Free access versus monopoly

This examination of trade, of economic liberty and monopoly through the philosophy of natural law and the law of nations reveals the influence of scholasticism and, through the latter, that of Roman law - what Odd Langholm calls the “liberalistic principles of Roman law” (1982: 260).

This “old rule” goes back to the Digest of Justinian and to its successive rewordings in medieval scholastic glosses. According to Langholm, this rule “embodies the very essence of a free exchange economy” (1982: 262). It means that “a thing is worth what it can be sold for” or what can be obtained, and it implies that consenting to this price amounts to justice. What is important here is to consider that this consent should result from free bargaining for the contract in order to be valid. It is in this area that economic freedom lies.

This rule, which appears in a very simple form in Barbon, allows the market mecha­nism to wrap itself in the morality that it is apparently lacking. The scholastic doctors have of course added restrictive clauses to this rule, for example, the condition that the buyer should be properly informed and act in full knowledge of the facts. In their mind, it was a question of making the consent conditional. The decision on price should be free and reflect equal power in negotiations - that is, the non-exploitation of the buyer - and the limit of this freedom should only be the result of the impersonal force of circumstances - constraints such as the wants and needs of a community (the rich members as well as the poor) - and not personal powers.

Nevertheless, a market logic is at work that certainly does not correspond to the logic which prevailed later, that of the market as an impersonal force imposing itself on indi­vidual actors. In the scholastic vision, the market should be governed by trading rules that are compatible with the common good and which mean that nobody should profit from another. This leads Langholm (1982: 283) to state that for the scholastics “liberty is duty”. Consequently, this free bargaining is not incompatible with some regulation of prices by the political authority. The literature on trade proceeds in same way, except that it under-estimates the moral and ethical aspects. It demands a sort of minimal freedom that is needed for all trading activity, and simultaneously certain forms of regulation compatible with this freedom, particularly as regards foreign trade. Like the scholastics, the commercial writers were marked by Roman law and therefore accepted a certain idea of liberty which implied a criticism of the monopoly, not an abandonment of regulations. However, morals and ethics were no longer the reason for the combination of liberty and regulations. Misselden and Malynes, for example, explicitly invoked free trade in their work, meaning free access to a given trade.

As Viner observed (1937: 91ff.), free trade is not laissez-faire, as we understand this expression today (see also Perrotta 1991: 303-11; Steiner 1992: 107-10). The example of monopoly can help to understand this. The scholastic argument, derived from Aristotle, distinguishes between two kinds of monopoly, namely, two cases of collusion or of con­spiracy between sellers: (1) when they seek to establish a single seller, or (2) when they seek to create a cartel. In the second case, it is a pact between sellers aimed at charging excessive prices. In the sixteenth century, this is what led Martin de Azpilcueta (1491­1586) to add a clause to the rule of the Digest: res tantum valet quantum vendi potest, cessent omne monopolium, fraus et dolis (“a thing is worth as much as it can be sold for in the absence of every monopoly, fraud and deceit”; see Langholm 1998: 98 n.).

Let us now look at the argument by John Wheeler (1601 [1931]: 333), a member of the Merchant Adventurers. He presented his company as both an association of free traders and a privileged association. At the same time, having to defend himself against the accu­sation of monopoly, he used this definition: “Monopoly is when one man alone buyeth up all that is to be got of one kind of merchandise, to the end that he alone may sell at his own lust and pleasure” (ibid.: 427, original emphasis). It is the Romanist and scholastic definition: the fact of being the only buyer and the only seller of a commodity. Wheeler (ibid.: 427) could therefore conclude that his company was not a monopoly: “What soever is free and at liberty to buy and sell, the same by no reason or right construction can be accounted a Monopoly.”

Following this tradition, Pufendorf (1672 [1710]: 395) defined the monopoly as a trade to which the access is voluntarily closed. Monopoly is objectionable, not because there is only one seller, but because this single seller prevents others from enjoying the same right to sell. More importantly, Pufendorf made a distinction between monopoly of the state in charge of the interests of the commonwealth and “monopoly among citizens” (ibid.: 396). By treaty, a state can legally bring certain goods to one foreign nation, with the exception of necessary goods that its subjects may lack. It may entrust foreign trade to an individual or a company on the grounds that this trade is far away and that establishing it is costly and risky. Private monopolies are objectionable, because these are breaches of the law of nature that are not always justified by the law of nations. One must keep in mind the maxim that “the monopolies of private men are spurious and illegal, and do not depend upon rights and privileges, but are generally carried on by clandestine frauds and combinations” (ibid., original emphasis): for example, traders who prevent access to certain foreign goods and their resale in the country, or who buy and store great quanti­ties to speculate on their scarcity and resell them at an exorbitant price.