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INDUSTRY AND TRADE 
 
MACMILLAN AND CO., Limited 
 
 LONDO^f • BOMBAY • CALCUTTA • MADRAS 
 MELBOURNE 
 
 THE MACMILLAN COMPANY 
 
 NEW YORK • BOSTON • CHICAGO 
 DALLAS ■ ATLANTA • SAN FRANCISCO 
 
 THE MACMILLAN COMPANY 
 OF CANADA, LIMITED 
 
 TORONTO 
 
INDUSTRY AND TRADE 
 
 A study of industrial technique and business 
 
 organization ; and of their influences on the 
 
 conditions of various classes and nations 
 
 BY 
 
 ALFRED MARSHALL 
 
 The many in the one^ the one in the many 
 
 MACMILLAN AND CO. LIMITED 
 ST MARTIN'S STREET, LONDON 
 
 1932 
 
COPYRIGHT / 
 
 First Edition, August 1919 
 Second Edition, December 1919 
 Third Edition, 1920 
 Reprinted, 1921, 1923, 1927, 1932 
 
 PRINTED IN OBEAT BRITAIN 
 
PREFACE 
 
 THE present volume is a study of industry and trade ; with 
 special reference to the technical evolution of industry, and 
 its influences on the conditions of man's hfe and wgrk. It is 
 designed to be followed by a companion volume, which is to be 
 occupied with influences on those conditions exerted by the re- 
 sources available for employment; by money and credit; by 
 international trade; and by social endeavour. 
 
 Its motto is: — The many in the one, the one in the many. 
 Many tendencies have gone to the making of each industry and 
 each economic institution: therefore a thorough realistic study 
 of any part of the economic fleld, calls for some reference to the 
 interaction of many diverse tendencies, and gives occasion for 
 some care in analysis. And, conversely, almost every important 
 tendency is so far modified by the conditions under which it 
 operates, that an exhaustive study of it may need to range over 
 many fields of work. This motto supplements the motto of my 
 Principles which is: — Natura non facit solium: i.e. economic 
 evolution is gradual and continuous on each of its numberless 
 routes. 
 
 My aim has been to present as accurate a picture as I can 
 of a part of the field of economics, and not to advocate any 
 particular conclusions. A politician is compelled to seek his 
 aUies among those who desire the same ends as his; and there- 
 fore political influences on economic studies are not always 
 wholesome. But a student's natural allies are those, whose aims 
 and methods of work are akin to his own. It is of no concern to 
 him whether a particular argument makes for or against his own 
 ultimate conclusion: in either case he is equally grateful for any 
 solid new suggestion that is contained in it; and equally repelled 
 by any that seems to be based on inadequate data, or to reason 
 
vi PREFACE 
 
 inconsequently on those data. My own experience has been, 
 for instance, that, the more I knew of the work of Sir W. J. 
 Ashley and the late Professor SchmoUer, the warmer became my 
 regard for them; in spite of the opposition between the main 
 drifts of their work and of my own. Similarly, looking back 
 on the years, in which I was much occupied in arguing that 
 the net advantages of bimetallism are less than those of mono- 
 metallism, I found that the person from whom I had learnt 
 most on the matter, and whom I should have most welcomed 
 as a colleague in that connection, was a leading bimetallist. 
 Sir David Barbour. 
 
 The volume has no claim whatever to be a contribution to 
 economic history: but an endeavour has been made to turn a 
 few hints derived from the past to account in explaining the 
 present: these will be found chiefly in Chapters ni to viii of 
 the first Book, and in Appendices B to G. The table of Contents, 
 which brings together the Section headings, indicates the 
 general drift of the volume; and may incidentally suggest 
 to a reader what parts of it he may with advantage shun. 
 Analytical subtleties have been avoided as far as possible. But 
 broad reasonings, essential for the argument, have been set out 
 briefly; even when they have been more fully studied in my 
 Principles. 
 
 For many years after the publication in 1890 of the first 
 volume of my proposed complete Principles of Economics, I 
 continued to work at its second volume: part of the type for 
 that was set up in 1904 and is now used at last — I am told that 
 this long waiting of type for its ultimate appearance is unique. 
 Shortly afterwards I decided to bring out separately a more or 
 less independent volume, devoted to Industry and Trade. Later 
 on two volumes appeared to be necessary for the purpose: and 
 at last it seemed best to round off the present volume in such 
 manner that it would be an independent unit. 
 
 I may perhaps be forgiven for adding that my progress has 
 been delayed, not only by weak health and constitutional un- 
 fitness for rapid work; but also by heavy professional duties 
 till 1908; by preparing evidence and memoranda for various 
 Royal Commissions on currency and other matters: and by 
 
PREFACE Vll 
 
 service on the Royal Commission on Labour, 1891 — 5; during 
 which I received from working men and other witnesses, and 
 from members of the Commission, the most valuable education 
 of my life. 
 
 Nearly half a century has passed since I set myself to obtain 
 some insight into industrial problems by obtaining leave to visit 
 one or more representative works in each chief industry. I 
 tried to get such a knowledge of mechanical technique (chemical 
 technique was beyond my range) as would enable me to under- 
 stand the resources and the mode of operation of all elementary 
 plant in general use : I sought also to study the relations between 
 technique and the conditions of employment for men and for 
 women. 
 
 In pursuit of the latter aim I made it a practice to ask what 
 pay was being earned by each class of operatives, whom I passed. 
 Afterwards I asked to be allowed to guess in every case. If my 
 guess was right within a shiUing or two a week, I passed on. 
 If not, I asked for explanation; and I almost always found that 
 the reason lay in a cause, sometimes technical, sometimes relating 
 to special conditions of the workers in question, which I did not 
 know. The result was a conviction that inequalities of pay were 
 less arbitrary than was often asserted, and were more directly 
 imder the influence of broad "natural" causes. 
 
 But I beheved that the causes of these causes were not wholly 
 beyond human control; and that they might probably be so 
 modified as to bring about a nearer approach to equality of 
 conditions, and a better use of the products of human effort for 
 the benefit of humanity. I developed a tendency to sociaUsm; 
 which was fortified later on by Mill's essays in the Fortnightly 
 Review in 1879. Thus for more than a decade, I remained 
 under the conviction that the suggestions, which are associated 
 with the word "socialism," were the most important subject of 
 study, if not in the world, yet at all events for me. But the 
 writings of socialists generally repelled me, almost as much as 
 they attracted me; because they seemed far out of touch with 
 realities: and, partly for that reason, I decided to say little on 
 the matter, till I had thought much longer. 
 
 Now, when old age indicates that my time for thought and 
 
VIU PREFACE 
 
 speech is nearly ended, I see on all sides marvellous developments 
 of working-class faculty: and, partly in consequence, a broader 
 and firmer foundation for socialistic schemes than existed when 
 Mill wrote. But no socialistic scheme, yet advanced, seems to 
 make adequate provision for the maintenance of high enter- 
 prise, and individual strength of character; nor to promise a 
 suf&ciently, rapid increase in the business plant and other 
 material implements of production, to enable the real incomes of 
 the manual labour classes to continue to increase as fast as they 
 have done La the recent past, even if the total income of the 
 country be shared equally by all. The average level of human 
 nature in the western world has risen rapidly during the last 
 fifty years. But it has seemed to me that those have made most 
 real progress towards the distant goal of ideally perfect social 
 organization, who have concentrated their energies on some 
 particular difficulties in the way, and not spent strength on en- 
 deavouring to rush past them. 
 
 Accordingly the present volume is in the maia occupied with 
 the influences which stiU make for sectional and class selfishness: 
 with the limited tendencies of self-interest to direct each indi- 
 vidual's action on those lines, in which it will be most beneficial 
 to others; and with the stiU surviving tendencies of associated 
 action by capitalists and other business men, as well as by em- 
 ployees, to regulate output, and action generally, by a desire 
 for sectional rather than national advantage. The hopes and the 
 fears of humanity in these matters underlie a great part of 
 Book III, to which Books I and II. are introductory: but of 
 course the desire of the mere student for knowledge for its own 
 sake, and without special reference to any purpose to which it 
 can be appUed, may be detected throughout. 
 
 Some matters considered in the final chapter of the volume 
 have been afiected by events and discussions, so recent that 
 adequate place for thek study could not be carved out of the 
 text: and consequently much of Appendix P, and especially its 
 last two sections, may be regarded as properly belonging to that 
 chapter, to which indeed the Appendix is attached. 
 
 A little must be said about the use of terms. I have fol- 
 lowed the practice, that prevails on the other side of the Atlantic, 
 
PREFACE IX 
 
 of shortening "United States of America" to "Anaerica," where 
 no confusion could be caused thereby: there is no adjective cor- 
 responding to "United States." "British" trade is commonly 
 taken to mean that of the United Kingdom; while the substan- 
 tive "Great Britain" refers only to a part of the Kingdom. 
 I have ventured to use "Britain" as the substantive corre- 
 sponding to "British" in its broader use. 
 
 Of this volume as of my Principles, but even more than of 
 that, I may say that my wife has aided and advised me at every 
 stage; and that everywhere much of whatever is good is owing 
 to her suggestions, her care and her judgment: the index is 
 entirely her work. Mr A. W. Flux also helped me greatly in 
 regard to a considerable part of an early draft. Dr Clapham 
 has kindly safeguarded my ventures on historical ground in 
 Book I and the early Appendices; and my nephew, Mr C. W. 
 Guillebaud, was reading my proofs, when the war called him to 
 more important work at Whitehall. 
 
 Balliol Crott, 
 Cambridge. 
 
 16 June, 1919. 
 
 P.S. A demand for a second issue of this volume affords 
 opportunity for the restoration of the present pp. 657-672 to 
 their proper place in the text: thus repairing the error, just 
 noted, of under-estimating the space that would be required for 
 the final chapters, which had caused those pages to be relegated 
 to Appendix P (841-857). In consequence the numbering of 
 the former pages 657-840 has been iacreased by sixteen. In 
 addition a few small corrections have been made, chiefly on the 
 suggestion of friends. I have been under no temptation to 
 controversy, the sterile consumer of time and energy. 
 14 November, 1919. 
 
 P. P.S. The third issue (1920), and the present issue, differ 
 from the second only in a few small details, chiefly verbal correc- 
 tions. But meanwhile a study of Money; Business Credit; Inter- 
 national Trade; and Pluctuations of Industry, Trade and Credit, 
 has been published under the title Money, Trade and Commerce, 
 
 March, 1923. 
 
 "5 
 
CONTENTS 
 
 BOOK I 
 
 SOME OEIGINS OP PRESENT PROBLEMS OF 
 INDUSTRY AND TRADE 
 
 Chapter I. Introductory observations, i- The preaent urgency of the 
 allied problems of industry and trade. 2. Economic conditions are mostly 
 the result of slow and gradual development; and, partly for that reason, 
 they commonly show the One in the Many, the Many in the One. It is 
 necessary to look backwards a little, in order the better to look forwards. 
 3. The scheme of the present work as a whole. 4. Some details as to the 
 arrangement of Book I. Causes of the large use of appendices and foot- 
 notes. . . pp. 1 — 12 
 
 Chapter II. Some general relations between industry and trade. 1- The 
 trade of a place is likely to be increased by an advance of its stronger 
 industries, but to be lessened by an advance of its weaker industries. 2. The 
 direct gain that a town, a province, or a country derives from its external 
 trade is the excess of the real value to it of its imports over that of the 
 things, which it could have produced for itseU by the labour and capital 
 needed for producing its exports and working the tra de. 3. Countries, whose 
 advantages are distributed in unequal proportions between different in- 
 dustries, may generally carry on a trade profitable to both, even though one of 
 them is absolutely the stronger aU roimd. 4k. A small country often has a 
 relatively large foreign trade ; for she can seldom supply nearly all her own 
 wants as regards raw materials and other things; and her frontier is generally 
 long relatively to her population and industry. But some causes tend in the 
 opposite direction. 5. An increase in the distance which goods can be 
 carried at a given cost, is likely to increase the trade in those goods in a 
 greater ratio. Spheres of influence of different centres of trade. 6. Some 
 consequences of the fact that the costs of traffic over long distances have 
 fallen more than those over short distances; and that both have fallen un- 
 evenly. .......... pp. 13 — 31 
 
 'hapter III. Foundations of England's industrial leadership. Her 
 
 drift towards massive production, l. Introductory. England's fore- 
 runners in the industrial leadership of Western Europe. The spirit of 
 economic nationality. 2. The qualities, which gave leadership to Englishmen 
 in industry and trade in the nineteenth century, had their roots in early 
 times. 3. The progress of England's internal and external trade during the 
 Mercantile Age. 4. England's Mercantile policy was adapted to conditions 
 
 
xil CONTENTS 
 
 which were passing away, as the increasing mobility of industry promoted 
 the concentration of textile industries in the neighbourhood of water power. 
 5. The new structure of the textile industries, which was set on foot in the 
 latter half of the eighteenth century, indicates the gradual transition from 
 the methods of the Mercantile Age to those of the nineteenth century. 6. The 
 financial structure of English agriculture and its influence on progress. 
 7. The merging of England in Britain pp. 32—54 
 
 Chapter IV. Britain's industrial leadership; its long freedom from 
 challenge, l. Characteristics of modem manufacturing processes. 2. The 
 massive results at which English inventions were aimed, called for simplicity 
 in method and machinery; but that could seldom be reached without work- 
 ing patiently through complexity. Nearly all of them were associated with 
 uses of coal and iron in making and driving the new appliances. 3. The 
 long war retarded Britain's economic progress : but it threw other European 
 countries back, and so strengthened her leadership. 4. In the second quarter 
 of the nineteenth century the growth of railways helped to consolidate Eng- 
 land's industries, and to expand her trade. 6. The growth of factories made 
 prominent the evils inherent in crude capitalistic control, but was not largely 
 responsible for them. 6. Influences of war and fiscal policy on England's 
 industry and trade in the first half of the nineteenth century, pp. 55 — 85 
 
 Chapter V. Britain's industrial leadership under strong challenge. 
 1. A rare consilience of favourable influences promoted the expansion of 
 Britain's industry and trade after she had thrown her markets open to the 
 world. 2. After 1873 various signs of weakness were perceived; and later 
 on some exaggerated alarms arose. But the national character is again show- 
 ing itself in a resolute facing of difficulties. 3. The needs of Britain's in- 
 dustries gave additional momentum to a movement, that had long been on 
 the way, for a reform of her educational system. 4. National funds are 
 rightly given liberally to the advancement of knowledge for its own sake. 
 Research for the attainment of particular ends is receiving some support 
 from open associations of producers or traders, specially interested in their 
 attainment. 5. Britain's industrial leadership is in process of being fulfilled 
 and merged in that of the British Federation of Nations; the younger mem- 
 bers of which are learning much from the present leadership of her first 
 great Colony pp. 86 — 106 
 
 Chapter VI. The industrial leadership of France. Individuality and 
 refinement in production, l. The physical features of France have not 
 favom-ed industrial concentration. 2. The political conditions of the seveni 
 teenth and eighteenth centuries suppressed the middle class; so that Frencl 
 industry was mainly given to cheap local products, on the one hand; andl 
 on the other, to fine goods, embodying some artistic feeling and individual 
 judgment. 3. The Revolution removed many obstacles to massive produol 
 tion. But the equal division of property made for industrial quietism; and 
 in spite of the exceptional brilliancy of her engineers, France owes relativelj 
 little to the aid of mechanical power in manufacture. 4. Individuality ii 
 production contends under ever increasing difficulties against the forces d 
 massive organization. Illustration from industries connected with fashion 
 
 pp. 107—1 
 
CONTENTS xm 
 
 Chapter VII. The industrial leadership of Germany : science in the 
 service of industry, 1. The economic unity of Germany was achieved 
 tardily, and in spite of many hindrances : but the movement was working 
 under the surface for some time before it succeeded with apparent sudden- 
 ness. 2. The facilities for traffic, begun by the ZoUverein, were developed 
 by railways, and have helped to build up much the largest industrial district 
 in Europe. 3. Germany's zeal for solid education laid the foundation of 
 her industrial progress. 4. Germany's leadership is mainly in Industries, 
 in which academic training and laboratory work can be turned to good 
 account; and these are growing in relative importance. 5. Germany's in- 
 dustry and trade have some advantages which attach to youth ; their strength 
 and its limitations pp. 121 — 139 
 
 Chapter VIII. The industrial leadership of the United States : multi- 
 form standardization, l. Introductory. 2. The United States has 
 remained young very long, partly because the geographical distribution of 
 her resources has been such as to tempt men of strong character to move to 
 new scenes, in which their enterprise has been further stimulated. 3. The 
 various races of which the population is composed a re homogeneous in matters 
 of consumption; but they are diverse and mutually supplementary in indus- 
 trial aptitudes. The homogeneity of demand creates an unrivalled market 
 for standardized products : while the diversity of aptitude leads some to In- 
 vent, and others contentedly to use semi-automatic machinery for making 
 them. 4. The drift of America's industries towards massive multiform 
 standardization is further associated, both as cause and as effect, with their 
 widespread geographical distribution, and also with the special features of 
 her great railway service. 5. America's movable capital has grown very 
 fast in recent years. Its ownership is widely distributed; but natural selec- 
 tion of singular efficiency has brought to the front a relatively small number 
 of men with high business genius, and has given them control of a con- 
 siderable part of her capital. 6. Some slight speculations as to future 
 homes of industrial leadership. pp. 140 — 162 
 
 Chapter IX. Transition to present prohlems of industry and trade. 
 
