496 



NATURE 



[September i8, 1890 



purpose of enabling other persons to gain the votes of their con- 

 stituents on questions in which it has no direct concern ; and as 

 a corollary from this, it tends to promote the growth of political 

 immorality, and it suffers from that growth. 



There is certainly a growing opinion among English and 

 American economists that the State must keep a very tight hand 

 on all industries in which competition is not an effective re- 

 gulator ; but this is the expression of a very different tone of 

 thought from that which is leading so many German economists 

 towards what is called State Socialism. In fact, so far as I can 

 judge, English economists at all events are even more averse to 

 State management than they were a few years ago ; the set of 

 their minds is rather towards inquiring how the advantages 

 claimed for State management, without its chief evils, can be 

 obtained even in what I have called indivisible industries ; they 

 are considering how a resolute intervention on the part of the 

 State may best check the growth of Imperia in Imperio, and 

 prevent private persons from obtaining an inordinate share of the 

 gains arising from the development, through natural causes, of 

 what are really semi-public concerns, at the same time that it 

 leaves them sufficient freedom of initiative and sufficient security 

 of gain by using that freedom energetically to develop what is 

 most valuable in the energy and inventiveness of the Anglo- 

 Saxon temper. 1 



But, though we dislike and fear the present tendency towards 

 a widening of the area of public management of industries, we 

 cannot ignore its actual strength. For more forethought and 

 hard work are needed to arrange an effective public control over 

 an undertaking than to put it bodily into the hands of a public 

 department ; and there is always a danger that in a time of [ 

 hasty change the path of least resistance will be followed. I 



By way of illustration of the inquiries that have had their I 

 origin in this fear of public management, as contrasted with I 

 public control and public ownership, I would here mention a 

 notion which has been suggested partly by the relations of some 

 municipalities to their tramways, gas and water works. At 

 present it is in a very crude form, and not ready for immediate 

 application ; but it seems to have occurred independently to a 

 good many people, and it may have an important future. It is 

 that a public authority may be able to own the franchise and, in 

 some cases, part of the fixed capital of a semi-public under- 

 taking, and to lease them for a limited number of years to a 

 corporation who shall be bound to perform services, or deliver 

 goods, at a certain price and subject to certain other regulations, 

 some of which may perhaps concern their relations to their 

 employes ; and, further, that competition for the franchise shall 

 turn on the price or the quality, or both, of the services or the 

 goods, rather than the annual sum paid for the lease. Com- 

 petition as to quality is, from the consumer's point of view, 

 often just as beneficial as competition is to price, and sometimes 

 more so. And in industries which obey the Law of Increasing 

 Returns, as very many of these indivisible industries do, a 

 reduction of price or an improvement of quality will confer on 

 the consumer a benefit out of all proportion to the extra cost 

 involved.^ 



But I have lingered too long over those industries which I have 

 called indivisible, and I must pass to those in which competition 

 exerts a pretty full sway. The first point to be observed is that 

 competition in bargaining and competition in production stand 

 in very different relations to the public interest ; and that one of 

 the great advances in modern analysis consists in the emphasis 

 which it lays on the distinction between the two. Competition 

 in bargaining constitutes a great part of competition in market- 

 ing, but is not the whole of it. For under marketing is included 

 the whole of the effective organization of the trade side of a 

 business ; and most of this performs essential services for the 

 public, and is, in fact, of the same order as production commonly 

 so called. But a great part of marketing consists of bargaining, 

 of manoeuvring to get others to buy at a high price and sell at a 



' Among the younger English economists who have written on the subject 

 of combinations, trusts, and Government interference, I would specially 

 refer to Mr. Rae and Prof. Foxwell. Most of the other young American 

 economists have written on it instructively from various points of view, and 

 in Mr. Baker's "Monopolies and the People," to which I am myself much 

 indebted, the English reader will find condensed into a short compass an 

 account of the general position of these questions in America, together with 

 some bold and interesting suggestions for relorm. Some useful documents 

 relating to trusts have recently been published in a Consular Report by our 

 Foreign Office [5896-32]. 



^ This belongs to a class of questions relating to monopolies, &c., the 

 more general and abstract aspects of which can be best shown by the 

 diagrammatic method. 



