494 



NATURE 



[September i8, 1890 



purposes they have to put up with a joint-stock company ; but 

 then they strive to dominate it, not be dominated by it. Again, 

 since distances in America are large, many local monopolies are 

 possible in America which are not possible in England ; in fact, 

 the area of a local monopoly there is often greater than that of 

 the whole of England. A local coal combination, for instance, 

 means quite a different thing there from what it does in England, 

 and is more powerful every way. 



Again, partly, but not solely, because they are so much in the 

 hands of a few wealthy and daring men, railways, both collect- 

 ively and individually, are a far greater power in America than 

 in England. America is the home of the popular saying that, 

 if the State does not keep a tight hand on the railways, the 

 railways will keep a tight hand on the State ; and many 

 individual railways have, in spite of recent legislation, a power 

 over the industries within their territories such as no English 

 railway ever had : for the distances are great, and the all- 

 liberating power of the free ocean befriends America little. 



It is this change of area that is characteristic of the modern 

 movement. In Adam Smith's time England was full of trade 

 combinations, chiefly of an informal kind, indeed, and confined 

 to very narrow areas ; but very powerful within those areas, and 

 very cruel. Even at the present day the cruellest of all com- 

 binations in England are, probably, in the trades that buy up 

 small things, such as fish, and dairy and garden produce in detail, 

 and sell them in retail ; both producers and consumers being, 

 from a business point of view, weak relatively to the intermediate 

 dealers. But even in these trades there is a steady increase in 

 the areas over which such combinations and partial monopolies 

 extend themselves. New facilities of transport and communi- 

 cation tell so far on the side of the consumer, that they diminish 

 the intensity of the pressure which a combination can exert ; but, 

 at the same time, they increase the extension of that pressure, 

 partly by compelling, and partly by assisting, the combination 

 to spread itself out more widely. And in England, as in other 

 Western countries, more is heard every year of new and am- 

 bitious combinations ; and of course many of them remain always 

 secret. 



But it is chiefly from America that a cry has been coming with 

 constantly-increa-ing force for the last fifteen years or more, that 

 in manufactures free competition favours the growth of large 

 firms with large capitals and expensive plants ; that such firms, 

 if driven into a corner, will bid for custom at any sacrifice ; that, 

 rather than not sell their goods at all, they will sell them at the 

 prime cost — that is, the actual outlay required for them, which 

 is sometimes very little ; that, when there is not enough work 

 for all, these manufacturers will turn their bidding recklessly 

 against one another, and will lower prices so far that the weaker 

 of them will be killed out, and all of them injured ; so that 

 when trade revives they will be able, even without any combin- 

 ation among themselves, to put up prices to a high level ; that 

 these intense fluctuations injure both the public and the pro- 

 ducers ; and the producers being themselves comparatively few 

 in number, are irresistibly drawn to some of those many kinds 

 of combinations to which, nowadays, the name trust is commonly, 

 though not quite accurately, applied ; and that, in short, com- 

 petition burns so furiously as to smother itself in its own smoke. 

 It is a Committee of the American Congress that reports that 

 ' ' combination grows out of, and is the natural development of, 

 competition, and that in many cases it is the only means left to 

 the competitors to escape absolute ruin." 



The subject is one on which it would be rash to speak 

 confidently. We of this generation, being hurried along in a 

 whirl of change, cannot measure accurately the forces at work, 

 and it is probable that the best guesses we can make will move 

 the smiles of future generations ; they will wonder how we could 

 have so much over-estimated the strength of some, and under- 

 estimated the strength of others. But my task is to try to 

 explain what it is that economists of this generation are thinking 

 about competition in relation to combination ; and I must 

 endeavour to reproduce their guesses, hazardous though this 

 may be. 



To begin with, I think that it is the better opinion that popular 

 rumour, going now as ever to extremes, has exaggerated some 

 features of the movement towards combination and monopoly, 

 even in America. For instance, though it is said that there 

 are a hundred commodities the sale of which in America is 

 partly controlled by some sort of combination, many of these 

 combinations turn out to be of small proportions, and others to 

 be weak and loose. Again, the typical instances which are 



NO. 1090, VOL, 42] 



insisted on by those who desire to magnify the importance of 

 the movement are nearly always the same, and they have all had 

 special advantages of more or less importance. 