 1. The foundations of modem business in general confidence and credit. 
 
 2. A preliminary review of changes, which sometimes render a very large 
 manufacturing or mining business in a measure Independent of other indus- 
 tries in its neighbourhood. A note on the meaning of the term "productive." 
 
 3. General causes which have given to the leaders of productive industry 
 much of the prominence and responsibility, which formerly belonged almost 
 exclusively to great merchants. 4. Some observations on the assumption 
 that social and economic tendencies, which are general and seem natural, 
 are to be accepted as Inevitable and beneficial. . . . pp. 163-177 
 
XIV CONTENTS 
 
 BOOK II 
 
 DOMINANT TENDENCIES OF BUSINESS OEGANIZATION 
 
 Chapter I. The adjustment of production to demand in an open market. 
 1. Some introductory observations. 2. Ambiguities of the terms Market, 
 and Cost of production. 3. Increased supply, demand being constant, lowers 
 price both immediately and ultimately ; though in various degreesf or different 
 things. Increased demand for amanufacturedproduotgenerally setsupforces 
 tending to lower cost, and therefore price, except when increased supplies of 
 raw material can be obtained only at greater cost : but its immediate effect 
 is always to raise price. 4. The cost of production which controls value 
 relates to whole processes of production, rather than to any particular parcel 
 of products. 5. The distribution of the general costs of a business among 
 the various products, to which its resources are devoted: whether they are 
 "joint" in the sense of being practically inseparable, or are produced "in 
 common" for any other reason. 6. General conclusions as to limitations 
 of the tendency towards such an adjustment of supply to demand, as would 
 cause market price to cover expenses of production with normal profits. 
 
 pp. 178—196 
 
 Chapter II. Debts of industrial technique to systematic record and to 
 
 standardization, l. In early times the cumulative progress of industrial 
 technique was in the main dependent on the informal records of customary 
 usage : and this primitive method was until quite recently the chief resource 
 of agriculture in sparsely peopled districts. 2. Various uses of the term 
 Standard. Influences on technique exerted by clear and exact registration 
 of the results of progressive experiments, such that each can be used as a 
 stepping-stone to later endeavour. 3. Distribution of the studies, that 
 make for progress, among men of various kinds and degrees of ability. 
 4. Influences on industrial technique exerted by the cumulative power of 
 carefully made machines to create others, that are capable of work even 
 more exactly standardized than their own. 5. The good and evil of machines 
 that supplant fine skilled handiwork. .... pp. 197 — 213 
 
 Chapter III. Some technical influences on the size of the representa- 
 tive business unit. 1. Some introductory observations. Different methods 
 of the expansion of the business unit. 2. Many causes make for the ex- 
 pansion of the business unit in the steel industry, especially in its heavy 
 branches. 3. Tendencies of Particular standardization to become General. 
 
 4. A partial specialization of particular establishments in certain branches 
 of the steel industry has long been in progress, partly under the iofluence 
 of mutual understandings: and it has received a great impetus from the 
 experiences of the industry under State control during the world-war. 
 
 5. Recent developments of the means of communication have facilitated the 
 escape of a large business in a heavy industry from the constraint imposed 
 by lack of space for expansion. 0. Illustrations, drawn from textile and 
 boot industries, of diverse influences which partial standardization and 
 specialization exert on the size of the business unit. . pp. 214 234 
 
CONTENTS XV 
 
 Chapter IV. Further technical influences on the size of the business 
 unit. 1. The expansion of the business unit in industries whioh handle 
 continuous streams of homogeneous materials is being promoted by new 
 economies appertaining to uniform and continuous process. 2. The hand- 
 ling of large masses of homogeneous material is often associated with the 
 utilization of by-products, which further strengthens the tendencies to 
 increase in the size of the business unit. 3. The increased dependence of 
 those, who pioneer progress in broad fields of industrial technique, on the 
 aid of large capital. 4. Opportunities of a strong man with moderate means, 
 who concentrates his energies on a speciality. . . . pp. 235 — 249 
 
 Chapter V. Constructive speculation. Organized produce markets. 
 1. Introductory observations. 2. Modem organizationtends so to distribute 
 the risks inherent in making and marketing, that they fall increasingly on 
 the shoulders best fitted to bear them. 3. Characteristics of organized 
 markets. 4. The services rendered by constructive speculation on a Wheat 
 Exchange, illustrated by its efficacy in lightening the burden of risks borne 
 by grain merchants and millers. 5. Dealings in organized markets are 
 liable to abuse by unscrupulous men, aided as they often are by the folly of 
 ill-informed speculators : but the power of selling the future command of a 
 thing, not yet in possession, has important uses. 6. Some marketing risks 
 relating to "ordinary" products can be transferred by forward contracts: 
 but the majority can be delegated only as incidents of the delegation of cor- 
 responding functions pp. 250 — 268 
 
 Chapter VI. Some broad problems of general marketing, l. The costs 
 and risks of marketing attach to whole processes rather than to particular 
 transactions : many of them are common to a great part, and some even to 
 the whole, of the afiairs of a business. 2. The organization of trade is in 
 the long run as vital to consumers as to producers and traders: but the ever 
 increasing energy, with which sellers push their goods on the notice of buyers, 
 is an inevitable result of modern developments. 3. The distribution of the 
 general costs of marketing, and especially those connected with the holding 
 of stocks for sale. 4. Functions of middlemen as links between producer 
 and consumer. 5. Costs of marketing may be increased by difficulties of 
 meeting demands for a constant supply of goods of uniform quality, and for 
 supplies varying greatly from one season to another. 6. Heavy industries 
 seek access to their materials. Light industries, and especially the highest 
 and the lowest of them, seek large cities and their environment. Causes of 
 the enduring hold whioh an alert centre of industry, handling light products, 
 keeps on its markets pp. 269 — 288 
 
 Chapter VII. Problems ofgeneral marketing continued: massive retail 
 trade, l- Massive retail trade is commonly associated with eager forms of 
 competition. But some of its methods were pioneered by workmen's co- 
 operative societies, in which the spirit of brotherhood strengthened the poUcy 
 of economy. 2. Some remarks on the strength and the limitations of co- 
 operative trading. 3. Other developments of massive retail trading. Grands 
 Magasins, and Department-stores: Multiple-shop Companies, and Chain- 
 stores. 4. Influences on the methods of marketing of goods, "branded" 
 
XVI CONTENTS 
 
 with a mark which conveys a guarantee of quality. 5. The great ability 
 and energy, which have been devoted in America to massive retail trade, tend 
 to lower prices: but they are still rather high. 6. Constructive uses oi 
 "advertisement" in that original broad use of the term, in which it includes 
 all measures designed to draw the attention of people to opportunities for 
 buying or selling, of which they may be willing to avail themselves. 
 7. Advertisements, which are mainly combative, generally involve social 
 waste pp. 289—307 
 
 Chapter VIII. Business organization: the growth and influence of 
 joint stock companies, l. Some of the modem problems of administra- 
 tion on a large scale were anticipated long ago by private and corporate 
 owners of great estates : though they did not often need to balance their in- 
 comings against their outgoings closely. The fiduciary element in corporate 
 administration. 2. The growth of the legal freedom and of the inclination 
 to develop businesses in joint stock: their paramount influence on economic 
 structure. 3. So wide are the varieties of the arrangements between owner- 
 ship and control of capital, which are now included under the common 
 name of joint stock association, that almost any class of business can be 
 properly conducted by some one or more of them. 4. The obscurity of the 
 affairs of many small companies: the exceptional case of manufactiuring 
 companies owned largely by working-men. 5. Temptations of joint stock 
 companies to excessive enlargement of scope. 6. The mechanical methods 
 of administration, which are inevitable in a joint stock company, are often 
 mitigated by the professional emulation and the esprit de corps of its officials. 
 Good and evil of the progressive supersession of private businesses by joint 
 stock companies pp. 308 — 328 
 
 Chapter IX. Business organization: its financial basis. 1- Functions 
 of the promoter in relation to joint stock companies. 2. Some difficulties 
 connected with the valuation of a company, and especially an amalgamation 
 of several companies. Opportunities for, and temptations to, excessive valua- 
 tion. 3. The part played by banks and other financial agencies in the 
 adaptation of industry and trade to the enlarged financial requirements of 
 the modem age. British banks. 4. Relations of banks to industry and trade 
 in Germany and America. 6. Suggestions that Britain's industry and trade 
 might derive material assistance from powerful and prominent financial in- 
 stitutions, which would supplement, and cooperate with, her great banks. 
 
 pp. 329—349 
 
 Chapter X. Business organization: its tasks, and requirements of 
 faculty. 1. The value of a machine to a business can be calculated on the 
 basis of its efficiency for its immediate work. But the value of an employee 
 must be estimated, partly by instinct, with a view to the probable develop- 
 ment of his capacities: and the difficulty of this task is increased by the 
 conditions of modem business. 2. Faculties needed by the head of a large 
 business; and by its chief officials. 3. The education of business faculty. 
 4. In periods of economic reconstruction there is an urgent demand for 
 creative faculty; and those who come to the front, seldom owe much to any 
 formal preparation for their work. 5. The increasing scope for trained 
 
CONTENTS xvii 
 
 faculty and methodical organization of detail in industry and trade. 6. The 
 organizing faculty of a masterful mind can sometimes make itself felt over 
 the whole of a large business, even when owned in joint stock, largely 
 through its influence on well-chosen chiefs of departments, pp. 350 — 364 
 
 Chapter XI. Business organization: applications of scientific method. 
 1. Movements towards the general application of scientific methods in 
 business administration were pioneered by studies of cost-accounts. 2. A 
 general view of the aims and methods of the movement that goes by the title, 
 "Scientific Management." 3. The chief responsibility for the affairs of a 
 great business in Scientific Management is intrusted to a Planning Depart- 
 ment: and this, together with the higher control under which it works, 
 develops the organization of the business according to "function" rather 
 than "line." 4. In Scientific Management it is arranged that, as far as 
 possible, each frequently recurring manual operation shall be made the 
 subject of elemental time studies, conducted under favourable conditions by 
 highly trained observers, who seek guidance from the traditional practice 
 of skilled operatives pp. 365 — 380 
 
 Cliapter XII. Business organization : applications of scientific method, 
 
 continued, l. The principles of Scientific Management lead up to a care- 
 ful analysis, partly on lines which have long been followed in some British 
 and other industries, of the notion implied in the term "a standard rate of 
 wages." A claim to be working towards "absolute" standards. 2. Sugges- 
 tions that very high efficiency of plant can be obtained without overstraining 
 the operative in charge of it, by supplying him with high standard conditions 
 of work, and causing his remuneration for each job to increase with every 
 increase in the speed of its performance. 3. General relations of Scientific 
 Management to the remuneration of manual labour and to the democratic 
 control of industry. 4. Though the wage systems of Scientific Management 
 give small scope for collective action by employees, its open methods of 
 planning may do a little towards fitting manual workers for the responsi- 
 bilities of democratic control. .... . pp. 381 — 394 
 
 BOOK III 
 
 MONOPOLISTIC TENDENCIES : THEIR RELATIONS TO 
 PUBLIC WELL-BEING 
 
 Chapter I. Various influences of monopoly on prices. 1. Introductory. 
 2. The monopolistic element in the policy of cartels, and other regulative 
 associations of independent producers or traders, is a chief instance of the 
 interpermeation of competitive and monopolistic policies. 3. Price policies 
 of monopolies, absolute and conditional, in regard to immediate net revenue 
 and to prospects of future development. 4. Benefits which the public may 
 derive from a far-seeing use of monopolistic power under certain conditions. 
 
 pp. 395—409 
 
XVlll CONTENTS 
 
 Chapter II. Various influenceB of monopoly on prices, continued. 
 
 1. Partial shiftings of burdens imposed on monopolies. 2. Influences which 
 various degrees of monopolistic advantage may exert on the distribution of 
 the burden of the general costs of a business among the several groups of its 
 products. 3. Unequal or "discriminating" charges for the same goods or 
 services, delivered under dissimilar conditions, may be a part of a reasonable, 
 and even of a constructive policy : but the line of demarcation between these 
 and others, which aim at the destruction of inconvenient rivals, is often 
 hard to be drawn. 4. The relations between two monopolies, each of which 
 is dependent on the services of the other. Buyers' monopolies. Local and 
 other partial monopolies in multiple ownership. . . pp. 410 — 422 
 
 Chapter III. Competition and monopoly in transport, i- The inter- 
 permeation of competition and monopoly, illustrated by the simple case of 
 trafiSc at a small ferry. 2. On the open high road some kinds of traffic 
 show traces of monopoly, and of the arbitrary distribution of general costs : 
 but competition keeps the charges for the main bulk of heavy traffic close to 
 its actual costs. 3. On the ocean as on the land, charges for the carriage 
 of heavy goods in bulk are governed mainly by the costs of the services 
 rendered; while the charges for quick transport at fixed times are in great 
 measure adjusted to demands for the services rendered. 4. The growing 
 concentration of a large part of the oceanic passenger and light goods traffic 
 in the hands of a relatively small number of powerful companies; groups 
 of which often act together in "Conference." 5. The uses of Deferred 
 Rebates as a means of insuring the loyalty of a shipper to a steamship 
 Company or Conference; and their abuses. 6. Some general inferences. 
 The functions of an authoritative Commission of inquiry in compelling 
 publicity; and in promoting measures for the interests of the general public 
 on matters, which carmot be fully understood without expert knowledge. 
 
 pp. 423—444 
 
 Chapter IV. Competition and monopoly in transport, continued. 
 1. Introductory. 2. The configuration of Britain and the habits of her 
 people are responsible for the fact that most of her goods traffic consists of 
 small consignments, carried short distances; and therefore at high average 
 costs per "ton-mile." 3. Britain's railway map shows the fortuitous results 
 of competition; and her passenger service is very costly: but the economy 
 of time resulting from frequent rapid services on parallel Unes is perhaps 
 worth more than its cost. 4. In regard to short periods most of the costs 
 of a railway are "fixed"; but large problems of railway policy relate chiefly 
 to long periods, in regard to which much fewer costs are fixed. 6. The 
 direct costs of particular passenger services. 6. The direct costs of particu- 
 lar goods-traffic services pp, 445 4gg 
 
 Chapter V. Competition and monopoly in transport, continued. 
 
