the principles which make a general appeal of this kind unnecessary. It is the study of competition in residual forms. The process is taking on an advanced type, less simple than that of earlier times, and more legitimate than that which has lately developed. Residual competition of the actual kind subsists between productive establishments of comparatively equal strength in combination with each other; and residual competition of the potential kind is maintained between the entire combination and the remainder of society. The members of the pool are still rivals; and capital and labor may still transfer themselves to and from the industry which they try to control. Monopoly prices have not been long maintained by any of these organizations; and this fact is due, not to chance, but to complex and interesting economic laws. Leaving the discussion of these principles to one whose analysis derives weight from practical observation, I close this paper with a brief reference to the conditions which determine the transition from the era of predatory competition to that of union. If each industry were represented by a diagram like the one by which we have rudely shown the relation of sub-classes in the furniture-making group, it would be found that the horizontal lines which bound the fields of competition bound also those of combination. The combining groups are the natural competing groups of industrial society. The limitation of these fields is important. The fewer are the competitors, the fiercer is the strife and the greater is the need of union. The fewer are the competitors, the easier is the pooling process. The effect of the union is to turn the belligerent energies of society in a new direction. Under the old system it was rival producers that destroyed each other; under the new system it is producers of dissimilar articles whose interests come into overt conflict. To limit the supply and raise the price of a commodity is to make members of other producing groups give for it an increased proportion of their own products; and if this attempt is met by a similar proceeding on their part, there results an industrial war, the battles of which are fought across the horizontal lines, instead of between them. If unions were general, the lumber men of the foregoing diagram would cease to attack each other, and collectively do battle with the transporters and furniture makers. Treaties of alliance on the old battle-ground, hostility at the point of former amity, — such are the results of the transition to the new system. The field of economic war and the nature of the belligerent process are both changed. Combinations are the product of a social evolution, and can have no permanent existence until the Darwinian contest be tween the weak and the strong has completed its work. The surviving competitors must be few, strong, and nearly equal. Marked inequalities of strength among the members of the group defer the formation of the union, or break it when it is formed prematurely. Rivals do not combine so long as one is conscious of the power to exterminate the other. Moreover, strength for such a contest consists not merely in the size of a producing establishment, although that is an element to be considered; it consists primarily in advantages for economical production. Location is important, but the paramount influence is the mastery of cheap methods. Natural selection locates industries in the most favorable localities, and brings them to some equality in method; and until this is done there is no chance for an economic truce. In agriculture the number of competitors bars the way for the formation of unions. It is to be noted that the prices of food products are especially sensitive to changes in supply; and if a combination could restrict the crops uniformly and very moderately, it could force the members of other industrial departments to pay double or quadruple prices for the means of living. Against such a calamity the nature of the agricultural industry interposes its bar. Anthracite coal is somewhat like a food product in its importance, and in the variations which the price undergoes in consequence of changes in the supply. Coal-mining affords strong inducements and exceptional facilities for the pooling process, and it is here that the effects of union are especially harmful to society. That the injury thus far done has not been greater than it has been is due to residual competition, though it has worked under unusual disadvantages. The value of this regulating agent under favorable circumstances must be indefinitely greater. Portability in the commodity produced is essential to the formation of a combination on a national scale. The large establishment must be able to reach with its product the entire territory, and that without incurring a cost for transportation which would prevent it from underselling the small local producers. Baskets are made with great economy in a large shop; but their bulk subjects them to a cost for transportation that enables the local manufacturers, though working with less economy, to hold their respective fields, and defeats the formation of a union in this industry. In the silk manufacture the freight costs practically nothing, and the mill which produces cheaply has at its command all parts of the national territory to which its agents choose to travel. The silk industry offers, in this respect, a favorable field for combination. Moreover, cheapness of transportation depends not only on the nature of a product, but also on the development of an efficient railroad system. The low rates for freight now prevailing in this country have done much to create combinations among manufacturers; if pools among the railroads themselves were to restore the former cost of transportation, they would undo this work. The economic war between transporters and other groups of industrial society promises to result so favorably to the other groups as to facilitate combinations among them. In but few instances has the principle of union among producers shown a capacity to cross national lines; and in so far as a protective tariff debars the foreigner from being an efficient competitor within the limits of a country, it hastens the formation of pools within those limits. In any case foreign competition acts as a check upon the raising of prices after a combination has been formed. The industrial world would seem to be dividing into two portions, in one of which, embracing the most important of all forms of production, namely, that of agriculture, the principle of individual competition continues, and produces results so beneficial to society as to justify the enthusiasm of the early economists for competition as a regulator of values and a divider of the fruits of industry. In the other economic division, embracing transportation and a majority of manufactures, the principle of combination is asserting itself, and introducing a régime in which prices are regulated by competition in latent and residual forms. Whether these surviving types of competition are so nearly adequate to the regulating work which must be done that no state action is called for, is a debatable question. Whether state action should take the form of a legal suppression of combinations is a question which a brief trial of such a policy would place beyond the debatable line. To regulate combinations is possible and, in some directions, desirable; to permanently suppress them is impossible; to temporarily repress them is either to force them into illegal forms, or to restore the internecine war from which a natural evolution has delivered us. To accept the results of this evolution and to meet the demands of the new era is the part of wisdom. JOHN B. CLARK. THE PERSISTENCE OF COMPETITION. THE - HE late Walter Bagehot probably knew the "market better than any other thinker who has grappled with theoretical questions of political economy. This fact lends weight to his views of the present, past, and future of competition, as presented in those luminous essays on The Postulates of English Political Economy, written just before his death. John Stuart Mill had said that "only through the principle of competition has political economy any pretension to the character of a science," a dictum that compressed into a sentence the economic system of Ricardo, James Mill, Senior, and McCulloch. John Stuart Mill himself distinctly recognized the hypothetical character of this system, and in the chapter on "Competition and Custom" he undertook to show that it was only the wholesale trade and the great articles of commerce that were really under the dominion of competition. At the same time he asserted that the influence of competition was "making itself felt more and more through the principal branches of retail trade in the large towns," and that "the rapidity and cheapness of transport, by making consumers less dependent on the dealers in their immediate neighborhood," were "tending to assimilate more and more the whole country to a large town." Mr. Bagehot, bringing to his investigations a rare mastery of deductive reasoning, a breadth of view gained by many excursions into the domains of history and physical science, and the worldly sagacity of a practical business man of Lombard Street, became convinced that the fundamental postulates of English political economy, besides being only hypothetically true for a great portion of modern European society, were not true at all for uncivilized and semi-civilized societies, nor for European societies in their primitive eras. His demon 1 Principles of Political Economy, chapter on Competition and Custom, second paragraph. |