In this record we find a fair sample of the "capitalistic
system." What factors in this system, what conditions serve to
make negative, or nearly so, the business efforts of 99.7% of all
corporate enterprises while a small handful of companies seem to be
assured of substantial profits through thick and thin? The conclusion
is inescapable that the bulk of businesses are making a futile effort
to prosper competitively in an economic world dominated by monopoly.
The big profit-makers on the other hand enjoy in every case special
advantages which give them the opportunity to turn the competitive
developments of the small fry to their own gain.
Now the fact that so small a percentage of corporations makes so
large a share of all profits does not by itself prove that these
extraordinary earners have monopoly privileges. Indeed, in many
instances they enjoy no direct monopoly accruing either from natural
advantages, outright government grant, patents or other circumstances
which eliminate competition.
However, monopoly is not always a matter of such direct control over
land, patents or some other outright sanction. Monopolies do not
necessarily have to possess direct monopoly privileges; they need only
to arrange their market so as to enjoy the advantages which a
clear-cut monopoly would otherwise give them; and such arrangement is
frequently made possible by Indirect government assistance (laws
designed to promote "conservation," etc.). Monopoly is as
That is why Professor Ely was able to say, as far back as 1919:
"At the present time, however, monopolies proceed
from the nature of industrial society, and are of far greater
significance in our economic and political life than ever before.
The really serious monopolies of our day are far more subtle, and
have for the most part grown up outside of (anti-trust) law, and
even in spite of (anti-trust) law."
In subsequent articles in The Freeman we shall see how
specific industries continue to gain monopoly advantages within the
letter of the law and often within the spirit of the law; but the
result nevertheless belies the putative competitive nature of the "capitalistic
system." We shall see that this system does not and has not
functioned as a free competitive system.
It is not the "capitalistic system" which has broken down,
but a monopoly system mistakenly yclept [i.e., called] "capitalism."