 1. The distribution of the general costs of a railway over its various services. 
 
 2. Discriminating concessions to particular industries and trades, in regard 
 t« charges and services, are mostly local; and they are often much influenced 
 by competition between industrial and trading districts, served by different 
 railways. 3. The good and evil of the concession of specially favourable 
 
CONTENTS xix 
 
 railway rates to particular diatriots, whose geographical positions are some- 
 what unfavourable. 4. Improved ra,ilway administration has narrowed the 
 field in which the authoritative regulation of particular rates is required. 
 Estimates of the costs of particular services are relegated to secondary, but 
 useful work pp. 467—482 
 
 Chapter VI. Competition and monopoly in transport, continued. 
 1. Changing attitudes of the British people and Government towards the 
 amalgamation of railways; the line of division between continuous and 
 competitive railways being meanwhile almost blurred out. 2. Many econo- 
 mies, which are commonly regarded as appertaining only to railway fusions, 
 can be obtained by particular agreements for cooperation; or for pooling 
 certain classes of traffic, or of wagons. 3. Far-reaching intervention by 
 Government in railway affairs is at once relatively easy and urgent. State 
 ownership of railways, i. Causes and consequences of the present weakness 
 of British canals. Heavy goods traffic is controlled by railways and water- 
 ways in a great part of North-western Europe; but by railways alone in 
 Britain. 6. The relations of Britain's railways to heavy goods traffic may 
 possibly be considerably modified by her exceptional facilities for the coopera- 
 tion of road motors with her canals, and for electric haulage on her canals. 
 
 pp. 483—506 
 
 Cliapter VII. Trusts and cartels : American experience, l. A review 
 of some general causes of the recent rapid increase of giant businesses, in- 
 dependently of any monopolistic purposes. The poverty of British statistics; 
 the wealth of American. 2. Associations and agreements of various sorts 
 prepared the way for the rise of trusts in America. 3. The basis of a firm, 
 but wisely limited, control of monopolistic tendencies in American business 
 is provided by systematic official studies. The experience thus gained gives 
 valuable guidance as to some urgent problems of British industrial policy. 
 4. Actions, which are harmless on a small scale, may become injurious 
 when practised on a large scale; especially if their purpose is to obstruct the 
 highway of business. 5. Relations in which the prices charged by far-seeing 
 trusts, when not engaged in campaigns against rivals, stand to the probable 
 costs of "independents." pp.507 — 526 
 
 Cliapter VIII. Trusts and cartels: American experience continued. 
 
 1. The United States Steel Corporation is a unique aggregation of many 
 giant businesses; but it leads, rather than controls, the steel industry. 
 
 2. The power of exceptional constructive ability, combined with astute de- 
 structive strategy, is illustrated by the history of the Standard Oil Company: 
 its financial strength has gradually overshadowed a considerable part of 
 American business. 3. Monopolistic control in the tobacco industry effects 
 great economies in marketing : the huge profits of the Tobacco trust tempted 
 it, and enabled it, to use strong measures for the suppression of interlopers. 
 4. Insistence on exclusive dealing, and other tying contracts, are generally 
 harmless on a small scale : but, when used as aids towards monopoly, they 
 may be mischievous. 5. Difficulties in the way of forecasting the future 
 of trusts; especially in regard to their influence on the stability of industry 
 and trade. 6. A great part of the railways and the chief manufacturing 
 
XX CONTENTS 
 
 and mining businesses of America are largely under the control, for good 
 and evil, of a comparatively small number of powerful financiers. 
 
 pp. 527—643 
 
 Chapter IX. Trusts and cartels: German experience, i- Germany's 
 leadership in the evolution of cartels. 2. Cartels, whose scope is limited 
 to the regulation of prices in regard to standardized products. 3. The 
 Weetphalian coal cartel, or Syndicate, affords the leading instance of an 
 organized control of the output and marketing, as well as of the prices, of 
 the products of a great industry. Its policy has contributed to the growth of 
 "mixed" coal and steel companies at the expense of "pure" coal mmes 
 and steel works, i. Causes that specially favoured the advance of giant 
 businesses in German steel industries : phases of their carteUization. 5. The 
 Steelworks Union is a "general" cartel, designed to harmonize the interests 
 of various stages of the steel industry, as to production and marketing, 
 and to the bounty conferred by the Protective tarif. . . pp. 544 — 565 
 
 Chapter X. Trusts and cartels: German experience continued, l- Mono- 
 polistic tendencies of some German giant businesses in association with 
 cartels and banks. 2. The tendency of some of those industries, which 
 embody the best results of German genius, to domination by a few giant 
 businesses, with mutual understandings, while avoiding formal carteUization. 
 3. The increasing responsibilities of cartels to their several industries, and to 
 labour. 4. Functions of the State in relation to cartels. pp. 566 — 576 
 
 Chapter XI. Aggregation, federation, and cooperation in Britain's in- 
 dustry and trade. 1. Introductory : a glance backwards. 2. The strong 
 individuality, which created Britain's industrial leadership, is stlU her most 
 important asset. But it needs increasingly to be supplemented by readiness 
 to cooperate with others in large atfairs; while the supersession of small 
 businesses by large in many industries is inevitable. 3. Movement towards 
 aggregation in the British coal industry. 4. Plasticity of structure through- 
 out the steel industry. Conflicts and harmonies of interest among its several 
 stages. 5. Illustrations drawn from the steel industry of the national in- 
 terest in the standardization of products, the intensive specialization of 
 businesses, and the maintenance of open markets. 6. A monopoUatio ten- 
 dency in a branch of a great industry, the highwaj-s of which are in general 
 free to all comers pp. 577 593 
 
 Chapter XII. Aggregation, federation, and cooperation in British in- 
 dustry and trade, continued. 1. Some British textile industries have 
 developed efficient standardization and specialization almost automatically. 
 2. Constructive cooperation among kindred businesses, whether independent, 
 or in single ownership and under central control. 3. Some minor functions 
 of producers' associations. 4. Associations of producers for constructive 
 work in marketing; especially in connection with export trade. 5. The 
 strength of the semi-automatic organization of export trade by independent 
 merchants: functions of banks in relation to the trade. . pp. 599 619 
 
 Chapter XIII . Aggregation, federation, and cooperation in British in- 
 dustry and trade, continued, l. The regulation of prices by associations 
 of producers. 2. Wheumarketsareperfectlyopen, the intereatsof the general 
 
CONTENTS Xxi 
 
 public are defended in gieat measure by the alert watching of producers in 
 each stage of industry against undue raising of the prices of their plant 
 or material: but this defence is impaired when the price in each stage is 
 arranged by a combination of producers in it. 3. Cartel policies of exclusive 
 dealings are often fortified by deferred rebates. 4. A combination in a 
 British manufacturing industry, even when not protected by a tarif, may yet 
 be able to raise prices artificially by the equivalent of double costs of transport 
 between Britain and other countries. 5. The policy of dumping. The claim 
 of combinations to stabilize home industry. . . . pp. 620 — 635 
 
 Chapter XIV. The decline of exclusive class advantages in industry. 
 1. The spread of education, and technical changes which lessen the strain 
 of physical work, are mitigating many of the disadvantages under which the 
 manual labour classes lie. 2. Keal and apparent divergencies of interests 
 among the manual labour classes; for some of which a remedy ia sought 
 in collective bargaining for particular tasks. 3. Some further observations 
 on the movement, voiced by the Whitley Report, for enlarging the influence 
 of employees over those affairs, connected with their employment, in which 
 they are most nearly concerned. 4. The control of a great part of business 
 organization may be diffused: but decisions as to the taking of risks 
 generally, and of new departures in particular, should remain, for the present 
 at least, in the hands of those who will bear the burden of the risks. 
 
 5. Britain can obtain her necessary supplies of food and material only 
 by continued leadership in those industries, which make large use of 
 
 - the most expensive mechanical appliances: that is in those industries 
 which have the greatest need of the bold, judicious, unfettered >mder- 
 taking of grave risks under difficult and ever-changing conditions. 
 
 6. Some general conclusions. Sectional, national, and international iutOTests. 
 Anglo-Saxons have generally eschewed the more antisocial forms both of 
 competition and combination. Collective control of industry would be un- 
 favourable to the best selection of men for responsible work. 7. National 
 Guilds. 8. Possibilities of the future. 9. Nature and limitations of the 
 constructive work of a democratic Government in regard to industry. 
 
 pp. 636—672 
 
 Appendix A. A note on method in economic study, i- The progress 
 
 of science, while increasing the stock of knowledge, increases also the area 
 of conscious ignorance. Relations between economic analysis and ethical 
 aspirations. 2. Similarity amid diversity of the methods of physical and 
 social sciences. The need for elasticity in the uses of economic terms. 
 
 pp. 673—680 
 
 Appendix B. Some early phases of industry and trade, l. Beginnings 
 of specialized industry and long distance trade. 2. Even small towns carried 
 on a sort of international trade with other towns, and a sort of colonial trade 
 with neighbouring country-folk. Town patriotism, and town selfishness. The 
 City States. 3. The industriesjjLshipbuilding and trade were so developed 
 by Holland, as partially to anticipate muchthai la cnaractefi stio of modern 
 cajpitalistio predominance, and industrial teolmlque. Industry and trade led 
 
XXll CONTENTS 
 
 up to finance. 4. It is true that eoonomio development paaees generally 
 through three stages, in the last of which manufacture predominates; but 
 List's assumption that manufacture is necessarily superior to other industries 
 seems to mistake accidentals for essentials. . , . pp. 681 — 699 
 
 Appendix C. England's early industry and trade, l- Origins of the 
 
 energies, which were ultimately turned to account in England's industry and 
 trade. 2. The desuetude of mediaeval institutions and habits of life and 
 action; and the growth of a labouring population, detached from specific 
 obligations and rights, prepared the way for conditions of which the present 
 dominant relations between employer and employed are the result. 3. Fur- 
 ther preparation for modem relations between capital and the various orders 
 of the industrial population. The constructive work of early trading mono- 
 polies. 4. Work done in the household for the use of the household gave 
 way to production, mainly in cottages and small workshops, of goods the 
 ultimate marketing of which was organized by professional traders. 
 . pp. 700—718 
 
 (^ Appendix D. The English mercantilists and Adam Smith, l. Mercan- 
 ^ tilism differed from policies of earlier times, not so much in general tendency, 
 as in the ability and energy with which it was enforced and in the largeness 
 of its scope. 2. The discovery of the New World altered the form rather 
 than the substance of trade policy with regard to the precious metals. 3. The 
 decline of the monopolistic trading companies. The misuse of industrial 
 monopolies. 4. England's colonial policy in the eighteenth century. 
 5. Some broad conclusions as to English Mercantile legislation and adminis- 
 tration. 6. Colbert's genius gave a great impetus to French industries. 
 But his Mercantile policy, crystallized in the hands of weak successors, 
 contributed to a reaction in favour of "Natural" freedom, which occupied 
 the minds of the French people a little later. 7. Adam Smith frequently 
 showed that the interests of individuals may lead them to action which is 
 not the most conducive to the well-being of the community, themselves 
 reckoned in. But he held that Government intervention was likely to be 
 exploited by intriguing traders pp. 719 — 748 
 
 Appendix E. The British movement towards Free Trade, l. The 
 policy of Protective duties was discredited in Britain by the mismanagement 
 ..^ of the Com Laws: Sliding Scales of duties, designed to keep prices steady at 
 a high level, made them very unsteady. 2. The repeal of the Com Laws 
 could not produce its full effect at once. It did not cause a great fall in the 
 price of wheat: but it did keep the price almost stationary in Britain, while 
 rising in neighbouring countries. 3. Although economic science was much 
 advanced by Adam Smith's successors, their views were generally less 
 broad than his : and their doctrines were sometimes converted by weak or 
 partisan adherents into absolute dogmas. 4. Overstatements of arguments 
 in favour of Free Trade have retarded the general acceptance of that part of 
 it, which may justly claim to be of universal validity. 5. It does not appear 
 that any eminent economist maintained a position of hostility to the Factory 
 Acts; though they were bitterly opposed by some writers who had a super- 
 ficial knowledge of economics. ..... pp. 749 766 
 
CONTENTS XXIU 
 
 Appendix F. The ZoUverein. l- Though tht first fruit ot Germany's con- 
 sciousness of her tmity was a desire for commercial federation, yet particular 
 interests ruled many of the devious steps by which the goal was ultimately 
 reached. 2. The general drifts of the German tarif subsequent to the full 
 establishment of the ZoUverein pp. 767 — 772 
 
 Appendix G. Early -industrial conditions and fiscal policies of the 
 United States, I. The course of internal and external trade was long 
 governed mainly by difficulties of communication and by scarcity of capital. 
 But steam traffic opened European markets for wheat, and the people moved 
 to western prairies. 2. Protective tarifs in favour of American manufactures 
 were originally advocated as an investment of national capital in national 
 education, which would bring rich returns in the future. 3. Subsequently 
 more stress was laid on instances of malign underselling by British manu- 
 facturers. Statistical evidence as to the influence of high tarifs on national 
 prosperity is necessarily inconclusive. .... pp. 773 — 784 
 
 Appendix H. Technical influences on aggregation in particular in- 
 dustries. !• Influences of way-leaves: railways; petroleum wells; water 
 and gas supply and postal industries. The mining industry. 2. Electricity 
 in the service of man. 3. The expansion of the carrying capacity of ships, 
 and of the business unit in the shipping industry. . . pp. 785 — 792 
 
 Appendix I. Notes on the development of broad markets for grain and 
 other crude products, l- The catastrophic condition of food supply in 
 early times and its gradual improvement. 2. Cotton Exchanges. Partially 
 organized markets for wool and some other crude products, pp. 793 — 803 
 
 Appendix J. Some minor problems of marketing. 1. The costs of 
 marketing perishable products, when demand is imperious and supply is 
 uncertain, are always high. 2. Influences on the costs of marketing, exerted 
 by varieties of individual requirements and tastes. Illustrations as to furni- 
 ture and as to fashion goods. 3. Some variations in the additions made 
 by the retailer to wholesale prices, which are due to causes other than varia- 
 tions in direct costs of marketing. 4. The standardization of raw food 
 products for marketing purposes. 5. The hold which small shops retain 
 on poor districts. 6. Marketing and industrial peculiarities of various 
 capital cities pp. 804 — 818 
 
 Appendix K. On education, with special reference to a business career. 
 1. The development of faculties at school. 2. University training for the 
 responsibilities of business pp. 819 — 823 
 
 Appendix L. Conditional monopolies in multiple ownership, l. Prob- 
 lems relating to an industry, which would constitute a powerful monopoly 
 if in a single ownership. Illustration from the incidences of taxes on agri- 
 culture in a densely peopled country. 2. Interests which owners of land, 
 and of good business connections, have in the semi-monopolistic advantages, 
 that a city may develop by large local expenditure, well administered. 
 
 pp. 824 — 829 
 
XXIV CONTENTS 
 
 Appendix M. Notes on railways and tlieir problems, l- Early phases 
 
 of English railway traffic and finance. Causes of the rise and decline of 
 canals. 2. Curious contrasts in passenger traffic. 3. The development 
 of American railway regional and blanket rates. 4. The imijortanoe of 
 railway statistics, and their difficulties. 5. The small and indirect, but 
 yet Taluable, aid which a study of the capitalization of railways may afford 
 in regard to the regulation of the general level of their charges. 
 
 pp. 830—84-5 
 
 Appendix N. Some American industrial statistics. The recent inoreaiie 
 in the size of the representative industrial establishment in America. 
 
 pp. 846 — 849 
 
 Appendix 0. Notes on employment in British and German steel in- 
 dustries. A comparison of the steel industries of Britain and Germany, 
 with special reference to the pleas that Germany's cartel and fiscal policies 
 in association have benefited the people. .... pp. 850 — 853 
 
 Appendix P. Cooperative and collective organization of industry: 
 methods proved and unproved. The great services to progress rendered 
 by cooperation and copartnership j and their limitations. . pp. 854 — 858 
 
 Index. • PP- 857—874 
 
BOOK I 
 
 SOME ORIGINS OF PRESENT PROBLEMS 
 OF INDUSTRY AND TRADE 
 
 CHAPTER I 
 
 INTRODUCTORY OBSERVATIONS 
 
 1. The present urgency of the allied problems of industry i, i, i. 
 and trade. 
 
 As indicated on the title page, the present work is designed 
 to make a small contribution to the study of the progress of 
 industrial technique, and of business organization; as well as 
 of the distribution of the benefits thence arising among various 
 sections of the people and various nations. 
 
 No previous age has had such large opportunities as the 
 present for applying material resources in the elevation of 
 human life. The forces of Nature are beiag turned back upon 
 her to compel her to render ever larger returns to man's efforts 
 in every branch of industry; any resistance that she may ofEer 
 to the agriculturist and the miner being quickly reduced by 
 the incessant development of fresh sources of rich supply, and 
 by easy and rapid communication between distant places. 
 New countries are quickly falling into line with old. Some of 
 them are making greater advances in economic organization 
 and industrial technique in a decade, than Europe as a whole 
 has made in any century except the last: and, though this 
 progress is continually depriving old countries of favourable 
 markets for familiar wares; yet the very causes, to which 
 it is due, are meanwhile opening up larger and more various 
 
INTRODUCTORY OBSERVATIONS 
 
 1, 1, 1. markets in the same countries, or in others. Thus material 
 wealth has rolled in on the populations of old countries with 
 unprecedented rapidity, and on new countries faster still. 
 
