This process is one of intimidation brought to bear upon the merchant. Through fear of loss he is compelled to discontinue selling the goods of the competing manufacturer. It is a kind of secondary boycott. As such, it is an unreasonable interference with the liberty of the merchant unless its object is to compel him to do something that he may be reasonably required to do. In the case that we are considering, the object of the pressure is not of that character; for to drive the rival manufacturer out of business, or to assist in his expulsion, is not a reasonable thing. The exclusive-selling contract which is forced upon the merchant is quite as unreasonable as though its purpose were to prevent him from, say, patronising manufacturers having red hair. Being thus unreasonable, thus injurious to individual liberty, it violates not only the law of charity but that of justice. It transgresses the merchant's right to enter reasonable contracts with the rival manufacturer, and if it results in a pecuniary loss to the former it is an invasion of his rights of property. It likewise violates the rights of the competitive manufacturer, since it is among the unfair means which may not be used to prevent a man from pursuing a legitimate good. It is an unfair means because it involves unreasonable intimidation, uncharity, and injustice toward the merchant. When the independent manufacturer is injured through such an instrumentality, he suffers injustice quite as certainly at the hands of the monopoly as though his property were destroyed through the strong-arm methods of hired thugs.
Discriminative Transportation Arrangements
Concerning the third unfair method, discriminative advantages in transportation, the United States Industrial Commission declared: "It is incontestable that many of the great industrial combinations had their origin in railroad discrimination. This has been emphasised many times in the history of the Standard Oil Company, and of the great monopolies dealing in live stock, dressed beef, and other products."[181] The American Sugar Refining Company has been several times convicted of receiving illegal favours from railroads, and has paid in fines thousands upon thousands of dollars. Sometimes the monopoly has openly been accorded lower freight rates than its competitors, and sometimes it has paid the regular charges, and then received back a part of them as a refund or rebate. At one time the Standard Oil Company obtained rebates not only on its own shipments, but on those of its rivals![182]
Special advantages of this sort necessarily involve injustice to the competitors of the monopoly. If the low rates given to the monopolistic concern are a sufficiently high price for the service of carrying freight, the higher charges imposed upon the competing concerns are extortionate; if the former rates are unprofitably low, the difference between sufficient and insufficient freight charges is made up by the independent concerns. In the former case the independents pay the railroad too much; in the latter case they bear burdens that should properly rest upon the monopoly. The monopolistic concern is partly responsible for this injustice inasmuch as it urges and often intimidates the railroad to establish the discriminating rates.
All three of the practices that we have been considering are universally condemned by public sentiment. They are all likewise under the ban of statutory law. The first two have recently received detailed and explicit prohibition in the Clayton Anti-Trust Act.
Natural Monopolies
Up to this point we have been dealing with private and artificial monopolies. We turn now to consider briefly those natural and quasi-public monopolies which are either tacitly or explicitly recognised as monopolies by public authority, and whose charges are to a greater or less extent regulated by some department of the State. Such are, for example; steam railroads and municipal utilities. When the charges made for the services of these corporations are adequately regulated by public authority, the owners of such concerns will have a right to all the surplus gains that they can obtain. In that case a contract is made between the corporation and the public which is presumably fair to both parties, and which represents the social estimate of what is just. If the public authorities have not sufficiently safeguarded the interests of the people, if they have permitted the charges to be so high as to provide excessive returns for the corporation, the latter is under no moral obligation to refrain from reaping the full benefit of the State's negligence or incompetence. If, however, the unduly high rates have been brought about through bribery, extortion, or deception practised by the corporation, the inequitable contract thus arranged will not justify the surplus gains thus produced. For example; if the corporation deliberately and effectively conceals the real value of its property through stockwatering, and thus misleads the public authority into permitting charges which return twelve instead of six per cent. on the actual investment, the corporation cannot forthwith justly claim the surplus gain represented by the extra six per cent.
When the public authorities either fail entirely to regulate charges, or do so only spasmodically and partially, the quasi-public monopoly will not necessarily have a right to all the obtainable surplus gains. For a long time the express companies of the United States were permitted to exact what charges they pleased, and even yet the rates on some of our railroads are not adequately regulated by the State. In such cases the charges imposed on the public are not an adequate expression of the social estimate of justice, nor an adequate basis of legitimate surplus gains. In the absence of sufficient public regulation, a quasi-public monopoly is morally bound to fix its charges at such a level as will enable it to obtain only the prevailing rate of interest on the investment, and such surplus gains as it can produce through exceptional efficiency. In all such cases the public service corporation is in the same moral position as the artificial monopoly: it has no possible basis except superior efficiency for claiming or getting any returns above the competitive rate of interest on its capital. Its only possible reason for obtaining more is the fact that it has the power to take more. This fact has obviously no moral validity.
Methods of Preventing Monopolistic Injustice
How shall the injustices of monopoly be prevented in the future? So far as quasi-public monopolies are concerned, all students of the subject are now agreed that these should be permitted to exist under adequate governmental regulation as to prices and service. The reason is that in this field successful and useful competition is impossible. Public utility corporations are natural monopolies, and must be dealt with by the method of regulation until such time as they are brought under the ownership and operation of the State. With regard to the great industrial combinations which have become or threaten to become artificial monopolies, there exists substantial agreement among competent authorities on one point, and disagreement on another point. All admit that the unfair competitive methods described in an earlier part of this chapter should be stringently prohibited. No possible reason can be found for legal toleration of these or any other discriminative, uncharitable, or unjust practices on the part of stronger toward weaker competitors.