ECONOMISTs have often argued that if an industry acts as a monopolist it would be desirable government policy either to break up the monopoly or, if this is undesirable because of increasing returns, to regulate and perhaps even nationalize it.' This proposition, although extremely well known and often accepted as obvious, turns out upon close examination to be far from obvious, and to involve several assumptions of doubtful validity. The argument supporting this proposition goes something as follows: Monopolies cause a maldistribution of resources, since the price charged by a monopolist exceeds marginal costs and an optimal distribution requires price equal to marginal cost. An optimal allocation would occur if the industry were made competitive, since price equals marginal costs in competitive industries. If the industry were a "natural" monopoly, price could be made equal to marginal cost either indirectly by government regulation or directly by government administration. Therefore, the recommendation is an anti-trust law to prevent or break up contrived monopolies and government regulation or government administration of natural monopolies. The non-sequitor in this argument is the sentence beginning with "therefore"; the recommendation of government intervention does not follow from the demonstration that government intervention could improve matters. Demonstrating that a set of government decisions would improve matters is not the same as demonstrating that actual government decisions would do so. This kind of inference is logically equivalent to identifying the actual workings of the market sector with its ideal workings. In Section I a theory of the workings of a political democracy under ideal conditions is developed. It is shown that an ideal democracy is very similar