 Moreover there stUl hangs above all countries, old and new 
 alike, the shadow of war. A time may indeed come when 
 the combative instincts, implanted in man's nature by countless 
 centuries of fierce struggle for existence, may be stilled by a 
 Pax Cosmopolitana, enforced by an international police: and 
 some small countries are even now partially protected by 
 the desire of their more powerful neighbours to preserve a 
 "balance of power." But so long as wars are imminent, no 
 rate of material progress will enable the industries that prepare 
 for war to dispense with sustained and severe labour. A single 
 modem armoured cruiser may be more than a match for all the 
 navies of the world fifty years ago: but no increased facilities 
 for building an efficient warship can lessen the compulsory 
 labour of any nation for the purposes of defence on the waters. 
 Improvements in the technique of rowing boats do not lighten 
 the labour, which is required of those who desire to hold a good 
 position in a great race^. 
 
 But Nature's opportunities cannot long retain their present 
 large generosity; for the world is small. Science may indeed 
 enable a fairly vigorous life to be maintained in tropical regions, 
 which have hitherto proved fatal to high energies: but ere very 
 many generations have passed, the limitation of agricultural 
 and mineral resources must press heavily on the population of 
 the world, even though its rate of increase should receive a con- 
 siderable check. 
 
 Let us turn from the cosmopolitan point of view to the 
 national. It is true that those coimtries, which have abundant 
 resources relatively to their populations, may grow in comfort, 
 if not in luxury, for several generations: but, even if manu- 
 
 ' The above paragraph stands as It was set up in type before the World-war 
 was in sight. The action of Germany has increased the desire o£ everyone for the 
 estabUshment of an agreement among nations, to intervene with force against 
 any nation that declares war; except in accordance with a judgment of a supreme 
 international court to which it has appealed. But the experiences of the war 
 indicate also that the force needed to coerce a strong group of nations, who have 
 made large secret preparations for war, may be very great: and they suggest that 
 those, who desire peace, may not venture to neglect the sinews of war. 
 
URGENCY OF PROBLEMS OF INDUSTRY AND TRADE 
 
 facturing operations could be conducted by a twentieth part of i, i, i. 
 the labour now required by them, the difiEiculty of obtaining 
 adequate supplies of food and raw produce would ere long weigh 
 heavily on densely peopled countries. 
 
 These matters are of especially urgent concern to Britain. 
 Before the great war she was more prosperous than ever: the 
 real incomes of both her well-to-do and her working classes are 
 higher than those of corresponding classes in any other densely 
 peopled country; and the methods of her industry have advanced 
 at an ever increasing rate. But yet she has in some respects lost 
 leadership. Her best methods are now the common property 
 of the Western World; and recent advances in them have been 
 very largely due to the enterprise and inventive faculties of 
 other countries. 
 
 The maintenance of her material well-being above that of 
 other countries of Europe, in spite of some relative slackening 
 of the iadustrial initiative by which she achieved her success, 
 cannot be expected to last for ever. That it should have been 
 maintained till now is marvellous, and calls for study. We 
 need to know on what Britain's industrial leadership was 
 based; and how it may be conserved, and perhaps even en- 
 larged again. 
 
 The test of leadership is the doing things, which other 
 countries with similar economic problems will be doing a little 
 later, but are not ready and able to do yet. One of the best 
 indications of the nature and extent of a country's leadership 
 is to be found ia the character of the goods which she exports, 
 and of those which she imports. And, while a certain part of 
 her foreign trade is essential to her existence; another, and 
 much larger part, is conducive to her leadership. These are 
 strong reasons for giving a prominent place to foreign trade in 
 a study of the bases of her economic prosperity. 
 
 But there is another and a higher reason. Industrial 
 leadership counts for much among national ideals. And if 
 an individual, devoted merely to material ends, is but a poor 
 creature, still more ignoble is a nation that is devoid of national 
 ideals; that is, of ideals which recognize a national life as 
 something more than the aggregate of individual lives. Now 
 as the individual life is made up largely of social intercourse. 
 
INTEODUCTORY OBSEEVATIONS 
 
 1, 1, 1. SO is the national. A healthy national pride has been associated 
 with industrial leadership, especially as indicated in the clearly 
 written records of international trade: and the mutual know- 
 ledge which results from close trade intercourse has done 
 something, and may do much more, towards the development 
 of an ideal comity of nations. 
 
 Further, the notion of national trade has been bound up 
 with the notion of solidarity between the various members 
 of a nation. The trade of one individual with another is 
 mainly of private concern: while the causes which enable large 
 quantities of anything to be made for foreign sale at a profit, 
 generally lie deep down in resources and faculties that are not 
 wholly individual, but are in great part the collective property 
 of a nation as a whole. A country's foreign trade is something 
 more than a number of dealings between individuals at home 
 and abroad; it is the outcome of the relations in which the 
 industries that belong to her, that are a part of her life, and 
 embody much of her character, stand to the industries of other 
 countries. 
 
 Thus national industries and national trade act and react on 
 one another, but the dominant force is that of industry. The 
 main courses of. trade are governed by the relations between 
 the surrounding industries, in the same way as watercourses 
 are governed by the contours of the hiUs: a map showing the 
 contours of the leading industries of the world would show 
 what must be the main courses of trade, except in so far as 
 they are obstructed by costs of transport or customs duties; very 
 much as a map which shows the contours of the hills shows 
 also what must be the courses of the water. But the water 
 reacts on the lulls, and trade reacts on industry: the industrial 
 history of every country would have been different if her oppor- 
 tunities for foreign trade had been different. 
 
 Finally in regard to sectional interests. Nearly all of them 
 are changing their character and becoming increasingly plastic: 
 but the chief change is the assimilation of the training, and 
 consequently the capacity, of the working classes generally to 
 those of the well-to-do. The spread of education is rapidly 
 effacing those distinctions of mind and character between 
 difierent social strata, which have prevailed in nearly all densely 
 
URGENCY OF PROBLEMS OF INDUSTRY AND TRADE 
 
 peopled countries during several thousand years; but were in 1,1,2. 
 large measure the artificial results of the cumulative advantage 
 that a small initial predominance in force gave to the more 
 fortunate sections of each nation. 
 
 We are indeed approaching rapidly to conditions which 
 have no close precedent in the past, but are perhaps really 
 more natural than those which they are supplanting: — con- 
 ditions under which the relations between the various industrial 
 strata of a civilized nation are being based on reason, rather 
 than tradition. No doubt much force still remains in the 
 old contention that when wealth is applied in harnessing 
 Nature in servitude to man, by far the greater part of the 
 aggregate benefit resulting from it, is reaped by those who 
 have themselves accumulated little or nothing. No doubt 
 it is as true, now as ever, that the chief work of progress 
 is done by a relatively small number of men, whose faculty 
 for the work can be tested only by their work: no other 
 means of selecting them rightly has been yet devised. No 
 doubt also those who, if of less initiative, are yet doing im- 
 portant work involving high mental strain, have a reasonable 
 claim to a certain largeness in the conditions of their lives. 
 But, for all that, it is becoming clear that this and every 
 other western country can now afford to make increased 
 sacrifices of material wealth for the purpose of raising the 
 quality of life throughout their whole populations. A time 
 may come when such matters will be treated as of cosmopolitan 
 rather than national obligation: but that time is not in sight. 
 For the practical purposes of the present and the coming 
 generation, each country must, in the main, dispose of her own 
 resources, and bear her own burdens. 
 
 2. Economic conditions are mostly the result of slow and 
 gradual development; and, partly for that reason, they 
 commonly show the One in the Many, the Many in the One. 
 It is necessary to look backwards a little, in order the better 
 to look forwards. 
 
 Economics is concerned mainly with general conditions and 
 tendencies: and these as a rule change but slowly, and by small 
 steps. Occasionally they may receive a strong impetus in one 
 
INTRODUCTORY OBSERVATIONS 
 
 I, i, 2. direction or another from a political event, such as a revolution; 
 or a change in a country's boundaries or alliances. A great 
 invention, like that of the application of steam power to work 
 that used to be done by men or horses, may enable a single 
 generation to live through twice or thrice as much economic 
 change as had come to its predecessors. But the printing press 
 did not rise to nearly its full power even in a couple of centuries: 
 and the present generation is the first that has seen the whole 
 rise of several great inventions from nothing to dominating 
 positions: thus the maxim that "Nature does not williugly 
 make a jump" {Natura abhorret solium) is specially applicable 
 to economic developments. 
 
 Partly in consequence, economic conditions and tendencies 
 show, even more than most others, the One in the Many, the 
 Many in the One: for those, which prevail at any place and 
 time, reflect the habits of action, thought, feeling and aspiration 
 of the whole people, or at least some large part of them. Each 
 reacts on the character of the population : but the roots of all are 
 deep set in the human characteristics of the place and time: 
 thus the One is seen in the Many. And conversely each 
 tendency embodies in some degree almost every influence, that 
 is prominent then and there: insomuch that a full study of it 
 would present incidentally a nearly complete picture of the 
 whole : thus the Many are seen in the One. 
 
 The present indeed never reproduces the past: even stagnant 
 peoples gradually modify their habits and their industrial 
 technique. But the past lives on for ages after it has been lost 
 from memory: and the most progressive peoples retain much of 
 the substance of earlier habits of associated action in industry 
 and in trade; even when the forms of those habits have been 
 CO changed under new conditions, that they are no longer 
 represented by their old names. Such changes increase the 
 difficulty of so interpreting the past that it may be a guide to 
 the present. 
 
 But probability is the only guide of general use in life. 
 There are a few matters, in which mere reasoning avails. There 
 are a good many more, in which the observation of current 
 events is both necessary and sufficient: and, where sufficient, it 
 is superior to other sources of instruction; because records of 
 
CONTINUITY AND UNITY IN ECONOMIC DEVELOPMENT 
 
 current events can be supplemented, and witnesses may perhaps i, i, 3. 
 be in efEect challenged and cross-examined. But observation of 
 the present only shows what is perhaps its rate of movement: 
 some guidance is needed also as to the rate of increase of move- 
 ment. That can only be got by looking backwards. 
 
 All sorts of trustworthy records of the past may gratify 
 a worthy curiosity: but for the purposes of economic study 
 those only are of much service, which are sufficiently ample to 
 suggest their own explanation. For explanation is simply 
 prediction written backwards: and, when fully achieved, it 
 helps towards prediction. A chief purpose of every study of 
 human action should be to suggest the probable outcome of 
 present tendencies; and thus to indicate, tacitly if not expressly, 
 such modifications of those tendencies as might further the well- 
 being of mankind. 
 
 It is true that even careful prediction is Hkely to over- 
 look some influences at present latent, which will in fact greatly 
 affect the result; while only a careless explanation can overlook 
 any influence by which the result has been actually fashioned. 
 But explanation shares with prediction the main difficulty, 
 which is caused by the complex interweaving of the effects of 
 many causes acting in the same field, and mutually influenciag 
 one another: every short explanation in economics is likely 
 therefore to be misleading, unless indeed it be almost a truism. 
 Moreover the progress of study opens out new problems to be 
 considered, and thus it broadens the area of conscious ignorance 
 even more than it increases the stock of ascertained knowledge^, 
 
 3. The scheme of the present work as a whole. 
 
 As the original intention of publishing the two volumes of 
 this work together has been abandoned, something should be 
 said at once of the relations between them. The Table of 
 Contents indicates the arrangement of this Volume: an intro- 
 duction to Book I will follow in the next section; and similar 
 
 ' This subject is briefly disousaed in Appendix A, with special reference to 
 the guidance which economics has derived in the last half century from the 
 experience of the physical sciences: together with a few remarks on the relations 
 between the economic and ethical conditions of well-being, none of which may 
 be ever left out of sight, though the economic conditions are necessarily the more 
 prominent in such a study as the present. 
 
! INTRODUCTORY OBSERVATIONS 
 
 1, 1, 3. introductions to Books II and III will be found in their first 
 chapters. 
 
 The present Volume as a whole may be regarded as concerned 
 first with the origins of modern industrial technique and business 
 organization; secondly with the parts played by parbicular 
 nations in developing them; and thirdly with the problems 
 rising out of that development. These problems are considered 
 in Book II, with little or no reference to monopolistic tendencies; 
 which are dealt with in Book III. In Books II and III there is 
 an ever-increasing drift towards consideration of the harmonies 
 and discords of interest among the several sections of a nation, 
 and between each of those sections and the nation as a whole. 
 
 The sections to be most considered here are in the main of 
 two kinds. A nation as a whole may be regarded as composed of 
 irregularly shaped horizontal strata, arranged in pyramidal form, 
 those most poorly endowed being at its base ; and each successive 
 stratum consisting of people better endowed than the last. The 
 endowment may be measured in terms of money or of faculty; 
 and the problem is to bring these two measurements as nearly as 
 may be into accord; while narrowing the lower and broadening 
 the upper strata. The issues arising out of this sectionalism are 
 of the most far-reaching character. 
 
 But another set of issues, though of no great importance 
 from a social point of view, is often more prominent in discussions 
 of commercial policy: it arises out of the conflicting interests of 
 particular industries in various matters, and especially in regard 
 to external trade. Employers and employed in any one industry 
 constitute, as it were, a vertical compartment, with interests in 
 some measure peculiar to it. The problem here is to reach 
 such an adjustment as will be most to the benefit of the nation 
 as a whole, without pressing hardly on any compartment: and 
 some tentative suggestions as to the relations of the Ideal to the 
 Attainable will be ventured accordingly. 
 
 A time may come when even the aggregate interests of 
 a nation may be willingly sacrificed in some measure to larger 
 cosmopolitan interests. But attempts to realize that ideal now 
 are not practicable: though some limited arrangements may 
 be made among groups of nations, such as those that constitute 
 
SCHEME OF THE WORK AS A WHOLE 
 
 the British Empire; while a yet larger, though looser, grouping i, i, 4. 
 is suggested by the active alliances in support of freedom which 
 have been developed during the World-war. In the second 
 Volume these harmonies and discords are to be studied more 
 closely, in connection with the harmonies and discords of interest 
 among different nations. 
 
 Changes in the purchasing power of money, though not as 
 important as appears at first sight, put difficulties in the way 
 of agreements between different sections; and they confuse the 
 statistics of international trade, though they do not materially 
 affect its general drift. Therefore it is proposed that the 
 second Volume shall include a short study of money and credit 
 in relation to industry and trade. 
 
 4. Some details as to the arrangement of Book I. 
 Causes of the large use of appendices and footnotes. 
 
 The function of Book I is to indicate broadly some chief 
 origins of the industrial technique and organization, that 
 prevail now in the Western World. England, afterwards 
 incorporated in Britain, was at one time a pupil of other 
 industrial lands; though she always had certain, rather narrow, 
 speciaUties. In the course of a few centuries she became, fijst 
 their competitor on even terms; and afterwards their leader 
 in many great industries. 
 
 The four or five decades, in which her leadership was chiefly 
 developed, are sometimes described as those of the Industrial 
 Revolution: but in fact what then happened was not a Re- 
 volution; it was merely one stage of Evolution which had 
 proceeded almost without interruption for several hundred 
 years. From the early Middle Ages till the present day 
 economic evolution has presented on one side an ever in- 
 creasing power of capital: and especially of capital appUed in 
 considerable quantities by professional business men; as dis- 
 tinguished from the resources of a great estate when applied, 
 however ably, to its own development. On another side this 
 evolution has diminished the strain thrown on himian muscles, 
 relatively to that handed over to the subservient energies of 
 animals, of water, of wind, and of coal. On yet a third side 
 
10 INTRODUCTORY OBSERVATIONS 
 
 I, ', 4. it has changed the general character of industrial organization 
 in two opposite directions. Modern work is more narrowly 
 specialized, in so far as the number and variety of the opera- 
 tions performed by a modern worker are on the average less 
 than those of the elementary skilled handicraftsman: but it 
 is less narrowly specialized, in the sense that an operative, who 
 has mastered the accurate, delicate and prompt control of 
 machinery of any kind in one industry, can now often pass, 
 without great loss of efficiency, to the control of similar 
 machinery in an industry of a wholly different kind, and 
 perhaps working on different material. 
 
