The following statistics[101] of the cotton and woollen industries in Great Britain serve to illustrate the growing size of the unit of production in the representative branches of textile work:—

KEY: A: Spinning. B: Weaving. C: Spinning and Weaving. D: Others. E: Total. F: Spinning. G: Doubling. H: Power-Looms.

COTTON. NO. OF MILLS. NO. OF SPINDLES. A B C D E F G H 1870 1108 693 532 150 2483 33,995,221 3,723,537 440,676 1890 935 990 438 175 2538 40,511,934 3,992,885 615,714

WOOLLEN. 1870 648 109 860 212 1829 2,531,768 160,993 48,140 1890 494 124 895 280 1793 2,107,209 299,793 61,831

This increase of the number of spindles and looms in the average textile mill is more significant when the "speeding up" of modern machinery is taken into account. The increased size of the unit of industry as measured by productivity is even greater than appears from the statistics above quoted.

Schulze-Gaevernitz points out that in the thirty years between 1856 and 1885, while the factories in cotton spinning and weaving only increased from 2210 to 2633, the number of spindles increased from 28,010,217 to 44,348,921, the number of looms from 298,847 to 560,955, and that since both spindles and looms worked much faster in 1885 than in 1856, the output has increased in still greater proportion.[102]

Turning to another highly-developed machine industry, that of milling, we find a similar movement. Flour mills are diminishing in number both in England and in the United States. The period 1884-86 showed a diminution in the number of flour mills in the United States from 25,079 to 18,267, though the total productive power of the smaller number was greatly increased. Mr. Wells finds a similar tendency in the general manufacturing industry of the United States:—"Between 1850 and 1860 the number of manufacturing firms and corporations in the United States increased from 123,025 to 140,433, and the value of manufactured products increased from $1,019,106,616 to $1,885,861,876, so that in that decade there was an increase of 17,408 establishments, to an increase of $866,755,060 in the value of products. In 1870 there were 252,148 firms and corporations so employed, producing $4,232,325,442 in manufactured products; or an increase of 111,715 establishments in the decade of 1860 to 1870 gave an increase of $2,346,463,766 in the value of products. In 1880 the number of manufacturing establishments was returned at 253,852, producing articles valued at $5,365,579,191, or an addition of only 1704 firms and corporations was accompanied with an increase of product of $1,133,537,749. Here then is a demonstration that the average product of a manufacturing establishment in the United States in 1880 was just 60 per cent. greater than it was in 1860."[103]

Sec. 2. While the mass of capital and labour which constitutes a business is growing, the latter grows less rapidly than the former. That is to say, capital is in point of size becoming more and more the dominant factor in the business. With the effect of this upon the economic character and conditions of labour we are not here concerned. The subject requires a separate treatment. Here it suffices to recognise the quantitative change that has taken place. Under domestic industry the value of the implements used was, as a rule, equivalent only to a few months' wages. In 1845 McCulloch estimated that the fixed capital in well-appointed cotton mills amounted to about two years' wages of an operative.[104] In 1890 Professor Marshall assigns a capital in plant amounting to about L200 or five years' wages for every man, woman, and child in a fully-equipped spinning mill.[105] In the typical modern industry, that of cotton-spinning and weaving, the increasing size is both continuous and rapid. The average number of spindles and looms to the single factory in 1850 and 1885 are as follows:—

Spindles. Power-Looms.

1850 10,858 155 1885 15,227 213

Even these figures do not fully represent the facts, for they include considerable numbers of mills of the older sort, where spinning and weaving are carried on together. Taking the more highly specialised spinning mills in the Oldham district, the average is stated at 65,000, while the largest mills have as many as 185,000 spindles. So also the average number of power-looms in the North Lancashire district is placed at 600, the largest number in a single business amounting to 4500.[106]

"Again, the cost of a steamship is perhaps equivalent to the labour of ten years or more of those who work her, while a capital of about L900,000,000 invested in railways in England and Wales is equivalent to the work for about twenty years of the 400,000 people employed on them."[107]

This growth in the unit of capital is, as we perceive, largely due to the establishment of large and expensive machinery and other plant as a leading feature in modern production. The fact that modern methods are largely instrumental in increasing the quantity of products might lead us to suppose that the growth of the raw material or circulating part of the capital of a business would correspond with the growth of fixed forms of capital. This, however, is not the case. In the most highly organised machine industry an increasing proportion of the economy goes into the improved methods of manipulating material so as to prevent waste, and by improved quality of work and elaboration of manufacture to get a larger net amount of product out of a given quantity of raw material.

In cotton-spinning, for example, since 1834 the waste of raw material has been reduced from 1/7 to about 1/10; inferior material, once useless, is now mixed with better stuff; and more important still, modern machinery has, by adapting itself to the spinning of finer yarn, effected great saving in the quantity consumed by each spindle. In many other industries we shall find this same process going on, whereby the proportion of capital which consists of raw material is reduced, and the proportion which consists in machinery and other fixed capital enhanced.

The growth of the unit of capital in the developed modern manufacturing business entails also a growth in the unit of labour, though not a corresponding growth. The number of employees in a business is larger in proportion as the business passes into the stage of highest industrial organisation. In the United States in 1880 it was estimated that the average number of employees in a manufacturing business for the whole country was a little less than 11, but in the chief manufacturing states of Massachusetts, Connecticut, and Rhode Island it was about 25, while in Pittsburg, the great centre of iron industry, it was more than 33.

Sec. 3. In addition to increased size we find increased and ever-increasing complexity of structure in the business-unit. This has proceeded in two directions, horizontally and laterally—that is to say, by subdivision and accession of processes on the one hand, and by an increased variety of products, and therefore of processes, upon the other hand. The constantly growing specialisation of fixed capital and of labour in our factories and workshops is a commonplace. Adam Smith's famous pin manufactory, with its ten separate processes, has been left far behind. In a modern shoe factory in the United States there are sixty-four distinct processes. Grain, in the elaborate machinery of a steam flour mill, passes through a score of different stages, cleaning, winnowing, grinding, etc. The American machine-made watch is the product of 370 separate processes. The organisation of a modern textile factory provides a dozen different processes contributing to the spinning or weaving of cotton or silk. New processes of cleaning, finishing, and ornamenting are continually being added. The subsidiary process of packing, the manufacture of packing cases, the printing of labels, etc., are taken on in many factories.[108] Many branches of production which were formerly carried on in separate places and as separate business-units are grouped together under the factory roof, or if still separated locally, and executed by separate machinery and power, are related as forming part of the same business, and are under the same management. So in the woollen manufactures the preliminary processes of sorting and cleansing, carding or combing, as well as the main processes of spinning and weaving, fulling, dyeing, and finishing, each of which was once committed to a separate and independent group of workers, are now frequently found going on simultaneously in a single factory.[109] Thus a number of small simple business-units representing the various stages in the production of a commodity, come to group themselves into a large complex unit.

This complexity is further increased by constant demand for variety in size, quality, and character of goods to meet the growing variety of demand in a market of increasing area. Special classes of goods must be manufactured for Australia, for Egypt, for Burmah. Less civilised customers, including such countries as China and Persia, insist upon their imported goods being made up and packed in some familiar form long after the use or convenience of this form has passed away. The exigencies of close competition require constant experiment in new lines of goods to benefit the fancy of a newly-opened market, or to get away the trade of some competitor. Moreover, the increasingly important part which is played by advertising in the trades where competition is keenest is followed by a very singular result, which seems at first sight to contravene the growing specialism or differentiation of function that marks modern trade. Finding that goods advertise one another, manufacturers are frequently induced to add new departments to their business, expanding the scope and variety of their productions. In retail trade this tendency is widely operative. The modern grocer sells tinned meats, cakes, wine, tea-pots, and Christmas cards, the draper sells every sort of ornamental ware, the stationer, the oil shop, the china shop set out an increasing and miscellaneous number of differing wares, moving towards the position of a general dealer. The Stores and the Universal Providers represent the culmination of this movement in the retail business, returning to an enlarged and more complex form of the primitive little "general shop" of the village. But this same economy is strong enough in certain classes of manufacture to overpower the advantages of an expansion of business in the older form. Up to a certain point the economies of production upon a large scale will make it advantageous to a manufacturer to employ all the capital at his command in producing increased quantities of the same class of goods. But after the market for these goods is fairly supplied it may pay better to appeal to a variety of wants by new species of goods of the same generic character, than by attempting to force new markets, or to effect an increased sale in the old markets at such reduced prices as the increased scale of production may permit. The business of Messrs. Huntley & Palmer is a striking example of this enterprise, issuing in a large variety of products and of processes which, though generically related, cover a widening range of food luxuries. The new products which are taken on will of course not only reap the advantage of being effectively advertised by the earlier products, but consisting largely of new adaptations of the same kind of raw material, the economies of purchase and transport will be almost as great as attend an increased production of the same goods, while much of the machinery of management, and even of manufacture, can be utilised for the new processes. This tendency not merely to multiply processes in the manufacture of a single commodity, but to increase the variety of commodities turned out by analogous processes in a single business, is also operative in certain textile and metal industries, where an increasing proportion of the expensive machinery and skilled labour is engaged, not in narrowly specific processes of manufacture, but in generating power and in transmitting it for a number of later uses to be governed by specific machinery. There is in many factories an increasing facility to take on new processes, and to transfer a large portion of the plant from the manufacture of one class of goods to another class.

