The rents of this volume so far have sprung from scarcities that are, in some sense, given — the fixed supply of land, the fixed central location, the agglomeration that gathers of its own accord. This plate turns to a scarcity of a wholly different kind, one not found in the world but made: manufactured by a barrier deliberately raised, to hold supply short and the price high. The plate on the quasi-rent foretold it — that a rent which ought to dissolve as the long run arrives will instead harden, where the long run is barred, into something more durable and more troubling. This plate takes up that something. The monopoly rent is the return not to nature's scarcity but to a barrier built; and it is the volume's starkest case of extraction — a rent backed by no real scarcity at all, but by an artificial one, created by destroying the very value the rent goes on to charge for. And yet, the plate will find, even this starkest case is not all of a piece: for some barriers are raised to a purpose, and the rent they yield is the price of a thing the world may, on balance, be glad to buy.
Begin where the modern hostility to monopoly began, with Adam Smith. Smith's great theme was the natural liberty of competition — the open market in which no seller can charge above his cost for long, because a rival will always step in to undercut him; and his great enemy was everything that walled that market off. The guild with its exclusive privileges, the chartered company with its royal monopoly, the quiet combination of merchants to keep prices up — all were, to Smith, conspiracies against the public, contrivances to manufacture a scarcity that nature had not imposed. “People of the same trade,” he wrote, in the line that has outlasted nearly all his others, “seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public, or in some contrivance to raise prices.” The monopoly price, Smith saw, was the price of a barrier — the toll a seller could exact only by shutting others out — and the monopoly rent was the wage of that exclusion, levied upon the public by whoever held the privilege of the wall.
What Smith saw morally, the modern science made exact. A monopolist — a seller without rivals — does not price at his cost, as the competitor is forced to, but holds his output back, supplying less than the market would take, in order to lift the price above the cost of making the thing. The gap between that price and that cost, multiplied across all he sells, is his monopoly rent: a supernormal profit that no competitor could ever keep. And here is the crucial point, the one that sets the monopoly rent apart from every natural rent the volume has met. The monopoly rent is won by restricting supply — and the restriction destroys value. For the units the monopolist declines to make, the trades that would have happened at the competitive price but do not happen at the monopoly one, are a pure loss: value that simply vanishes, enjoyed by no one, the dead weight of the monopoly. The rent of land took a surplus that existed anyway and merely settled who should have it. The monopoly rent creates the scarcity it lives on, and in the creating, destroys.
The rent of land took a surplus that existed anyway and merely settled who should have it; the monopoly rent creates its scarcity, and in the creating, destroys.
Whence, then, the barrier that makes the monopoly? It is raised, the plate finds, by several different hands. Sometimes by nature, or rather by technology: where the economies of scale run so deep that one firm can serve the whole market more cheaply than many could — the water main, the rail network, the electrical grid — competition is mere wasteful duplication, a single supplier the efficient arrangement, and the monopoly is called natural, its barrier the plain cost of building the thing twice. Sometimes by the state: the patent and the copyright, the licence and the franchise, the tariff and the quota — exclusive rights the law itself confers, walling off a market by statute. Sometimes by the firm's own strategy: the predatory price that drives the rival under, the exclusive contract that locks the customer in, the grip on the one indispensable input, the network no competitor can hope to match. And sometimes by conspiracy, in Smith's plain old sense: the cartel of nominal competitors who agree, in private, to hold supply back and divide the spoils. Natural, legal, strategic, collusive — the monopoly rent is the return to whatever it was that raised the wall, and the whole character of the rent hangs on the character of the wall.