 The first of these three sides of the great evolution — that 
 of the increased application of material resources as capital in 
 the production of things for sale — was set on its way in various 
 parts of Europe, while England still lagged behind. But early 
 in the eighteenth century she ran up to the best models of the 
 time; she passed them quickly in that production by powerful 
 machinery, which was another stage of the great evolution; and 
 meanwhile Mercantilism was declining largely imder the in- 
 fluences of Dutch, French, and English writers (Chapter iii and 
 Appendices B, C, D). As the age of steam came on, she threw 
 ofi nearly all remaining shackles and became the acknowledged 
 leader of the world in massive industries. Later on she obtained 
 a further advantage through her policy of free trade; and 
 through the troubles which befell her chief rivals, America and 
 Germany, in the third quarter of last century. But by that 
 time she had become over-confident; and every class and 
 condition of her people expected to be able to earn and to 
 spend much more than those in similar conditions in other 
 old countries, while yet taking their work rather easily. But 
 a reaction set in, they learnt that they must meet strong rivals, 
 especially in Germany and America, on equal terms: that in 
 order to continue to lead they must learn as well as teach, 
 and work as hard as the most strenuous of their rivals. This 
 movement was interrupted by the World- war; but the issue of 
 the war has been found to depend, even more than had been 
 anticipated, on the abundance of mechanical appliances; and 
 the movement is Hkely to be accelerated on the balance by the 
 war (Chapters iv, v and Appendix E). 
 
ARRANGEMENT OF BOOK I 11 
 
 Englishmen, like others, have learnt and are learning much i, (, 4- 
 from France; especially in the fine individual perception of 
 form and colour, which belongs to the artist as much as to the 
 manufacturer. Germany is the chief leader in the application 
 of organized "team work" by scientific specialists to the 
 problems of industry. And America surpasses all in the 
 economies derived from intense mechanical specialization, the 
 third chief feature of modem industrial evolution: for she has 
 turned to good accoimt the opportunities which are oSered by 
 her large homogeneous home market, by the concentration of 
 her forces of capital, and the ever-welling spring of energy 
 and inventive faculty of a vast population. It includes many 
 who are rich, but not many of those idle rich who have, at 
 various times, damped the energies of many old seats of high 
 industry (Chapters vi, vii, viii). 
 
 From this brief account it will appear that Book I is not in 
 any sense a contribution to economic history: its aim is merely 
 to indicate that the present structures of industry and trade, in 
 so far as they are considered in the present work, are, for the 
 greater part, direct and almost necessary consequences of con- 
 ditions, which have developed almost continuously from the 
 Middle Ages to the present time. The particular facts, to 
 which attention is directed, have no other claim to precedence 
 over those which are ignored, than that they seem in a special 
 sense responsible for the good and the evU of some of the 
 economic features of the present age. 
 
 Finally something must be said as to the reasons which 
 have induced a rather large recourse to the use of appendices and 
 footnotes. The writer, when reading books on subjects which do 
 not fall wholly within his line of study, but yet have important 
 bearings on it, often strives in vain to reach the broader 
 issues, whUe avoiding the narrower. The division between 
 broad and narrow issues must be in some measure arbitrary: for 
 some matters of chief interest to one person are of secondary 
 interest to another. A busy man of affairs in particular is 
 likely to want to probe thoroughly on their practical side those 
 issues which affect his action, and as to which he has special 
 knowledge and responsibility: while in regard to other matters, 
 
12 INTRODUCTORY OBSERVATIONS 
 
 1, 1, 4. he may prefer broad statements, the grounds for which he may 
 leave to be judged by others. Business men are those from 
 whose guidance economic students have profited most in recent 
 years, and may hope to profit increasingly in the future: 
 and efforts have been made, by Section-headings and otherwise, 
 to facilitate appropriate selection. 
 
 There is however one group of appendices which was not 
 deliberately planned; and for the length of which apology 
 must be made. Present poUcies of international trade have 
 developed from roots in the later Middle Ages in courses 
 sufficiently regular to offer occasion for drawing inferences 
 from past history in relation to present conduct: and there- 
 fore considerable space was given in Book I to the rise 
 and decay of Mercantile poUcy and some kindred matters. 
 But it has been found impossible to bring out the second 
 Volume, containing a study of international trade, at the same 
 time as the first; and these matters have little relevance to 
 the subjects now in hand. After some hesitation, it has been 
 decided to retain them in proximity with the observations 
 on concurrent changes in industrial technique and structure: 
 but to relegate them to the end of the Volume, in spite of the 
 great addition which they make to appendices already rather 
 long. 
 
CHAPTER II 
 
 SOME GENERAL RELATIONS BETWEEN 
 INDUSTRY AND TRADE 
 
 1. The trade of a plcice is likely to he increased by an i, n, i. 
 advance of her stronger indtistries, but to be lessened by an 
 advance of her weaker industries. 
 
 The present chapter is in some respects more closely 
 akin to the studies of international trade, which will come 
 later, than to the present Book. But there will be some 
 advantage in having a few broad results at hand immediately; 
 for they bear in various ways on the subjects of this Book; and, 
 though less closely, on those of Books II and III. 
 
 The only full statistics of trade are those which are collected 
 by customs house officials at the frontiers of countries; and 
 therefore imports and exports always suggest the notion of 
 goods passing between different countries. But the elementary 
 principles, with which we are concerned in this chapter, have no 
 reference to nationality: they are almost as applicable to the 
 trade between two neighbouring parts of the same country 
 as they are to international trade. Therefore the illustra- 
 tions will be generally taken from that particular kind 
 of tradp, the statistics of which are accessible and familiar: 
 but the argument will be understood to apply also in a great 
 measure to the external trade of any province or county, 
 such as Normandy or Lancashire, or of any industrial city, 
 such as Leeds or Chemnitz. If the local spirit of any place 
 ran high; if those born in it would much rather stay there 
 than migrate to another place: if most of the capital employed 
 in the industries of the place were accumulated from those 
 industries, and nearly aU the income enjoyed in it were 
 
14 GENERAL RELATIONS OF INDUSTRY AND TRADE 
 
 I, n, 1. derived from its own resources : — if all these conditions were 
 satisfied, then the people of such a place would be a nation 
 within a nation in a degree sufficient to render propositions, 
 which relate to international trade, applicable to their case 
 from an abstract point of view; though in the absence of any 
 statistics of the imports and exports of the place, they woidd 
 to some extent still lack reality. This observation of course 
 does not apply to a residentiary town such as Bournemouth, or 
 Newport in Rhode Island. 
 
 Industrial leadership has generally been accompanied by a 
 large foreign trade: and, partly for that reason, there is a mde- 
 spread notion that the volume of her foreign trade is a fairly 
 good measure of a country's prosperity. Let us inquire broadly 
 how much truth there is in this notion. 
 
 Much of the mystery which hangs about the trade of a 
 nation may be dispelled by the reflection that the trade 
 between two nations is the aggregate of the trade between 
 their individual members, (the commercial transactions of 
 Governments being left out of account): and that therefore it 
 is Ukely to present many of the same features as theirs, though 
 in a disguised form. 
 
 It is obvious that the trade of an individual is not a 
 fairly good measure of his prosperity, unless he be a merchant 
 or shopkeeper: that is, unless he have adopted trade as his 
 industry. The volume of the trade of a merchant is no doubt 
 a prima facie, though not conclusive, proof of his business 
 efficiency and prosperity. But if a man's main business is to 
 produce, the test is most untrustworthy: because a little energy 
 given to some branches of production leads to a larger trade 
 than much energy given to others. 
 
 Take, for instance, a woollen manufacturer, who has been 
 in the habit of spinning his own yarn. Suppose him forced to 
 give up his factory, his land being perhaps needed for a new 
 railway. When building on a fresh site, he decides to buy 
 his yarn, and to erect weaving sheds twice as large as his old 
 ones. Henceforward he uses about the same capital, and buys 
 about the same amount of coal and labour as before: but his 
 outlay on yarn for his large weaving shed is much greater 
 than his outlay on wool for the small one used to be; and his 
 
INFLUENCES OF INDUSTRIAL PROGRESS ON TRADE 15 
 
 output of cloth is about doubled. His trade is greatly increased, i, n, i. 
 Does the change reflect increased prosperity? Is it to his 
 credit? 
 
 We cannot say. The cause of the change of plan may 
 have been that his weaving sheds were more successful than 
 those of his competitors: but it may have been that his 
 spinning mills were less successful than theirs. Mere volume 
 of trade shows nothing. To find even an approximate answer 
 we must go behind the facts given, and ascertain their causes. 
 This is obviously true of private trade, and it is equally true of 
 national trade. 
 
 For a country like an individual may increase her trade as a 
 consequence of a decrease in facilities for producing something 
 which she imports. For instance, a bad harvest at home is 
 likely to increase England's trade. She must import more 
 grain, and export more manufactures to pay for it. On the 
 other hand her trade might be lessened by the discovery of 
 high grade iron ores, which would enable her to dispense with 
 those that she now imports from Spain; or again by an 
 energetic development of dairy and poultry farming, which 
 would enable her to dispense with much of her imports from 
 Denmark. Again improvements in her methods of building 
 motor cars tended to lessen her trade, until her cars were as 
 much sought for as those of France, which she at one time 
 imported largely: and further improvements seem likely to 
 augment her exports of them and increase her trade; at all 
 events in directions in which the consummate mastery of their 
 massive production, recently acquired by America, is not para- 
 mount. To speak more generally: — 
 
 A country's foreign trade is likely to be increased by a rapid 
 advance in those of her industries which are already ahead of 
 similar industries in other countries: because such an advance 
 increases her power of exporting at a profit. But her foreign 
 trade is likely to be lessened, or at aU events its growth is likely 
 to be checked, by an advance in those industries in which she is 
 relatively weak; because such an advance will tend to diminish 
 her need of imports. 
 
 It is, however, true that a general advance of a country's 
 methods and resources of production, affecting equally those in 
 
16 GENERAL RELATIONS OF INDUSTRY AND TRADE 
 
 I, a, 2. which she has been at a relative advantage and those in which 
 she has been at a relative disadvantage, will put all her afEairs 
 on a larger scale: and her trade will increase with the rest 
 of her afEairs. Further, and this is perhaps more important, 
 her exporting industries are likely to owe their success over 
 foreign competitors in a great measure to an unusually high 
 average of constructive ability and initiative among employers, 
 and of sustained energy and fidelity of work amongst employees. 
 These qualities engender and attract men of great industrial 
 strength. And, when a country is growing in strength, a 
 disproportionately large share of it is likely to belong to 
 her exporting industries, and therefore to increase her trade: 
 industrial leadership is thus reflected in foreign trade. 
 
 This rule is however not universal. It sometimes happens 
 that a sleepy industry is invaded by a few active and enter- 
 prising men from outside, or migrates from a stagnant district 
 to one that is progressive: its advance may then oust a large 
 class of foreign imports from the home market; with the net 
 result of lessening the country's foreign trade. 
 
 On the whole, and in the absence of all knowledge as to the 
 causes at work, it is reasonable to suppose that an ascertained 
 increase in a coimtry's foreign trade reflects an increase in her 
 general prosperity. But we may never assume that a rise or fall 
 in that trade indicates a proportionale increase or diminution in 
 her prosperity: we may not measure her prosperity by her 
 foreign trade. We must go behind the returns, and judge each 
 item of imports and exports by itself. On investigation, some 
 will indicate strength in natural resources and others weakness: 
 some will indicate industrial progress, and others will indicate 
 industrial decadence, not perhaps positively, but relatively to 
 other countries. 
 
 2. The direct gain that a town, a province, or a country 
 derives from its external trade is the excess of the real value 
 to it of its imports over that of (lie things, which it could have 
 produced for itself hy the labour and cajntal needed for 
 producing its exports and working the trade. 
 
 As an ordinary rule, when anyone voluntarily exchanges 
 one thing for another, he expects the latter to be of greater 
 
MEASURE OF BENEFITS RESULTING FROM EXTERNAL TRADE 17 
 
 service to him than the former; perhaps for his own use, 1, 11,2. 
 perhaps for trading away. His gain by the exchange is the 
 superior value to him of what he receives over what he gives 
 up. If he made the first thing himself, and will use the second 
 himself, this gain may be stated as the excess of the services 
 which the second thing will yield him, over the effort which 
 it cost him to make the first; or — which is sometimes nearly 
 the same thing — over the services which he could have got by 
 making for himself other things with an expenditure of effort 
 and resources equal to that needed for making the first^. 
 
 What is true of trade between individuals is true of 
 trade between towns, or provinces, or countries. But there are 
 seldom any statistics showing the imports and exports of any 
 locality, which is not either a country, or an isolated province 
 belonging to a country; and it will be best to speak here only of 
 countries. The prima facie gain, which a country derives from 
 her foreign trade, consists in the excess of the value to her of 
 the things which she imports, over the value to her of the 
 things which she could have made for herself in their place; 
 i.e. with the amounts of capital and labour devoted to producing 
 the things, which she exported in exchange for them (the costs 
 of working the trade being of course reckoned in). 
 
 But our statistics do not, and cannot, afford a direct means 
 for estimating this excess. And consequently it is necessary to 
 use them indirectly on a plan, which suggests more definite 
 ideas: it is not strictly correct, but it serves fairly well for 
 some purposes. On this plan, it is tacitly assumed that the 
 country would make for herself those things which she imports, 
 if she could not get them by trade: and accordingly her gaias 
 from her trade are taken to be the excess of the cost to which 
 she would be put if she made her imports herself, over that to 
 which she is put by making other things and exporting them in 
 
 • It wiU be noted that this statement differs fundamentally from one that is 
 substituted for it in popular discussions : the statement, namely, that in a free 
 exchange each person gives up what is of less real value to him than to the 
 receiver. When a peasant who lives chiefly on polenta and cabbages sells his 
 fowls to buy clothes, he receives the power of purchasing things of more value 
 to him than the fowls. But if the purchaser of the fowls is a rich man, their 
 possession oaruaot afford him as much real benefit as it might have done to the 
 seller. 
 
8 GENERAL RELATIONS OF INDUSTRY AND TRADE 
 
 I, II, 3. exchange for her imports. This result is of course very far from 
 the. truth in regard to such things as Britain's imports of 
 tropical foods: for she could not produce any great quantities 
 of these herself; and she would for the greater part go without 
 them, if she could not import them. If her imports of French 
 and other woollens were arrested, she would indeed make up 
 the greater part of the deficiency by her own products, which 
 would be pushed into uses for which imported products are now 
 preferred; her exporting industries being of course subject to 
 an equivalent check. But if her imports of wheat and other 
 staple grains were arrested, she would be forced to make up the 
 deficiency by her own production, even though that would 
 require poor crops to be wrung by great labour from unsuitable 
 soils, and climates. 
 
 This is however only the prima fade gain; her trade exerts 
 many other influences on her well-being, some good, and some 
 evU. It may, for instance, educate her finer industries and 
 those which make most for leadership: or it may tend to stifle 
 them. It may increase or diminish the steadiness of em- 
 ployment of her working classes; and so on. And there are 
 other issues, to be reckoned with later on. Account will need 
 to be taken, for instance, of exports which she sends out 
 when lending capital to other countries, and for which she 
 receives no corresponding imports at the time. Again allowance 
 will need to be made for the influences of different kinds 
 of trade in stimulating industrial energy, in ministering to the 
 wants of the needier classes of the population and in affecting 
 the amount and security of their employment. 
 
 3. Countries, whose advantages are distributed in un- 
 equal proportions among different industries, may generally 
 carry on a trade profitable to both, even though one of them 
 is absolutely the stronger all round. 
 
 Trade between two individuals is the result of relative 
 differences in the ease with which they can make different 
 things. One man may conceivably be able to do everything 
 easier than the other: but if he has a great advantage in doing 
 some things, and only a small advantage in doing others, then 
 it may probably be worth his while to give all his energy to 
 
TRADE BETWEEN STRONG AND WEAK COUNTRIES 19 
 
 doing those things in which he had a relative advantage; and to i, n, 3. 
 escape doing those for which he is at a relative disadvantage, 
 though at a positive advantage. 
 
 For instance a business man could often do the work of his 
 assistant, or his foreman, or one of his workmen, better and 
 more easily than it is done by the man whom he pays to do it. 
 But he would be foolish to do it himseK, if that involved, as it 
 probably would, the neglect of other work that is peculiarly his. 
 Again, a medical man may possess more strength and more 
 knowledge of horticulture than the gardener whom he hires; 
 and be able to do the gardener's work better and with less 
 efEort: and, if the gardener could not obtain it otherwise, he 
 may well spend a day's wages on medical advice, given in a few 
 minutes, which rescues him from many days' pain and loss of 
 wages; though it costs Uttle to the physician. In such cases 
 each man does work for which he has a differential advantage, 
 though he may be at an absolute disadvantage. 
 
