COMMERCIAL MONOPOLIES.

THE increased public attention that has been called to these undertakings by the recent establishment of the Salt Union, and the vague apprehension that exists that similar monopolies may be attempted with coal, wheat, or other prime necessaries of life, may justify a short reference in the Journal to two interesting papers on the subject which have recently been issued. One of these is by Professor Foxwell, and is entitled, "The Growth of Monopoly, and its Bearing on the Functions of the State," and deals with the subject theoretically and generally; the second is by Mr. George Gunton, who in the paper entitled," The Economic Aspect of Trusts,"† deals more especially with the working of these institutions in America.

Professor Foxwell remarks on the astonishment with which Adam Smith and his contemporaries, who imagined we were passing from an age of monopoly to one of competition, would have regarded, as an outcome of their reforms, the present growth of monopolies. The causes of monopolies in their day, were corporate and private privilege and governmental activity; whereas they now rest on abilities, opportunities and possession, and have the world for their sphere of action. A state of competition cannot be a final permanent state, but its main office is that of selection. It is an industrial war, leading to the commercial monopoly of the victorious firm, whose initial advantage is strengthened by every victory. We thus begin with monopoly, pass through a transitional stage of competition, and end with monopoly. The more perfect the competition, the stronger the resulting monopoly; one per cent. in efficiency in the markets of the world might suffice to give control, and an expansion of business increases the advantage until a practical monopoly is secured. Monopolies of ability have assumed a new importance since the great advances in communication. And as regards articles of general consumption, the tendency is greatly strengthened by the development of the parcel post, money orders, by the system of cash on delivery and discounts, and by uniform retail prices. These devices extend the market of the monopolist, depriving local competitors of the advantage of their geographical position. The abundant supply of capital through the development of banking helps, instead of checking, monopolies.

Thus the expansion of undertakings passes all previous bounds, stimulated "by the well known advantages of division of labour and large scale of "production."

* A Paper read before the British Association at Bath, on Sept. 7th, 1888. † Political Science Quarterly, Sept., 1888.

There is a limit to this, either from difficulties of supervision, from personal or local considerations, and the constant change in the economic situation, or from the progress of science, or, again, the imperfection of heredity. The characteristics of our age, however, are favourable to these monopolies of efficiency, nor does the progress of education, or of political equality, arrest this tendency. President Walker is right when he says, that "whatever may be true in politics, the industry of the world tends, not towards democracy, but in an opposite direction." The significant fact of modern industry is the increasing value and importance of business ability. In considering the future dealings of the State with industry, we should especially attend to monopolies of efficiency; that is, monopolies so established as to be practically unassailable. Now, disregarding patents and copyrights, monopolies are of three kinds, monopolies by efficiency, monopolies by combination, and monopolies by local service. The first has been spoken of. As regards the second, the difficulties of making and maintaining agreements are too formidable for the present organisation of industry, and most trading corners have been failures. The greatest successes have been railways which fall into the third class, which class was a recognised position in the economic world. For certain cases of local supply or communication, unity of administration is essential as may be illustrated by the waste and danger of allowing competing gas and water companies in one street. Professor Foxwell then quotes the general conclusion of Mr. C. F. Adams, that as regards railway competition

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"And presumably in similar cases, the best policy is to allow amalgamation not so much on account of its obvious economies, as because the larger the concern the more easily responsibility is fixed, and the more easily the "pressure of public opinion is brought to bear upon and control it."

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Monopolies once established have a tendency to beget other monopolies. Competition does not always exist where the State does not interfere, and the regime of laisser faire has been favourable to the growth of practical monopolies. What, the writer asks, is the reasonable position to adopt towards industrial monopoly?

Monopoly, formerly in ill repute, does not in its modern form, spring from privilege or legislation but from competition itself which in turn comes in for popular odium. We now turn to monopoly as a welcome relief from the terrible uncertainties of so-called free competition. Monopolies, too, have certain undoubted advantages, as "economies in administration and division of labour, the concentration of knowledge and skill, the unbroken traditions of trade mysteries and crafts, and the esprit de corps, which go with great firms." Savings also are made in litigation and advertisement, and the consumer profits by the guarantee of quality, in ascertainable price, in the absence of adulteration and in larger choice. In these

"Railroads: their origin and problems." New York, 1878.

huge firms the employés benefit most of all, the administration being on better principles and more amenable to public opinion.

Monopolies, on the other hand, have their dangers as in raising prices unduly and in unfair discrimination or personal preferences, great corporations boasting that they can make or ruin individuals or even whole towns, nor will these powers necessarily be always used in the interests of the Corporation itself, but may be warped by corruption, which is emphatically the curse of modern business. Professor Foxwell, from want of time, passes by the consideration of monopolies of raw materials and trading corners, which arise, not solely from monopoly but also from speculative mania, to consider what should be the policy of the State towards these modern monopolies, which as a natural growth it would be idle to attempt to repress. "The greatest danger of modern industry is corruption. State administration is no remedy for this" and its efficiency has been greatly overrated. If the State is not to administer industry directly and as, since competitions land us in monopolies, laisser faire is out of the question, some sort of public control is necessary. Practical men appear to agree on two principles of policy as best calculated to apply public control in such a way as " (a) to minimise the amount required; (b) to avoid unnecessary detail; (c) to leave the maximum of freedom to enterprise, and (d) to secure the utmost intelligence and knowledge where limitations must be imposed."

