Essentials of Economic Theory Part 17

An important fact is that the monopoly has as a motive the making of profits for its stockholders. Not only is that a less powerful motive than self-preservation, but it appeals largely to persons who are not themselves in control of the business. Absentee owners.h.i.+p is the chief disability of the monopoly. Managers may have other interests than those of large dividend making, and in such cases a monopoly is apt to wait too long before changing its appliances. It needs to be in no hurry to buy a new invention, and it can make delay and tire out a patentee, in order to make good terms with him; and this practice affords little encouragement to the independent inventor. On the whole, a genuine and perfectly secure monopoly would mean a certain degree of stagnation where progress until now has been rapid.

_Why the Public depends on Compet.i.tion for Securing its Share of Benefit from Improvements._--Another question is whether the two systems, that of compet.i.tion, on the one hand, and monopoly, on the other, confer equal benefits on the public by virtue of the improvements they make. Compet.i.tion does this with the greatest rapidity. As we have seen, it transforms the net profits due to economies into increments of gain for capitalists and laborers throughout all society. The wages of to-day are chiefly the transformed profits of yesterday and of an indefinite series of earlier yesterdays. The man who is now making the profits is increasing his output, supplanting less efficient rivals, and giving consumers the benefit of his newly attained efficiency in the shape of lower prices of goods. In practice rivals take turns in leading the procession; now one has the most economical method, now another, and again another; and the great residual claimant, the public, very shortly gathers all gains into its capacious pouch and keeps them forever.

Would a secure monopoly do something like this? Far from it. It would be governed at every step by the rule of maximum net profits for itself. Its output would not be carried beyond the point at which the fall in price begins really to be costly. The lowering of the price enlarges the market for the monopoly's product and up to a certain point increases its net gains. Beyond that point it lessens them.

[Ill.u.s.tration]

Now, even the interest of the monopoly itself would lead it to give the public some benefit from every economy that it makes. This is because the amount of output that will yield a maximum of profit at a certain cost of production is not the same that will yield the maximum of net profit when the cost is lower. Every fall in cost makes it for the interest of the monopoly to enlarge its output somewhat, but by no means as much as competing producers would enlarge theirs. It will always hold the price well above the level of cost. In the accompanying figure distance along the line _AK_ represents the amount of goods produced, while vertical distance above the line measures costs of production, as well as selling prices, and the descending curve _FJ_ represents the fall of prices which takes place as the output of the goods is increased. Now, when the cost of production stands at the level of the line _CI_, the amount of output that will yield the largest amount of net profit is the amount represented by the length of the line _AM_. That amount of product can be sold at the price represented by the line _MG_. The gross return from the sale will be expressed by the area of the rectangle _AEGM_, and the area _CEGN_, which falls above the line of cost, _CI_, is net profits. They are larger than they would be if the line _MG_ were moved either to the right or to the left, _i.e._, if the amount of production were made either larger or smaller. Now, if the cost of production falls to the level of the line _BJ_, it will be best to increase the output from _AM_ to _AL_. The whole return will then be represented by the rectangle _ADHL_, and the area _BDHO_ represents profits, with the cost at the new and lower level. These are somewhat larger than they would be if the output continued to be only the amount _AM_. Under free compet.i.tion the price would fall to the line _BJ_, the net profits would disappear, and the public would have the full benefit of the improvement in production.

_The Purpose of the System of Patents._--Patents are a legal device for promoting improvements, and they accomplish this by invoking the principle of monopoly which in itself is hostile to improvement. They do not as a rule create the exclusive privilege of producing a kind of consumers' goods, but they give to their holders exclusive use of some instrumentality or some process of making them. The patentee is not the only one who can reach a goal,--the production of a certain article,--but he is the only one who can reach it by a particular path. A patented machine for welting shoes stops no one from making shoes, but it forces every one who would make them, except the patentee or his a.s.signs, to resort to a less economical process.

