Influences Which Pervert The Forces Of Progress





Thus far we have been dealing with what we have called natural forces.

The phenomena which we have studied have not been caused by any

conscious and purposeful action of the people as a whole. They have

not been brought about by the power of governments nor by anything

which savors of what is called collectivism. Individuals have done

what they would, seeking to promote their own interests under

conditions of great freedom, and the effect has been a system of

social industry which is highly productive, progressive, and generally

honest. Production has constantly increased, and the product has been

shared under the influence of a law which, if freedom were quite

complete and competition perfect, would give to each producer what he

contributes to the aggregate output of the great social workshop. We

have claimed that, in the world as it is, influenced by a great number

of disturbing forces, these fundamental laws still act and tend to

bring about the condition of productiveness, progress, and honesty

which is their natural result. If the actual condition falls short of

this, the fact is mainly due to curtailments of freedom and

interferences with the competition which is the result of freedom.



Influences which retard Static Adjustments



Throughout the study we

have paid due attention to those ordinary elements of "economic

friction" which all theoretical writers have recognized and which

practical writers have put quite in the foreground; and we have

discovered that, while they are influences to be taken account of in

any statement of principles, they in no wise invalidate principles

themselves. For the most part they are influences which retard those

movements which bring about static adjustments. An invention cheapens

the production of some article and at once the natural or static

standard of its price falls; but the actual price goes down more

slowly, and in the interim the producer who has the efficient method

gathers in the fruit of it as a profit. The retarding influence is a

fact that should be as fully recognized in a statement of the law of

profit as any other. The existence of it is an element in the theory

of entrepreneur's profit. Improvements which reduce the cost of

goods enhance the product of labor, and this sets a higher standard

for wages than the one that has thus far ruled; but a delay occurs

before the pay of workmen rises to the new standard. Adjustments have

to be made which require time, and these are as obviously elements

that must be incorporated into an economic theory as any with which it

has to deal.



Influences which resist Dynamic Movements



If there is anything

which, without impairing the motive powers of economic progress, puts

an obstacle in the way of the movement, it has to be treated like one

of these elements of friction to which we have just referred. In our

discussion of the growth of population, the increase of wealth, the

improvement of method, etc., we have paid attention to resisting

forces as well as others, and have tried to determine what is the

resultant of all of them. The forces of resistance have their place in

a statement of dynamic laws.



An Influence that perverts the Forces of Progress



We have to deal,

not only with such retarding influences, but with a positive

perversion of the force that makes for progress. Everywhere we have

perceived that competition--the healthful rivalry in serving the

public--is essential in order that the best methods and the most

effective organization should be selected for survival, and that

industry should show a perpetual increase in productive power. In our

study of the question whether improved method and improved

organization tend to promote or to check further improvement, we have

found that these beneficent changes are naturally self-perpetuating,

so long as the universal spring of progress, competition, continues. A

proviso has perforce been inserted into our optimistic forecast as to

the economic future of the world--if nothing suppresses competition,

progress will continue forever.



Monopoly and Economic Progress



The very antithesis of competition

is monopoly, and it is this which, according to the common view, has

already seated itself in the places of greatest economic power.

"Competition is excellent, but dead," said a socialist in a recent

discussion; and the statement expresses what many believe. There is in

many quarters an impression that monopoly will dominate the economic

life of the twentieth century as competition has dominated that of the

nineteenth. If the impression is true, farewell to the progress which

in the past century has been so rapid and inspiring. The dazzling

visions of the future which technical gains have excited must be

changed to an anticipation as dismal as anything ever suggested by the

Political Economy of the classical days--that of a power of repression

checking the upward movement of humanity and in the end forcing it

downward. No description could exaggerate the evil which is in store

for a society given hopelessly over to a regime of private monopoly.

Under this comprehensive name we shall group the most important of the

agencies which not merely resist, but positively vitiate, the action

of natural economic law. Monopoly checks progress in production and

infuses into distribution an element of robbery. It perverts the

forces which tend to secure to individuals all that they produce. It

makes prices and wages abnormal and distorts the form of the

industrial mechanism. In the study of this perverting influence we

shall include an inquiry as to the means of removing it and restoring

industry to its normal condition. We shall find that this can be

done--that competition can be liberated, though the liberation can be

accomplished only by difficult action on the part of the state.



