P.— ECONOMIC SCIENCE AND STATISTICS. 115 



was restrained by taxes, and the elimination of surplus production was 

 obtained by financial measures of compensation. The last three of these 

 belong to the claim of private enterprise for rational solution of the 

 problem of production. 



The significance of the Potash Cartel is different in so far as the members 

 were not individuals faced with ruin by competition, but companies. 

 But it shows, under Government sanction, the working of the ideas of 

 rationalisation in a very marked way. There had been a Cartel since 1879, 

 but investment in this industry increased very rapidly, perhaps because 

 of the Cartel, but also because of the agricultural demand. A great 

 speculative period, the ' Kali fever,' broke out in 1898, the Prussian fiscus 

 itself bought (according to Liefmann) an important works in 1906 for 

 fifteen times the paid-up capital, and under such conditions there was 

 immense over-capitalisation and excessive investment. In this, as in the 

 Greek case, many persons advanced the view that the natural economic 

 solution would in the end be the best ; and in 1910 the larger producers, 

 suffering from reduced quotas in the Cartel and consequent high prices, 

 broke away and sold ahead to America at half the current prices. The 

 Government considered the position dangerous to German agricultural 

 interests. In 1910 a law was passed under which total production, quotas, 

 exports, exchange of quotas, and prices were regulated. This law did not 

 establish a compulsory syndicate, or create a monopoly, but in effect it 

 made adherence to the Cartel necessary. The important rationalising 

 feature was that new competition could not arise except on disadvantageous 

 terms, the output of such works being by the law subject to special 

 limitation for a number of years. Tn 1919, as the result of war conditions, 

 the number of producers had increased to 200 (having been 68 in 1910) ; 

 and the prospects were so serious that compulsion was applied by a 

 new law of 1919. All producers were now compelled to join the Syndicate, 

 which became the executive organ of the Federal Potash Council, with 

 which, and its organs, final supervision lay as to prices and policy. 



The special application of rationalisation under these auspices is in 

 respect of closing down, and of the growth within the Cartel of the largest 

 interests. Closing down could take place voluntarily or compulsorily. It 

 was decreed in 1921 that owners who declared by a date in 1923 (later 

 extended to 1925) their willingness to close down and keep closed till 1953, 

 were to retain their quotas ; that is, they would receive their proportion 

 of profits exactly as if they had delivered their supplies. Compulsory 

 closing down is based on 'proved permanent uneconomical working,' the 

 compensation being similar, but on reduced quotas. At the end of 1925, 

 out of 224 shafts in existence, 118 had been definitely closed till 1953; 

 71 were at work, and 35 held in reserve. The shafts closed down 

 represented 441 of the 1,000 quotas of the Syndicate. Within the 

 Syndicate, combination by exchangeable quotas, a main method of 

 rationalisation under Cartels, has given a dominating position to two 

 large groups. 



It is unnecessary to comment further than to say that to carry on 

 prices 44 per cent, of idle capacity is a proposition only possible because 

 of Germany's virtual monopoly of this product. The case against 

 ' Ricardian rationalisation ' was not a strong one. But it will be seen 



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