_Patents Limited in Duration indispensable as Dynamic Agents._--If an inventor had no such protection, the advantage he could derive would be practically _nil_, and there would be no incentive whatever for making ventures except the pleasure of achievement or the honor that might accrue from it. In the case of poor inventors this would be cold comfort in view of the time and outlay which most inventions require.

Not only on _a priori_ grounds, but on grounds of actual experience and universal practice, we may say that patents are an indispensable part of a dynamic system of industry. It is also important that the monopoly of method which the patent gives should be of limited duration. If the method is a good one and the profit from using it is large, the seventeen years during which in our own country a patent may run affords, not only an adequate reward for the inventor, but an incentive to a myriad of other inventors to emulate him and try to duplicate his success. Ingenious brains, which are everywhere at work, usually prevent the owners of a particular patent from keeping any decisive advantage over compet.i.tors during the whole period of seventeen years. Long before the expiration of that time some device of a different sort may enable a rival to create the same product with more than equal economy, and the leaders.h.i.+p in production then pa.s.ses to this rival, to remain with him till a still further device effects a still larger economy and carries the leaders.h.i.+p elsewhere. That alternation in leaders.h.i.+p which we have described and ill.u.s.trated takes place largely in consequence of our system of patents; and yet every particular patent affords a quasi-monopoly to its holder. The endless succession of them insures a wide diffusion of advantages. At the expiration of each patent, even if it has not been supplanted by a later and more valuable one, the public gets the benefit of the full economy it insures, and wherever an unexpired patent is supplanted by a new one, the public gets this benefit much earlier. Cost of production tends rapidly downward, and the public is the permanent beneficiary.

_Patents as a Means of Curtailing Monopolies._--While a patent may sometimes sustain a powerful monopoly it may also afford the best means of breaking one up. Often have small producers, by the use of patented machinery, trenched steadily on the business of great combinations, till they themselves became great producers, secure in the possession of a large field and abundant profit. Moreover, in the case of a patent which builds up a monopoly and continues for the full seventeen years of its duration unsupplanted by any rival device, the public is likely to get more benefit than the patentee, or even the company which uses his invention. In widening the market for its product the company must constantly cater to new circles of marginal consumers, and must give to all but the marginal ones an increasing benefit that is in excess of what it costs them. Probably few patents have been issued in America which ill.u.s.trate the unfavorable features of the system more completely than did the Bell telephone patent, which gave to a single company during a long period a monopoly of the telephone business; and yet there are few men of affairs who do not perceive that, in the saving of time which the telephone effected and in the acceleration of business which it caused, they gained from the outset more than they lost in the shape of high fees. Something of the same kind is true of the users of domestic telephones; for though they may cost more than they should, they do their share toward placing those who use them on a higher level of comfort.

_The Law of Survival of Efficient Organization._--In broad outlines we have depicted the conditions which favor technical progress. There is a law of survival which, when compet.i.tion rules, eliminates poor methods and introduces better ones in endless succession. Under a regime of secure monopoly this law of survival scarcely operates, though desire for gain causes a progress which is less rapid and sure.

The same may be said of changes in organization, in so far as that means a coordinating of the labor and the capital within an establishment. When the manager of a mill so marshals his forces as to get a much larger product per man and per dollar of invested capital than a rival can do, he has that rival at his mercy and can absorb his business and drive him from the field. In order to survive, any producer must keep pace with the aggressive and growing ones among his rivals in the march of improvement, whether it comes by improved tools of trade or improved generals.h.i.+p in the handling of men and tools.

Quite as remorseless as the law of survival of good technical methods is the law of survival of efficient organization, and so long as the organization is limited to the forces under the control of single and competing _entrepreneurs_, what we have said about the advance in methods applies to it. It is a beneficent process for society, though its future scope is more restricted than is that of technical improvement, since the marshaling of forces in an establishment may be carried so near to perfection that there is a limit on further gains.

Moreover organization, in the end, ceases to confine itself to the working forces of single _entrepreneurs_, but often continues till it brings rival producers into a union.