The comparatively Narrow Field of Present Action by the

State



Economic theory has always recognized the existence and the

restraining action of the civil law, which has prohibited many things

which the selfishness of individuals would have prompted them to do.

Certain officers of the state constitute, as we saw in an early

chapter, one generic class of laborers, one of whose functions it is

to retain in a state of appropriation things on which other men have

conferred utility--that is, to protect property, and so to cooeperate

in the creation of wealth. In a few directions they render services

which private employers might render in a less effective way. The

state, through its special servants, educates children and youth,

guards the public health, encourages inventions, stimulates certain

kinds of production, collects statistics, carries letters and parcels,

provides currency, improves rivers and harbors, preserves forests,

constructs reservoirs for irrigation, and digs canals and tunnels for

transportation. In these ways and in others it enters the field of

positive production; but in the main it leaves that field to be

occupied by private employers of labor and capital. Business is still

individualistic, since those who initiate enterprises and control them

are either natural persons or those artificial and legal persons, the

corporations.



The Growing Field of Action by Corporations



Until recently there

has been comparatively little production in the hands of corporations

great enough to be exempt from the same economic laws which apply to a

blacksmith, a carpenter, or a tailor. Individual enterprise and

generally free competition have prevailed. The state has not checked

them and the great aggregations of capital to which we give the name

"trusts" have not, in this earlier period, been present in force

enough to check them. The field for business enterprise has been open

to individuals, partnerships, and corporations; they have entered it

fearlessly, and a free-for-all competition has resulted. This free

action is in process of being repressed by chartered bodies of

capitalists, the great corporations, whom the law still treats

somewhat as though in its collective entirety each one were an

individual. They are building up a semi-public power--a quasi-state

within the general state--and besides vitiating the action of economic

laws, are perverting governments. They trench on the freedom on which

economic laws are postulated and on civic freedom also.



How Corporations pervert the Action of Economic Laws



Whatever

interferes with individual enterprise interferes with the action of

the laws of value, wages, and interest, and distorts the very

structure of society. Prices do not conform to the standards of cost,

wages do not conform to the standard of final productivity of labor,

and interest does not conform to the marginal product of capital. The

system of industrial groups and subgroups is thrown out of balance by

putting too much labor and capital at certain points and too little at

others. Profits become, not altogether a temporary premium for

improvement,--the reward for giving to humanity a dynamic

impulse,--but partly the spoils of men whose influence is hostile to

progress. Under a regime of trusts the outlook for the future of labor

is clouded, since the rate of technical progress is not what it would

be under the spontaneous action of many competitors. The gain in

productive power which the strenuous race for perfection insures is

retarded, and may conceivably be brought to a standstill, by the

advent of corporations largely exempt from such competition. There is

threatened a blight on the future of labor, since the standard of

wages, set by the productivity of labor, does not rise as it should,

and the actual rate of wages lags behind the standard by an

unnaturally long interval. There is too much difference between what

labor produces and what it ought to produce, and there is an

abnormally great difference between what it actually produces and what

it gets.



The Fields for Monopolies of Different Kinds



Monopoly is thus a

general perverter of the industrial system; but there are two kinds of

monopoly, of which only one stands condemned upon its face as the

enemy of humanity. For a state monopoly there is always something to

be said. Even socialism--the ownership of all capital, and the

management of all industry by governments--is making in these days a

plea for itself that wins many adherents, and the demand that a few

particular industries be socialized appeals to many more. The

municipal ownership of lighting plants, street railways and the like,

and the ownership of railroads, telegraph lines, and some mines by the

state are insistently demanded and may possibly be secured. We can

fairly assume that, within the period of time that falls within the

purview of this work, general socialism will not be introduced. In a

few limited fields the people may accept governmental monopolies, but

private monopolies are the thing we have chiefly to deal with; and it

is to them, if they remain unchecked, that we shall have to attribute

a disastrous change in that generally honest and progressive system of

industry which has evolved under the spur of private enterprise.



Two Modes of Approaching a Monopolistic Condition



The approach to

monopoly may be extensive or intensive. A fairly complete monopoly may

be established in some part of the industrial field, and the area of

its operations may then be extended. Smelters of iron and steel,

after attaining an exclusive possession of their original fields of

production, may become carriers, producers of ore, makers of wire,

plate, and structural steel, and builders of ships, bridges, etc.



