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 fre
dom, 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.