_The Extension of Organization to Entire Subgroups._--Both of these modes of progress cause establishments to grow larger, and the ultimate effect of this is to give over the market for goods of any one kind to a few establishments which are enormously large and on something like a uniform plane of efficiency. Then the organizing tendency takes a baleful cast as the creator of "trusts" and the extinguisher of rivalries that have insured progress.

When monster-like corporations once start a compet.i.tive strife with each other, it is very fierce and very costly for themselves; and this affords an inducement for taking that final step in organization which brings compet.i.tion to an end. That is organization of a different kind, and the effects of it are very unlike those of the coordinating process which goes on within the several establishments. In this, its final stage, the organizing tendency brings a whole subgroup into union, and undoes much of the good it accomplished in its earlier stage, when it was perfecting the individual establishments within the subgroup. While the earlier process makes the supply of goods of a certain kind larger and cheaper, the final one makes it smaller and dearer; and while the earlier process scatters benefits among consumers, the final one imposes a tax on consumers in the shape of higher prices for merchandise. Yet the union that is formed between the shops is, in a way, the natural sequel to the preliminary organization which took place within them and helped to make them few and large. Trusts are a product of economic dynamics, and we shall study them in due time. The organization we have here in view is the earlier one which takes place within the several establishments. It obeys a law of survival in which compet.i.tion is the impelling force, though it leads to a condition in which an effort is made to bring compet.i.tion to an end. This earlier organization is most beneficent in its general and permanent effects; and what has been said of the results of progress in the technique of production may, with a change of terms, be said again of progress in the art of coordinating the agents employed. It is a source of temporary gain for _entrepreneurs_ and of permanent gains for laborers and capitalists. It adds to the grand total of the social product and leaves this to be distributed in accordance with the principle which, in the absence of untoward influences, would treat the producers fairly--that which tends to give to each producer a share more or less equivalent to his contribution.

In its nature and in its results it is the opposite of that other type of organization which seeks to bring compet.i.tive rivalry to an end, and in so far as it succeeds divorces men's contributions to the social product from the shares that they draw from it.

CHAPTER XXII

INFLUENCES WHICH PERVERT THE FORCES OF PROGRESS

Thus far we have been dealing with what we have called natural forces.

The phenomena which we have studied have not been caused by any conscious and purposeful action of the people as a whole. They have not been brought about by the power of governments nor by anything which savors of what is called collectivism. Individuals have done what they would, seeking to promote their own interests under conditions of great freedom, and the effect has been a system of social industry which is highly productive, progressive, and generally honest. Production has constantly increased, and the product has been shared under the influence of a law which, if freedom were quite complete and compet.i.tion perfect, would give to each producer what he contributes to the aggregate output of the great social workshop. We have claimed that, in the world as it is, influenced by a great number of disturbing forces, these fundamental laws still act and tend to bring about the condition of productiveness, progress, and honesty which is their natural result. If the actual condition falls short of this, the fact is mainly due to curtailments of freedom and interferences with the compet.i.tion which is the result of freedom.

_Influences which r.e.t.a.r.d Static Adjustments._--Throughout the study we have paid due attention to those ordinary elements of "economic friction" which all theoretical writers have recognized and which practical writers have put quite in the foreground; and we have discovered that, while they are influences to be taken account of in any statement of principles, they in no wise invalidate principles themselves. For the most part they are influences which r.e.t.a.r.d those movements which bring about static adjustments. An invention cheapens the production of some article and at once the natural or static standard of its price falls; but the actual price goes down more slowly, and in the interim the producer who has the efficient method gathers in the fruit of it as a profit. The r.e.t.a.r.ding influence is a fact that should be as fully recognized in a statement of the law of profit as any other. The existence of it is an element in the theory of _entrepreneur's_ profit. Improvements which reduce the cost of goods enhance the product of labor, and this sets a higher standard for wages than the one that has thus far ruled; but a delay occurs before the pay of workmen rises to the new standard. Adjustments have to be made which require time, and these are as obviously elements that must be incorporated into an economic theory as any with which it has to deal.