On the other hand, a great corporation may have, at the outset, but

little monopolistic power, and it may then acquire more and more of it

within the original field of its operations. It may at first make

competition difficult and crush a few of its rivals, and then, as its

power increases, it may make competition nearly impossible in the

greater part of its field and drive away nearly all the rivals who

remain. It is necessary to form a more accurate idea than the one

which is commonly prevalent of what actual monopolies are, of what

they really do, of what they would do if they were quite free to work

their will, and of what they will do, on the other hand, if they are

effectively controlled by the sovereign state. Regulation of

monopolies we must have; that is not a debatable question. The

sovereignty of the state will be preserved in industry and elsewhere,

and it is perfectly safe to assert that only by new and untried modes

of asserting that sovereignty can industry hereafter be in any sense

natural, rewarding labor as it should, insuring progress, and holding

before the eyes of all classes the prospect of a bright and assured

future. We are dependent on action by the state for results and

prospects which we formerly secured without it; but though we are

forced to ride roughshod over laissez-faire theories, we do so in

order to gain the end which those theories had in view, namely, a

system actuated by the vivifying power of competition, with all that

that signifies of present and future good.



The Nature of a True Monopoly



The exclusive privilege of making

and selling a product is a monopoly in its completest form. This

means, not only that there is only one establishment which is actually

creating the product, but there is only one which is able to do so.

This one can produce as much or as little as it pleases, and it can

raise the price of what it sells without having in view any other

consideration than its own interest.



The Possibility of the Form of Monopoly without the Power of It



A

business, however, may have the form of a monopoly, but not its

genuine power. It may consolidate into one great corporation all the

producers of an article who send their goods into a general market,

and if no rivals of this corporation then appear, the public is forced

to buy from it whatever it needs of the particular kind of goods which

it makes. Consumers of A''' of our table may find that they can get

none of it except from a single company. Yet the price may conceivably

be a normal one. It may stand not much above the cost of production to

the monopoly itself. If it does so, it is because a higher price would

invite competition. The great company prefers to sell all the goods

that are required at a moderate price rather than to invite rivals

into its territory. This is a monopoly in form but not in fact, for it

is shorn of its injurious power; and the thing that holds it firmly in

check is potential competition. The fact that a rival can appear

and will appear if the price goes above the reasonable level at

which it stands, induces the corporation to produce goods enough to

keep the price at that level. Under such a nearly ideal condition the

public would get the full benefit of the economy which very large

production gives, notwithstanding that no actual competition would go

on. Prices would still hover near the low level of cost. The most

economical state conceivable is one in which, in many lines of

business, a single great corporation should produce all the goods and

sell them at a price so slightly above their cost as to afford no

incentive to any other producer to come into the field. Since the

first trusts were formed the efficiency of potential competition has

been so constantly displayed that there is no danger that this

regulator of prices will ever be disregarded. Trusts have learned by

experience that too great an increase in the prices of their products

"builds mills." It causes new producers who were only potentially in

the field actually to come into it and to begin to make goods. To

forestall this, the trusts have learned to pursue a more conservative

policy and to content themselves with smaller additions to the prices

of their wares. If it were not for this regulative work of the

potential competitor, we should have a regime of monopoly with its

unendurable evils; and if, on the other hand, the regulator were as

efficient as it should be, we should have a natural system in which

complete freedom would rule. The limitless difference between these

conditions measures the importance of potential competition.[1]



[1] For an early statement of this principle the reader is

referred to the chapter on "The Persistence of Competition,"

by Professor F. H. Giddings, in a work entitled "The Modern

Distributive Process," written jointly by Professor Giddings

and the present writer. This chapter first appeared as an

article in the Political Science Quarterly for 1887.



Cost of Production in Independent Mills a Standard of Price



A

consolidated company will ultimately have a real but small advantage

over a rival in the cost of producing and selling its goods; but at

present the advantage is often with the rival. His plant is often

superior to many of those operated by the trust. When the combination

brings its mills to a maximum of efficiency and then reaps the

further advantage which consolidation itself insures, it will be able

to make a small profit while selling goods at what they cost in the

mills of its rival. This cost which a potential competitor will incur

if he actually comes into the field sets the natural standard of price

in the new regime of seeming monopoly; and it will be seen that if

this natural price really ruled, the monopoly would have only a formal

existence. It would be shorn of its power to tax the public.



