Distributive Justice: The Right and Wrong of Our Present Distribution of Wealth

by John A. Ryan

Let us turn from the subject of unjust monopoly gains to that of unfair methods used by the great combinations toward their competitors. These methods are mainly three: discriminative underselling, exclusive-selling contracts, and advantages in transportation.

Discriminative Underselling

The first of these practices is exemplified when a monopoly sells its goods at unprofitably low rates in competitive territory, while maintaining higher prices elsewhere; and when it offers at very low prices those kinds of goods which are handled by competitors, while holding at excessively high prices the kinds of commodities over which it has exclusive control. Both forms of the practice seem to have been extensively used by most of the monopolistic concerns of America.[176] The Standard Oil Company has been perhaps the most conspicuous offender in this field.[177] This practice is unjust because it violates the fundamental moral principle that a man has a right to pursue a lawful good without hindrance through illicit means. Among the illicit means enumerated by the moral theologians are force, fraud, deception, lying, slander, intimidation, and extortion.[178]

The illicit means employed in discriminative underselling are chiefly extortion and deception. If the very low prices at which the monopoly sells in the field which contains competitors were maintained outside of that field also, and if they were continued not merely until the independent concerns were driven out of business, but indefinitely afterward, no injustice would be done the latter. For no man has a natural right to any particular business. If a powerful concern can eliminate competitors through low prices made possible by superior efficiency, the competitors are not unjustly treated. They have no more just cause of complaint than the inefficient grocer whose custom is attracted from him by other and more efficient merchants. The offence is at the worst contrary to charity. But when the monopoly maintains the low and competition-eliminating prices only locally and temporarily, when it is enabled to establish and continue these prices only because it sells its goods at extortionate rates elsewhere, the latter prices are evidently the instrument or means by which the competitors are injured and eliminated. In that case the monopoly violates the right of the competitors to pursue a lawful good immune from unfair interference. The lawful good is a livelihood from this kind of business; and the illicit interference is the unjust prices maintained outside the competitive field.

In the preceding paragraph we have assumed that the extortionate prices are operative at the same time as the excessively low prices, but in a different place. Suppose that the former are imposed only after the independent concerns are eliminated. The injustice to the competitors remains the same as in the preceding case. Although the extortionate prices are later in time, they are the instrumental cause of the destructive low prices through which the competitors were driven out of business. If the owners of the monopoly were not certain of their ability to establish the subsequent extortionate prices, they would not have put into effect the unprofitably low prices. Hence there is a true causal connection between the former and the latter. Although the connection is mainly psychical, through the consciousness of the monopoly owners, it is none the less real and effective. Its practical effectiveness is seen in the fact that the subsequent possibility of imposing extortionate prices will induce men to lend the monopoly money to carry on the process of exterminating competition. The process is maintained by means of the extortionate prices quite as effectively as though the two things were simultaneous.

In so far as the patrons of the independent concerns are deceived into expecting that the very low prices will be permanent, and in so far as this impression causes them to withdraw their patronage from the independents, the latter are injured through another illicit means, namely, deception. The competitors have a right not to be deprived of their customers through imposture.

What is the measure of extortionate prices in this connection? How can we know that the high, competition-eliminating prices are really extortionate? There are only two possible tests of just price. The first is the proper cost of production,—fair wages to labour, fair prices for materials, and fair interest on capital. If the monopoly does not raise prices above this level, it obviously does not impose extortionate prices, nor inflict injustice upon the eliminated competitor. Moreover, if the monopoly has introduced economies of production it may, as we have seen, justly charge prices somewhat above the cost-of-production level. But it may not raise them above the level that would have prevailed under competition. This is the second test of just price. No possible justification can be found, except one to be mentioned presently, for charging the consumers higher prices than they could have obtained under competitive conditions. At such prices the monopoly will be able to secure the prevailing rate of interest on its capital, and all the surplus gains that proceed from superior efficiency. A higher scale of prices will be, therefore, extortionate, and the competitors who are eliminated through its instrumentality will be the victims of injustice.[179]

The exception alluded to above occurs when the monopoly uses the excess which it obtains over the competitive price to pay fair wages to those labourers who were insufficiently compensated in competitive conditions. In such a case the eliminated competitors would have no just claim against the monopoly; for their elimination took place in the just interest of the producers. The case, however, is purely academic, since the discriminative underselling practised by our monopolistic concerns has not been impelled by any such motive, nor has it achieved any such result.

Exclusive-Sales Contracts

The second unfair method employed by monopolies toward competitors is that of exclusive-selling contracts, sometimes called the "factor's agreement." It requires the dealer, merchant, or jobber to refrain from selling the goods produced by independent concerns, on penalty of being refused the goods produced by the monopoly. The merchant is compelled to choose between the less important line of wares to be had from the former, and the more important line obtainable from the latter. He will not be permitted to handle both. "Here is somebody who has been buying goods, let us say, by way of illustration, from the American Tobacco Company, and a rival producer comes in whom the merchant likes to patronise. He buys goods for a time from the rival, and an agent of the trust sends him a note to the effect that he must not buy any more from that rival corporation; that, if he does so, the trust will give all of its own goods, some of which the merchant is obliged to have, to another agent. That will probably bring him to terms."[180] By this method the independent manufacturer can be deprived of sufficient patronage to injure him seriously, and perhaps to drive him out of business.