"Most of the operatives in a watch factory would find machines very similar to those with which they were familiar if they strayed into a gun-making factory or sewing-machine factory, or a factory for making textile machinery. A watch factory, with those who worked in it, could be converted without any overwhelming loss into a sewing-machine factory."[110] Thus in the evolution of the modern business we see not only a number of processes in the production of a commodity, each of which constituted a separate business-unit in the earlier division of labour, growing together into a large complex whole, but a growing together of analogous processes in the production of different commodities, a lateral aggregation of processes. So we recognise that the growing complexity of the business-unit, whether we regard it from the point of view of capital or of labour, arises in large measure from an increased integration of productive processes. The business-unit is larger, more heterogeneous, and more highly integrated.

Sec. 4. Ascending from the business-unit to the larger unit in the structure of industry, the Market, or groups of directly competing businesses, we find similar changes have taken place. In considering these changes the relation between Market and Trade should be clearly grasped. The mere fact that two persons or groups of persons in different places are engaged in similar processes of production, that is to say, belong to the same trade, has no significance for us. The trade or aggregate of productive units of a particular sort receives industrial unity only in so far as there is competition of the units in buying the raw materials, tools, and labour for carrying on their trade, and in selling the results of their activity. Weavers of cotton goods in Central China belong to the same trade as weavers in Lancashire, and conduct their craft with similar implements to those which still prevail in the cottage industries of France and Germany, but such competition as may exist between them is so indirect and slight that it may be neglected in considering industrial structure. It is in the competition of a market that businesses meet and are vitally related. In a trade there may be several markets whose connection is distant and indirect. Market is the name given to a number of directly competing businesses. "Economists understand by the term market not any particular market-place in which things are bought and sold, but the whole of any region in which buyers and sellers are in such free intercourse with one another that the prices of the same goods tend to equalise easily and quickly."[111]

A single competitive price is then the essential feature and the test of a market. Businesses in such close relation with one another that the prices at which they buy and sell are the same, or differ only by reason of and in correspondence with certain local advantages or disadvantages, are members of a single market. The money market is a single market throughout the world. The price of money in London, Rome, Rio de Janeiro, may differ, but this difference will correspond to certain differences of risk. There will be a tendency towards a single price, or, putting the case in other words, wherever in the world L100 of money represents the same commodity the same price will be paid for its use, while any difference in its value as a commodity will be accurately reflected in the difference of price.

Absolute freedom of intercourse is not essential to the establishment of a common market. Market tariffs and other advantages and disadvantages may place the competitors on an unequal footing. Moreover, in order to form part of a market as helping to determine the price, a business need not actively enter the field of competition. Fear of the potential competition of outsiders often keeps down prices to a level above which they would rise were it not for the belief that such a rise would bring into active, effective competition the outsider. England had until recently a monopoly of the market for cotton goods in certain Eastern countries, but the price at which she sold was determined by the possibility of rival French or German merchants, as well as by the direct competition of the several English firms. In certain commodities the market is conterminous with the trade, that is, we have a world-market. This is the case with many of the forms of money, the most abstract form of wealth, and the most highly competitive.

Dealers in Stock Exchange securities, in the precious metals, are in active, constant competition at all the great commercial centres of the world. Other staple commodities, whose value is great, durable, and portable, such as jewels, wheat, cotton, wool, have to all intents and purposes a single market.

This world-market represents the fullest expansion due to modern machinery of transport and exchange, the railway, steamship, newspaper, telegraph, and the system of credit built up and maintained by the assistance of these material agents.

The market-area for various commodities varies with the character of these commodities, from the world-market for stock exchange securities down to the minimum market consisting of a few neighbouring farmers competing to sell their over-ripe plums or their skim-milk. The chief qualities which determine the market-area are—

(a) Extent of demand.—Things in universal or very wide demand, which are at the same time durable, such as money, wool, wheat, compete over very wide areas. Things specially accommodated to the taste or use of a particular locality or a small class of individuals will have a narrow market. This is the case with clothes of a particular cut, and with many kinds of fabrics out of which clothes are made. The market for certain classes of topographical books will be confined to the limits of a county, though the book market for many books is a world-market.

(b) Portability.—Even where the demand is far from a general one, the market-area may be very wide where high value is stored in small bulk. Smoking tobacco and more highly valued wines and liqueurs are examples of this order. The market for common bricks is local, though Portland marble finds a national market.

(c) Durability.—Durable objects and objects which can easily be brought within reach of modern means of rapid transport have a wide market. Perishable goods, as, for example, many fruits and vegetables, have for these reasons a narrow market.

Sec. 5. Modern machinery has in almost all cases raised the size of the market. The space-area of competition has been immensely widened, especially for the more durable classes of goods. It is machinery of transport—the transport of goods and news—that is chiefly responsible for this expansion. Cheaper, quicker, safer, and more calculable journeys have shrunk space for competing purposes. Improved means of rapid and reliable information about methods of production, markets, changes in price and trade have practically annihilated the element of distance.

Machinery of manufacture as well as of transport has a levelling tendency which makes directly for expansion of the area of competition. As the spread of knowledge places each part of the industrial world more closely en rapport with the rest, the newest and best methods of manufacture are more rapidly and effectively adopted. Thus in all production where less and less depends on the skill of the workers, and more and more upon the character of the machinery, every change which gives more prominence to the latter tends to equalise the cost of production in different countries, and thus to facilitate effective competition.

Sec. 6. Modern methods of production have also brought about a great expansion in the time-area of the market. Competition covers a wider range of time as well as of space. Production is no longer directed by the quantity and quality of present needs alone, but is more and more dependent upon calculation of future consumption. A larger proportion of the brain power of the business man is devoted to forecasting future conditions of the market, and a larger proportion of the mechanical and human labour to providing future goods to meet calculated demands. This expansion of the time-market, or growth of speculative production, is partly cause, partly effect of the improved mechanical appliances in manufacture and in transport. The multiplication of productive power under the new machinery has in many branches of industry far outstripped the requirements of present known consumption at remunerative prices, while increased knowledge of the widening market has given a basis of calculation which leads manufacturers to utilise their spare productive power in providing against future wants. So long as industry was limited by the labour of the human body, assisted but slightly by natural forces and working with simple tools, the output of productive energy could seldom outstrip the present demand for consumable goods.

But machinery has changed all this. Modern industrial nations are able to produce consumables far faster than those who have the power to consume them are willing to exercise it. Hence there is an ever-increasing margin of productive power redundant so far as the production of present consumptive goods is concerned. This excess of productive power is saved. It can only be saved by being stored up in some material forms which are required not for direct consumption but for assisting to increase the rate at which consumables may be produced in the future. In order to make a place for these new forms of saving it is necessary to interpose a constantly increasing number of mechanical processes between the earliest extractive process which removes the raw material from the earth and the final or retailing process which places it in the consumer's hands. New machinery, more elaborate and costly, is applied; special workshops, with machines to make this machinery—other machinery to make these machines; there is an expansion of the mechanism of credit, the system of agents and representatives is expanded, new modes of advertising are adopted. Thus an ever-widening field of investment is provided for the spare energy of machine-production. The change is commonly described by saying that production is more "roundabout."[112] A larger number of steps are inserted in the ladder of production. This increased complexity in the mechanism of production is not, however, the central point of importance. We must realise that the change is one which is essentially an increase in the "speculative" character of commerce. The "roundabout" method of production signifies a continual increase in the proportion of productive forces devoted to making "future goods" as Now future goods, plant, machinery, raw material of commodities, are essentially "contingent goods": their worth or waste depends largely upon conditions yet unborn: their social utility and the value based upon it depend entirely upon the future powers and desires of those unknown persons who are expected to purchase and consume the commodities which shall come into existence as results of the existence and activity of these future goods.