And here the plate must pause upon the one barrier raised on purpose, and for a reason the world may bless. Consider the patent. It is a monopoly, deliberately granted: the state forbids all others, for a term of years, to copy the inventor's idea, and so hands him a monopoly rent upon it. By the plate's own logic this is a contrivance, with its transfer and its dead weight; and yet it is a contrivance to a purpose. For an idea, once it is had, can be copied by anyone at almost no cost — and if it could be freely copied the moment it appeared, the inventor could charge nothing for it, and might never trouble to invent it at all. The patent's monopoly rent is the reward that draws the invention out: the quasi-rent of the fourth plate, but here held open by law against the erosion that would otherwise dissolve it, precisely so that the prospect of it shall call the inventing forth. The patent buys more invention at the price of a temporary monopoly — a real cost, the dead weight of the monopoly years, paid for a real gain, the inventions that would not otherwise exist at all. Whether the bargain is struck on the right terms — how long the monopoly should run, how wide it should reach — is disputed without end; but the principle holds, that some monopoly rent is the deliberate and defensible price of progress, and no extraction whatever. The barrier that rewards the inventor is not the barrier that merely shuts out the rival.
But strip the purpose away, and what remains is the volume's starkest extraction. For most monopoly rent is not the reward of an invention nor the fruit of an efficient scale; it is the simple toll of an exclusion — the cartel's quiet conspiracy, the incumbent's anticompetitive guile, the licence wrung from a captured regulator to keep new entrants out. Here the rent is backed by no real scarcity and serves no purpose under heaven but to enrich the one behind the wall, and it leaves society poorer by the dead weight of the very restriction that creates it. This is extraction in its clearest form — clearer even than the unearned increment of land, for the landlord's rent at least answers to a scarcity that is real and does the honest work of rationing it, whereas the contriver's monopoly rent answers to a scarcity he manufactured himself, by destroying value, for no end but his own gain. The rent of nature's scarcity merely captures a surplus; the rent of contrived scarcity destroys a surplus in order to capture a slice of it. And this is why the bridge from this plate runs to the matter of power: for the monopoly rent is, at its root, the return to market power — the power to lift the price by shutting others out — the seller's exact mirror of that buyer's power the volume before anatomized as monopsony, and like it a private toll exacted wherever competition has been made to fail.
The rent of nature's scarcity merely captures a surplus; the rent of contrived scarcity destroys a surplus in order to capture a slice of it.
Two things keep the line between the made scarcity and the found one from ever lying quite still. The first is that "natural" and "contrived" shade into one another at the edges. The natural monopoly of scale is a barrier given by technology and raised by no one's guile — yet its holder, left unwatched, will price exactly as any monopolist prices, and the line between the efficient single firm and the predatory one is fought over in every antitrust court. The network that grows dominant because everyone already uses it — the matter of a later plate — is built by no conspiracy, and yet walls out its rivals as surely as any cartel. The patent rewards invention, and yet is forever being stretched, by those who hold the patents, far past the invention it was meant to reward. The barrier is seldom purely natural or purely contrived; it is most often some of each, and the argument is always over how much. The second complication is the one Schumpeter pressed: that the temporary monopoly won by a genuine innovation is not the enemy of progress but its engine — that the prospect of the monopoly rent is exactly what drives the costly search for the new, and that the rent is then competed away, in its turn, by the next innovation, in the perennial gale of creative destruction. Monopoly rent, on this telling, is malignant when it is permanent and defended, and benign when it is temporary and won — and to tell the one from the other, in any actual case, is the whole of the difficulty.
Return, then, to the volume's question, which the monopoly rent answers more sharply, and more darkly, than any plate before it. The rents of nature's scarcity — of land, of location, of the agglomeration — were unearned by their owners, but they answered to scarcities that were real, and they did the honest work of rationing what was genuinely scarce. The monopoly rent is the wage of a wall: a return not to any scarcity the world imposes but to one its holder has manufactured, by shutting others out and destroying, in the shutting, the trades that would have served them. Where the wall is raised to a purpose — to reward the inventor, to harvest the economies of scale — the rent it yields may be the defensible price of a real benefit: the carrot of progress, or the saving of a wasteful duplication. But where the wall is raised for no purpose but exclusion, the monopoly rent is extraction in its purest form, the volume's clearest case of a price that is a verdict not on any contest with nature but on a contest its holder has rigged. The return to owning the scarce position, when the position is scarce by contrivance, is the toll of a power that competition was meant to dissolve and somehow has not. Whether a given monopoly rent is the wage of a useful barrier or the loot of a useless one — and the same rent, the same wall, can be argued either way — is the question, asked now of the scarcity that is made and not found. As the table says of every price within it, the argument remains open.