 Again, the owner of cold wet land may habitually supply oats 
 to his neighbour, whose land has a southern exposure and a deep 
 loamy well-drained soil. To grow a quarter of oats may have 
 cost him much more labour and other outlay than it would have 
 cost his more fortunate neighbour: so that in raising the oats 
 he is at a great absolute disadvantage. But his land though 
 ill suited for oats is even more imsuited for wheat: and, 
 because his absolute disadvantage in the production of wheat 
 is greater than in the production of oats, it is to his advantage 
 to "export" oats to his neighbour and to "import" wheat: he 
 has a relative advantage in the production of oats. The existence 
 of the trade is not to his credit or to his discredit: but it is 
 a sign of the poverty of his resources. If by drainage, improved 
 rotations, etc. he managed to grow a good deal of wheat without 
 inordinate labour and outlay, he would lose this trade: and that 
 would be to his credit^. 
 
 Now it will be found that somewhat similar cases occur in 
 the trade between two countries, whose peoples cUng to their 
 several native lands, whether from inertness, or for the sake of 
 patriotic ideals. In such a case the nation that is the less well 
 
 ^ This group of illustrationa is on similar lines to those of Kieardo's celebrated 
 chapter on Foreign Trade. 
 
20 GENERAL RELATIONS OF INDUSTRY AND TRADE 
 
 1,11,3. endowed with natural resources, or the faculty for industrial 
 organization, must act hke one of the less fortunate individuals 
 just described. It must tum to the best account those resources 
 and faculties, which are less markedly inferior than others to 
 similar resources and faculties in the possession of its neighbours. 
 Its fortune will remain inferior to theirs: but it will not lag 
 behind them as much as it woidd, if it were compelled to provide 
 for itself those things, for the production of which its relative 
 advantages were very low. 
 
 But the case of trade between two districts of a modem 
 western country is different. For if the industries of one of 
 them were so much richer than the other in natural and acquired 
 resources and in organizing faculty, that a man of given natural 
 ability and energy could earn nearly the full wages of the more 
 fortunate district shortly after migrating into it; then migration 
 would have set in long ago so strongly as to change the location 
 of those industries which required high faculties. The backward 
 district might continue with low wages; but that would be 
 because its social conditions and general, influences were not 
 adapted to bring out the best energies of its inhabitants; and, 
 possibly, because it had become a sort of sink, towards which 
 people who could not obtain employment in the more energetic 
 and enterprising district gravitated. After a time however it 
 might awake from its torpor, assimilate the processes and the 
 energy of the more advanced district and thus earn equal wages 
 with it. Capital would foUow the effective demand for it from 
 one district to another very rapidly. 
 
 Trade between such districts shows little to correspond either 
 to trade resulting from the faculties of the business man or the 
 medical man, which are fixed in the individual and not capable 
 of being transferred to his foreman or gardener; or again to 
 properties of the rich warm land that are fixed in it. Inter- 
 national trade on the other hand shows much to correspond with 
 them: for the migration of labour and capital from one country 
 to another, is still slow, though not so slow as it was formerly. 
 No doubt lethargy and other obstacles prevent the inhabitants 
 of some backward districts even of western countries from 
 migrating to neighbouring districts, where they might soon learn 
 to turn their latent strength to good account: while, on the 
 
TRADE BETWEEN STRONG AND WEAK COUNTRIES 21 
 
 other hand, alert people migrate from one country to another i, ii, 3. 
 without great difficulty, at all events where no change in lan- 
 guages is involved. 
 
 This class of considerations will need to be pursued further 
 in connection with the problems of international trade. But 
 before passing away from the general principle which is 
 indicated in this section, there may be some advantage in 
 pointing to a few more results which flow from it, and have 
 influenced the evolution of national industry and trade through- 
 out the world a good deal more than might seem probable at 
 first sight. 
 
 It is true that if a country were twice as well endowed as 
 her neighbour with all natural resources, with all industrial 
 aptitudes, and with capital; then there could be no trade between 
 them. It would be twice as heavy a task to produce a quarter 
 of wheat in the second country as in the first: but so it would 
 be to produce a bale of cloth or a piece of machinery. All 
 commodities would exchange for one another at the same rates 
 in one country as in the other: and a merchant would gain 
 nothing for his pains L£ he took the goods of one country to sell 
 them in exchange for goods of the other. But in fact every 
 industry is full of specialities, some large and some small. 
 Britain and Germany are on nearly the same level in industrial 
 capacity generally: and each is wont to buy from the other 
 considerable quantities of textile, and engineering, and other 
 products. 
 
 The greater part of such trade would indeed have been 
 impossible without those modem facilities for transport and 
 communication, which enable a very slight differential advantage 
 to effect interchange, even in the face of moderate import duties. 
 But if the richer country could produce double as much as 
 the other could with equal effort in some industries, and only 
 half as much again as the other in the remaining industries, 
 then there would be so great a profit to each in exporting 
 those things ia which she was at a relative advantage and 
 importing those in which she was at a relative disadvantage 
 as to overbear even a heavy cost of transport. 
 
 The trade would be profitable: and that is all we are 
 concerned with just now. But even here it is worth while 
 
22 GENERAL RELATIONS OF INDUSTRY AND TRADE 
 
 I,", 3. to insist that the best business is not necessarily that which 
 brings in the highest profits immediately : for other business may 
 be doing more to strengthen the basis on which all rests. Thus 
 the lad who carries parcels often earns higher wages than he 
 would while learning a skilled trade : but in the long run it would 
 have paid him better to earn less at first. Similarly, a country 
 may rightly ask whether her foreign trade is such as to promote 
 the education of her industries. The answer varies curiously 
 with circumstances. For instance, when Japan first welcomed 
 foreign traders, she sent to England fine metal work, which could 
 have been produced there with less effort than in Japan: for 
 some parts, though not all, could have been made by machinery. 
 In return she imported things made wholly by machinery with 
 a quickness and accuracy which were beyond the competition of 
 . hand work. Japan was at an absolute disadvantage in both 
 kinds of production. But she was at a greater disadvantage 
 where machinery could do all the work, than where it could 
 do only a part. And some woidd have said — let her tax 
 heavily imports of western manufacturers, so that her people 
 may learn western methods. But (partly under the influence 
 of treaty obligations) Japan on the whole welcomed foreign 
 manufactures, meanwhile studying western methods; and she 
 now uses machinery freely where it is appropriate. Thus 
 both absolute and relative national disadvantages are quickly 
 altered in this era of rapid change. And indeed each part of 
 every country's trade is coming increasingly under the influence 
 of causes, which affect in the first instance countries other than 
 those with which that trade is carried on: the international 
 element is becoming increasingly prominent in the history of 
 all trade. 
 
 I"or instance, when any change in England's trade with 
 Italy occurs, the Englishman is likely to have already in his 
 mind the changes in English conditions which bear on it. And 
 therefore, before forming any opinion on the change, he should 
 make some study of recent events in Italy: he should look for 
 changes in the relative efficiency of different Italian industries; 
 and again for changes in Italian demand for the products of 
 other countries, whether of such a nature as to compete 
 directly with English products or not. And especially he 
 
TRADE BETWEEN STRONG AND WEAK COUNTRIES 23 
 
 should take account of any change in the costs of transport i, n, 4. 
 between Italy and other countries and also in the development 
 of Italy's internal traffic: for such changes often have a greater 
 effect on England's trade than others, which fiU a much larger 
 place in the mind of the EngHshman. 
 
 In all economic history, and especially in recent economic 
 history, and most of all ia the recent history of trade, the 
 international point of view is essential. It is easy to remember 
 that one's own country is ever growing and changing: but 
 it sometimes requires effort to consider how many of the 
 changes near at hand are partly due to the expansion of life 
 far away. 
 
 4. A smcdl country often has a relatively large foreign 
 trade: for she can seldom supply nearly all her own 
 wants as regards raw materials and other things ; and her 
 frontier is generally long relatively to her population and 
 industry. But some causes tend in the opposite direction. 
 
 When the foreign trades of two coimtries of unequal size 
 are compared, with the purpose of finding a rough measure of 
 their relative economic activities, it is obvious that account 
 must be taken of their relative population: the great excess 
 of the trade of China over that of New Zealand does not 
 suggest any lack of energy on the part of the islanders. 
 But if, avoiding this danger one compares the amount of 
 trade per head of the population of two countries of very 
 unequal size, one falls into an almost equal error in the 
 opposite direction. This danger is more subtle than the first: 
 and there is no simple rule which will guard against it. 
 But it will be found that if the populations of two countries 
 are equally vigorous and alert, and equally well supplied with 
 capital; then the trade per head will generally be the 
 larger in the smaller country: for, in all probabihty, she will 
 have less varied resources; and, partly as a consequence, her 
 industries will be less capable of supplying her various needs. 
 An additional reason is that she is likely to have relatively long 
 frontiers, adjacent to those of other countries. A comprehension 
 of these facts is so important as an aid to reading between the 
 lines of a sketch of the evolution of national trade and industry, 
 
24 GENERAL RELATIONS OF INDUSTRY AND TRADE 
 
 I, II, 4. that there may be an advantage in looking at a great many 
 illustrations of the way in which it works out. 
 
 A place which produces but few things must necessarily 
 depend largely on external markets. To take an extreme case, 
 a village, given up to fishing, trades away nearly the whole of its 
 produce; and the neighbouring farming villages trade away by 
 far the greater part of theirs. But the country which contains 
 these villages and some towns, with simple manufactures, will be 
 more nearly self-sufficing; and its external trade will be less in 
 proportion to population than that of the farming villages, and 
 much less than that of the fishing village. 
 
 Again, rich mines of precious metals and stones have been 
 foxmd in arid districts where agriculture is difficult and the 
 conditions of life are not attractive to an industrial population. 
 Consequently industry in those districts has been highly 
 specialized: they export practically the whole of what they 
 produce, and import practically the whole of what they consimae. 
 
 Again, each State of the American Union must import from 
 elsewhere many things, which the United States as a whole 
 can supply for herself: and therefore if statistics were kept 
 of the aggregate external trade of each State, the total would 
 be many times as great as the total of the foreign trade of the 
 United States. Ireland's trade with England and Scotland has 
 always been greater than her trade with the rest of the world; 
 and the aggregate foreign trade of the United Kingdom was 
 therefore less than that of Great Britain^. 
 
 * This was put in evidence in 1825 when Great Britain's trade with Ireland 
 ceased to be classed as foreign, and her foreign trade shrunk; though Ireland's 
 trade with other countries was added to hers. In recent years approximate 
 statistics of Ireland's external trade have been collected, and they show it to be 
 about half as great again per head of the population as that of England and 
 Scotland. The external trade of Greater London is probably greater than the 
 aggregate of that of the United Kingdom. 
 
 The foreign trade per head of the Australians was lessened by more than a 
 third when the Colonies were united into one Commonwealth. The change 
 would probably have been much greater if Australia had offered more facilities 
 for intercolonial trade: for the great desert in her centre sends much even of her 
 local trade round by sea, though a good deal passes between Melbourne and the 
 Western district of New South Wales. Further, more than a third of her popu- 
 lation is concentrated in four sea-ports, whose cosmopolitan tendencies and 
 opportunities prevent them from having the bias, that more restful districts 
 have, towards local rather than foreign trade. 
 
SMALL COUNTRIES HAVE EELATIVELY LARGE TRADE 25 
 
 Again, when natural and artificial causes were combining to i, n, 4. 
 give the West Indies nearly a monopoly of the production of 
 sugar, some of these islands imported not only all their clothing 
 and other manufactures, but also nearly all their food. On the 
 other hand India had at the time but little foreign trade, in 
 spite of her vast population, and the high value which Europe 
 placed upon many of her products. For she had little need of 
 European products: she could herself supply most of the things 
 which she desired to have; and Europeans could not then get 
 access to more than a narrow fringe of the large and rich land. 
 Consequently while the foreign trade of the West Indies was 
 for a time one of the largest in the world, that of the whole 
 Continent of India remained small. 
 
 Again, so long as England's exports of cloth were made 
 chiefly of her own wool and other home-made material, each 
 thousand pounds' worth of them carried nearly a thousand 
 pounds' worth of the services of her own capital and labour: 
 but now that her cloth is largely made of imported material, that 
 is no longer the case. Further her imports of raw wool, etc. are 
 reckoned as part of her foreign trade: therefore the increase in 
 her foreign trade due to her exports of cloth appears greater 
 than it is. 
 
 Similarly the recent growth of Germany's foreign trade 
 has been partly due to the fact that her population, which is 
 larger than that of this coimtry and is growing much faster, is 
 beginning to work up imported raw material on a great scale 
 for home consumption and for export. An additional reason is 
 that railways have given her great new facihties for trade with 
 the seven countries, whose frontiers march with hers. This brings 
 us to consider the two geometrical facts, that a small country 
 has a larger frontier in proportion to her area than a larger 
 country of the same shape; and that the average distance of her 
 people from the nearest foreign markets is likely to be less^. 
 
 * The areas of similar figures necessarily stand to one another in the pro- 
 portion of the squares of their several linear dimensions. Thus, if a country 
 with an area of ten thousand square miles has a frontier of sir hundred miles ; 
 then another country of similar shape, but a hundred times as large, will have 
 a frontier of only six thousand miles. The smaller country will have ten times aa 
 long a frontier in proportion to its area, and therefore probably in proportion to 
 its inhabitants and its industries, as the larger; and in bo far as the frontier is a 
 
GENERAL RELATIONS OF INDUSTRY AND TRADE 
 
 Thus Belgium has excellent access to all the world by sea, 
 and a frontier which marches with those of France, Germany 
 and Holland. And, though Switzerland has no access to the 
 sea, her frontiers march with those of four great countries; and 
 her northern, western and southern industrial districts have 
 closer economic relations in some matters with parts of 
 Germany, France and Italy, respectively, than they have with 
 one another; even though they are now imited by tunnels 
 through the Alps. These conditions increase their foreign trades. 
 
 And yet a large country has her own advantages. Her 
 large area gives greater facilities for the development of those 
 great industrial districts in which, as we shall see presently, 
 concentrated specialization is now carried to its highest extent: 
 and such districts have generally a better approach to her own 
 large markets than the industrial districts of a small country 
 can have to foreign markets, even if their frontiers are not 
 beset by import duties. These broad causes will be foimd to 
 be among those which have tended to move industrial leader- 
 ship from cities and from smaU to large countries; bravely as 
 some small countries are still striving. 
 
 Again, industrial leadership — that is the power of doing now 
 what others will presently be doing, or at all events trying to 
 do — enables a country to cater for a great variety of wants 
 which she feels; and which others in like conditions feel, or at 
 least will feel when tempted by the ofier of the things that fit 
 those wants. She offers variety: she does not glut the foreign 
 markets with things with which they are already well stocked. 
 She sends those things which have a certain distinction, as 
 being new in substance or in quality, or as attaining familiar 
 ends by easier and simpler means. Whether her population is 
 large or small, it is sure to contain a high proportion of rich 
 people, who can afford to spend freely on imported luxuries and 
 choice goods of all kinds. She is likely to have good means of 
 communication, so that her exports and her imports alike can 
 easily reach their destination. And lastly; since foreign trade 
 
 sea line, it will probably supply harbours suitable for the cheapest form of 
 transport. In so far as it is a land line, there will probably be large openings 
 for foreign trade with people close at hand; and with whom traffic will be easy, 
 familiar, and cheap, unless indeed it is obstructed by high tarifs. 
 
SMALL COUNTRIES HAVE RELATIVELY LARGE TRADE 2 
 
 itself is an industry, her industrial ability is likely to show i, n, 6. 
 itself in conducting that trade with energy and efficiency. 
 
 5. An increase in the distance which goods can he carried 
 at a given cost, is likely to increase the trade in those goods 
 in a greater ratio. Spheres of influence of different centres of 
 trade. 
 
 We have now seen how the unequal distribution of (difie- 
 
 rential) advantages in different places tends to cause trade 
 
 to grow up between them. But of course the merchant has 
 
 difficulties to overcome, risks to run, and expenses to pay: and 
 
 ' it will not be worth his while to push the trade unless the 
 
 ' differences in value of the things, which he buys and sells in 
 
 the two places, give a sufficient margin to remunerate him for 
 
 ^ overcoming all these obstacles. 
 
