110 SECTIONAL ADDRESSES. 



which took place during the war, and has been explained by those engaged 

 in these proceedings, especially in the United States. It was there found 

 that about 10 per cent, of the product was extra-marginal, and prices were 

 therefore fixed so as to cover 90 per cent, of the output. The equilibrium 

 was not easy to define, but it depended chiefly on the output, and the 

 elasticity of the output, of intra-marginal producers. It may be said 

 generally that business administration was exercised on the problem of 

 costs in relation to prices, which were the ruling fact, and which decided 

 how much of the capacity of output was within, on, or over the line of 

 profitable production. It was always a mistake to argue, under these 

 conditions, that there was a body of marginal producers who determined 

 the price. So far as any producers did this, it was the largest, who were 

 probably intra-marginal. All producers were, however, affected by the 

 knowledge that, though expansions of their own output were possible and 

 would be profitable if prices were affected by that alone, other producers 

 would be competitively induced to do likewise, and so output was con- 

 trolled by a sense of the market, which is a difficult thing to relate exactly 

 to prices. 



It is an aspect of ' rationalised ' industry, on the other hand, that the 

 price can be more properly regarded as the instrument of an industrial 

 administration. It separates itself somewhat from relation to any 

 particular cost, and takes priority over the output, the latter being 

 adjusted so as to render a certain price policy possible. The leaders of a 

 great combine act under the conception of an industrial development 

 which is frequently defined as the adaptation of the whole output to the 

 possibility of certain prices. This is seen in the details of the price policy 

 of Cartels, where a margin exists between base prices and the ' accounting ' 

 prices at which the output is taken over from the members ; and also in 

 the use of ' guiding ' prices in other cases. This instrumental use of 

 prices is the result of the greater supervision which has been made possible 

 by combination, and it causes the management to resemble an administra- 

 tion in which the methods of development are more capable of a general 

 decision. If one looks at such great combines as exist in the tobacco or 

 chemical industries, with their high degree of internal organisation and 

 their external agreements, the management of the price will be a com- 

 promise between the interests of consumers, those of the standing capital, 

 the provision of reserves for development, and contingencies. An 

 assignable cost of production is less easy to set off against that price. In 

 a sense, this means monopolistic influence ; but monopolistic policy would 

 be something else, the administrative idea of price policy being worked 

 with a larger factor of compromise. It may be described as the ' Safety 

 first ' policy in industry. The defence of ' rationalisation ' is just this 

 difference between administrative and monopolistic prices, or at least the 

 claim that there is such a difference. 



In this administration strategic factors will always be involved, 

 because industrial administrations will never be free from reference to 

 competitive possibilities. The evolution of combines has shown that one 

 limit has specially to be kept in view — the point of what may be called 

 ' own production.' This is reached well short of monopoly prices. It 

 depends on the parallel growth of combines on different levels of production, 