The actual time which elapses between the extractive stage and the final retail stage of a commodity may not be greater and is in many cases far less under the new methods of industry. The raw cotton of South Carolina gets on the wearer's back more quickly than it did a century and a half ago. But when we add in the time-elements involved in the provision of the various forms of intricate plant and machinery whose utility entirely consists in forwarding these cotton goods, and whose existence in the industrial mechanism depends upon them, we shall perceive that the "roundabout" method signifies a great extension of the speculative or time-element in the market.[113]

Sec. 7. The growing interdependency of trades and markets, the ever closer sympathy which exists between them, the increased rapidity with which a movement affecting one communicates itself to others, is another striking characteristic of modern trade. This interdependency is in large measure one of growing structural attachment between trades and markets formerly in faint and distant sympathetic relationship. Formerly, agriculture was the one important foundational industry, and from the feebleness of the transport system the vital connections and the unity it supplied was local rather than national or international. Now the agricultural industries no longer occupy this position of prominence. The coal and iron industries engaged in furnishing the raw material of machinery and steam-motor, the machine manufacture, and the transport services, are the common feeders and regulators of all industries, including that of agriculture. They form a system corresponding to the alimentary system of the human body, any quickening or slackening of whose functional activities is directly and speedily communicated to the several parts. Any disturbance of price, of efficiency, or regularity of production in these foundational industries is reflected at once and automatically in the several industries which are engaged in the production and distribution of the several commodities. The mining and metal industries, shipbuilding, and the railway services are recognised more and more as furnishing the true measure and test of modern trade; their labour enters in ever larger proportion into the production of all the consumptive goods.

Besides the general integration or unification of industry implied by the common dependency of the specific trades upon these great industries, there are other forces engaged in integrating groups of trades. Foremost is the "roundabout" method of production, to which our attention has been already directed. Not merely does this capitalist system bring a number of trades and processes under the control of a single capital, as a single complex business, but it establishes close identity of trade-life and interests among businesses, trades, and markets which remain distinct so far as ownership and management are concerned.

Sec. 8. If we take the mass of capital and labour composing one of our staple productive industries, we shall find that it is related in four different ways to a number of other industries.

(1) It has a number of trades which are directly co-ordinate—i.e., engaged in the earlier or later processes of producing the same consumptive goods. Thus the manufacture of shoes is related co-ordinately to the import trades of hides and bark, to tanning, to the export trade in shoes, and to the retail shoe trade. A common stream of produce is flowing through these several processes, and though from the point of view of ownership and management there may be no connection, there is a close identity of trade interest and a quick sympathy of commercial life at these several points.

(2) Each important manufacturing industry has a number of industries which in their relation to it are secondary, although in some cases, having similar relations to a number of other trades, they may in themselves be large and important. In the large textile centres are found a number of minor industries, planers, sawyers, turners, fitters, smiths, engaged in irregular work of alteration and repairs upon the plant and machinery of the textile factories. The same holds of all important manufactures, especially those which are closely localised.

A somewhat similar relation appertains between those manufactures engaged in producing the main body of any product and the minor industries, which supply some slighter and essentially subsidiary part. In relation to the main textile and clothing industries, the manufacture of buttons, of tape, feathers, and other elements of ornament or trimmings may be regarded as subsidiary. In the same way the manufacture of wall-papers or house paint may be considered subsidiary to the building trades, that of blacking to the shoe manufacture. These subsidiary trades are related to the primary one more or less closely, and are affected by the condition of the latter more or less powerfully in proportion as the subsidiary elements they furnish are more or less indispensable in character. The fur and feather trades are far more dependent upon direct forces of fashion than upon any changes of price or character in the main branches of the clothing trade. On the other hand, any cause which affected considerably the price of sugar would have a great and direct influence on the jam manufacture, while the rise in price of tin due to the M'Kinley tariff caused serious apprehension to the Chicago manufacturers and exporters of preserved meats.

(3) The relations between one of the great arterial industries, such as coal-mining, railway transport, or machine-making, and a specific manufacture may be regarded as auxiliary. The extent to which the price of coal, railway rates, etc., enters into the price of the goods and affects the condition of profits in the trade measures the closeness of this auxiliary connection. In the case of the smelting industries or in the steam transport trades, even in the pottery trades, the part played by coal is so important that the relation is rather that of a primary than an auxiliary connection—i.e., coal-mining must be ranked as co-ordinate to smelting. But where heat is not the direct agent of manufacture, but is required to furnish steam-motor alone, as in the textile factories, the connection may be termed auxiliary.

(4) The relationship between some industries is "sympathetic" in the sense that the commodities they produce appeal to closely related tastes, or are members of a group whose consumption is related harmoniously. In foods we have the relations between bread, butter, and cheese; the relation in which sugar and salt stand to a large number of consumables. Some of these are natural relations in the sense that one supplies a corrective to some defect of the other, or that the combination enhances the satisfaction or advantage which would accrue from the consumption of each severally. In other cases the connection is more conventional, as that between alcohol and tobacco. The sporting tastes of man supply a strong sympathetic bond between many trades. The same is true of literary, artistic, or other tastes, which by the simultaneous demand which they make upon several industries, in some proportion determined by the harmonious satisfaction of their desires, throw these industries into sympathetic groups.[114] These four bonds mark an identity of interest between different industries.

The relationship is sometimes one of divergency or competition of trades. Where the same service may be supplied by two or more different commodities the trades are related by direct competition. Oil, gas, electricity, as illuminants, are a familiar example of this relationship. Many trades which produce commodities that are similar, but far from identical in character, feel this relationship very closely. The competition between various kinds of food, which with different kinds and degrees of satisfaction may produce the same substantial effects, between fish and meat, between various kinds of vegetables and drinks, enables us to realise something of the intricacy of the relations of this kind. In clothing we have antagonism of interests between the various fabrics which has led to great industrial changes. The most signal example is the rise of cotton, its triumph over woollen clothes by the earlier application of the new machinery, and over silk by the early superiority of its dyeing and printing processes.[115] So in recent years in the conflict among beverages, tea, and in a less measure cocoa, have materially damaged the growth of the coffee industry so far as English consumption is concerned. Where such rivalry exists, an industry may be as powerfully and immediately affected by a force which raises or depresses its competitor as by a force which directly affects itself.

Sec. 9. The growth of numerous and strongly-built structural attachments between different trades and markets related to different localities implies the existence of a large system of channels of communication throughout our industrial society. By the increased number and complexity of these channels connecting different markets and businesses, and relating the most distant classes of consumers, we can measure the evolution of the industrial organism. Through these channels flow the currents of modern industrial life, whose pace, length, and regularity contrast with the feeble, short, and spasmodic flow of commerce in earlier times. This advance in functional activity of distribution is thus expressed by Mr. Spencer:—"In early English times the great fairs, annual and other, formed the chief means of distribution, and remained important down to the seventeenth century, when not only villages, but even small towns, devoid of shops, were irregularly supplied by hawkers who had obtained their stocks at these gatherings. Along with increased population, larger industrial centres, and improved channels of communication, local supply became easier; and so frequent markets more and more fulfilled the purpose of infrequent fairs. Afterwards, in chief places and for chief commodities, markets themselves multiplied, becoming in some cases daily. Finally came a constant distribution, such that of some foods there is to each town an influx every morning; and of milk even more than once in the day. The transition from times when the movements of people and goods between places were private, slow, and infrequent, to times when there began to run at intervals of several days public vehicles moving at four miles an hour, and then to times when these shortened their intervals and increased their speed, while their lines of movement multiplied, ending in our own times, when along each line of rails there go at full speed a dozen waves daily that are relatively vast, sufficiently show us how the social circulation progresses from feeble, slow, irregular movements to a rapid, regular, and powerful pulse."[116]

The differentiation of function in the several parts of the industrial organism finds a partial expression in the localisation of certain industries. As there is growing division of labour among individuals and groups of individuals, so the expansion of the area of competition has brought about a larger and larger amount of local specialisation.

Roughly speaking, the West of Europe and of America has specialised in manufacture, drawing an ever larger proportion of their food supplies from the North-West States of America, from Russia, the Baltic Provinces, Australia, Egypt, India, etc., and their raw materials of manufacture from the southern United States, South America, India, etc., while these latter countries are subjected to a correspondent specialisation in agriculture and other extractive arts. If we take Europe alone, we find certain large characteristics which mark out the Baltic trade, the Black Sea trade, the Danube trade, the Norwegian and White Sea trade. So the Asiatic trade falls into certain tolerably defined divisions of area, as the Levant trade, the Red Sea trade, the Indian, the Straits, and East Indian, the China trade, etc. The whole trade of the world is thus divided for commercial purposes.[117] Though these trade divisions are primarily suggested by considerations of transport rather than of the character of production, the geographical, climatic, and other natural factors which determine convenient lines of transport are found to have an important bearing on the character of the production, and convenience of transport itself assists largely to determine the kind of work which each part of the world sets itself to do.

The establishment of a world-market for a larger and larger number of commodities is transforming with marvellous rapidity the industrial face of the globe. This does not now appear so plainly in the more highly-developed countries of Europe, which, under the influence of half a century's moderately free competition for a European market, have already established themselves in tolerably settled conditions of specialised industry. But in the new world, and in those older countries which are now fast yielding to the incursions of manufacturing and transport machinery, the specialising process is making rapid strides.

