CHAPTER II.

The Persistence of Competition.

By F. H. GIDDINGS.

The principle of competition fundamental in English Political Economy.
Studies and predictions of Mr. Bagehot. The theory of Professor Cairnes.
Recent revival of non-competitive methods. Suppression of competi-
tion predicted. Combinations play an increasingly important part, but
competition not destroyed. In some form a permanent economic process.
The combination equilibrium unstable. History of combinations. Fall
of prices. The nail combinations. Trunk line railroad allotments.
Coal combinations. The wall paper pool. Conditions determining the
area within which combinations can govern market competition. The
industrial structure of society. Two kinds of non-competing groups.
Any one combination usually confined within a single group. The groups
unlike in composition and unequal in condition. Combination difficult
in some, easy in others. When combination restrictions are beneficial.
What becomes of the competitive forces. Development of new utilities.
Steel substitutes for iron. Production of Bessemer steel. The higher
forms of competition. Combinations cannot keep production below the
full supply of society's needs. Nor prices above the level that yields aver-
age returns to labor and capital. The competitive forces. Efficiency
of combinations varies with industrial prosperity. Combination Policy.
Essential principles of Ricardian Economics re-affirmed.

CHAPTER III.

Profits under Modern Conditions.

By J. B. CLARK.

Danger to society from vague ideas concerning business profits. Entrepreneur's
returns not scientifically analyzed. These returns the result of two unlike
functions; an employer, first, a directive laborer, and secondly, a merchant.
A manufacturer, a purchaser of raw materials, and of certain shares of the
utilities created in the manufactory. The workmen's share paid for in
wages, and the capitalist's in interest. Pure profit the difference between
the total amount paid for the elements of the product, and the amount
received for the product. Labor and capital involved in the mercantile part
of the business; payment for them included in wages and interest. The

mere acquiring and surrendering of ownership the essence of the entre-
preneur's function. The above analysis not vitiated by the uniting of sev-
eral functions in one person. The elements in the cost of a product not
controlled by the employer; the selling price of it not controlled by him.
Pure profit determined by general and irresistible forces. This sum capable
of being reduced by bad management, but not of being increased beyond a
certain point by good management. Competition, a cause of high and com-
paratively uniform managing ability in rival establishments. The division
of the labor of management conducive to this result. Contrasts between
the law of Rent and that of Profits; the area of cultivation extending; the
range of managing ability narrowing. Tendency of wages of management
toward uniformity. Tendency of the law of increasing returns in general
business to produce a normal and permanent over-production. The pres-
ence of experimenters in the business field a disturbing influence. The
natural check upon too high wages of management. Pure mercantile profit
the only conceivable sum from which great additions to general wages can
This profit in reality a vanishing sum, having, in a competitive sys-
tem, only a local and temporary existence. The effect of alternations from
business activity to depression, and that of the opening of a continent to
settlement. The effect of invention; the profit gained by this means a guar-
anty for civilization. The entire gain from invention transferred, in the end,
to society. The testimony of statistics to the general truth of the foregoing
principles. The tendency of industrial development to connect personal
rewards with services rendered to society.

come.

CHAPTER IV.

The Natural Rate of Wages.

By F. H. GIDDINGS.

Automatic

Two sets of forces operating with reference to the rate of wages.

forces of competition. Self-conscious forms of human feeling and opin-

ion. Three different views among economists. The true wages problem.

Standards of just wages. Communistic and individualistic ideals. No

absolute contradiction. The natural value of work. The rule of ideal

distribution. The English doctrine of the natural rate of wages. Adam

Smith's definition. Ricardo's theorem. John Stuart Mill's criticism. The

soul of truth in the Ricardian idea. The natural rate of wages is the rate

that calls out the laborer's potential efficiency. The economical rate is

also the ethical rate. The actual rate of wages. The wages fund doctrine.

Cobden's formula. Competition of employers raises wages notwithstanding

the economy of consolidations. Analogy of rent. Improving industry
multiplies employers or compels the original number to divide their gains
with the laborers. The actual rate of wages tends to conform to the nat-
ural or ethical rate. Exceptions to the rule.
The competitive process
inherently defective. Exploitation of wages. No automatic correction
that meets the case. True significance of the ratio of capital to population.
Where altruism fails. Associated self-defence of labor necessary. What
labor organizations and legislation can accomplish. The sums that can be
added to wages. Economic analysis of the strike. Principles governing
the coherence of labor organizations. Mistake of the Knights of Labor.
Arbitration and legislation subject to the same principles. The rate of
wages made mainly by competitive forces. Moral forces acting through
organization and public opinion correct distributive errors due to defects in
the competitive process. Carried farther, legislation and demands of organi-
zations but retard progress.

THE

THE LIMITS OF COMPETITION.

HERE is a sense in which much of the orthodox system of political economy is eternally true. Conclusions reached by valid reasoning are always as true as the hypotheses from which they are deduced. If we admit the fact of unlimited ✔ competition, we concede in advance many doctrines which current opinion is now disposed to reject. This refuge will always be open to the latter-day defenders of the faith, as they are confronted by greater and greater discrepancies between their system and the facts of life; it will remain forever true that if unlimited competition existed, most of the traditional laws would be realized in the practical world. It will also be true that in those corners of the industrial field which still show an approximation to Ricardian competition there will be seen as much of correspondence between theory and fact as candid reasoners claim. If political economy will but content itself with this kind of truth, it need never be disturbed by industrial revolutions. The science need not trouble itself to progress.

This hypothetical truth, or science of what would take place if society were fashioned after an ideal pattern, is not what Ricardo believed that he had discovered. His system was positive; actual life suggested it by developing tendencies for which the scientific formulas which at that time were traditional could not account. It was a new industrial world which called for a modernized system of economic doctrine. Ricardo was the first to understand the situation, to trace the new tendencies to their consummation, and to create a scientific system by insight and foresight. He outran history in the process, and mentally created a world more relentlessly competitive than any which has existed; and yet it was fact and not imagination that lay at the basis of the whole system. Steam had been utilized, machines were supplanting hand labor, workmen were migrating to new centres of production, guild regulations were giving way,

and competition of a type unheard of before was beginning to prevail.

A struggle for existence had commenced between parties of unequal strength. In manufacturing industries the balance of power had been disturbed by steam, and the little shops of former times were disappearing. The science adapted to such conditions was an economic Darwinism; it embodied the laws of a struggle for existence between competitors of the new and predatory type and those of the peaceable type which formerly possessed the field. Though the process was savage, the outlook which it afforded was not wholly evil. The survival of crude strength was, in the long run, desirable. Machines and factories meant, to every social class, cheapened goods and more comfortable living. Efficient working establishments were developing; the social organism was perfecting itself for its contest with crude nature. It was a fuller and speedier dominion over the earth which was to result from the concentration of human energy now termed centralization.

The error unavoidable to the theorists of the time lay in basing a scientific system on the facts afforded by a state of revolution. This was attempting to derive permanent principles from transient phenomena. Some of these principles must become obsolete; and the work demanded of modern economists consists in separating the transient from the permanent in the Ricardian system. How much of the doctrine holds true when the struggle between unequal competitors is over, and when a few of the very strongest have possession of the field? Can the old-time competition be trusted to divide the fruits of industry between one overgrown shop and another, and between the owners and the workmen in each? Can this same force control railroads, as it once controlled stage-coaches and packetsloops? To be more accurate, are the transactions of consolidated railroad lines governed by the same principles as those of single railroads and stage-coach lines when these are competing with each other? Does the old regulating principle at present exist, and will general well-being continue to evolve itself under its unaided influence? An economic system