What are the arguments against monopoly under capitalism ?

On the basis of the following arguments we may make out a case against monopoly under capitalism.

Why people who think capitalism sucks are just plain wrong

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1. Exploitation of the consumers :

Under monopoly there is a lot of exploitation of the consumers. So long as competitive conditions prevail in the economy, at least in the long run, prices and costs become equal to each other. The large number of producers constantly strive to work more, produce more, sell more and earn more and that too with maximum efficiency. The producers can bring any amount of output in the market and well it at the prevailing market price.

But as the monopolist has the power to restrict his output, he can sell the output at a higher price. He will be particularly induced to reduce the output and fleece the consumers, if the demand for his product is less elastic. Under competition, high profits lead to an expansion of output but, the high profits of monopoly are conditioned on restriction of output. The monopolist’s power to discriminate further aggravates the condition of the consumers. Capitalism stands for con­sumer’s freedom, consumer’s sovereignty but monopoly worsens his position. This is the very negation of every thing the capitalist philosophy stood for.

2. Wrong Allocation of Resource :


From the above it follows that under monopoly there is a less than optimal allocation of productive resources. Under competitive conditions of free entry and free exit, in the long run a firm produces a certain volume of output at which average cost is the minimum. Production of this optimum level of output leads to an efficient or ideal allocation of resources. But a monopolist produces a level of output which is less than optimum. In other words, because of the downward sloping demand curve faced by a monopolist, he finds it profitable to sell a smaller output and charge a higher price than would be done by a competitive producer.

The monopolist’s profit maximizing output would lead to the employment of a fewer economic resources. Thus the monopolistic allocation of scarce natural resources is inferior to the pattern of allocation under competitive conditions. Monopoly leads to social inefficiency and oppression. In the U.S.. in the past, goods used to be destroyed or production used to be deliberately curtailed to bolster up prices. Such restriction is to not only militates against. econo­mic norms but also acts as a barrier to social progress.

Heilbroner rightly observes, “Every monopoly, large or small, repre­sents a shelter behind which factors are used in lesser quantities than would be the case, if the shelter did not exist. Indeed, the whole problem of monopoly is that it prevents the inrush of land, labour and capital that would take place if there were no barriers to entry.

3. Retards Technological Development :

Some economists assail monopoly on the ground that it sometimes retards technological advance. Innovations provide the lifeblood of capitalism. Under perfect competition there are innumerable firms who produce a certain product Hence each firm is compelled to use the most efficient techniques of production, otherwise its very survival will be at stake. An inefficient firm which will lose in the battle of competition would be liquidated.


But under monopoly, as the producer is assured of his profits, his inducement to introduce innovations is absent. He is not under any competitive urge to introduce changes. The monopolist may sometimes even suppress new inventions of technical improvements, so as to protect the value of old capital assets and ensure higher profits. In this respect Halm has observed on the basis of a given techno­logy, the monopolist may find it profitable to produce less efficiently than he could.

4. Economic Inequalities :

Monopoly also gives rise to an unequal distribution of income in a capitalist society. The higher price charged by the monopolist becomes a sort of “Private tax” upon the consumer, Through this, the mono­polists can realize a lot of extra profit. Therefore, the monopolists become richer at the cost of the society at large.

5. Affects Self-generating Character :

According to Halm, the presence of monopoly under capitalism “removes the self-generating character of private initiative. Under classical capitalism there is a large number of small producers who constantly endeavour to produce with utmost efficiency. The society as a whole gains from this competitive struggle, from the stimulating efforts. But the monopolist functions from a position of privilege. He works from behind a protective shell. If capitalism stands for constant changes which provide vitality to the capitalist system, monopoly cannot sustain it.

6. Price Rigidity :

Under capitalism the price mechanism is supposed to operate freely and smoothly. Priced should change in an automatic manner in response to changes in demand and supply conditions. Prices should be flexible. In the absence of any planning, the entire economy operates through the price mechanism. But monopolistic price control introduces price rigidity. It annihilates the automatic functioning of the price mechanism.

7. Supernormal Profit :


In a competitive situation, normal profit is earned by the producers, But a monopolist earns supernormal profit. According to Heilbroner, in the U.S.A. profits in monopolistic industries are 50 to 100 per cent higher than those in highly competitive industries. Stalin had aptly remarked that it is not the average profit, nor super profit, but precisely the maximum profit that is the motor of modern monopoly capitalism.” The monopolist maximizes has profit not by selling more for less bat by selling less for more. Owners of the various factors of production receive wages, interest and normal profit as they perform specific functions for the production of the social product. But the monopolist realizes an increased share of the national income. His profit is not a “functional” payment as it does not arise from any social economic function.

8. Unemployment :

Monopolistic profit would give rise to increased savings. But these savings would not be reinvested by the monopolists in their own fields of operation as thereby production might rise and their own profit might fall. Hence the monopolist would search for investment outlets in the competitive fields which are open. Profit rates in the competitive sector then might fall leading to unemployment.

9. Corrupt live influence :

The monopolists take resort to a number of unfair and corrupt practices in order to maintain their high profits. They try to drive out the small producers by charging very low prices in the initial period. Once they are finished the monopolists again raise the prices. They also pay less to the suppliers of raw materials. The evils of monopoly are not limited to the economic field only. Economic power is correlated with political powers. So in major capitalist countries monopolists and big in­dustrialists wield huge political power as well. In a country where the government is controlled by the “kings of industry”, not only the very existence of political democracy is endangered, the common masses happen to be the worst sufferers. So monopoly is regarded as a social -evil.

10. Stagflation :

Advanced capitalist economies today are being afflicted by stagfla­tion. This is comparatively a recent economic malady. Stagflation is a combination of business recession and inflation. According to some economists the modern ‘stagflation’ is due to monopoly. Because, during recession prices should decline. But in spite of a fall in business and economic activity, prices are maintained at a higher level by the mono­polists. This contributes to stagflation.

11. Marxist Criticism :

The Marxists also are highly critical of the development of mono­polistic forces under capitalism. They saw the metamorphosis of competi­tion and the development of economic concentration as the collapse of all barriers to the unlimited exploitation of the wage earners and the colonial peoples.

Sweezy has summarised the important general effects of monopoly on the functioning of the capitalist system in the following way which be reproduced below.

(1) Prices of monopolized commodities are raised.

(2) The equal profit rates of competitive capitalism are turned into a hierarchy of profit rates.

(3) Small segments of surplus value are reduced, large segments increased. This raises the rate of accumulation and hence accentuates both the falling tendency of the average rate of profit and the tendency to under- consumption.

(4) Investment in monopolized industries is choked off; capital crowds into the more competitive areas. This contributes to depression.

(5) The labour-saving bias of capitalist technology is enhanced, and the introduction of new techniques is so arranged as to minimize the need for new capital.

(6) The costs of selling are raised and the distributive system is expanded beyond what is socially necessary.

Stigler holds monopolistic big business responsible for big labour unions and increasing state interference in the economic matters. “Big business”, according to him, “is a fundamental excuse for big unions and big government.” Under competitive capitalism each bargains for him­self. But with the growth of monopolies, there is a popular belief that workers individually competing for jobs will be exploited by big emplo­yers. Hence collective bargains have been encouraged both in the public sphere as well as by the Government. Similarly in the classical capitalism, the role of the state is minimum but monopolistic practices have been an important cause for the growth of state activities in the economic sphere.

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