To secure these ends there should be, first, every possible form of publicity in regard to all transactions affecting public interests. Secondly: Where control is called for it should be delegated to local or trade bodies familiar with the practical details of the case, and subject to a mild decision by the central authority.

These difficulties having been got over, how are excessive profits the existence of which, however, is by no means certain (as witness the dividends of the railway companies) to be dealt with? Either by sharing them with the nation or consumers, as is done by Indian railways and London gas companies; or secondly by sharing them with the employés, as is done by the Paris Municipality. Public opinion, too, in time may consider it as disgraceful for a man to make 30 per cent. in business as by usury.

We must be careful not to unduly hamper motives of self interest, nor to stereotype industrial methods. Professor Foxwell sees many features in modern industrial progress which will lighten the burdens of the central government and among them in this tendency to monopoly as rendering control more easy. "The question is now one between wise and unwise regulation, or worse between regulation and collectivism. Supreme power has been placed in the hands of a class not too much given to reflect and especially familiar with the seamy side of the present régime." While agreeing with an opinion expressed by Mr. John Rae that the State may become social reformer without becoming socialist, the writer adds that "if the

state, does not become social reformer, it inevitably will become socialist."

Mr. Gunton's paper deals with the subject, as has already been said, from an American point of view, and the following may be taken as a short outline of the paper :

The apprehension as regards these trusts has in the United States become a state of alarm shared in by all classes, giving rise to the appointment of official commissions of investigation and already in some cases to restrictive legislation. Indeed, a measure has been introduced into Congress proposing a tax of 40 per cent. on the product of all Trusts. A truce, however, should be called until we see whether we are really engaging a public enemy or pursuing an industrial phantom, and a close examination of the subject will show, that, as industrial institutions, not only handworkers and individual capitalists, but corporations and trusts are fundamentally the same, the only difference being that each, in turn, represents a greater concentration of capital. The following are the principal charges which, in America, are brought against trusts :

(1.) That they tend to build up monopolies and drive small capitalists out of business; (2.) That they destroy competition, the great minimiser of profits, and equaliser of prices; (3.) That they amass fortunes at the expense of the community by increasing the price of commodities; (4.) That they tend to build up an oligarchy which controls legislation in its own interest against that of the community, thereby undermining personal and political freedom, and endangering the existence of democratic institutions.

As regards the first charge, if the monopoly is gained through an arbitrary exclusion of competitors, it is an evil; if through the capacity to make articles more cheaply than others, it is an advantage to the community. Consumable wealth should be distinguished from productive wealth or capital. This latter is a tool for the production of wealth and the only interest the community can have in the diffusion or concentration of these tools, is that they should be employed to produce wealth in the cheapest manner. The concentration of capital does not always drive small capitalists out of business; they are frequently (and with advantage to themselves) absorbed into a larger system of production as overseers or managers.

Nor (secondly) does the concentration of capital necessarily destroy competition. It changes the plane of competition and which gradually waxes fiercer as the plane ascends to competition between small manufacturers, then between corporations, and lastly between trusts, while the margin of profits is continuously minimised.

Nor (thirdly) does the concentration of capital tend to increase prices. The facts of industrial history all point the other way. As an illustration of this Mr. Gunton quotes the progress of the cotton industry in the United States since 1830. In that year the number of establishments was 801 in which an aggregate capital of

£8,122,000 was invested, while in 1880 there were but 756 establishments but in them was embarked a capital of £41,656,000; but in 1830 the price of cotton cloth per yard was 84d. against only 3d. in 1880, while the operatives' wages per week were 10s. 2d. and £1 18. 8d. respectively.

The Standard Oil Company, too, which has a practical monopoly of the supply of petroleum to New York, has gradually reduced the price per gallon of refined oil from 18. in 1871 to 3d. in 1887. So the accusation of high rates brought against railway monopolies will not bear the test of examination as the figures show a general reduction of tariffs, of which examples are given.

It is also sometimes said that, even if a saving has been made, yet if Government ran the business, a still greater saving would be accomplished. But Government ownership would be an arbitrary monopoly, the natural harbinger of irresponsibility, incompetency and waste, tending to give inferior products at maximum prices. Thus the most efficient system of State telegraphy in the world, that of Great Britain, which is carried on under exceptionally favourable physical conditions, compares unfavourably with that of the United States, and such improvements as have been made in letter carrying in the United States are not due to the post office itself but to great railroads and steamships, or-in other words-improvements have come not from Government but from private enterprise.

The statement that when the trusts are fully organised in all branches of industry, the community will be completely at the mercy of the colossal capitalists, and that then it will be too late to interfere, is plausible at first sight.

But self-interest will prevent their raising prices too high; as, if profit is abnormal, capital will leave other interests and rush into theirs. The effect of knowing that a new competitor may come is the same as if he had already come. "In the absence of legal restrictions the active influence of the potential competitor is ever present."

The fourth charge is also unfounded; the statute books of the various States bristle with enactments directed against these trusts. Such influence as they have been able to use is to defeat legislation against them, not to get laws passed in their favour and their officials are politically ostracised. The example often pointed to of Rome being ruined by the concentration of wealth into few hands is really inapplicable, as under Rome it was the consumable, not the productive, wealth that was so concentrated. Capital can only be advantageous to the capitalist when its products are liberally and generally consumed by the community, and consequently, the concentration of capital is economically possible only in proportion as the consumable wealth it produces is generally distributed. These institutions, Mr. Gunton thinks "are economically wholesome, and politically and socially harmless," and the corruptions and other evils