 " As a rule, the chief obstacle is the cost of transport; at all 
 
 '' events if we take it broadly so as to include insurance, com- 
 '' mission expenses and locking up of capital tiU the returns are 
 "■ brought home: and this cost increases, though irregularly, 
 1 with the distance. But the area of a circle varies as the 
 square of its radius. Therefore improvements in the mechanism 
 " or the organization of transport, which increase the distance 
 * over which trade in certain goods can be carried at a given 
 s expense, are prima facie likely to increase in the square of 
 li^ that ratio the area over which the trade can be conducted 
 tii profitably. This rule may be called Lardner's Law of Squares 
 lif in transport and trade, for convenience of reference^. 
 U The facilities for transport from any place in various 
 
 ,£ directions frequently differ widely in character; and so do the 
 ifc markets to be reached. Thus the cheap sea routes at the 
 )iii command of a maritime port may lose much of their value 
 a if the population along the neighbouring coasts is sparse, and 
 it inland transport from the coast is difficult: and therefore the 
 ijs district, over which trade is profitable, is likely to be of 
 jfi irregular shape. Nay more, the advantage of cheap sea routes 
 
 • It was made prominent for the first time in Lardner's epoch-making 
 1"' Railway Economy, 1850; though its general bearing was probably recognized 
 f^ earlier. Its geometrical method is greatly developed in Alfred Weber's Slandort 
 t*' der Industrien, Part i, 1909, especially the third chapter and the appendix. 
 
18 GENERAL RELATIONS OF INDUSTRY AND TRADE 
 
 1,11,5. may vary from one class of goods to another; the expenses 
 of land traffic being a greater obstacle to the movement of 
 bulky goods of low value than of light and costly goods. 
 
 But the rule applies fairly well to a trading port in close 
 touch with an archipelago or river delta studded with rich 
 markets. Such a port is indeed likely to derive moral ad- 
 vantages, as well as commercial, from its commanding position. 
 And, in this sense it is true, that the law of squares has had 
 much to do with the brilliant careers of Athens, Alexandria, 
 Byzantium, Marseilles, and Venice; of the Hanseatic League, 
 and of Holland^. 
 
 Causes that delayed England's rise to leadership were that 
 her industries were neither concentrated, nor united by good 
 communications; while she was not specially well placed for 
 availing herself of the economies indicated in the law of squares 
 Ln external trade. But afterwards transoceanic traffic became 
 more important than that of inland seas and rivers; and the law 
 of squares aided her more than it did any other country, especi- 
 ally during the early days of railways. In recent years, on the 
 other hand, large inland countries have been helped by an ever 
 extending net of railways to reap more benefit from that law 
 than she has. 
 
 Of course many hindrances to communication are of a 
 personal rather than a mechanical nature: and they are 
 much under the influence of sentiment, and still act more 
 strongly against international than against domestic trade. 
 Improved education and extended travel are indeed slightly 
 diminishing those which arise from differences of language, 
 of business usage, of commercial law and jurisdiction, and so 
 on. But national sentiment is not always moderated by inter- 
 national intercourse. 
 
 It is obvious however that even a great economy of 
 transport will not enable a place to send its goods into the 
 sphere of influence of an equally strong rival centre of pro- 
 duction. For example, if a district well adapted for wheat be 
 surrounded by a belt of pasture land, then a fall in the cost 
 
 ' Some of the above conBiderations are further developed below, in con- 
 nection with recent changes in the conditions of marketing in various classes 
 of large cities. (See II, vi, 6; and Appendix J, 6.) 
 
INCKEASE OF TRADE CAUSED BY CHEAP TRANSPORT 2 
 
 of sending out wheat and bringing back cattle will extend the i, n, 5. 
 trade: but, however low that cost, the wheat cannot be sent 
 across the pasture land into other wheat territory. Similarly 
 the export of coal or heavy iron goods from a great produciag 
 centre will extend rapidly under the influence of lowered 
 transport charges, until it approaches the sphere of influence 
 of a rival centre. Five-thousand-ton barges on the Rhine, and 
 increased railway facilities, have sent English coal into South 
 Germany and Switzerland: but the neighbourhood of the 
 Westphalian mines has always been closed to it. 
 
 When two centres of trade are competing for any neutral 
 territory, an improvement which lowers equally the costs of the 
 communication of both of them with that territory, wUl increase 
 the trade of both in about equal proportions. But if the 
 improvement benefits one more than the other, the second may 
 lose trade by the change. Thus the Panama Canal, which 
 facilitates trade between England and Peru, may yet lessen that 
 trade; because it facilitates even more the trade between many 
 parts of North America and Peru. 
 
 This points to the general observation that new economies 
 of transport between two places exercise their /mM influence on 
 trade between them, only in so far as they are differential, that 
 is in excess of new economies in competing trades. For 
 instance, a general fall in the costs of transport induces a 
 coimtry to buy many things from abroad which she would 
 otherwise have produced for herself, or else foregone. But 
 it is likely to diminish the advantages that her immediate 
 neighbours have for selling to her things for the production 
 of which they are not so well equipped as some more distant 
 competitors. It is indeed true that the costs of handling, 
 or — to use a railway phrase — "the terminal charges" are nearly 
 the same for long distances and for short; and that therefore 
 increased economies in the building and working of ships affect 
 the total costs of long distance trade in a less proportion than 
 those of short distance trade. But yet the total lowering 
 of costs is much greater for very long distances than for 
 short: and in consequence European countries now buy many 
 things from other Continents which they used to buy not very 
 long ago from neighbours. 
 
10 GENERAL RELATIONS OE" INDUSTRY AND TRADE 
 
 I, II, 6. 6. Some consequences of the facts that the costs of traffic 
 over long distances have fallen more than those over short 
 distances; and that both have fallen unequally. 
 
 In early times the discomforts and risks of a long journey 
 or voyage were often very great; and were magnified by 
 prejudice and imagination. Even to-day, if one hires an 
 ordinary villager, with or without a cart, to carry luggage 
 twenty miles, one must commonly pay more than twice as much 
 as for ten miles: because if he goes twenty miles he must sleep 
 away from home. 
 
 But, on the other hand, the international money market, 
 the post, and latterly the telegraph have lowered those costs of 
 trade which are not directly connected with the handling of the 
 goods. And on the whole it is probably not far from the truth 
 to assume that the total costs of maritime trade have been 
 lowered about in proportion to the economies in transport, 
 which have been effected by the discovery of the art of tacking, 
 by improvements in the construction of ships, which give them 
 greater carrying power for a given gross tonnage, by the sub- 
 stitution of steam ships for sailing ships, of steel ships for 
 wooden ships, of high pressure boilers for low and so on. And 
 any consequent lowering of freights (even after allowance has 
 been made for the maintenance of some of the costs of handling 
 in ports at a relatively high rate) has generally caused the 
 water area which can be profitably covered by any kind of 
 heavy traffic to increase in the square of the ratio in which they 
 have been lowered. The progress of land transport has been 
 less uniform and more spasmodic. For the art and habit of 
 making good roads have risen and decayed more than once; 
 and the whole conditions of transport in any district are revo- 
 lutionized when a railway system appears in it. 
 
 It often happens that goods can start on an easy route, but 
 must break away from it to the right or left in order to reach 
 their destination: and in such a case the area which can be 
 profitably covered by any class of trade has the shape of an 
 elongated oval or diamond. 
 
 Suppose for instance a town were placed on a river running 
 (very slowly) due north and south, along which heavy goods 
 could be carried profitably about one hundred miles in either 
 
EFFECTS OF UNSYMMETRICAL COSTS OF TRANSPOET 
 
 direction; while the cost for each mile by land was ten 
 times as great. Then, assuming the purchasers everywhere to 
 he ready to pay the same price for the same goods, and 
 neglecting the expenses of transhipment, we find that the 
 town's market for those goods would have the shape of a long 
 diamond, twenty miles from East to West, and two hundred 
 miles from North to South; its area being about two thousand 
 square miles. Meanwhile light perishable goods, which could not 
 endure a slow journey by water, but could afford to be carried a 
 hundred miles by land, would have a market of rather more than 
 thirty thousand square miles. 
 
 The case is substantially similar when traffic starts by sea, 
 or by raUroad, and has to be carried by road for a part of the 
 journey. Eor that part, though short in distance, may easily be 
 the costlier of the two. We shall see presently how much, that 
 seems obscure in the history of the prices of wheat in England 
 during the nineteenth century, finds its explanation in the 
 fact that the prohibitory costs of transport for the first hundred 
 miles from many districts ceased as soon as they had been con- 
 nected by good roads or railroads with tidal water. 
 
 A simple illustration of this principle may be found in the 
 building of Alpiue chalets. Wheii one has to be bmlt very far 
 from any road, logs are roughly hewn iato the requisite shape 
 by the adze and hand-saw at a very heavy cost of labour and 
 wood. But if the chalet is to be bmlt near a valley, which has 
 a rough road and a simple saw-mill; then the logs are brought 
 down the road over snow in winter, and are sawn into boards, 
 which are carried along the road, to a point just below the chalet. 
 The builder, however, must still apply the hand-saw, the adze 
 and the plane to do a great deal of work which is done with 
 a tenth or a hundredth part of the labour by large wood working 
 mills with expensive plant, such as can pay their way only in 
 broad valleys with ample road or railroad commimications. In 
 such a microcosm we see increased supplies of capital, and 
 improved means of communication, gradually extending the 
 economies of massive production to one district after another, 
 and one class of commodities after another. The broad history 
 of trade is little more than the continued apphcation of similar 
 principles to provincial, national and cosmopoHtan problems. 
 
CHAPTER III 
 
 FOUNDATIONS OF ENGLAND'S INDUSTRIAL LEADER- 
 SHIP. HER DRIFT TOWARDS MASSIVE PRODUCTION 
 
 I, i^i, 1. 1. Introductory. England's forerunners in the indus- 
 trial leadership of Western Europe. The spirit of economic 
 nationality. 
 
 The purpose of the present chapter is to sketch England's 
 preparation for leadership in modem methods of massive pro- 
 duction. The energies of her people showed themselves early 
 in war and in maritime trade and adventure: and the character- 
 istics of her later industrial qualities were foreshadowed by the 
 uses to which she put water power in the inception of massive 
 textile work. But "massive industry" in that full sense of the 
 term, in which scope is offered for the complex and multifarious 
 resources of modem technique, calls for a very much larger 
 aggregate use of power than could be supplied by all the streams 
 of England. This introductory chapter therefore passes quickly 
 over the advance of England's industries through Mediaeval and 
 Mercantile conditions to that in which considerable masses of 
 workers were aggregated, for good and for evil, in districts that 
 provided water power adequate for relatively large and highly 
 organized textile manufactures. 
 
 The forerunners of modern "national trade" are not to be 
 found in any empire of olden time, however firmly it was held 
 together by political and military influences. But they may be 
 found in great industrial cities in the Early, and especially in 
 the Middle Ages: since in these, direct communication by word 
 of mouth sufficed for nearly all the purposes of the modern 
 printing press, post and telegraph: therefore they developed as 
 patriotic a pride in their work as in their military strength. 
 
ENGLAND'S FORERUNNERS IN INDUSTRIAL LEADERSHIP 3: 
 
 And, as List says, that wliicli is now called the spirit of economic I, m, i. 
 nationality, is really the spirit of Bruges or Antwerp; of Venice, 
 Florence or Milan, spread over a whole country. It first per- 
 meated to Holland, a land of cities intimately united by an all 
 pervading network of waterways. There were jealousies among 
 her cities: but they worked on the whole harmoniously for the 
 common purposes of trade; and a national trade was created 
 under these conditions before the time was ripe for a large 
 national industry. But a chief advantage, which Holland ulti- 
 mately obtained over her rivals in trade, was by her adoption of 
 standardized shapes for her ships and other vessels. Each of 
 several cities undertook the supply of a particular group of inter- 
 changeable parts; and thus the methods appUed, during the 
 ' World-war, by several countries to the production of mimitions 
 (and notably by Germany to that of submarines) were antici- 
 Ii pated by Holland, long before engineers had even contemplated 
 § the delicate accuracy of work attained by modern semi-automatic 
 ii machinery. Englishmen fought eagerly with Holland, and gained 
 ts little thereby: but their debts as pupils to her are immense. 
 t One keynote of the contrast between the early economic 
 
 a history of England and Holland is incidentally struck in Petty's 
 11 illustrations of his great rule that "Each coimtry flourisheth in 
 jji the manufacture of its own native commodities." He con- 
 jt;; tinues, "viz. England for woollen manufacture, France for 
 j£ paper, Luicland (Liege) for iron-ware, Portugal for confectures, 
 ji|i Italy for silks. Upon which principle it follows that Holland 
 jlji and Zealand must flourish most in the trade of shipping, and so 
 «i become carriers and factors of the whole world of trade'^." 
 jtlj He was arguing that England had a better "native com- 
 
 ijjlJ modity" for shipping than appeared: but he did not venture to 
 claim that it was very great. For the Netherlands and Venetia 
 .jjli are lowlands watered by great streams: England is an island of 
 y which the main watercourses flow away from one another; and 
 A the seas coimecting them break turbulently round long pro- 
 .[,( montories. Her harbours were not specially well placed for the 
 g trade of early times, her inland waters did relatively little 
 
 W' 1 Political Arithmetic, a.d. 1676, p. 16. See Appendix B for an outline 
 
 Opel' sketch of the debts of modem industry and trade to the City States and to 
 \d HoUand. 
 
 M. I. T. 2 
 
34 ENGLAND'S DRIFT TOWARDS MASSIVE PRODUCTION 
 
 1,111,1. towards concentrating her industry, and in the early Middle 
 Ages her people cared little for the sea. But yet the sources of 
 her strength and of her ultimate wealth lay in her geographical 
 position, and in the climate attendant on it. Her position had 
 attracted the boldest venturers from both sides of the North Sea 
 and the Baltic; and Professor SchmoUer, an able, if somewhat 
 severe critic of English history, says of them: — "there arose 
 from the intermarriage of these invaders a sportive variety of 
 men of rare bodily vigour, strong of will, calm in deliberation, 
 and bold in action^." 
 
 There are indications of a tendency to regard the industrial 
 qualities, which have been prominent ia England during recent 
 times, as accidental successors of the earlier strenuousness of 
 Englishmen under arms: — accidental in the same way as it 
 was a matter of accident that the Yorkshire hUls, whose water 
 power attracted wooUen industries in the eighteenth century, 
 owed their later industrial prominence to their coal, of which 
 the earlier wooUen manufacturers had taken little or no account. 
 It is therefore worth while to insist that the energies of 
 Englishmen have always had the same fimdamental character: 
 but the brief historical sketch which occupies the remainder 
 of this chapter will be superfluous to many readers; and may be 
 omitted. 
 
 ^ Die englische Handeh PoUtik des 17 und 18 Jdhrhunderta, published in 
 his Jahrbuch, vol. xxm. List, another critic of England, equally able and 
 almost equally severe, while remarking that the influence of blood may be over- 
 rated, and that there was less freedom in England under the Tudors than in the 
 German and Italian cities, attributes much of England's wealth to " the people's 
 innate love of liberty and of jvistioe." National System of Political Economy, 
 oh. VI. pp. 49 and 50. And elsewhere ho observes that "of all the industrial 
 pursuits, navigation most demands energy, personal courage, enterprise, and 
 endurance; qualifications that can only flourish in an atmosphere of freedom" 
 {ib. ch. X. p. 108). Roscher points out (Handds Polilik, § 6) that vicissitudes of 
 commercial enterprise, and the resolute independent bearing that was fostered 
 among the people by a seafaring life, combined to weaken class distinctions in 
 trading cities, even when their political constitution was oligarchic: and thus 
 there was a constant spring of fresh energetic blood upwards in them. Petty 
 argues that trade does not always flourish best under popular Governments; 
 but he gives some curious instances of his rule that "Trade is most vigorously 
 carried on in every State and Government by the heterodox part of the same, 
 and such as profess opinions different from what are publicly established." 
 (Political Arithmetic, p. 25.) 
 
THE PERSISTENCY OP ENGLISH CHARACTERISTICS 35 
 
 2. The qualities, which gave leadership to Englishmen 1,111,2. 
 in industry and trade in the nineteenth century, had their 
 roots in early times. 
 