_Influences which resist Dynamic Movements._--If there is anything which, without impairing the motive powers of economic progress, puts an obstacle in the way of the movement, it has to be treated like one of these elements of friction to which we have just referred. In our discussion of the growth of population, the increase of wealth, the improvement of method, etc., we have paid attention to resisting forces as well as others, and have tried to determine what is the resultant of all of them. The forces of resistance have their place in a statement of dynamic laws.

_An Influence that perverts the Forces of Progress._--We have to deal, not only with such r.e.t.a.r.ding influences, but with a positive perversion of the force that makes for progress. Everywhere we have perceived that compet.i.tion--the healthful rivalry in serving the public--is essential in order that the best methods and the most effective organization should be selected for survival, and that industry should show a perpetual increase in productive power. In our study of the question whether improved method and improved organization tend to promote or to check further improvement, we have found that these beneficent changes are naturally self-perpetuating, so long as the universal spring of progress, compet.i.tion, continues. A proviso has perforce been inserted into our optimistic forecast as to the economic future of the world--if nothing suppresses compet.i.tion, progress will continue forever.

_Monopoly and Economic Progress._--The very ant.i.thesis of compet.i.tion is monopoly, and it is this which, according to the common view, has already seated itself in the places of greatest economic power.

"Compet.i.tion is excellent, but dead," said a socialist in a recent discussion; and the statement expresses what many believe. There is in many quarters an impression that monopoly will dominate the economic life of the twentieth century as compet.i.tion has dominated that of the nineteenth. If the impression is true, farewell to the progress which in the past century has been so rapid and inspiring. The dazzling visions of the future which technical gains have excited must be changed to an antic.i.p.ation as dismal as anything ever suggested by the Political Economy of the cla.s.sical days--that of a power of repression checking the upward movement of humanity and in the end forcing it downward. No description could exaggerate the evil which is in store for a society given hopelessly over to a regime of private monopoly.

Under this comprehensive name we shall group the most important of the agencies which not merely resist, but positively vitiate, the action of natural economic law. Monopoly checks progress in production and infuses into distribution an element of robbery. It perverts the forces which tend to secure to individuals all that they produce. It makes prices and wages abnormal and distorts the form of the industrial mechanism. In the study of this perverting influence we shall include an inquiry as to the means of removing it and restoring industry to its normal condition. We shall find that this can be done--that compet.i.tion can be liberated, though the liberation can be accomplished only by difficult action on the part of the state.

_The comparatively Narrow Field of Present Action by the State._--Economic theory has always recognized the existence and the restraining action of the civil law, which has prohibited many things which the selfishness of individuals would have prompted them to do.

Certain officers of the state const.i.tute, as we saw in an early chapter, one generic cla.s.s of laborers, one of whose functions it is to retain in a state of appropriation things on which other men have conferred utility--that is, to protect property, and so to cooperate in the creation of wealth. In a few directions they render services which private employers might render in a less effective way. The state, through its special servants, educates children and youth, guards the public health, encourages inventions, stimulates certain kinds of production, collects statistics, carries letters and parcels, provides currency, improves rivers and harbors, preserves forests, constructs reservoirs for irrigation, and digs ca.n.a.ls and tunnels for transportation. In these ways and in others it enters the field of positive production; but in the main it leaves that field to be occupied by private employers of labor and capital. Business is still individualistic, since those who initiate enterprises and control them are either natural persons or those artificial and legal persons, the corporations.

