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• Associate Editors
• Editorial
• Bibliographical Essay: Economics and Ideology: Aspects of the Post-ricardian Literature
• I: Political Economy
• The Classical Model of Political Economy
• Modernization, Ideology, and Economic Freedom
• Individualism Vs. Collectivism?
• The Industrial Revolution and Literacy
• Parliamentary Enclosure and Uprooted Labor
• Smith's Critique of Monopoly
• Ricardo and the “dual Development”
• Ricardo On Money
• Inflation and Political Crisis: Germany
• Inflation and Unemployment
• Government and Inflation: the Mccracken Report
• II: Concepts of Liberty
• Liberty and Its Components
• Is the Right to Freedom Vacuuous?
• Liberty, Slavery, and Utilitarianism
• Individualism, Freedom, and Society
• Liberty and Habeas Corpus
• Should Britain Have a Bill of Rights?
• Locke, Women, and Freedom
• Locke, Women, Freedom, and Individualism
• Locke, Property, and Individualism
• Children, Freedom, and Individualism
• Liberty and Mental Illness
• Sismondi and Liberty
• Mill: On Liberty
• Mill, Freedom, and Happiness
• Freedom of Speech and Moral Development
• Freedom In Kant, Hegel, and Marx
• Marx, Freedom, and Property
• Neoconservatives, Liberty, and Equality
• Freedom: the Politics of Justice and Existence
• Liberty and the American Revolution
• American Libertarians
• III: Economics and Public Policy
• How Economics Influences Political Theory
• Why Democracies Choose Deficits
• Inflation and the Welfare State
• Monetarism and the Depression
• Asian Monetary History: Gold & Silver
• Specie Money Vs. Antibullionists
• Inflation Effects On Capital
• Consumption of Public Health Services
• Factory Regulation and Vested Interests
• Poverty Programs and Government
• The Costs of Regulating Market Information
• Rent Regulation
• Engels On Economics
• IV: Social Analysis
• The Depoliticization of Society
• Is Philosophy Politically Subversive?
• Plato's Republic As a Political Dystopia
• Cicero and Modern Political Philosophy
• The Roman Jurist Gaius and Social Thought
• The Myth of Social Hierarchy
• Contract and Political Thought
• Private Vs. Public: the Domain of Freedom
• Montaigne and the Value of Tolerance
• Commerce, Utility, Character, and Republicanism
• Quintin Skinner and Western Political Thought
• Public Choice
• Editorial Board
• Contents of Vol. 33 No. 2
• Contents of Vol. 33 No. 3

Smith's Critique of Monopoly

E. G. West

• Carleton College, Ottawa

“The Burdens of Monopoly: Classical Versus Neoclassical.” Southern Economic Journal 44 (April 1978): 829–849.

Whereas in classical analysis a dominant theme is the importance of promoting free trade and eradicating all forms of monopolies, modern neoclassical analysis shows that the actual cost of monopoly is very small. West argues that the modern approach is “too confined” and has become too “institutionally sterile” because it has ignored important elements in the classical critique that are equally pertinent today. Adam Smith's vigorous attack on monopolies provides the starting point of this comparison between classical and neoclassical views of monopoly.

Neoclassical analysis finds that net welfare loss to monopoly is small because most of the effect of higher monopoly price is a redistribution of income to monopolists. Those who challenge this conclusion have centered on rent-seeking activities of those who wish to capture the gain. Classical analysis is much more encompassing in its assessment of the welfare loss to monopoly. Smith specifically pointed both to rent-seeking and attempts to thwart rent-seeking as monopoly losses and also regarded the income redistribution itself as a major loss to monopoly.

Smith's attack on monopolies condemned the state protectionist system of overseas trading companies. These companies, enjoying exclusive trading rights, were subject to diseconomies of scale which included the inefficiencies of large bureaucratic management. Smith identified both the “excessive shirking” and “inadequate monitoring” that has been noted in the modern literature on bureaucracy, and concluded that bad institutions were responsibile for inappropriate employee behavior. One major diseconomy he noted was the tendency for these trading companies to export bureaucracy to the countries they traded with thereby reducing the potential gains from trade. Smith focused particularly on the losses associated with exclusive trading laws with the colonies. He argued that the cost of the monopoly to the public included not only higher prices both in the colonies and the mother country, but also the costs of policing and maintaining the colonies—defending trade routes and maintaining order—and he believed that the loss exceeded the gain.

Although the modern reader may view Smith's tendency to include all restrictions on supply as monopoly as too general for cogent analysis, West points out that Smith should be congratulated for providing a dynamic analysis which included political, constitutional, and legal factors. He was interested in the costs of “monopolizing” as well as the costs of monopoly, and monopolizing behavior will involve the law and constitution as dependent variables. This greatly increases costs of monopoly.

While many of the historical institutions about which Smith was writing have passed, we can still learn from his analysis. Smith reminds us that people use resources to change the rules of the game in their favor, but the rules are “part of the social fabric:” the system of “collective protection of private property” is vulnerable to attempt to close the market. West concludes by pointing to public education as a perfect example of monopolizing behavior which has eliminated the market to such an extent that it is no longer possible to measure the welfare loss.