Organization of production and the second social question
Organizing production for it to be “convenable” (“suitable”) means primarily finding a solution to monopolies, something that increasingly preoccupies Walras probably since the revision of Lesson 29 in the 1887 edition of Cours d’economie politique appliquee (Potier 1998).
Ultimately, he claims that “a second social question would remain to be solved: The production of wealth by people in society, while preventing certain entrepreneurs from making greater profits than under the normal condition of free competition” (OEC X: 425 [372]).Walras distinguishes three types of monopolies: economic, moral and artificial. Economic monopolies are “natural and necessary” (OEC X: 427 [373]). He quotes extractive industries, but also postal mail: crucial economic activities with high fixed costs are a barrier for potential competitors. As a price maker, the monopolistic contractor imposes an exchange procedure that does not respect man’s freedom and farsighted nature; he obviously violates the neutrality of the exchange, to the extent that the price he sets allows him to profit illegitimately. He can also establish a discrimination that violates price uniqueness. In short, the monopolist deprives price of its natural character. To avoid “an onerous levy, laisser faire should no longer be allowed in certain cases, on the contrary the State, should intervene to exercise the monopoly itself, or to organize it so that it is exercised without profit or loss. In this way, economic monopolies, based on social interest, will arise” (OEC X: 189) - private monopolies transformed into state monopolies or into monopolies granted by the state.
These economic monopolies must be distinguished from the moral monopolies - also managed by the state, but whose nature is different. Indeed, this second type of monopoly is related to commodities and services - Walras describes them as “the public interest” - that the production would not be right without state intervention, as these are commodities that include externalities or that, from the natural law perspective, are merit goods.
Moreover, the products of moral monopolies are usually free commodities.In fact from a theoretical perspective, Walras was especially concerned with a third sort of monopoly: artificial monopolies, resulting from competition among enterprises.
I am mainly working on pure political economics, that is, the analysis of the free competition mechanism considered in itself. But... this study... convinced me that this mechanism is far from being always absolutely self-driven and self-regulating, as argued by official and orthodox school economists. I find it rather conclusively demonstrated that free competition, in many cases, has a natural tendency to lead to monopolies. (Jaffe 1965, letter to H. Blabed, dated 7 February 1892)
The development of this third type of monopoly places state intervention outside the ordinary context and, in the same period, the early 1870s, Walras started his thoughts on the “collectivism of production”. Ultimately, the issue is about the extent of state intervention, as an entrepreneur or as a supervisor of production under concessions.
Thus, the “entrepreneur unique” who, in 1875, simply meant the monopolistic contractor (OEC X: 191), becomes the conjecture of collective production of the social wealth in the text “L’economie appliquee et la defense des salaires” (1897): “All enterprises could possibly be supposed collective, but they cannot all be supposed private. Collective production is materially possible and would not, in itself, be contradictory to liberty, equality, order or justice. It is a simple matter of social utility” (OEC X: 251 [221]). Such collectivism - “where the State would be the entrepreneur unique”, and which, in the first manuscript version, is “perhaps the formula for the future” (OEC X: 481, n. 18) - differs from Marxian communism, which Walras had studied, in that all capitals except land are still private. Moreover, the matter of the entrepreneur unique is not confined to applied economics: in his fourth edition of the Elements, Walras introduced it and, in the Preface, he indicates the addition: “Free competition among entrepreneurs is, as I explain in §188, not the only means of bringing selling price into equality with cost of production. It is the role of applied economics to inquire whether free competition is always the best means” (OEC VIII: 11 [40]). At the end of the day, Walras does not decide on the matter, but suggests to “establish, under conditions as serious as possible, a great experience.” (OEC X: 251).