_The Growing Field of Action by Corporations._--Until recently there has been comparatively little production in the hands of corporations great enough to be exempt from the same economic laws which apply to a blacksmith, a carpenter, or a tailor. Individual enterprise and generally free compet.i.tion have prevailed. The state has not checked them and the great aggregations of capital to which we give the name "trusts" have not, in this earlier period, been present in force enough to check them. The field for business enterprise has been open to individuals, partners.h.i.+ps, and corporations; they have entered it fearlessly, and a free-for-all compet.i.tion has resulted. This free action is in process of being repressed by chartered bodies of capitalists, the great corporations, whom the law still treats somewhat as though in its collective entirety each one were an individual. They are building up a semi-public power--a quasi-state within the general state--and besides vitiating the action of economic laws, are perverting governments. They trench on the freedom on which economic laws are postulated and on civic freedom also.

_How Corporations pervert the Action of Economic Laws._--Whatever interferes with individual enterprise interferes with the action of the laws of value, wages, and interest, and distorts the very structure of society. Prices do not conform to the standards of cost, wages do not conform to the standard of final productivity of labor, and interest does not conform to the marginal product of capital. The system of industrial groups and subgroups is thrown out of balance by putting too much labor and capital at certain points and too little at others. Profits become, not altogether a temporary premium for improvement,--the reward for giving to humanity a dynamic impulse,--but partly the spoils of men whose influence is hostile to progress. Under a regime of trusts the outlook for the future of labor is clouded, since the rate of technical progress is not what it would be under the spontaneous action of many compet.i.tors. The gain in productive power which the strenuous race for perfection insures is r.e.t.a.r.ded, and may conceivably be brought to a standstill, by the advent of corporations largely exempt from such compet.i.tion. There is threatened a blight on the future of labor, since the standard of wages, set by the productivity of labor, does not rise as it should, and the actual rate of wages lags behind the standard by an unnaturally long interval. There is too much difference between what labor produces and what it ought to produce, and there is an abnormally great difference between what it actually produces and what it gets.

_The Fields for Monopolies of Different Kinds._--Monopoly is thus a general perverter of the industrial system; but there are two kinds of monopoly, of which only one stands condemned upon its face as the enemy of humanity. For a state monopoly there is always something to be said. Even socialism--the owners.h.i.+p of all capital, and the management of all industry by governments--is making in these days a plea for itself that wins many adherents, and the demand that a few particular industries be socialized appeals to many more. The munic.i.p.al owners.h.i.+p of lighting plants, street railways and the like, and the owners.h.i.+p of railroads, telegraph lines, and some mines by the state are insistently demanded and may possibly be secured. We can fairly a.s.sume that, within the period of time that falls within the purview of this work, general socialism will not be introduced. In a few limited fields the people may accept governmental monopolies, but private monopolies are the thing we have chiefly to deal with; and it is to them, if they remain unchecked, that we shall have to attribute a disastrous change in that generally honest and progressive system of industry which has evolved under the spur of private enterprise.

_Two Modes of Approaching a Monopolistic Condition._--The approach to monopoly may be extensive or intensive. A fairly complete monopoly may be established in some part of the industrial field, and the area of its operations may then be extended. Smelters of iron and steel, after attaining an exclusive possession of their original fields of production, may become carriers, producers of ore, makers of wire, plate, and structural steel, and builders of s.h.i.+ps, bridges, etc.

On the other hand, a great corporation may have, at the outset, but little monopolistic power, and it may then acquire more and more of it within the original field of its operations. It may at first make compet.i.tion difficult and crush a few of its rivals, and then, as its power increases, it may make compet.i.tion nearly impossible in the greater part of its field and drive away nearly all the rivals who remain. It is necessary to form a more accurate idea than the one which is commonly prevalent of what actual monopolies are, of what they really do, of what they would do if they were quite free to work their will, and of what they will do, on the other hand, if they are effectively controlled by the sovereign state. Regulation of monopolies we must have; that is not a debatable question. The sovereignty of the state will be preserved in industry and elsewhere, and it is perfectly safe to a.s.sert that only by new and untried modes of a.s.serting that sovereignty can industry hereafter be in any sense natural, rewarding labor as it should, insuring progress, and holding before the eyes of all cla.s.ses the prospect of a bright and a.s.sured future. We are dependent on action by the state for results and prospects which we formerly secured without it; but though we are forced to ride roughshod over _laissez-faire_ theories, we do so in order to gain the end which those theories had in view, namely, a system actuated by the vivifying power of compet.i.tion, with all that that signifies of present and future good.