Partial Monopolies now Common



What we have is neither the complete

monopoly nor the merely formal one, but one that has power enough to

work injury and to be a menace to industry and politics. If it long

perverts industry, it will be because it perverts politics--because it

baffles the people in their effort to make and enforce laws which

would keep the power of competition alive. In terms of our table the

subgroups are coming to resemble single overgrown corporations. Each

of them, where this movement is in progress, is tending toward a state

where it will have a single entrepreneur--one of those overgrown

corporations which resemble monopolies and are commonly termed so.





Complete monopolies, as we have said, they are not; and yet, on the

other hand, they are by no means without monopolistic power. They are

held somewhat in check by the potential competition we have referred

to, but the check works imperfectly. At some points it restrains the

corporations quite closely and gives an approach to the ideal results,

in which the consolidation is very productive but not at all

oppressive; while elsewhere the check has very little power,

oppression prevails, and if anything holds the exactions of the

corporation within bounds, it is a respect for the ultimate power of

the government and an inkling of what the people may do if they are

provoked to drastic action.



Two Policies open to the State



The alternatives which are open to

us are, in this view, reduced to two. Consolidation itself is

inevitable. If, in any great department of production, it creates a

true monopoly which cannot be otherwise controlled, the demand that

the business be taken over by the government and worked for the

benefit of the public will become irresistible. If it does not become

a true monopoly, the business may remain in private hands. Inevitable

consolidation with a choice between governmental production and

private production is offered to us. We are at liberty to select the

latter only if potential competition shall be made to be a

satisfactory regulator of the action of the great corporations.



The Future Dependent on Keeping the Field open for

Competitors



Potential competition, on which, as it would seem, most

of what is good in the present economic system depends, has also the

fate of the future in its hands. Existing evils will decrease or

increase according as this regulator shall work well or ill. Yet it is

equally true that the government has the future in its hands, for the

potential competition will be weak if the government shall do nothing

to strengthen it. It is, indeed, working now, and has been working

during the score of years in which great trusts have grown up; but the

effects of its work have been unequal in different cases, and it is

safe to say that, in the field as a whole, its efficiency has, of

late, somewhat declined. With a further decline, if it shall come,

prices will further rise, wages will fall, and progress will be

retarded. The natural character of the dynamic movement is at stake

and the continuance of so much of it as now survives and the

restoration of what has been lost depend on state action.



The Impossibility of a Laissez-faire Policy



Great indeed is the

contrast between the present condition and one in which the government

had little to do but to let industry alone. Letting free competitors

alone was once desirable, but leaving monopolies quite to themselves

is not to be thought of. It would, indeed, lead straight to socialism,

under which the government would lay hands on business in so radical a

way as to remove the private entrepreneurs altogether. If we should

try to do nothing and persist too long in the attempt, we might find

ourselves, in the end, forced to do everything. What is of the utmost

importance is the kind of new work the government is called on to do.

It is chiefly the work of a sovereign and not that of a producer. It

is the work of a law-giving power, which declares what may and what

may not be done in the field of business enterprise. It is also the

work of a law-enforcing power, which makes sure that its decrees are

something more than pious wishes or assertions of what is abstractly

right. All of this is in harmony with the old conception of the state

as the protector of property and the preserver of freedom. The

people's interests, which the monopoly threatens, have to be guarded.

The right of every private competitor of a trust to enter a field of

business and to call on the law for protection whenever he is in

danger of being unfairly clubbed out of it, is what the state has to

preserve. It is only protecting property in more subtle and difficult

ways than those in which the state has always protected it. The

official who restrains the plundering monopoly, preserves honest

wealth, and keeps open the field for independent enterprise does on a

grand scale something that is akin to the work of the watchman who

patrols the street to preserve order and arrest burglars.