Improved knowledge of the world, facile communication, an immense increase in the fluidity of capital, and a considerable increase in that of labour, are busily engaged in distributing the productions of the world in accordance with certain dominant natural conditions. Those industrial forces which have during the last century and a half been operative in England, draining the population and industry from the Southern and Eastern counties, and concentrating it in larger proportions in Lancashire, the West Riding, Staffordshire, and round the Northumbrian and South Wales coal-fields, specialising each town or locality upon some single branch of the textile, metal, or other industries for which its soil, position, or other natural advantages made it suitable, are now beginning to extend the area of their control over the whole surface of the known and inhabited globe.

As large areas of Asia, South and Central Africa, Australia, and South America fall under the control of European commercial nations, are opened up by steamships, railways, telegraphs, and are made free receptacles for the increased quantity of capital which is unable to find a safe remunerative investment nearer home, we are brought nearer to a condition in which the whole surface of the world will be disposed for industrial purposes by these same forces which have long been confined in their direct and potent influence to a small portion of Western Europe and America. This vast expansion of the area of effective competition is beginning to specialise industry on the basis of a world-market, which was formerly specialised on the more confined basis of a national or provincial market. So in England, where the early specialisation of machine-industry was but slightly affected by outside competition, great changes are taking place. Portions of our textile and metal industries, which naturally settled in districts of Lancashire, Yorkshire, and Staffordshire, while the area of competition was a national one,[118] seem likely to pass to India, to Germany, or elsewhere, now that a tolerably free competition on the basis of world-industry has set in. It is inevitable that with every expansion of the area of competition under which a locality falls the character of its specialisation will change. A piece of English ground which was devoted to corn-growing when the market was a district one centred in the county town, becomes the little factory town when competition is established on a national basis; it may become the pleasure-ground of a retired millionaire speculator if under the pressure of world-competition it has been found that the manufacture which now thrives there can be carried on more economically in Bombay or Nankin, where each unit of labour power can be bought at the cheapest rate, or where some slight saving in the transport of raw material may be effected.

Sec. 10. The question how industry would be located, assuming the whole surface of the globe was brought into a single market or area of competition, with an equal development of transport facilities in all its parts; or in other words, "What is the ideal disposition of industry in a world-society making its chief end the attainment of industrial wealth estimated at present values?" is one to which of course no very exact answer can be given. But since this ideal represents the goal of modern industrial progress, it is worth while to call attention to the chief determinants of the localisation of industries under free world-competition. The influences may be placed in three groups, which are, however, interrelated at many points.

(1) The first group may be called Climatic, the chief influences of which are astronomical position, surface contour, prevalent winds, ocean currents, etc. Climatic zones have their own flora and fauna, and so far as these enter into industry as agricultural and pastoral produce, as raw materials of manufacture, as sustenance of labour, they are natural determinants of the localisation of industry. In vegetable products the climatic zones are very clearly marked. "The boreal zone has its special vegetation of mosses, lichens, saxifrages, berries, oats, barley, and rye; the temperate zone its peas, beans, roots, hops, oats, barley, rye, and wheat; this zone, characterised by its extent of pastures, hop gardens, and barley fields, has also a distinctive title in the 'beer and butter region.' The warm temperate zone, or region of 'wine and oil,' is characterised by the growth of the vine, olive, orange, lemon, citron, pomegranate, tea, wheat, maize, and rice; the sub-tropical zone, by dates, figs, the vine, sugar-cane, wheat, and maize; the tropical zone is characterised by coffee, cocoa-nut, cocoa, sago, palm, figs, arrowroot, and spices; and the equatorial by bananas, plantains, cocoa-nut, etc."[119]

(2) The second group is geographical and geological. The shape and position of a country, its relation in space to other countries, the character of the soil and sub-soil, its water-supply, though closely related to climatic influences, have independent bearings. The character of the soil, which provides for crops their mineral food, has an important bearing upon the raw materials of industry. The shape and position of the land, especially the configuration of its coast, have a social as well as climatic significance, directing the intercourse with other lands and the migrations of people and civilisations which play so large a part in industrial history.

(3) Largely determined by the two groups of influences named above are the forces which represent the national character at any given time, the outcome of primitive race characteristics, food supply, speed and direction of industrial development, density of population, and the various other causes which enter in to determine efficiency of labour. The play of these natural and human forces in world-competition leads to such a settlement of different industries in different localities as yields the greatest net productiveness of labour in each part.

Sec. 11. But this world-competition, however free it may become, can lead to no finality, no settled appointment of industrial activity to the several parts of the earth. Setting aside all political and other non-economic motives, there are three reasons which render such local stability of industry impossible.

There is first the disturbance and actual loss sustained by nature in working up the mineral wealth of the soil, and the flora and fauna sustained by it, into commodities which are consumed, and an exact equivalent of which cannot be replaced. The working out of a coal-field, the destruction of forests which reacts upon the elementary climatic influences, are examples of this disturbance.

Secondly, there is the progress of industrial arts, new scientific discoveries applicable to industry. There is no reason to believe that human knowledge can reach any final goal: there is infinity alike in the resources of nature and in the capacity of the development of human skill.

Lastly, as human life continues, the art of living must continually change, and each change alters the value attached to the several forms of consumption, and so to the industrial processes engaged in the supply of different utilities. New wants stimulate new arts, new arts alter the disposition of productive industry, giving value to new portions of the earth. Ignoring those new material wants which require new kinds of raw material to be worked up for their satisfaction, the growing appreciation of certain kinds of sport, the love of fine scenery, a rising value set upon healthy atmosphere, are beginning to exercise a more and more perceptible influence upon the localisation of certain classes of population and industry in the more progressive nations of the world.

Sec. 12. The same laws and the same limitations which are operative in determining the character and degree of specialisation of countries or large areas are also seen to apply to smaller districts, towns, and streets. Industries engaged in producing valuable, durable material objects in wide demand are locally specialised; those engaged in providing bulky perishable non-material goods, or goods in narrow demand, are unspecialised. England, where internal intercourse has been most highly developed, and where internal competition has been freest and keenest, shows the most advanced specialisation in several of its staple industries. The concentration of cotton spinning in South Lancashire is an example, the full significance of which often escapes notice. From the beginning South Lancashire was the chief seat of the industry, but it is now far more concentrated than was the case a century ago. Several of the most valuable inventions in spinning were first applied in Derbyshire, in Nottingham, at Birmingham, and in Scotland. Scotland then competed closely in weaving with Lancashire. Now the Scotch industry is confined to certain specialities. In spite of the enormous growth of the manufacture, the local area it covers is even narrower than last century. Within Lancashire itself the actual area of production has shrunk to some 25 square miles in the extreme south, while the two great cities are further specialised—Liverpool as the market for cotton, Manchester for yarn and cotton cloths.

Moreover, the localisation of various departments of the trade within Lancashire is still more remarkable. Not only have the old mills in which spinning and weaving were carried on together given way before division of labour, but the two processes are mostly conducted in different districts, the former in the towns immediately around Manchester, the latter in the more distant northern circuit. Nor is the specialisation confined to this. Spinning is again divided according to the coarser and finer qualities of yarn. The Oldham district, with Ashton, Middleton, and other towns south of Manchester are chiefly confined to the medium numbers. Bolton, Chorley, Preston, and other northern towns undertake the finer numbers. In weaving there is even more intricate division of labour, each town or district specialising upon some particular line of goods.[120] Moreover, it must be borne in mind that the substitution of the factory for the domestic system and the continual enlargement of the average factory indicates an important progressive concentration. So the cotton industry does not in fact cover nearly so large a local area as when it was one-hundredth the size. The same is true of the other chief branches of the textile and metal industries. Nor is it only in the manufactures that towns and districts are closely specialised. The enormous increase of commerce due to machinery of manufacture and of transport requires the specialisation of certain towns for purely commercial purposes. London, Liverpool, Glasgow, and Hull are more and more devoted to the functions of storage and conveyance. Manchester itself is rapidly losing its manufacturing character and devoting itself almost exclusively to import and export trade. The railway service has made for itself large towns, such as Crewe, Derby, Normanton, and Swindon. Cardiff is a portentous example of a new mining centre created when the machine development of England was already ripe.

