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THE PERSISTENCE OF COMPETITION.

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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," 1 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

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1 Principles of Political Economy, chapter on Competition and Custom, second paragraph.

stration that in the undeveloped society there is no free transferability of labor was based largely on the researches of such investigators as Sir Henry Sumner Maine; but his demonstration that capital was not so transferable until very recent times, and in modern times is so transferable only in the great commercial nations like England, is peculiarly his own. It consists in showing that the free transferability of capital, and therefore the perfect competitive action of capital, depends on three conditions, namely: the existence of a vast loan fund, the existence of a vast speculative fund, and the free movement of young men into those channels of business that promise the largest profits. Formerly neither of these conditions existed. Until recently they existed only in financial centres like London, but to-day they exist so generally that their influence begins to be universally felt. In this fact Mr. Bagehot discerned the true cause of the rapid extension of competitive economics beyond the limits of wholesale trade. The laws of the "great commerce" were being irresistibly forced upon the minor commerce. Accordingly he concluded: "As 'men of the world' are the same everywhere, so the great commerce is the same everywhere. Local peculiarities and ancient modifying circumstances fall away in both cases; and it is of this one and uniform commerce which grows daily, and which will grow, according to every probability, more and more, that English political economy aspires to be the explanation.” 2 In a word, it was Mr. Bagehot's final conclusion that the mobility of labor and capital is to become practically perfect, and the economic science based on "the principle of competition," though not true at all of the economic world of the past, is to become completely true of the economic world of the future.

Meanwhile Professor J. E. Cairnes, in his attempt to adapt the deductive political economy more perfectly to the present facts of economic society, had discovered limitations of competition not imposed by "local peculiarities or ancient modifying circumstances," but inherent in the nature of men, and there

1 Economic Studies, edited by R. H. Hutton, pp. 45-47.

2 Economic Studies, p. 20.

fore permanent. Here, then, in the constitution of the "noncompeting groups" was an obstacle to the fulfilment of Mr. Bagehot's predictions that could by no possibility disappear. This limitation was not regarded, however, as of the greatest importance. It would have the effect of creating a sort of stratification of prices, but within each stratum the prices of specific services and things would be determined more and more perfectly by competition. Professor Cairnes himself distinctly admitted the importance of the loan and speculative funds as a competitive force.

It is plain, too [he said], that the capital thus disposable is sufficient for the purpose we have here in view, namely, to render competition effective among the various industries; since we find a portion of it constantly moving abroad for foreign investment a destination it would scarcely receive while there was a prospect of reaping exceptionally high returns from investment within the country. We have, therefore, in the existence of this fund all that is required for a practically effective competition, so far as one instrument of production is concerned, and this without necessitating any serious encroachment on the capital actually engaged in productive operations.1

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Little more than a decade has passed, and we witness a state of things that, to superficial observation at least, seems totally to contradict these final conclusions at which Ricardian political economy had arrived. Just when the disappearance of the last vestiges of a volitional restriction of competition was looked for, and the universal application of the "rule of the market was confidently expected, we see a wide-spread revival of economic methods and agencies over which The Wealth of Nations was read as a funeral service. And most remarkable of all, it is not only labor, to the absolutely free competition of which natural and permanent limitations were admitted, but capital — that very agent which Mr. Bagehot said "runs as surely and instantly where it is most wanted and where there is most to be made of it, as water runs to find its level," 2 that seems to have voluntarily massed itself into a solidarity, hedged itself about

1 Leading Principles, Harper's ed., pp. 63, 64.

2 Lombard Street, p. 13.

with new and most ingenious restrictions, and bound itself by heavy penalties not to run to any new level or deviate from wonted channels. This increasing prominence of pools and combinations has given a new direction to theoretical thought. A majority of the working economists who have kept up with the progress of events no longer look to see the supremacy of an unhindered competition. By not a few of the ablest investigators the gradual suppression of the competition now existing is predicted. Instead of moving toward freer competition, they affirm, we are moving away from it,1 and reasons are offered to show that in the very nature of business facts no other result is possible. Not only of such vast organizations of capital as the railroad system is this tendency supposed to be true, but of almost all industries having a large permanent investment.2 New agencies for adjusting prices it is expected will be necessary. Between a solid body of non-competing employers on one side, and a solid body of non-competing workingmen on the other, will have to stand committees of conciliation and boards of arbitration.3 The standard of the justum pretium, the "reasonable price" of the middle ages, will be again set up and enforced by an appeal, through compulsory publicity, to public opinion.1

That combinations are to play an increasingly important part in economic affairs, is altogether probable. But that competition is to be to a corresponding extent destroyed, and that arbitration and publicity are to perform any other function than that of equalizing temporary inequalities of competition, as commercial credit equalizes temporary inequalities of economic pressure, or as insurance equalizes temporary inequalities of loss, are conclusions that should not be too hastily accepted. We should be on our guard against two assumptions. We must not assume that because competition is not observable in the form seen on the produce exchange, it is not discoverable in

1 Arthur T. Hadley, Railroad Transportation, p. 65.

2 Hadley, Private Monopolies and Public Rights, Quarterly Journal of Economics, October, 1886.

8 John B. Clark, The Philosophy of Wealth, p. 66.

4 Report of the Connecticut Bureau of Labor Statistics, 1885, pp. 16, 106.

any form. We must not assume that when market competition is imperfect it may be ignored, as if it were quite non-existent. These assumptions would be as unwarrantable as the assumption of the a priori economists has been in regarding the laws of the wholesale market as so nearly true of economic society everywhere and always that conflicting facts might be dismissed as irrelevant. That competition in some form is a permanent economic process, is an implication of the conservation of energy. Given an aggregate of units of unequal energy, their unequal activity is an inevitable consequence. With the complexity of social environment that every quarter of the earth presents, and the limitless variations of heredity, a society composed of individuals of equal energy is an impossibility. Therefore, when market competition seems to have been suppressed, we should inquire what has become of the forces by which it was generated. We should inquire, further, to what degree market competition actually is suppressed or converted into other forms, and within what limits combinations can hold together and act effectively. The combination equilibrium may be, at best, an unstable one. The economic affairs of every member are in a constant ebb and flow. The relative advantages of members as possible competitors cannot remain long unaltered. And however nearly equal they may be at any moment in economic strength, they will be unequal morally. Not every member of a combination goes into it expecting to break the agreement, but hoping that all other members will keep it; but this is a true description of the conduct of some. Different producers are always unequal in respect of that larger fidelity that imparts a unique value to a commodity through care in selecting the best materials and the most careful and trustworthy workmen. They are unequal also in those faculties by which production is adapted to changing conditions. The discerning and alert secure the advantages that accrue from the first production of superior substitutes for articles in common use, or the first adoption of more economical methods. Disturbances of equilibrium by any of these means may requicken 1 J. Schoenhof, The Industrial Situation, p. 74.

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