are most efficient. But advantages accruing from this fact will in most cases prove to be of a temporary nature, as trusts that have tried to base a monopoly upon the control of all available patents have learned in the past, and will learn in the future. Moreover, a simple reform in our patent laws will make the best processes available for all producers for any time that the public finds such a measure to be necessary for protection against monopoly. Here, then, we find no natural law working resistlessly towards combination, but a man-made device which can be regulated as public policy may dictate.

Again, we are told that a trust can produce more cheaply than separate concerns, because all the plants utilized can be run at their full capacity; whereas, under competition, many establishments can be kept in operation but a part of the time. Some observations may be made concerning this claim.

In general, it may be denied that, whenever governmental interference has not produced unhealthy and abnormal conditions, competition has led to such absurdly excessive investments as is commonly assumed. We must concede, however, that under normal conditions some reduction can be made in the number of plants required to supply the market at ordinary times; but this does not dispose of the matter. If a trust is to be prepared for supplying the market promptly in times of rapidly increasing demand, it is necessary that some surplus productive capacity must exist in periods of stationary or decreasing demand; for, as believers in the tendency to monopoly often remind us, many months, or even one or two years, are required for the construction of new plants. When this fact is taken into account, the case will stand as follows: except where the action of government has produced abnormal conditions, the capacity of competing establishments does not exceed the requirements of the market to any such degree as is commonly assumed; even a trust must provide for periods of expanding trade; even then, not all rival establishments suffer seriously from inability to find continuous employment for their plants, so that probably the advantages secured by the trust are of consequence only when the least fortunate or least efficient independent concerns are made the basis of comparison.

Again, we are reminded of advantages in buying materials or selling products. It is urged that a combination can purchase its raw materials more cheaply than separate concerns. No one doubts that a large company can often secure better terms than a small establishment; but it is not so clear that every trust can secure supplies more cheaply than large independent enterprises, unless

it is true that all combinations can arbitrarily depress the prices of the materials which they consume. Undoubtedly, this has been done by some of the trusts, although their partisans deny it; but such a saving represents no social gain, and sometimes it may be possible for would-be competitors to profit by the depressed condition of the market for raw materials.

And, finally, we come to economies in advertising and in soliciting business, where the wastes of competition are certainly serious and the room for improvement correspondingly great. Those who deny the tendency to monopoly generally admit that a trust can have a material advantage here, while those who affirm the existence of such a tendency evidently realize that their case is strongest at this point. Yet an opportunity for saving in these departments does not always exist, and the extent of the economy is easily exaggerated in other cases. Mr. Nettleton is right when he says: "But to what extent the trust organizers have counted on practically cancelling expenditure for these two items, on the ground that buyers will be obliged to come to the sole manufacturers, they are likely to be surprised. To an extent which few appreciate, the buying public has become accustomed to being reminded of its needs before making purchases. Except in staple and absolutely necessary commodities, demand is largely created and maintained. by advertising through periodicals, catalogues, or travelling salesmen. Hence, the trust that expects to save the bulk of this important item must also expect to lose through diminished sales more than the economy represents. This is not theory, but the testimony of leading dealers in many lines."

We must now take into account certain counteracting forces, upon which some writers rest their belief that competition will ultimately prevail. These economists contend, in the first place, that, outside the field of the natural monopolies, the growth of a business enterprise is limited by the fact that companies of a certain size will secure "maximum efficiency" of investment, and that beyond this point concentration brings no increase in productive capacity. This position is based upon the belief that a factory of a certain size will enable machinery to be employed in the most advantageous manner; that a reasonable number of such plants will make possible all needful specialization of production; that allied and subsidiary industries can be, and are, carried on by large independent concerns; and that the cost and difficulties of supervision increase rapidly after a business is enlarged beyond a certain size, especially when it is attempted to unite plants situated in different parts of the country. For this reason, increased output does

not decrease the burden of fixed charges after a company attains a certain magnitude; but, on the contrary, new charges arise. Among such new expenses, not the least important are the cost of employing the most skilled legal talent to steer the combination just close enough to the law, the expenses necessary for "legislative" and "educational" purposes, and the outlays for stifling competition or the continual "buying out" of would-be rivals.

It is argued that an established monopoly will suffer actual loss from listless and unprogressive management. As the New York Journal of Commerce rightly insists, "It is not to be denied that such concentrations of management will be subject to countervailing offsets from the absence of the stimulus of competition; from the uncertainty about the management falling into the best possible hands; from the discouragement to invention which always attends monopoly, and from the possibility that the administration may be intrusted to 'friends' rather than to experts." As Professor Clark suggests, an established monopoly, secure in the possession of the markets of a large country "would not need to be forever pulling out its machines and putting in better," so that, as compared with countries where industry is upon a competitive basis, such a combination would fall behind in the struggle for international trade. In ruthlessly and unceasingly displacing expensive machinery with newer and better appliances, American manufacturers have probably led the world; but monopolies will inevitably feel reluctant to continue such an energetic policy of improvement. As combinations obtain a greater age, they will persist in old and established methods; while nepotism and favoritism, tending towards hereditary office-holding will replace the energetic management that some of the trusts now display.