A Possible Field for Production by the State



There is a

possibility that in a few lines of production the American government

may so far follow the route marked out by European states as to own

plants and even operate them, and may do so in the interest of

general competition. It may construct a few canals, with the special

view to controlling charges made by railroads. It may own coal mines

and either operate them or control the mode of operating them, for the

purpose of curbing the exactions of monopolistic owners and securing a

continuous supply of fuel. It may even own some railroads for the sake

of making its control of freight charges more complete. Such actions

as these may be slightly anomalous, since they break away from the

policy of always regulating and never owning; nevertheless, they are a

part of a general policy of regulation and a means of escape from a

policy of ownership. The selling of coal by the state may help to keep

independent manufacturing alive, and carrying by the state may do so

in a more marked way. If so, these measures have a generally

anti-socialistic effect, since they obstruct that growth of private

monopoly which is the leading cause of the growth of socialism.



Evils within the Modern Corporation



The great corporation brings

with it some internal evils which might exist even if it never

obtained a monopoly of its field. In this class are the injuries done

by officers of the corporation to the owners of it, the stockholders.

A typical plundering director has even more to answer for by reason of

what he does to his own shareholders than because of what he and the

corporation may succeed in doing to the public. In the actual amount

of evil done, the robbing of shareholders is less important than the

taxing of consumers and the depressing of wages, which occur when the

effort to establish a monopoly is successful; but in the amount of

iniquity and essential meanness which it implies on the part of those

who practice it, it takes the first rank, and its effect in perverting

the economic system cannot be overlooked. The director who buys

property to unload upon his own corporation at a great advance on its

cost, or who alternately depresses the business of his corporation and

then restores it, in order that he may profit by the fall and the rise

of the stock, not only does that which ought to confine his future

labors to such as he could perform in a penitentiary, but does much

to vitiate the action of the economic law which, if it worked in

perfection, would give to the private capitalist a return conformable

to the marginal product of the capital he owns. A sound industry

requires that the state should protect property where this duty is now

grossly neglected.



If more publicity will help to do this,--if lighting street lamps on a

moral slum will end some of the more despicable acts committed by men

who hold other men's property in trust,--sound economics will depend

in part on this measure, but it depends in part on more positive ones.



The investment of capital is discouraged and an important part of the

dynamic movement is hindered wherever shareholders are made insecure;

and therefore the entire relation of directors to those whose property

they hold in trust needs to be supervised with far more strictness

than has ever been attempted under American law. When invested capital

shall be quite out of the range of buccaneers' actions, it will

produce more, increase more rapidly, and the better do its part toward

maintaining the wages of labor.



Perversions of the Economic System by the Action of Promoters



The

state will be carrying out its established policy if it shall

effectively control the action of promoters in their relation to

prospective investors. The man who is invited to become a stockholder

has a right to know the facts on which the value of the property

offered to him depends. How many plants does the consolidated

corporation own? How much did they cost? What is their present state

of efficiency? What have been their earnings during recent years?

Concerning these things and others which go to make up a correct

estimate of the value of what the promoter is selling, the purchaser

needs full and trustworthy information, and an obvious function of the

law is to see that he gets it. That such action would guard investors'

personal rights is, of course, a reason for taking it; but the reason

that here appeals to us is the fact that it would remove a second

perversion of the economic system, accelerate the increase of capital,

and help in securing a distribution of wealth which would be more

nearly in accordance with natural law.



Perversions of the System caused by the Action of Corporations in

their Entirety



More directly within the domain of pure economics is

the relation between the typical great corporation and the majority of

the public which is wholly outside of it. In the common mind this

relation also often appears as that of plunderers and plundered, and

what it often has actually been, is a relation between corporations

which have exacted a certain tribute and a body of consumers which has

had to pay the tribute. Bound up with this general relation between

the manufacturing corporation and the consuming public is one between

it and producers of raw material which it buys and with laborers whom

it hires. In this last relation what is endangered is the normal rate

of pay, present and future. The type of measure which protects

consumers protects the other parties who are affected by the great

corporation's policy. Workers are safe and producers of raw materials

are measurably so if the power of competition in the making and

selling of the goods is kept alive. If we prevent the trust from

taking tribute from the purchasing public, we shall by the same means

prevent it from oppressing laborers and farmers.



