Monopoly, Economic Stagnation and Keynesian Policy

This article discusses some aspects of the relationship between monopoly and economic development. An introductory paragraph notes that economists' attitude to this problem has undergone a change: up to a few decades past there was general agreement that monopoly was harmful to economic development, but more recently this traditional thesis has been qualified and some economists, particularly Schumpeter, have put forward arguments tending to upset it completely.

The problem is restated in terms of investment of a kind which is of special importance in modern times and which allows of a reduction of average unit costs while total costs are growing (the idea being that output increases more than proportionately to total costs). The article discusses the abstract conditions which, under monopoly, stand in the way of such “development investment”, while, under competition, this investment encounters no limitations; it goes on to the reasons why development investment tends to become less frequent as the area of monopoly grows.

The author recalls that the emergence and subsequent spreading of large industrial concerns having monopoly powers go back to the last two decades of the 19th century and then examines the national income statistics of Great Britain and the United States and industrial production figures for

Great Britain. For a period starting about 1870 and ending with the second world war, the logarithms of these data assume a parabolic form: in both countries there appears a tendency towards economic stagnation. However, the curves show “breaks” renewed upward movement: in Great Britain the

new upward movement started immediately after the Great Depression, in the United States with the second world war. In the last two paragraphs the author develops some theoretical considerations which might help to explain these “breaks”. He tries to discover why, in a situation where monopoly has become widespread, recovery after a depression encounters greater difficulties and requires outside intervention in private enterprise.

In this connection, the author also discusses the implications of Keynesian policy and of the thesis that “the problem of effective demand becomes the fundamental problem of economic development when industrial monopolies have come to dominate the economic life of a country”.