The specialisation of function in a large town is, however, qualified in two ways. The strong local organisation of a staple trade requires the grouping round it of a number of secondary or auxiliary trades. In large textile towns the manufactures of textile machinery, and of subsidiary materials, are found. The machine-making of Manchester is one of its most important industries, furnishing the neighbouring textile towns. Leeds is similarly equipped for the woollen trade. This is one of the respects in which the superior development of the English cotton industry over the continental ones is indicated. In Alsace alone of the continental centres has the concentration of industry advanced so far as to furnish a local machine industry specially devoted to cotton machinery. Germany is still mainly dependent upon England for her machines.[121] So likewise with regard to co-ordinate trades, there is an advantage in the leading processes being grouped in local proximity, though they are not united in the same business. Thus we find dye-works and the various branches of the clothing trade largely settled in the large textile towns, such as Leeds, Bradford, Manchester, Bolton. The unit of local specialisation is thus seen to be not a single trade, but a group of closely allied trades, co ordinate, dependent, and derivative.

Round some large industries in which men find employment minor parasitic industries spring up stimulated by the supply of cheap abundant labour of women and children. In metal and machine towns such as Birmingham, Dudley, Walsall, in Newcastle-on-Tyne, and other shipbuilding towns, where the staple industries are a masculine monopoly, textile factories have been planted. The same holds of various mining villages and of agricultural villages in the neighbourhood of large textile centres. There is in the midland counties a growing disposition to place textile factories in rural villages where cheap female labour can be got, and where the independence of workers is qualified by stronger local attachments and inferior capacity of effective trade union organisation. As textile work passes more and more into the hands of women,[122] this tendency to make it a parasitic trade thriving upon the low wages for which women's labour can be got where strong and well-paid male work is established, will probably be more strongly operative.

Sec. 13. The specialisation of certain districts within the town, though far less rigid than in the mediaeval town, is very noticeable in the larger centres of industry. Natural causes often determine this division of localities, as in the case of the riverside industries, brick-making and market-gardening in the outer suburbs. Round the central station in every large town, for convenience of work and life, settle a number of industries related to the carrying trade. Every trade, market, or exchange is a centre of attraction. So the broking, banking, and the general financing businesses are grouped closely round the Royal Exchange. Mark Lane and Mincing Lane are centres of the corn and tea trades. In all town industries not directly engaged in retail distribution there are certain obvious economies and conveniences in this gregariousness. Agents, travellers, collectors, and others who have relations of sale or purchase with a number of businesses in a trade find a number of disadvantages in dealing with a firm locally detached from the main body, so that when a district is once recognised as a trade centre, it becomes increasingly important to each new competitor to settle there. The larger the city the stronger this force of trade centralisation. Hence in London, untrammelled by guild or city regulations, we find a strong localisation of most wholesale and some retail businesses. In retail trade, however, the economic gain is less universal. Since retail commodities are chiefly for use in the home, and homes are widely distributed, the convenience of being near one's customers and away from trade competitors is often a predominating motive. Shops which sell bread, meat, fish, fruit, groceries, articles which are bought frequently and mostly in small quantities, shops selling cheaper articles of ordinary consumption, such as tobacco, millinery, stationery, and generally shops selling articles for domestic use, the purchase of which falls to women, are widely dispersed. On the other hand, where the articles are of a rarer and more expensive order, when it is likely that the purchaser will seek to compare price and character of wares, and will presumably be willing to make a special journey for the purpose, the centralising tendency prevails in retail trade. So we find the vendors of carriages, pianos, bicycles, the heavier articles of furniture, jewellery, second-hand books, furs, and the more expensive tailors and milliners clustering together in a special street or neighbourhood.

Effective competition in retail trade sometimes requires concentration, sometimes dispersion of business. But the most characteristic modern movement in retail trade is a combination of the centralising and dispersive tendencies, and is related to the enlargement of the business-unit which we found proceeding everywhere in industry. The large distributing company with a number of local branch agents, who call regularly at the house of the consumer for orders, is the most highly organised form of retail trade. In all the departments of regular and general consumption the movement is towards this constant house-to-house supply. The wealthier classes in towns have already learned to purchase all the more perishable forms of food and many other articles of house consumption in this way, while the growing facilities of postage and conveyance of goods enable them to purchase from a large central store by means of a price-list all other consumables into which the element of individual taste or caprice does not largely enter. This habit is spreading in the smaller towns among the middle classes, so that the small dispersed retail businesses are becoming more and more dependent upon the supply of the needs of the working classes, and of such articles of comfort and luxury as may appeal to the less regular and calculable tastes of the moneyed classes. Just as in towns we have a constant automatic supply of water and gas instead of an intermittent supply dependent on a number of individual acts of purchase, so it seems likely that all the routine wants of the consumer will be supplied.

How far mechanical inventions may be applied to increase the facility and cheapen the cost of this distribution it is difficult to say. The automatic machine for distributing matches and sweetmeats is adaptable to most forms of routine consumption. In the larger stores many kinds of labour-saving machinery are already applied. As steam or electric power is adopted more widely in the local transport services the retail distribution of goods from a large single centre is likely to proceed apace, and a displacement of human labour by machinery similar to that which is taking place in manufacture will take place in distribution. So far as the wants of large classes of the public become regular and their consumption measurable in quantity, machinery will unquestionably take over the labour of distribution, especially in the large towns which are absorbing in a way convenient for mechanical distribution a larger proportion of the consuming public. With each new encroachment of machinery into the domain of the distributing trades the characteristics of machine-industry, enlarged mass of the business, increased area of the market, increased complexity of relations to other trades, increased specialisation of local activity will be clearly discernible.

We thus see in the several departments of industry, under the pressure of the same economic forces, an expansion of size, a growing complexity of structure and functional activity, and an increased cohesion of highly differentiated parts in the business, the market, and in that aggregation of related trades and markets which forms the world-industry. The physical instrument by which these economic forces, making for increased size, heterogeneity, and cohesiveness,[123] have been able to operate is machinery applied to manufacture and transport. Moreover, each new encroachment of machinery upon the extractive and the distributing industries brings into prominence within these processes the same structural and functional characteristics.



FOOTNOTES:

[99] Cf. Chap. VI. for a discussion of this equation of maximum profit.

[100] Report to Labour Commission on Employment of Women (1893), p. 125.

[101] Statistical Abstract, 1878-92, p. 182

[102] Social Peace, p. 126; cf. also Brentano, Hours, Labour, and Production, p. 60.

[103] Contemporary Review, 1889, p. 394.

[104] Porter, Progress of the Nation, p. 216.

[105] Principles of Economics, 2nd edit., p. 282.

[106] Schulze-Gaevernitz, Der Grossbetrieb, p. 90.

[107] Marshall, Principles of Economics, 2nd edit., p. 283.

[108] The works of Messrs. Colman, at Norwich, comprise among others the following subsidiary departments:—Coopery, engineering shop, saw mills, box-making, packing, paper-making, printing, laboratory. To the most highly developed businesses of pottery and machine-making schools of art and design are not uncommonly attached.

[109] A good deal of the cleansing and combing in the cloth and worsted trades is, however, done separately on commission by large firms such as Lister's. Cf. Burnley, p. 417.

[110] Marshall, Principles of Economics, 2nd edit., p. 517.

[111] Cournot, Recherches sur les Principes Mathematiques de la Theorie des Richesses (quoted Marshall, Principles of Economics, p. 384).

[112] It ought, however, to be kept in mind that the application of the "roundabout" method is only economically justified by a continual increase in consumption. So far as a given quantity of consumption is concerned the result of the "roundabout" method is to diminish the quantity of capital which assists to produce it.

[113] Professor Boehm Bawerk shows this increased time of production to be the essential characteristic of capitalist production. Cf. Positive Theory of Capital.

[114] For a full and valuable treatment of these harmonious relations, from the point of view of consumption and production, see Patten's Economics of a Dynamic Society.

[115] Cf. Porter, Progress of the Nation, pp. 177-206.

[116] Principles of Sociology, vol. i. p. 500 (3rd edit.).

[117] For a detailed account of the national trade divisions, cf. Dr. Yeats, The Golden Gates of Trade.

[118] Foreign competition with English textiles, though comparatively modern so far as the more highly developed machine-made fabrics is concerned, was keenly felt early in the century in hand-made goods. Schulze-Gaevernitz points out that the depression in work and wages of the hand-loom workers in 1820 was due more to foreign competition than to the new machinery. (Der Grossbetrieb, p. 41.)

[119] Yeats, The Golden Gates of Trade, p. 12. (Philip & Son.)

[120] Cf. Schulze-Gaevernitz's minute investigation of this whole subject, Der Grossbetrieb, pp. 98, 99, etc.

[121] Schulze-Gaevernitz, p. 110.

[122] For the gain of female over male employment in textile factories, cf. Chap. xi.

[123] In a free application of Spencer's formula of evolution to modern industry I have not included the quality of "definiteness," which close reflection shows to possess no property which is not included under heterogeneity and cohesiveness.



CHAPTER V.

THE FORMATION OF MONOPOLIES IN CAPITAL.