Why the Business of a Monopoly should never be regarded as a Private

Interest



The people are already putting behind them and ought to

put completely out of sight and mind the idea that the business of a

monopoly is a private enterprise which its officers have a right to

manage as they please. A corporation becomes a public functionary from

the time when it puts so many of its rivals out of the field that the

people are dependent on it. As well might the waiter who brings food

to the table claim that the act is purely his own affair and that the

customers and the manager have no right of interference, however well

or ill the customers may be served, as a combination of packers might

claim that any important detail of their business concerns them only.

The illustration is a weak one; for in the case of a trust which

controls a product that is needed by the public, it is the full

majesty of the people as a whole which is in danger of being set at

naught. Such a company is a public servant in all essential

particulars, and although it is allowed to retain a certain autonomy

in the exercise of its function, that autonomy does not go to the

length of liberty to wrong the public or any part of it. The

preservation of a sound industrial system requires that governments

shall forestall injuries which the interests of the monopolistic

corporation impels it to inflict. No discontinuance of essential

services, no stinting of them, and no demand for extortionate returns

for them can be tolerated without a perversion of the economic system.

The natural laws we have presented will work imperfectly if, for

example, the danger of a coal famine shall forever impend over the

public or if this fuel shall be held at an extortionate price.

Workmen, indeed, have a larger stake than have others in the

maintenance of a fair field for competing producers and an open market

for labor, but other classes feel the vitiating of the industrial

system which occurs when the fair field and the open market are

absent.



Why the Motive which once favored Non-interference in Industry by the

State now favors Interference



We have said that what is needed is

vigorous action by the state in keeping alive the force on which the

adherents of a laissez-faire policy rested their hope of justice and

prosperity. These fruits of a natural development have always depended

on competition, and they still depend on it, though its power will

have to be exerted in a new way. This requires a special action by the

state; but in taking such action the government is conforming its

policy to the essential part of the laissez-faire doctrine. It lays

hands on industry to-day for the very reason which yesterday compelled

it to keep them off--the necessity of preserving a beneficent rivalry

in the domain of production.



America the Birthplace of Consolidated Corporations



Consolidations

of the kind that require vigorous treatment by the state have their

special home in America. They have taken on a number of forms, but are

coming more and more into the most efficient form they have ever

assumed, that of the corporation. The holding company is the successor

of the former trust. The method of union by which stockholders in

several corporations surrendered their certificates of stock to a body

of trustees and received in return for them what were called trust

certificates, has been abandoned, and the readiness with which this

has been done has been due to the fact that there are better modes of

accomplishing the purpose in view. A new corporation can be formed,

and, thanks to those small states which thrive by issuing letters of

marque, it can be endowed with very extensive powers. It can, of

course, buy or lease mills, furnaces, etc., but what it can most

easily do is to own a controlling portion of the common stock of the

companies which own the plants. The holding company has a sinister

perfection in its mode of giving to a minority of capital the control

over a majority. It is possible that the actual capital of the

original corporation may be mainly a borrowed fund and may be

represented by an issue of bonds, while the stockholders may have

contributed little to the cost of their plants and their working

capital; and yet this common stock may confer on its owners the

control of the entire business. The corporation that buys a bare

majority of this common stock may have an absolute power over the

producing plants and their operations. If the holding company should

secure much of its own capital by an issue of bonds, the amount which

its own stockholders would have to contribute would be only a minute

fraction of the capital placed in their hands, and yet it might insure

to them the control of a domain that is nothing less than an

industrial empire, if indeed they are not themselves obliged to

surrender the government of it to an innermost circle composed of

directors.



Earlier Forms of Union



There are forms of union which are less

complete than this and have been widely adopted. There was the

original compact among rival producers to maintain fixed prices for

their goods. It was a promise which every party in the transaction was

bound in honor to keep, but impelled by interest to break; and it was

morally certain to be broken. There was this same contract to maintain

prices strengthened by a corresponding contract to hold the output of

every plant within definite limits. If this second promise were kept,

the first would be so, since the motive for cutting the price agreed

upon was always the securing of large sales, and this was impossible

without a correspondingly large production; but security was needed

for the fulfillment of the second promise. This security was in due

time afforded, and there was perfected a form of union which was a

favorite one, since it did not merge and extinguish the original

corporations, but allowed them to conduct their business as before,

though with a restricted output and with prices dictated by the

combinations. As a rule each of the companies paid a fine into the

treasury of the pool if it produced more than the amount allotted to

it, and received a bonus or subsidy if it produced less. This form has

more of kinship with the Kartel of Germany than the other American

forms, and it might have continued to prevail in our country if the

law had treated it with toleration. It leaves the power of competition

less impaired than does the consolidated corporation, of which the

laws are more tolerant. By repressing those unions which can be easily

defined and treated as monopolies we have called into being others

which are far more monopolistic and dangerous. The economic

principles on which the regulation of all such consolidations rests

apply especially to the closer unions which take the corporate shape.