This is specially true of the only trust which can show a long 

 record of undisputed success on a large scale — the Standard Oil 

 trust. For, firstly, the petroleum in which it deals comes from 

 a few of Nature's storehouses, mostly in the same neighbourhood : 

 and it has long been recognized that those who can get control 

 over some of the richest natural sources of a rare commodity are 

 well on their way towards a partial monopoly. And, secondly, 

 the Standard Oil Trust has many of those advantages which 

 have been long recognized as enabling large railway companies 

 to get the better of their smaller neighbours ; for, directly or 

 indirectly, it has in some measure controlled the pipe lines and 

 the railways which have carried its oil to the large towns and to 

 tidal water. 



On the other hand, we must remember that the future of a 

 young and vigorous movement is to be measured, not so much 

 by what it has achieved, as by what it has learnt ; and that every 

 unsuccessful attempt to hold together a trust has been a lesson 

 as to what to avoid, taught to men who are wonderfully quick to 

 learn. In particular, it is now recognized that a very large por- 

 tion of the failures in the past have been due to attempts to 

 charge too high a price ; that this high price has tempted those 

 on the inside to break faith, and has tempted those on the out- 

 side to start rival works, which may bleed the trust very much 

 unless it consents to buy them up on favourable terms ; and, 

 lastly, that this high price irritates the public : and that, es- 

 pecially in some States, public indignation on such matters leads 

 to rapid legislation that strikes straight at the offenders, with 

 little care as to whether it appears to involve principles of juris- 

 prudence which could not be applied logically and consistently 

 without danger. The leaders in the movement towards forming 

 trusts seem to be resolved to aim in the future at prices which 

 will be not very tempting to any one who has not the economies 

 which a large combination claims to derive, both in producing 

 and in marketing, from its vast scale of business and its careful 

 organization ; and to be content with putting into their own 

 pockets the equivalent of these economies in additition to low 

 profits on their capital. There are many who believe that 

 combinations of this kind, pursuing a moderate policy, will ulti- 

 mately obtain so great a power as to be able to shape, in a great 

 measure, the conditions of trade and industry. 



It may be so, but these eulogists of trusts seem to claim for 

 them both that individual vigour, elasticity, and originating force 

 which belong to a number of separate firms, each retaining a 

 true autonomy, and that strength and economy which belong to 

 a unified and centralized administration. Sanguine claims of 

 this kind are not new ; they have played a great part in nearly 

 all the bold schemes for industrial reorganization which have 

 fascinated the world in one generation after another. But in 

 this, their latest form, they have some special features of interest 

 to the economic analyst. 



They have a certain air of plausibility, for the organizers of 

 trusts claim that they see their way to avoiding the weak points 

 in ordinary forms of combination among traders, which consist 

 in the fact that their agreements can generally be evaded without 

 being broken. For instance, the most remarkable feature in the 

 history of English railways during the present generation is, not 

 their tendency to agree on the fares and freights to be charged 

 over parallel lines — for that has long been a foregone conclusion 

 — it is the marvellously effective competition for traffic which 

 such railways have maintained, both of a legitimate kind, by 

 means of improved conveniences offered to the public as a whole, 

 or of an illegitimate kind, by means of those special privileges 

 to particular traders which we are now, at last, seriously setting 

 ourselves to stop by law. 



It is difficulties of this kind which the modern movement 

 towards trusts aims specially at overcoming. Trusts have very 

 many forms and methods, but their chief motive in every case is 

 to take away from the several firms in the combination all in- 

 ducements to compete by indirect means with one another ; and 

 in every case the chief instrument for this purpose is some plan 

 for pooling their aggregate receipts, and making the gains of 

 each depend on the gains of all, rather than on the amount of 

 business it gets for itself. But here the dilemma shows itself. 

 If each establishment is left to its own devices, but has very 

 little to lose by bad management, it is not likely long to remain 

 well managed, and anyhow the trust does not gain much of the 

 special economy resulting from production on a very large scale. 