Sec. 1. Productive Economies of the Large Business. Sec. 2. Competitive Economies of the Large Business. Sec. 3. Intenser Competition of the few Large Businesses. Sec. 4. Restraint of Competition and Limited Monopoly. Sec. 5. Facilities for maintaining Price-Lists in different Industries. Sec. 6. Logical Outcome of Large-Scale Competition. Sec. 7. Different Species of "Combines." Sec. 8. Legal and Economic Nature of the "Trust." Sec. 9. Origin and "Modus Operandi" of the Standard Oil Trust. Sec. 10. The Economic Strength of other Trusts. Sec. 11. Industrial Conditions favourable to "Monopoly."

Sec. 1. The forces which are operating to drive capital to group itself in larger and larger masses, and the consequent growth of the business-unit, require special study in relation to changes effected in the character of competition in the market and the establishment of monopolies. The economies which give to the large business an advantage over the small business may be divided into two classes—economies of productive power, and economies of competitive power.

In the first class will be placed those economies which arise from increased sub-division of labour and increased efficiency of productive energy, and which represent a net saving in the output of human energy in the production of a given quantity of commodities, from the standpoint of the whole productive community. These include—

(a) The effort saved in the purchase and transport of raw materials in large quantities as compared with small quantities, and a corresponding saving in the sale and transport of the goods, manufactured or other. Under this head would come the discovery and opening up of new markets for purchase of raw materials and sale of finished goods, and everything which increases the area of effective competition and co-operation in industry.

(b) The adoption of the best modern machinery. Much expensive machinery will only "save labour" when it is used to assist in producing a large output which can find a tolerably steady market. The number of known or discoverable inventions for saving labour which are waiting either for an increase in the scale of production or for a rise in the wages of the labour they might supersede, in order to become economically available, may be considered infinite. With every rise in the scale of production some of these pass from the "unpaying" into the "paying" class, and represent a net productive gain in saved labour of the community.

(c) The performance of minor or subsidiary processes upon the same premisses or in close organic connection with the main process, the establishment of a special workshop for repairs, various economies in storage, which attend large-scale production.

(d) Economies consisting in saved labour and increased efficiency of management, superintendence, clerical and other non-manual work, which follow each increase of size in a normally constructed business. These are often closely related to (b), as where clerical work is economised by the introduction of type-writers or telephonic communication, and to (c), as by the establishment of more numerous and convenient centres of distribution.

(e) The utilisation of waste-products, one of the most important practical economies in large-scale production.

(f) The capacity to make trial of new experiments in machinery and in industrial organisation.

Sec. 2. To the class Economies in Competitive Power belong those advantages which a large business enjoys in competing with smaller businesses, which enable it either to take trade away from the latter, or to obtain a higher rate of profits without in any way increasing the net productiveness of the community. This includes—

(1) A large portion of the economy in advertising, travelling, local agents, and the superiority of display and touting which a large business is able to afford. In most cases by far the greater part of this publicity and self-recommendation is no economy from the standpoint of the trade or the community, but simply represents a gain to one firm compensated by a loss to others. In not a few cases the "trade" may be advantaged to the damage of other trades or of the consumer, as when a class of useless or deleterious drugs is forced into consumption by persistent methods of self-appraisal which deceive the public.

(2) The power of a large business to secure and maintain the sole use of some patent or trade secret in machinery or method of manufacture which would otherwise have gone to another firm, or would have become public property in the trade, represents no public economy, and sometimes a public loss. Where such improvement is due solely to the skill and enterprise of a business man, and would not have passed into use unless the sole right were secured to his business, this economy belongs to the productive class.

(3) The superior ability of a large business to depress wages by the possession of a total or partial monopoly of local employment, the corresponding power to obtain raw material at low prices, or to extort higher prices from consumers than would obtain under the pressure of free competition, represent individual business economies which may enable a large business to obtain higher profits.

Sec. 3. Now all these forces operative in trades which are said to be subject to the law of increasing returns tend to increase the size and to diminish the number of businesses competing within a given area. In some industries the expanding size of the market or area of competition keeps pace with this movement, so that the total number of the larger competitors within the market may be as great as before. But in most of the markets the growing scale of the business is attended by an absolute diminution in the number of effective competitors, or at any rate by an increase which is very much smaller than the increase in the amount of trade that is done.

So long as we have merely the substitution of a smaller number of large competing businesses for a larger number of small ones, no radical change is effected in the nature of industry. So long as every purchaser is able to buy from two or more equally developed and effectively competing firms he can make them bid against one another until he obtains the full advantage of the economies of large-scale production which are common to them. So long as there remains effective competition, all the productive economies pass into the hands of the consumer in reduction of price. Nay, more than this, a competing firm cannot keep to itself the advantages of a private individual economy if its competitor has another private economy of equal importance. If A and B are two closely competing firms, A owning a special machine capable of earning for him 2 per cent. above the normal trade profit, and B owning a similar advantage by possession of "cheaper labour," these private economies will be cancelled by competition, and pass into the pocket of the consuming public.

There is every reason to believe that with a diminution in the number of competitors and an increase of their size, competition grows keener and keener. Under old business conditions custom held considerable sway; the personal element played a larger part alike in determining quality of goods and good faith; purchasers did not so closely compare prices; they were not guided exclusively by figures, they did not systematically beat down prices, nor did they devote so large a proportion of their time, thought, and money to devices for taking away one another's customers.[124] From the new business this personal element and these customary scruples have almost entirely vanished, and as the net advantages of large-scale production grow, more and more attention is devoted to the direct work of competition. Hence we find that it is precisely in those trades which are most highly organised, provided with the most advanced machinery, and composed of the largest units of capital, that the fiercest and most unscrupulous competition has shown itself. The precise part which machinery, with its incalculable tendency to over-production, has played in this competition remains for later consideration. Here it is enough to place in evidence the acknowledged fact that the growing scale of the business has intensified and not diminished competition. In the great machine industries trade fluctuations are most severely felt; the smaller businesses are unable to stand before the tide of depression and collapse, or are driven in self-defence to coalesce. The borrowing of capital, the formation of joint-stock enterprise and every form of co-operation in capital has proceeded most rapidly in the textile, metal, transport, shipping, and machine-making industries, and in those minor manufactures, such as brewing and chemicals, which require large quantities of expensive plant. This joining together of small capitals to make a single large capital, this swallowing up of small by large businesses, means nothing else than the endeavour to escape the risks and dangers attending small-scale production in the tide of modern industrial changes. But since all are moving in the same direction, no one gains upon the other. Certain common economies are shared by the monster competitors, but more and more energy must be given to the work of competition, and the productive economies are partly squandered in the friction of fierce competition, and partly pass over to the body of consumers in lowered prices. Thus the endeavour to secure safety and high profits by the economies of large-scale production is rendered futile by the growing severity of the competitive process. Each big firm finds itself competent to undertake more business than it already possesses, and underbids its neighbour until the cutting of prices has sunk the weaker and driven profits to a bare subsistence point for the stronger competitors.

So long as the increased size of business brings with it a net economic advantage, the competition of ever larger competitors, whose total power of production is far ahead of sales at remunerative prices, and who are therefore constrained to devote an increased proportion of energy to taking one another's trade, must intensify this cut-throat warfare. The diminishing number of competitors in a market does not ease matters in the least, for the intensity of the strife reaches its maximum when two competing businesses are fighting a life or death struggle. As the effective competitors grow fewer, not only is the proportion of attention each devotes to the other more continuous and more highly concentrated, but the results of success are more intrinsically valuable, for the reward of victory over the last competitor is the attainment of monopoly.

Sec. 4. To keen-eyed business men engaged in the thick of large-scale competition it becomes increasingly clear that good profits can only be obtained in one of two ways. A successful firm must either be in possession of some trade secret, patent, special market, or such other private economy as places it in a position of monopoly in certain places or in certain lines of goods, or else it must make some arrangement with competing firms whereby they shall consent to abate the intensity or limit the scope of their competition. It will commonly be found that both these conditions are present where a modern firm of manufacturers or merchants succeeds in maintaining during a long period of time a prosperous or paying business. The firm, though in close competition over part of the field of industry, will have a speciality of a certain class of wares, at any rate in certain markets, and it will be fortified by a more or less firmly fixed rate of prices extending over the whole class of commodities. Both of these forces signify a restriction upon competition.

To the older economists, who regarded free competition as the only safe guarantee of industrial security and progress, it appeared natural that capitalists continually engaged in the maximum competition would yet secure a living rate of profit, for if this were not the case, they ingenuously urged, capital would cease to remain in such a trade. With the fallacy involved in this theory we shall deal in a later chapter. It is sufficient here to observe that where keen competition is operative in modern machine industries the average rate of profits obtained for capital is generally below that which would suffice to induce new capital invested with full knowledge to come into the trade.