_The Nature of a True Monopoly._--The exclusive privilege of making and selling a product is a monopoly in its completest form. This means, not only that there is only one establishment which is actually creating the product, but there is only one which is able to do so.

This one can produce as much or as little as it pleases, and it can raise the price of what it sells without having in view any other consideration than its own interest.

_The Possibility of the Form of Monopoly without the Power of It._--A business, however, may have the form of a monopoly, but not its genuine power. It may consolidate into one great corporation all the producers of an article who send their goods into a general market, and if no rivals of this corporation then appear, the public is forced to buy from it whatever it needs of the particular kind of goods which it makes. Consumers of _A'''_ of our table may find that they can get none of it except from a single company. Yet the price may conceivably be a normal one. It may stand not much above the cost of production to the monopoly itself. If it does so, it is because a higher price would invite compet.i.tion. The great company prefers to sell all the goods that are required at a moderate price rather than to invite rivals into its territory. This is a monopoly in form but not in fact, for it is shorn of its injurious power; and the thing that holds it firmly in check is _potential compet.i.tion_. The fact that a rival _can_ appear and _will_ appear if the price goes above the reasonable level at which it stands, induces the corporation to produce goods enough to keep the price at that level. Under such a nearly ideal condition the public would get the full benefit of the economy which very large production gives, notwithstanding that no actual compet.i.tion would go on. Prices would still hover near the low level of cost. The most economical state conceivable is one in which, in many lines of business, a single great corporation should produce all the goods and sell them at a price so slightly above their cost as to afford no incentive to any other producer to come into the field. Since the first trusts were formed the efficiency of potential compet.i.tion has been so constantly displayed that there is no danger that this regulator of prices will ever be disregarded. Trusts have learned by experience that too great an increase in the prices of their products "builds mills." It causes new producers who were only potentially in the field actually to come into it and to begin to make goods. To forestall this, the trusts have learned to pursue a more conservative policy and to content themselves with smaller additions to the prices of their wares. If it were not for this regulative work of the potential compet.i.tor, we should have a regime of monopoly with its unendurable evils; and if, on the other hand, the regulator were as efficient as it should be, we should have a natural system in which complete freedom would rule. The limitless difference between these conditions measures the importance of potential compet.i.tion.[1]

[1] For an early statement of this principle the reader is referred to the chapter on "The Persistence of Compet.i.tion,"

by Professor F. H. Giddings, in a work ent.i.tled "The Modern Distributive Process," written jointly by Professor Giddings and the present writer. This chapter first appeared as an article in the _Political Science Quarterly_ for 1887.

_Cost of Production in Independent Mills a Standard of Price._--A consolidated company will ultimately have a real but small advantage over a rival in the cost of producing and selling its goods; but at present the advantage is often with the rival. His plant is often superior to many of those operated by the trust. When the combination brings its mills to a maximum of efficiency and then reaps _the further advantage which consolidation itself insures_, it will be able to make a small profit while selling goods at what they cost in the mills of its rival. This cost which a potential compet.i.tor will incur if he actually comes into the field sets the natural standard of price in the new regime of seeming monopoly; and it will be seen that if this natural price really ruled, the monopoly would have only a formal existence. It would be shorn of its power to tax the public.

_Partial Monopolies now Common._--What we have is neither the complete monopoly nor the merely formal one, but one that has power enough to work injury and to be a menace to industry and politics. If it long perverts industry, it will be because it perverts politics--because it baffles the people in their effort to make and enforce laws which would keep the power of compet.i.tion alive. In terms of our table the subgroups are coming to resemble single overgrown corporations. Each of them, where this movement is in progress, is tending toward a state where it will have a single _entrepreneur_--one of those overgrown corporations which resemble monopolies and are commonly termed so.