Here we may refer to two of the alleged advantages of trusts. It is said that combinations develop abler management through the opportunity they afford for a specialization of skill upon the part of their officials, and that efficiency is increased by a comparison of the methods and costs of production in the various plants.

When it is contended that the "strength of the trust is that it gives the opportunity for the exercise of these highest qualities of industrial leadership," and that it gives us "a process of natural selection of the very highest order," we may question whether stock speculation and other causes lying outside the sphere of mere productive efficiency have not had more to do with the formation of recent combinations than demonstrated superiority in business management. And, it may be asserted that the establishment of permanent monopoly will interfere seriously with the future process

of selection. It must be remembered that the able leaders now at the head of the successful trusts were developed out of a field which afforded the widest opportunity for creative ability. The supreme qualities requisite for great industrial leadership are not likely to be fostered by a regime which closes each important branch of manufactures to new enterprise, and renders hopeless all competition with a single consolidated company. Will successive generations of bureau chiefs or heads of departments in long-established corporations be able to continue the race of masterful leaders, which freedom in originating and organizing independent industries has given us in the present age?

The second argument advanced to prove the tendency to monopoly is the claim that mere mass of capital confers such powers of destructive warfare as to deter possible competitors from entering the industry, at least until prices have long been held above the competitive rate. It is said that a large combination can lower prices below the cost of production in any locality where a small rival concern is established, thus driving it out of the field. Without doubt the destructive competition waged by combinations is an important consideration, and it may well enough re-enforce monopoly where other attendant circumstances favor consolidation. But a monopoly based solely upon this power would be, confessedly, a temporary affair; for probably no one would claim that all capitalists would be intimidated permanently by such circumstances.

The final reason for the belief that combinations must ultimately prevail is found in the character of modern competition in these industries which require heavy investments of fixed capital. Under such conditions the difficulty of withdrawing specialized investments and the losses that are entailed by a suspension of production make competition so intense that prices may be forced far below a profitable level without decreasing the output; and industrial depression inevitably follows.

In support of this line of argument, it is said that trusts are beneficial, because they can "exercise a rational control over industry," and "adjust production to consumption." Thus it is believed that commercial crises can be prevented, or, at least, that their worst effects can be avoided. But such arguments overlook the facts that a restriction placed upon production by a trust, especially if this is sufficient to raise prices above the competitive rate, may react injuriously upon other trades; and that monopoly profits, accruing to a small body of capitalists for a long period of time, must constitute a tax upon the body of the people that will affect the distribution of wealth in such a way as to reduce the consuming power

of the masses. A reduction in purchasing power thus produced would render excessive the existing investments in staple industries, and produce crises.

Not only is it doubtful whether monopoly is a wise method of regulating industry, but it is certain that the evils of competition are greatly exaggerated in some cases, while in others they are due to unhealthful conditions for which an interference with industrial freedom is responsible. In many other industries where trusts have been formed, the excessive investment of which writers complain was caused by the undue stimulus given by high protective duties and by the restriction of foreign competition. Competition is restricted by protective duties in most of the industries where combinations are formed; these duties increase the severity, and perhaps the frequency, of the fluctuations from which business suffers; then trusts, a further restriction of freedom, are advocated as a remedy for the ills caused by the initial interference with individual enterprise; and, finally, in order to regulate the trusts, an elaborate system of public supervision is proposed. Would it not be well to make a genuine trial of competition before condemning it for producing evils which are greatly increased by governmental interference with industrial freedom?

206. Monopoly and Efficiency16

BY LOUIS D. BRANDEIS

Earnest argument is constantly made in support of monopoly by pointing to the wastefulness of competition. Undoubtedly competition involves some waste. What human activity does not? The wastes of democracy are among the greatest obvious wastes, but we have compensations in democracy which far outweigh that waste and make it more efficient than absolutism. So it is with competition. The margin between that which men naturally do and which they can do is so great that a system which urges men on to action, enterprise and initiative is preferable in spite of the wastes that necessarily attend that process. I say "necessarily" because there have been and are today wastes incidental to competition that are unnecessary. Those are the wastes which attend that competition which does not develop, but kills. Those wastes the law can and should eliminate. It may do so by regulating competition.

It is, of course, true that the unit in business may be too small to be efficient. The larger unit has been a common incident of monopoly. But a unit too small for efficiency is by no means a

10 Adapted from an article in American Legal News, XXIV, 8-12 (1913).