In highly organised trades, where the natural effects of free competition have been fully manifested, we find that the hope of a profitable business is entirely based upon the possibility that a trade agreement will so mitigate competition as to allow a rate of selling prices to obtain which remains considerably higher than that which free competition would allow.

As the field of competition is narrowed to a comparatively few large competitors, there arises a double inducement to suspend or mitigate hostilities; as the competition is fiercer more is gained by a truce; as the number of combatants is smaller, a truce can be more easily formed and maintained. In most machine-using countries each branch of a staple industry endeavours to protect itself from free competition by a combination of masters to fix a scale of prices. This is the normal condition of trade in England to-day. These combinations to fix and maintain prices are not equally successful in all trades, but they are always operative to a more or less extent in modifying or retarding the effects of competition. Where trade unions of operatives are strong, well-informed, and resolute, or where outsiders have large facilities for investing capital and dividing the trade, the endeavours to maintain prices and to secure a higher than the competitive rate of profits are unsuccessful. The joint operation of both these conditions in the cotton-spinning trade explains why the Lancashire spinners have been unable to check the effects of cut-throat competition. But throughout all branches of textile, metal, pottery, engineering, and machine-making trades strong and persistent endeavours are made by co-operative action of capitalists to limit competition by fixing a scale of prices which should not be underbid.

Where competing railways fix a tariff of rates for carriage, or competing manufacturers fix a scale of prices for their goods, their object is to secure to themselves in higher profits a portion or the whole of the productive and competitive economies attending large-scale production, instead of allowing them by unrestricted competition to pass into the hands of their customers. Suppose that a number of steel rail manufacturers freely competing would drive down the selling price to L1 a ton, but that by a trade agreement they maintain L1 10s. as the minimum price, 10s. per ton represents the economies of production which they divert from their customers into their own possession by a limitation of the competition. Part of the 10s. may represent the actual saving of the labour which would have been spent in competition as prices fell from L1 10s. to L1. Part may represent a taking in higher profits of some of the economies of new machinery or improved methods of production common to the competing firms, and which would inevitably have led to a fall of price if the competitive process had been allowed free play.

The prices thus fixed are monopoly prices—that is to say, they are determined by the action of a number of competing capitals which at a certain point agree to suspend their conflict and act as a single capital; when the bidding is above a certain figure they are many, when it is below that figure they are one. The condition in such a trade is one of limited monopoly. The prices fixed by such trade agreements will generally be different from those of a single firm with the absolute monopoly of a market, whose prices are arranged to yield the maximum net profit on the capital engaged. For since the economies of competition and some of the economies of production would be far greater for a single producing firm with a monopoly, the schedule of supply prices measuring the expenses of producing the different quantities of goods will be different, and this difference will be reflected in a different scale of non-competitive market prices from that which would issue from a trade agreement. Moreover, a loose voluntary compact between trade rivals yields a monopoly of a far feebler order than does the unity of a single capital. If a scale of prices were fixed which would yield a considerably higher profit than the market rate, the temptation to secure a larger share of trade by secret underbidding through commissions, drawbacks, or otherwise, or even by an open cutting of rates, is very powerful. Moreover, the ability of a number of firms with conflicting interests to secure this monopoly by quick and vigorous repression of the attempts of outside capital to come in either for the purpose of sharing the higher profits, or of being bought out, is far less than in the case of a single monopolist firm. So the scale of prices fixed by a number of competing firms will generally be nearer to the competition prices than would be the case with the prices of a single monopolist.

Sec. 5. The recognition of the advantages of limiting competition by price tariffs, and the experience of the difficulty of maintaining such tariffs, lead competing businesses to take further steps in the curtailment of competition. Where a powerful trade opinion can be focussed on an offender against the scale, where he can be boycotted or otherwise subjected to punishment, and where outsiders can be prevented from intruding into the trade, a common scale of profitable prices can often be maintained with the verbal or even the tacit consent of those concerned. This is the case in many manufactures where the fixed and well-known character of the goods makes a close price-list possible. Retail dealers in local markets are often able to keep a close adherence to a rigid scale by the pure force of esprit de corps. The price of bread, meat, milk, coals, and other articles sold locally by well-known measures, is seldom, if ever, regulated by free competition among the vendors. In articles where more depends upon the individual quality of wares, and where a rigid tariff is less easily fixed and less easily maintained, as in the case of vegetables, fruit, fish, and groceries, trade agreements are less easy to maintain. Still more difficult is it to maintain a tariff for articles of dress or adornment of the person or the house, and in other articles where the consumer is less confined to a narrow local market.

The general experience of manufacturing and mercantile businesses, where each firm is closely confronted by other firms of similar capacity and equipment at every point in the market, indicates an increasing difficulty in maintaining prices at a profitable level. Everywhere complaints are heard of a reckless use of the productive power of machinery, of over-stocked markets, of a cutting of prices in order to get business, and of a growing inability to make a living rate of profit.

Sec. 6. The endeavour of a number of individual businesses in a trade to fix and maintain a certain profitable scale of prices is constantly frustrated. The introduction of new machinery enabling certain firms to make a profit at prices below the tariff induces them to utilise their full productivity, cut prices, and still sell at a profitable price; others involved in the meshes of speculative production are compelled to cut prices and effect sales even at a loss; the difficulty of finding safe investments drives new capital into the hands of company-promoters, who fling it with criminal negligence into this or that branch of production, underbidding the tariff to win a footing in the market. All these forces render loose agreements to limit competition more and more inadequate to secure their purpose. Frequent experience of the impotence of these partial forms of co-operation drives trade competitors to seek ever closer forms of combination. An issue of this necessity is the Syndicate and the Trust. By raising the co-operative action so as to cover the whole, and by thus reducing the competition to zero, it is hoped that a union may be formed strong enough to maintain monopoly prices. Thus the Trust is seen as the logical culmination of the operation of economic forces which have been continually engaged in diminishing the number of effective competitors, while increasing their size and the proportion of their energy devoted to the competition.

At each stage in the process the smaller competitors are eliminated, and the larger driven to increase their size so that the whole may be illustrated by a pyramid, the base or first stage of which consists of a larger number of small units, and each higher stage of a smaller number of larger units, with a Trust or Monopoly Syndicate for its apex.

Sec. 7. The motive which induces a number of businesses hitherto separate, or associated merely for certain specific actions, such as the fixing of prices or wages, to amalgamate so that they form a single capital on which a single rate of interest is paid, is a double-edged one. There is, on the one hand, the desire to protect themselves against excessive competition and cutting of rates, and on the other hand a desire to secure the advantages which arise from monopoly. The way in which Syndicates and Trusts are regarded depends very much from which of these two aspects they are regarded. Those who consider these business "combines" as arbitrary and high-handed interferences with freedom of commerce, undertaken in order to place in the hands of a few persons a power to rob and oppress the consuming public by legalised extortion, regard the motive of combination to be monopoly. On the other hand, the combining firms represent themselves as the victims of circumstances, bound in self-protection to combine. Our analysis of the operations of commercial competition enables us to see that these two forces are not really separate, but are only two ways of looking at the same action. Every avoidance of so-called "excessive" competition is ipso facto an establishment of a monopoly. The tariff of prices established a weak and partial monopoly. The "combine," whether it takes the name of "ring," "syndicate," or "trust," succeeds, in so far as it establishes a stronger and more absolute monopoly.

In their economic aspect these terms are somewhat vague, the vagueness arising in some degree from the changing and secret shapes these combinations often find it convenient to adopt in order to preserve the appearance of competition, or to avoid public obloquy or legal interference. "Combine" is probably the generic term which covers all these operations. A syndicate of capitalists are said to form a "combine" with the view of controlling prices so as to pay a profitable interest. If they apply their capital not to the acquisition of the plant and machinery of manufacture with the view of regulating production, but directly and mainly to the planning of some speculative stroke or series of strokes in the produce market, obtaining temporary control of sufficient goods of a particular kind to enable them to manipulate prices, they are said to form a "corner" or "ring." Such forms of combined action are generally of short duration. Technically they consist in an artificial diversion[125] of a particular class of goods from the ordinary channel of a number of competing owners into a single ownership, so that they may be held and placed upon the supply market at such times and in such ways as to enable the owner to obtain a famine price. The following description of a wheat "corner" will serve to exemplify this method of "combine":—

"The man who forms a corner in wheat, first purchases or secures the control of the whole available supply of wheat, or as near the whole supply as he can. In addition to this he purchases more than is really within reach of the market by buying 'futures,' or making contracts with others who agree to deliver him wheat at some future time. Of course he aims to secure the greater part of his wheat quietly, at low figures; but after he deems that the whole supply is nearly in his control, he spreads the news that there is a 'corner' in the market, and buys openly all the wheat he can, offering higher and higher prices, until he raises the price sufficiently high to suit him. Now the men who have contracted to deliver wheat to him at this date are at his mercy. They must buy their wheat of him at whatever price he chooses to ask, and deliver it as soon as purchased, in order to fulfil their contracts. Meanwhile mills must be kept in operation, and the millers have to pay an increased price for wheat; they charge the bakers higher prices for flour, and the bakers raise the price of bread. Thus is told by the hungry mouths in the poor man's home the last act in the tragedy of the corner."[126]