Complete monopolies, as we have said, they are not; and yet, on the other hand, they are by no means without monopolistic power. They are held somewhat in check by the potential compet.i.tion we have referred to, but the check works imperfectly. At some points it restrains the corporations quite closely and gives an approach to the ideal results, in which the consolidation is very productive but not at all oppressive; while elsewhere the check has very little power, oppression prevails, and if anything holds the exactions of the corporation within bounds, it is a respect for the ultimate power of the government and an inkling of what the people may do if they are provoked to drastic action.

_Two Policies open to the State._--The alternatives which are open to us are, in this view, reduced to two. Consolidation itself is inevitable. If, in any great department of production, it creates a true monopoly which cannot be otherwise controlled, the demand that the business be taken over by the government and worked for the benefit of the public will become irresistible. If it does not become a true monopoly, the business may remain in private hands. Inevitable consolidation with a choice between governmental production and private production is offered to us. We are at liberty to select the latter only if potential compet.i.tion shall be made to be a satisfactory regulator of the action of the great corporations.

_The Future Dependent on Keeping the Field open for Compet.i.tors._--Potential compet.i.tion, on which, as it would seem, most of what is good in the present economic system depends, has also the fate of the future in its hands. Existing evils will decrease or increase according as this regulator shall work well or ill. Yet it is equally true that the government has the future in its hands, for the potential compet.i.tion will be weak if the government shall do nothing to strengthen it. It is, indeed, working now, and has been working during the score of years in which great trusts have grown up; but the effects of its work have been unequal in different cases, and it is safe to say that, in the field as a whole, its efficiency has, of late, somewhat declined. With a further decline, if it shall come, prices will further rise, wages will fall, and progress will be r.e.t.a.r.ded. The natural character of the dynamic movement is at stake and the continuance of so much of it as now survives and the restoration of what has been lost depend on state action.

_The Impossibility of a Laissez-faire Policy._--Great indeed is the contrast between the present condition and one in which the government had little to do but to let industry alone. Letting free compet.i.tors alone was once desirable, but leaving monopolies quite to themselves is not to be thought of. It would, indeed, lead straight to socialism, under which the government would lay hands on business in so radical a way as to remove the private _entrepreneurs_ altogether. If we should try to do nothing and persist too long in the attempt, we might find ourselves, in the end, forced to do everything. What is of the utmost importance is the kind of new work the government is called on to do.

It is chiefly the work of a sovereign and not that of a producer. It is the work of a law-giving power, which declares what may and what may not be done in the field of business enterprise. It is also the work of a law-enforcing power, which makes sure that its decrees are something more than pious wishes or a.s.sertions of what is abstractly right. All of this is in harmony with the old conception of the state as the protector of property and the preserver of freedom. The people's interests, which the monopoly threatens, have to be guarded.

The right of every private compet.i.tor of a trust to enter a field of business and to call on the law for protection whenever he is in danger of being unfairly clubbed out of it, is what the state has to preserve. It is only protecting property in more subtle and difficult ways than those in which the state has always protected it. The official who restrains the plundering monopoly, preserves honest wealth, and keeps open the field for independent enterprise does on a grand scale something that is akin to the work of the watchman who patrols the street to preserve order and arrest burglars.

_A Possible Field for Production by the State._--There is a possibility that in a few lines of production the American government may so far follow the route marked out by European states as to own plants and even operate them, and may do so _in the interest of general compet.i.tion_. It may construct a few ca.n.a.ls, with the special view to controlling charges made by railroads. It may own coal mines and either operate them or control the mode of operating them, for the purpose of curbing the exactions of monopolistic owners and securing a continuous supply of fuel. It may even own some railroads for the sake of making its control of freight charges more complete. Such actions as these may be slightly anomalous, since they break away from the policy of always regulating and never owning; nevertheless, they are a part of a general policy of regulation and a means of escape from a policy of owners.h.i.+p. The selling of coal by the state may help to keep independent manufacturing alive, and carrying by the state may do so in a more marked way. If so, these measures have a generally anti-socialistic effect, since they obstruct that growth of private monopoly which is the leading cause of the growth of socialism.

