The Place of Monopoly in tbeMisesian System II

We must remember that for Mises the defining feature of the monopolist is his exclusive control over some important scarce resource. Because no one else can produce the product (for which this resource is a necessary ingredient), the owner of this monopolized resource may find it in his own interest to destroy part of his supply of this resource—if doing so would allow him to raise its price to a level that will maximize the revenue he can obtain from his resource. This need not be the case. It may not be possible to enhance revenue by withholding some of the resource from production. But where it is die case that the price of a resource has been raised through the deliberate withholding of supply from the market, Mises used die term "monopoly price." He saw this case as one which, while certainly possible, is extremely unlikely and rather unimportant from a practical point of view. (It is also virtually impossible to establish such a case empirically, since we are never in a position to know objectively whether die nonutilization of a monopolized resource was indeed motivated by the objective of enhancing revenue—it could have been motivated by the monopolist's speculation concerning a future price rise, or by his own desire not to use his resource for industrial purposes but instead to enjoy it in his capacity as consumer.)

For Mises, the monopoly price case is a unique situation ordinarily not able to occur in a market economy. Where a monopoly price has occurred, this means that the monopoly owner of the resource has successfully defied the preferences of consumers. He has been able to extract value from his assets, not by putting them at die service of the consuming public, but, to the contrary, by withholding them from such service. In the Misesian system such a possibility was fascinating (if unlikely); it meant that the doctrine of consumer sovereignty was, in one possible respect, not universally validated. Where the market economy generally imposes a harmony of interests among resource owners and consumers, monopoly resource ownership offers the possibility of a conflict of interests.

We should emphasize that, in enunciating this theory of monopoly, Mises was not drawing policy conclusions supporting state action against monopolies. His doctrine was stated at the positive level. (Indeed, the Misesian system strongly suggests the inappropriateness of the antitrust policies that Western capitalist countries adopted during die first decades of the twentieth century and earlier.)

For anyone familiar with the mainstream neoclassical theory of monopoly, Mises' theory cannot fail to appear quite strange. But its strangeness arises entirely from the profound differences, noted earlier, that separate the Misesian theory of the market from the mainstream neoclassical theory.11

For the mainstream theory, die theory of monopoly be^ns with a downward sloping demand curve confronting the monopolist producer. With a degree of control thus available to the monopolist producer, he selects the price which maximizes his net gain ("profit," in textbook terminology) by (a) producing a quantity which is lower than would have been produced were this monopolist somehow replaced by a perfectly competitive industry, and (b) charging a price shown to be higher than his marginal cost of production. The uniqueness of monopoly, in the mainstream neoclassical view, lies in these two implications of die downward sloping demand curve feeing the monopolist producer.

But for Mises, every producer, even under (dynamically) competitive conditions, has a degree of entrepreneurial "control" over price (at least insofar as we can talk of "control" in the face of the radical uncertainty of an open-ended world). The question that Mises would pose for neoclassical theory would be: "what is it that (in the absence of governmentally granted privileges) protects the monopolist's profits from being whittled away by new entrants?" The answer, Mises would say, must lie in an implicidy postulated unique ownership over a scarce resource. The interesting implication for Mises, then, follows in the possibility that such monopoly ownership of a resource may lead to some of its supply being deliberately withheld from satisfaction of consumer preferences. The emphasis is not on the monopolist as producer (possibly, as a result, producing less than might otherwise have been produced), but on the monopolist resource owner, who may be motivated to act along lines that conflict with the interests of the consumer—a possibility never, in the Misesian system, otherwise arising under free market conditions.

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