These "corners," of which in various forms and degrees the speculative business on the stock and produce markets largely consists, are attempts to substitute for a time a high monopoly price for a competitive price by "rigging the market." Since the calculations upon which these "corners" are based are essentially hazardous, attempted corners frequently break down. One of the most special examples of the collapse of a powerful corner in recent years is that of "La Societe Industrielle Commerciale des Metaux," commonly known as the "Copper Syndicate." A body of French capitalists, for the most part not owners of mines or metal merchandise, but speculators pure and simple, placed a sum of money with the intention of cornering the supply of "tin." Before completing this design they were induced to undertake a larger speculation in the "copper market." In 1887 they entered into contracts with the largest copper-producing companies in various countries, agreeing to buy all the copper produced for the next three years at a fixed price of 13 cents per pound, with an added bonus equivalent to half the profit from their sale of the same. In 1888 the Syndicate sought to extend its contracts with chief mining companies to cover a period of twelve years, arranging with them also to limit the output of copper. For some time they held the market in their grip, and prices advanced considerably. But partly owing to a failure to complete their contracts securing a restriction in production, and partly from inability to meet their current liabilities, the "corner" was broken down in 1889, and the artificially inflated prices fell. Not only are the makers of "corners" liable to these miscalculations, but they are liable to be overthrown by counter combinations of capitalists or of operatives. The breakdown of a formidable attempt to "corner" cotton in Lancashire in 1889 was due to the prompt action of the Trades Unions, who undertook to unite with their employers in a stoppage of work for such length of time as was requisite to force the collapse of the "ring."

In the same year a formidable flour syndicate broke down before the firm attitude of the co-operative flour mills.[127]

But though the speculative character of modern commerce, assisted by the abundant use of credit, has lent special facilities to the formation of "corners" and "rings," it is hardly necessary to say that commerce has never been free from them. The celebrated "corner" in grain which Joseph organised on behalf of the King of Egypt was one of the largest and most successful. The commercial law of the Middle Ages is full of provisions against engrossers, forestallers, and regrators, all of whom were engaged in artificially raising prices to the consumer by obtaining some sort of monopoly. Organised rings to secure a monopoly of the food supply of some great city have been frequent throughout history. Cicero informs us of the celebrated ring of capitalists under Crassus to raise food prices at Rome. A closely-formed combination of northern coalowners continued to restrict output and impose monopoly prices upon London consumers for a considerable time in the middle of the eighteenth century.[128]

In modern times these "corners" are essentially of brief duration so far as they consist in narrowing the stream of commerce at a particular point so as to check its free flow. Most of them are confined to goods which are dealt with upon commercial exchanges, and are amenable to the operations of skilled speculators. The "deal" must be upon a scale large enough to enable a big net profit to be secured in a short time. The stimulation which artificially inflated prices apply to the early productive processes, the activity of other speculators, and the check given to consumption by high prices, generally preclude the possibility of a "corner" lasting long. The strength of the copper "corner," had it succeeded, would have lain in the hold it would have obtained over the early extractive stage, preventing the operation of the natural stimulus of high prices to increase production. If the Copper Syndicate had established its hold upon the mining companies, it would have been able to hold the market for an indefinite period, passing from the state of a "corner" into the more durable and established position of the Trust.

Sec. 8. A Trust may be regarded from an economic aspect, or from a legal aspect. Economically, the term Trust is applied to a class of syndicates which have established a partial or total monopoly in certain productive industries by securing the ownership of a sufficient proportion of the instruments of production to enable them to control prices. Legally, a Trust is a form of business association—"a trust of corporate stocks by means of which a body of men united in interest are enabled to carry on business through separate corporate agencies."[129] It is a company of companies, under which, while the formal structure of the original companies is maintained, they are incorporated as single cells in the larger organism which directs their activity. The constitution of the Trust is best explained by a description of its origin in the industry of the United States. The owners of a majority of the shares in a number of corporations hitherto separate in their constitution (though they may have been acting in agreement with one another, or have been largely owned by the same persons) agree to place their shares of stock in the full control of a body of persons called trustees. These trustees may or may not be shareholders or directors of the several corporations. They "act under an agreement that they will cast the votes represented by the stock so held for the perpetuation of the trust during the time agreed upon, and in furtherance of its purposes: will elect the officers provided for by law in each of the corporations, and in behalf of all of them manage the business of all, except, it may be, in small matters of detail." "Each shareholder, upon surrendering his corporate stock to the board of trustees, receives a certificate entitling him to an interest in all the property and earnings of all the corporations of the trust."[130]

These certificates are believed in many cases to certify a money value far in excess of the real value of the stock surrendered at the time when the Trust was formed. The Report of the New York Chamber of Commerce for 1887-88 estimates the "certificates" given by the Sugar Trust to the shareholders of its constituent corporations as bearing "water" to the amount of 200 per cent., so that the nominal dividend of 10-1/2 per cent. paid during the year represented a real net profit of 31-1/2 per cent. Such statements cannot, however, be verified, since it is the interest of the only persons who actually know to keep secret such an arrangement.

It is asserted by many, and several State courts have sustained the position, that a Trust is in America an illegal association, because it implies on the part of its constituent corporations a violation of the conditions under which they received the powers and privileges conferred in their charters by the government of the several States. Their illegality consists, it is held—

(1) In surrendering the power to manage and control their business to some persons other than those legally authorised.

(2) In engaging, through the Trust, in kinds of business not authorised by the charter.

Sec. 9. It is, however, the economic character and powers of the Trust, and not its legal position, which concern us here.

The following short history of the origin and modus operandi of the Standard Oil Trust, the largest and in some respects the strongest of these organisations, will serve to give distinctiveness to the idea of the Trust:—

Petroleum began to be an article of extensive commerce about the year 1862. The wells from which the crude petroleum oil was drawn were in Pennsylvania, and the work of boring the wells with machinery and extracting the oil grew to be a considerable business. The crude oil was sold to various refiners, who set up factories in Cleveland (Ohio), in Pittsburg, and in several other cities. By 1865 these factories had become pretty numerous, and in that year a private refinery at Cleveland, owned by a few partners, obtained a charter forming it into a corporation entitled the Standard Oil Company, with a capital of $100,000. Until 1870 the progress of the company was comparatively slow. In order to increase their hold upon the sources of production in Pennsylvania, and to expand their trade, they began to purchase stock in corporations already existing in that State, and succeeded in establishing others, with which they worked in close alliance. A Standard Oil Company was organised at Pittsburg, the stock of which passed into the hands of the owners of the Cleveland Company. They then proceeded to establish agencies in other States, primarily for the sale of their goods, but when these businesses were firmly planted they obtained for them from the several States charters incorporating them as companies for refining oil. In 1872 the shareholders of the Standard Oil Companies at Cleveland, Pittsburg, and Philadelphia organised another corporation called the South Improvement Company, obtaining a charter from the State of Pennsylvania. This corporation, which was in fact though not in legal form the "Standard Oil Companies," then entered into contracts with the New York Central and Hudson River Railroad Company, the Erie Railway Company, and several other lines which traversed the oil-producing country, for the shipment of petroleum. The South Improvement Company agreed to ship over these railways all the petroleum products. In return the railway companies agreed to carry their goods, not upon the terms open to other customers, but with a system of rebates, paid not only upon the oil shipped by the company, but upon that shipped by any other competing companies. "In one locality the railroad companies were to charge oil shippers as freight not exceeding $1.50 per barrel, and pay a rebate to the South Improvement Company of $1.06 per barrel, whether it was the shipper of the oil or not, so that under these contracts the Standard Oil Company members would pay no more than 44 cents per barrel as freight to the carrier, while their competitors would pay $1.50, and of this last sum the railways were to pay back to the combination $1.06 per barrel."[131]

Though this monstrous conspiracy was quickly unmasked, and the South Improvement Company lost its charter, secret negotiations with the railway companies enabled the Standard Oil Companies to strengthen themselves by this system of rebates paid out of the pockets of their business rivals. Chiefly by means of these and other discriminating contracts they were enabled to enlarge their sphere of activity, and making full use of their growing capital, succeeded in destroying or absorbing their competitors, until, as early as 1875, they held a practical monopoly of the refineries of the interior. No fewer than seventy-four refineries are stated to have been bought up, leased, or bankrupted by the Standard Oil Company in Pennsylvania alone in the course of its career.