_Evils within the Modern Corporation._--The great corporation brings with it some internal evils which might exist even if it never obtained a monopoly of its field. In this cla.s.s are the injuries done by officers of the corporation to the owners of it, the stockholders.

A typical plundering director has even more to answer for by reason of what he does to his own shareholders than because of what he and the corporation may succeed in doing to the public. In the actual amount of evil done, the robbing of shareholders is less important than the taxing of consumers and the depressing of wages, which occur when the effort to establish a monopoly is successful; but in the amount of iniquity and essential meanness which it implies on the part of those who practice it, it takes the first rank, and its effect in perverting the economic system cannot be overlooked. The director who buys property to unload upon his own corporation at a great advance on its cost, or who alternately depresses the business of his corporation and then restores it, in order that he may profit by the fall and the rise of the stock, not only does that which ought to confine his future labors to such as he could perform in a penitentiary, but does much to vitiate the action of the economic law which, if it worked in perfection, would give to the private capitalist a return conformable to the marginal product of the capital he owns. A sound industry requires that the state should protect property where this duty is now grossly neglected.

If more publicity will help to do this,--if lighting street lamps on a moral slum will end some of the more despicable acts committed by men who hold other men's property in trust,--sound economics will depend in part on this measure, but it depends in part on more positive ones.

The investment of capital is discouraged and an important part of the dynamic movement is hindered wherever shareholders are made insecure; and therefore the entire relation of directors to those whose property they hold in trust needs to be supervised with far more strictness than has ever been attempted under American law. When invested capital shall be quite out of the range of buccaneers' actions, it will produce more, increase more rapidly, and the better do its part toward maintaining the wages of labor.

_Perversions of the Economic System by the Action of Promoters._--The state will be carrying out its established policy if it shall effectively control the action of promoters in their relation to prospective investors. The man who is invited to become a stockholder has a right to know the facts on which the value of the property offered to him depends. How many plants does the consolidated corporation own? How much did they cost? What is their present state of efficiency? What have been their earnings during recent years?

Concerning these things and others which go to make up a correct estimate of the value of what the promoter is selling, the purchaser needs full and trustworthy information, and an obvious function of the law is to see that he gets it. That such action would guard investors'

personal rights is, of course, a reason for taking it; but the reason that here appeals to us is the fact that it would remove a second perversion of the economic system, accelerate the increase of capital, and help in securing a distribution of wealth which would be more nearly in accordance with natural law.

_Perversions of the System caused by the Action of Corporations in their Entirety._--More directly within the domain of pure economics is the relation between the typical great corporation and the majority of the public which is wholly outside of it. In the common mind this relation also often appears as that of plunderers and plundered, and what it often has actually been, is a relation between corporations which have exacted a certain tribute and a body of consumers which has had to pay the tribute. Bound up with this general relation between the manufacturing corporation and the consuming public is one between it and producers of raw material which it buys and with laborers whom it hires. In this last relation what is endangered is the normal rate of pay, present and future. The type of measure which protects consumers protects the other parties who are affected by the great corporation's policy. Workers are safe and producers of raw materials are measurably so if the power of compet.i.tion in the making and selling of the goods is kept alive. If we prevent the trust from taking tribute from the purchasing public, we shall by the same means prevent it from oppressing laborers and farmers.

_Why the Business of a Monopoly should never be regarded as a Private Interest._--The people are already putting behind them and ought to put completely out of sight and mind the idea that the business of a monopoly is a private enterprise which its officers have a right to manage as they please. A corporation becomes a public functionary from the time when it puts so many of its rivals out of the field that the people are dependent on it. As well might the waiter who brings food to the table claim that the act is purely his own affair and that the customers and the manager have no right of interference, however well or ill the customers may be served, as a combination of packers might claim that any important detail of their business concerns them only.