NO. 1090, VOL. 42] 



low price, to obtain special concessions or to force a trade by 

 offering them. This is, from the social point of view, almo-t 

 pure waste ; it is that part of trade as to which Aristotle's dic- 

 tum is most nearly true, that no one can gain except at the loss 

 of another. It has a great attraction for some minds that are 

 not merely mean ; but nevertheless it is the only part of honest 

 trade competition that is entirely devoid of any ennobling or 

 elevating feature. A claim is made on behalf of large firms and 

 large combinations that their growth tends to diminish the waste, 

 and on the whole perhaps it does. The one solid advantage 

 which the public gain from a combination powerful enough to- 

 possess a local monopoly is that it escapes much waste on ad- 

 vertising and petty bargaining and manoeuvring. But its weak- 

 ness in this regard lies in the fact that to keep its monopoly it 

 must be always bargaining and manoeuvring on a large scale. 

 And if its monopoly is invaded, it must bargain and manoeuvre 

 widely in matters of detail as well as in larger affairs. 



Still less can we fully concede, without further proof, the 

 claim which has been urged on behalf of such combinations, that 

 they will render industry more stable and diminish the fluctua- 

 tions of commercial activity. This claim, though put forward 

 confidently and by many writers, does not appear to be supported 

 by any arguments that will bear examination. On the one hand 

 some industries which are already aggregated into large and 

 powerful units, such as railway companies, give exceptionally 

 steady employment ; and others, such as the heavy iron and the 

 chemical industries, exceptionally unsteady. And when com- 

 binations succeed in steadying their own trades a very little, they 

 often do it by means which diminish production and disturb 

 other trades a very great deal. The teaching of history seems 

 to throw but little light on the question, because the methods of 

 regulation which are now suggested have not much in commoa 

 with those of earlier times, while the causes which govern 

 variations in prices have changed their character completely. 



Let us then next turn to the economies of production on a 

 large scale. They have long been well known, and our fore- 

 fathers certainly did not underrate their importance. For, though 

 the absence of any proper industrial census in England prevents 

 us from getting exact information on the subject, yet there seems 

 no doubt that the increase in the average size of factories has 

 gone on, not faster, but slower than was thought probable a 

 generation or two ago. In many industries, of which the textile 

 may be taken as a type, it has been found that a comparatively 

 small capital will command all the economies that can be gained 

 by production on a large scale ; and it seems probable that in 

 many industries in which the average size of businesses has been 

 recently increasing fast, a similar position of maximum economy 

 will shortly be attained without any much further increase in 

 size. 



Those reductions in the expenses of production of commodities 

 which have been claimed by the eulogists of trusts and other 

 large combinations, as tending to show that their gains are not 

 at the expense of the public, turn out generally to have been at 

 least equalled by the reductions in the expenses of production in 

 similar industries in which there was no combination. And this 

 count in their eulogy, though it may truly stand for something, 

 seems to have been much exaggerated. 



After all, what these very large public firms and combinations 

 of firms have done has generally been only to turn to good 

 account existing knowledge, and not to increase that knowledge. 

 And this brings us to the main reason for regarding with some 

 uneasiness any tendency there may be towards such consolida- 

 tions of business. Observation seems to show, what might have 

 been anticipated ct priori, that though far superior to public de- 

 partments, they are, in proportion to their size, no less inferior 

 to private businesses of a moderate size in that energy and resource, 

 that restlessness and inventive power, which lead to the striking 

 out of new paths. And the benefits which the world reaps from 

 this originality are apt to be underrated. For they do not come 

 all at once like those gains which a large business reaps by 

 utilizing existing knowledge and well-proven economies ; but 

 they are cumulative, and not easily reckoned up. He who 

 strikes out a new path by which the work of eight men is 

 rendered as efficient as that of ten used to be, in an industry that 

 employs 100,000 men, confers on the world a benefit equal to 

 the labour of 20,000 men. And this benefit may in many cases 

 be taken as running for many years. For though his discovery 

 might have been made later by some one else of equal inventive 

 power, yet this some one else, starting with that discovery iii 

 hand, is likely to make another improvement on it. 