To the extent that other forms of union have any monopolistic power

the same principles apply also to them; but we shall see why it is

that the pools which the law forbids have little of this power and the

corporations have much of it.



The Condition which precludes True Monopoly



A monopoly grows up

when a company keeps such perfect guard over its economic field that

new rivals cannot enter without exposing themselves to peril. As we

have seen, it is not always necessary that the rival company should be

formed. It is enough that it should be able to be formed and to enter

the field with safety. In that case it will actually appear if an

inducement is offered. Such an inducement is always afforded when the

trust puts an unnaturally high price on its product--a price above

that standard set by the cost of production which would rule in a

normal market.



Specific Means of Repressing Competition



In practice a condition

is created in which the new competitors are reluctant to appear; for



the consolidated company has dangerous weapons with which it can

assail them. It can often secure specially low rates for the

transportation of its products, and this is sometimes enough to make

the competitor's prospect hopeless. Further, the "trust"--with or

without the aid offered by the special and low freight charges--can

enter the particular corner of the field where a small rival is

operating, sell goods for less than they cost, and drive off the

rival, while maintaining itself by the high prices it exacts

everywhere else. Again, it may reduce the price of one variety of

goods, which a particular competitor is making, and crush him, while

it makes a profit on all other varieties of goods. Still again, it may

resort to the "factor's agreement," by refusing to sell at the usual

wholesalers' rate any of its own products to a merchant who handles

products of its rivals. If some of its goods are of a kind that the

merchant must have, this measure brings him to terms, causes him to

refuse to handle independent products, and makes it difficult for the

rival producer to reach the public with his tender of goods. The trust

can organize special corporations for making war on competitors while

itself evading responsibility. A bogus company which, in an aggravated

case, is a rogue's alias for a parent corporation, may be formed for

the purpose of more safely doing various kinds of predatory work.



The Economic Necessity of Doing what is legally Difficult



From the

point of view of an economic theorist it is enough to show that the

practices which cut off the potential competitor from a safe entrance

into the field of production so pervert the economic system as to hold

in abeyance its most fundamental force, that of competition. They

vitiate the action of every law which depends on competition. Value,

wages, interest, profits, and the very structure of society feel the

perverting effect of this repression of the force that under normal

conditions serves to adjust them. From a practical point of view it is

enough to show that the existence of such practices--if the monopolies

that grow out of them shall continue and increase--present to the

people the alternative of accepting an economic state which is

unendurable, or accomplishing, in a legal way, what many already

pronounce impossible. For the purpose of this treatise it suffices to

point to the fact that few attempts worth mentioning have been made to

suppress any of these practices except the first--that of favoritism

in connection with freight charges--and that in the case of this

practice only a beginning of serious effort has been made. While there

is some excuse for abandoning a purpose when long and determined

effort to execute it has failed, there is no possible excuse for

concluding, in advance of such effort, that a systematic policy

which gives a promise of saving us from an intolerable outcome is

impracticable. All the props of monopoly should be taken away and not

one merely, and before this shall be tried radical measures will not

be in order. Socialism will not be fairly before the people's

parliament till it shall come as the only escape from a condition of

private monopoly. What economic law clearly shows is that monopoly

will not come if the practices on which it depends shall be

suppressed, and the people may be trusted to determine whether the

suppression is or is not possible. That they may decide this question

the issue that depends on it must be brought before them; and all that

falls within the sphere of the economist is the stating of the effects

of monopoly, the causes of its existence, and the public action that

if taken will remove these causes. The preservation of a normal system

of industry and a normal division of its products requires the

suppression of all those practices of great corporations on which

their monopolistic power depends.





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