142 SECTIONAL ADDRESSES 



limped along. But 76, or almost exactly half, were successes in the sense 

 that they had maintained a high dividend between 1901 and 1932, com- 

 pared with the average for their industry. Of these 76 Livermore counts 

 10 as rejuvenations and a further 10 as outstanding successes. 



The mergers of 1890 to 1904 were mostly promoted on the expectation 

 of monopoly profits. Their early experiences mark in Mead's view the 

 failure of an expected monopoly rather than the failure of large size. It 

 is doubtful, in short, whether the theory of a low optimum management 

 unit can find any factual basis in Dewing 's material. Nor must the 

 suggestive inquiry of the American National Conference Board on Mergers 

 m hidustry be passed over. This showed that of the prices of sixty lines 

 of manufacture in the period 1900-1925, those rose least, on the average, 

 where consolidations had been strong in the industries producing them, 

 while in industries not affected by the combination movement, prices 

 rose most on the average. A possible explanation of this somewhat 

 paradoxical result is that the monopoly profit which combinations are 

 usually aiming at was obtained by reducing costs, and that to such an 

 extent that prices could (monopoly) profitably also be reduced relatively 

 to the no-combination industries. 



Recently, two further original statistical inquiries have presented data 

 on the relation of size of firms to profits. Both in Epstein's Industrial 

 Profits in the United States and in Paton's Corporate Profits as shown by 

 Audit Reports, it appears that the larger American Corporations made in 

 the years 1924 and 1928 a lower rate of profit on their total capital than 

 the smaller corporations. Neither of the authors are trying to present 

 a case for the small corporation, but before their results are taken to heart 

 in industrial policy a caution must be issued. Both authors when com- 

 paring sizes lump all industries together. But it is quite probable that 

 different industries have characteristically different rates of profit on 

 capital. Indeed, one of Epstein's most valuable contributions is to show 

 the permanence of differences in profit rates between different industries, 

 at least over the period 1 919-1928. Epstein himself is cautious on the 

 interpretation, but industries requiring little fixed capital, or involving 

 risk and uncertainty might be expected to have a higher rate of profit per 

 capital. If, as I have given reasons for believing, large firms prevail in 

 industries where there is greater mechanisation ; and if, as is generally 

 believed, smaller firms prevail in industries subject to wider uncertainties, 

 it follows that small firms will tend to have the higher rate of profit. 



In any case, Marshall's warning ^^ still holds that the supposed general 

 tendency of the rate of profits to equality cannot be verified till economists 

 agree as to what they mean by rate of profit and how to measure that rate. 

 Marshall was doubtful whether profits should be rated merely on the basis 

 of capital and suggested sales -^ or the wages bill as alternative or auxiliary 



28 Book 6, chap. VIII, of his Principles. 



2' May one hope that the Government will make or cause to have made further 

 inquiries of the relative profitability per ton of saleable coal of undertakings of 

 different sizes such as the Samuel Commission published in 1926 ? This showed 

 for the first half-year of 1925 a definite tendency for the smaller undertakings to 

 obtain less profit or suffer more loss than the larger firms. But more such e\a- 

 dence is required for more years and more of similar evidence for other industries. 