 From 1066 down to the present time England's history has 
 been that of the same people, never disturbed for long by any 
 sort of grievous violence, never forcibly moidded by a series of 
 imperious personalities, never under a dominating influence from 
 outside. They brought with them the characteristics of firm 
 will, self-determination, thoroughness, fidelity and love of 
 freedom — strong qualities, which they have never lost; but 
 also some deficiency in graciousness and delicacy of manner — 
 pleasant qualities, which they have never completely gained. 
 They have learnt greatly from others: but they have pursued 
 their own course so independently and steadily, that their 
 pohtical and economic institutions have groiyn side by side in 
 harmony; and they stand out now as the leading type of con- 
 tinuous development. Their methods in industry and trade 
 were for long ages far behind the highest level that had been 
 reached; but at last they threw their own special characteristics 
 into business affairs with such energy, and such quickness of 
 adaptation to the ever increasing massiveness of the economic 
 problems of the Western World, that they became its chief 
 pioneers of progress and trade. 
 
 In fact the qualities of body and character, which ultimately 
 gave to EngUshmen a certain leadership in industry and trade, 
 had their origin in early times; and persisted throughout some 
 six centuries, ia which they found much scope La deeds of courage 
 and endurance on land and sea, and in popular games: the 
 English archer was the progenitor of the English artisan. 
 Contiuuity can be traced also in England's political -history. 
 The "growing pains" of the Tudor age were in part an indi- 
 cation of the fusion of England, or at all events of all England 
 except her northern counties, into an economic unity. Local 
 restrictions and other regulations faded away: and their place 
 was gradually taken by laws and royal ordinances, which apphed 
 generally to the kingdom as a whole: this was in part cause, 
 and in part consequence, of the beginnings of a consciousness of 
 economic nationality. The new order was to be based on the 
 old: but with greater breadth of action came somewhat greater 
 
36 ENGLAND'S DRIFT TOWARDS MASSIVE PRODUCTION 
 
 1,111,2. breadth of thought, and also some slight softening of temper: 
 the new order of administration was associated with a new order 
 of trade; and internal trade became generally more open, while 
 external trade was still regulated, though not on mediaeval lines. 
 England's foreign trade was for a long while in the hands of 
 foreigners, whose conduct was mitigated by the Staple; and for 
 some time more largely in the hands of "Regulated Companies," 
 that is, companies which had an exclusive privilege and a small 
 common purse, while each member traded on his own account: 
 but afterwards privileged joint stock companies came to the 
 front. Thus the joint stock principle was applied for some time 
 almost exclusively to trade with distant lands, and the settle- 
 ment of plantations; but it began comparatively early to attack 
 the development of the mineral resources of the country itself. 
 This might have been anticipated: for the land was the chief 
 wealth and the chief source of new wealth; and the owners of 
 land were at their ease in work connected with it. Capitalistic 
 resources flowing from the land (either to its owner or as tribute 
 to the sovereign) had indeed been applied directly, with very 
 little intervention from professional commerce or industry, to 
 most of the great constructive undertakings from the building 
 of the pyramids down to the end of the seventeenth century. 
 Important exceptions have to be made for the chief works con- 
 structed by the great trading Cities, but not for many others; 
 unless the funds which Roman and other armies dug out with 
 the sword should be entered under a separate head. The land 
 yielded its wealth directly to the building of cathedrals, churches 
 and monasteries: of castles, palaces and great mansions: and 
 many of the passing glimpses which we get of the manner in 
 which the tasks of assembling great quantities of materials from 
 afar, and organizing the work of large numbers of artisans and 
 labourers, were conducted in early times, are afforded by the 
 records of cathedrals and monasteries^. 
 
 1 These matters are considered further in Appendix C, where something 
 is said as to the steps by which Englishmen, starting late in the industrial 
 race, learnt from others, and gradually rose to positions of rivalry with their 
 teachers: and as to the slow spread of relatively free and democratic methods 
 of life and action over a large part of the land; feudal order giving way in some 
 measure to institutions more akin to the temper of the artisans of a great in- 
 dustrial city. A little is also said in the third Section of that Appendix as to 
 
ENGLAND'S TRADE DURING THE MERCANTILE AGE 3 
 
 3. The progress of England! s interned and external i, iii,3. 
 trade during the Mercantile Age. 
 
 The trade of the Mercantile Age impressed the imagination 
 of those who recorded it; and some writers of our own times 
 imply that it was large. But it was not. At the time of the 
 Restoration England's foreign trade was less than a hundredth 
 part of her present foreign trade in money value, and less than 
 a two-hundredth part in volume. And though it increased fivefold 
 during the next hundred years; yet in 1760, when the establish- 
 ment of England's supremacy at sea told that the main work of 
 the great trading companies was accomplished, it had not 
 attained to a sixtieth part of its present buDc. 
 
 One cause of the slowness of the growth of foreign trade was 
 that the new markets beyond the seas were really very narrow. 
 It is true that more than half the coast lines of the new conti- 
 nents had been "discovered": but the countries behind those 
 lines were still almost inaccessible. The sea-ports which were 
 open to western traders gave them access to small islands of 
 trade, rather than to large territories: they could not always 
 venture very far out of hearing of the sea waves. Their goods 
 might indeed be distributed by native merchants: but only 
 the munitions of war, and luxuries for the rich, would generally 
 bear carriage far into the interior. And further, in the highly 
 civilized parts of the East they met textile and metal goods 
 made by as subtle a skill as their own. They could sell a few 
 trinkets in some ports in exchange for precious metals, furs, 
 ivory, etc. given by ignorant people on terms extravagantly 
 favourable to the European traders. But the quantities of such 
 goods, which were on offer, were small: the aggregate volume 
 of that particular trade was trivial when judged by a modem 
 standard. The profits to be earned in the more solid trade for 
 spices, tea and other vegetable products were at a constantly 
 falling rate per cent., though in constantly increasing aggregate 
 volume. 
 
 the influence which foreign trade exerted in developing the organized asso- 
 ciation of capitals for large purposes: for though joint stock companies, with 
 and without monopolistic privilege, were set up early in mining and other 
 industries, their scope was far narrower than that of companies concerned 
 at first mainly with European afiairs, and afterwards with those of Asia and 
 America. 
 
58 ENGLAND'S DRIFT TOWARDS MASSIVE PRODUCTION 
 
 I, in, 3. Later on tte Plantations were growing; and there was an 
 increasing demand by Englishmen beyond the sea for those 
 simple, strong, serviceable goods which they were accustomed 
 to use. But it was still only cloth and other light goods that 
 would bear the expenses of the long journey, for ships did not 
 yet carry very large cargoes; and, if there was any journey to 
 be made at all at the further end, it was difficult unless it could 
 be made by river. No doubt this exception is important; as very 
 few centres of population were far from tidal water: and even 
 such things as bricks could go out as ballast in tobacco ships^. 
 
 1 Thus Mun (about 1622), partially anticipating the notion of "invisible 
 exports" of shipping services (which will be examined in Volume II), says: — 
 "If we send one hundred thousand pounds into the East Indies to buy pepper 
 there and bring it hither, and hence send it to Italy or Turkey, it must yield 
 seven hundred thousand pounds at least in those places, in regard of the ex- 
 cessive charge which the merchant disburseth in those long voyages in shipping, 
 wages, victuals, insurance, interest, custom imposts, and the Uke; all which 
 notwithstanding the King and the Kingdom gets": he reckons the costs of 
 the double trade as six times that of the original exports. He says also that 
 the cost of carriage of wheat to Italy about doubles its value, and he takes, as 
 probable prices of pepper, 3d. in the East Indies, Is. Sd. in Amsterdam and 2a. 
 in London. (See pp. 22, 12, 14 of the 1755 Reprint of Treasure by Foreign 
 Trade.) 
 
 Even in 1701 the Commissioners of Customs reported that England had 
 3280 ships with an aggregate tonnage of but 261,000; i.e. about 80 tons on the 
 average. They did not hold nearly as much cargo as sailing ships of the same 
 nominal tonnage in the nineteenth century; and they travelled slowly. They 
 could not have carried among them as much cargo on long voyages in a year as 
 can be carried now by a single large steamship. 
 
 The estimates of the volume of trade made by earlier writers, though some- 
 what better founded than their estimates of national wealth and income, are 
 widely divergent: and no trust can be given to them. It seems probable that the 
 cautious Petty exaggerated a little, when he put the exports of England at 
 £m.l0, under wliich he includes shipping services of the value of £m.l-5, the 
 greater part of the trade being of course with neighbouring countries : while he 
 puts the exports of "the whole commercial world" at £m.45. {Political Arith- 
 metic, A.D. 1676, pp. 82—4.) 
 
 The following figures are taken from Chalmers' Estimate of the strength 
 
 of the British Isles, a.d. 1812, p. 315, which appear to have been prepared with 
 
 great care. They relate to England only, the first three lines represent averages. 
 
 Tonnage of ships Value of 
 
 cleared outwaras, cargoes exported. 
 
 A.D. 1663—1669 143,000 £2,043,000 
 
 1726—8 456,000 £7,892,000 
 
 1749—51 661,000 £12,599,000 
 
 1764 742,000 £16,202,000. 
 
 To these may be added recent figures for the United Kingdom, 
 
 1913 67,820,000 £523,461,000. 
 
ENGLAND'S TRADE DURING THE MERCANTILE AGE 3) 
 
 Moreover the obstacles to the transport in bad weather of I, m, 3. 
 heavy goods in many parts of England, including some busy 
 hives of industry, were very great. In fact nearly all journeys 
 had to be made on foot, on horseback, or by water. And this 
 retarded the expansion and consolidation of the higher con- 
 structive forms of English industry more than might seem pro- 
 bable at first sight. For frequent long journeys involved such 
 delays, fatigues, and exposure to bad weather, as to restrict the 
 freedom of action of the middle-aged and elderly men; in whose 
 hands the main control of enterprise was firmly grasped in that 
 age of discipline. For these and other reasons, the prices charged 
 for imported goods long remained very high. 
 
 The demand for good roads came rather from the general 
 quickening of agriculture and of urban industry, than from con- 
 centrated manufacture for export. Fairly good level roads were 
 made for the use of heavy waggons; and a splendid system of 
 arterial roads carried passengers and news at a rate not dreamt 
 of before. The abimdance of "stage-coaches, machines, flys, 
 and post-chaises" was held to be a chief cause of the sudden 
 unification of manners and of social life which startled the middle 
 of the eighteenth century^. 
 
 Good roads came late, and canals came later still. But when 
 
 Chalmers' table is made out to show that England's trade progressed in 
 times of peace and generally retrograded during war: all the years selected 
 above are years of peace. Much of what he describes as "exports" went to 
 Ireland; and the external trade of Great Britain and Ireland was certainly less 
 than that of England alone (see above, p. 24). On the other hand allowance 
 must be made for the smugglers' trade, which does not appear in the records. 
 
 The difficulties of internal communication caused many London traders to 
 be in closer touch with the neighbouring ports of the Continent than with the 
 more distant parts of England. A detailed inventory of London's trade and its 
 routes is given in Atlas Maritimus el Commercialis (1728), p. 110. London bought 
 from abroad many things, which were to be had at a lower price in some parts 
 of England, not very remote. Foreigners were apt to judge England by London; 
 and hence chroniclers and writers of romance have represented the use of 
 foreign goods as much more common in England than it really was. This 
 anonymous book is avowedly in the main a compilation, andprobably made some 
 use of the first edition (1723) of Savary's Dictionnaire Univerael dt. Commerce; 
 it is a vast store of information. 
 
 * See a quotation from a pamphlet of 1761 in Leoky, Eighteenth Century, 
 ed. I. vol. VI. p. 169. Compare also Smiles, Live3 of Metcalfe, and Telford, and 
 the history of roads in Walford's Famines of the World. The difficulties of the 
 royal troops in meeting the invasion of the Highlanders in 1745 gave a great 
 impetus to the making of roads. 
 
40 ENGLAND'S DRIFT TOWARDS MASSIVE PRODUCTION 
 
 1,111,3. at last they were taken in hand they were pushed forward 
 vigorously. They united the head-waters of England's chief 
 rivers and formed a network round her manufacturing districts. 
 Together they built up in England a larger and more active 
 home market for commodities, that conformed to the law of 
 Increasing Return, than had ever been known before. And the 
 home demand, enforced by the foreign and colonial demand for 
 similar products, acted upon industries which had now at last 
 attained a force of unity and concentration, nearly as intensive 
 as that of her great teacher Holland, and more extensive^. 
 
 Defoe had said, "It is a kind of proverb attending the 
 character of Englishmen that they are better to improve than 
 to invent, better to advance upon the designs and plans which 
 other people had laid down, than to form schemes and designs 
 
 of their own The wool indeed was English, but the wit was 
 
 all Flemish." But he went on to show in detail how we outdid 
 our teachers; how "we have turned the scale of trade, and send 
 our goods to be sold in those very countries, from which we 
 derived the knowledge and art of making them*." 
 
 England's first great undertaking, that of drainage on a 
 large scale, was carried out for her by Dutchmen ; Dutch engineers 
 superintended Dutch workmen, and paid them from funds 
 
 * Yarranton'a England'a improvement hy sea and land (1677) is much oc- 
 cupied with "the advantage of making the great rivers of England navigahle." 
 His numerous charts and his arguments have the cogency of a modem pamphlet. 
 He contends that, when once the chief rivers had been rendered navigable as far 
 as possible, the whole country could be consolidated by a few good roads made 
 to join their head- waters; and that they could be kept in repair easily, because 
 they would be on "good hilly sound dry land."' Nowadays transport is cheap, 
 and transhipment — except in a few cases where mechanical aid reaches very 
 far — is relatively expensive. But in his time transhipment waa thought of 
 lightly ; and it was reasonable to hold that his plan would have brought indus- 
 tries, which dealt with heavy goods, nearly up to as high a level of concentrated 
 efEcienoy as was already being reached by the woollen industries, whose trains 
 of pack horses could go everywhere. This may be illustrated by a statement 
 made in 1724 (in opposition to the claims of some exclusive traders) that the 
 wools of Worcester, Salop and Stafford were used partly in Gloucester, Devon, 
 Kent, and Hampshire. The case was more complex in regard to those of Linoohi, 
 Northampton, Rutland, Leicester, Warwick, Oxon. and Bucks.: for one sort 
 of them went to the Northern Counties ; another sort to Norfolk and Devonshire. 
 Some Norfolk wools were sent to North Wales and "there draped into cloth," 
 and ultimately sold in London, and so on. (Unwin, Industrial organization in 
 the sixteenth and seventeenth centuries, pp. 188 — 9.) 
 
 ' A plan of the English Commerce, 1728, pp. 299—301. 
 
ENGLAND'S TRADE DURING THE MERCANTILE AGE 4J 
 
 supplied by Dutch capitalists. To make a good harbour or quay; I, m, 4. 
 to erect an efficient windmill, watermill, fulling-mill, or large 
 pump, Dutch aid had been required. The first English iron 
 cannons had been cast in Sussex by a Frenchman: and lessons 
 from French and Italians, Dutch and Flemings, Germans and 
 Swedes had been required to equip Englishmen as workers in 
 cloth and silk, pottery and paper, as miners and metallurgists^. 
 
 But victory over difficulties gave courage for victory over 
 new difficultie-3. Each victory tended to increase the area over 
 which the goods could be marketed, and therefore the scale 
 of production; and therefore in many industries at least the 
 economy of production; and therefore again, the area over 
 which the goods could be marketed: and so on in ever widening 
 circles. And with each expansion there grew up increased spirit 
 for new ventures, and increased recompense for the risk and 
 expense of working out new inventions, and reducing them to a 
 practical shape. 
 
 4. EnglancCs Mercantile policy was adapted to con- 
 ditions which were passing away, as the increasing mobility 
 of industry promoted the concentration of textile industries 
 in the neighbourhood of water power. 
 
 The spirit of Mercantilism was consistent with a national 
 organization of external trade, even before England had made 
 much progress towards internal unity in industry. It adapted 
 itself especially to the pioneering work done by the great 
 monopolist Trading Companies; and to the introduction, by 
 a far-sighted monarch, of skilled foreign artisans for the 
 inception of new industries. But Colbert's resolute attempt to 
 organize French industries by despotic rule in the second half 
 of the seventeenth century obtained only a partial' and transient 
 success: and Englishmen were even at that time more capable 
 of taking care of themselves, and more restive under regulation 
 than the French. A century later they had become so much 
 more mobile and masterful that they could organize themselves 
 
 * Tucker, who was a severe critic of his countrymen, writes in 1750, 
 "England's manufacturers have ever been in high repute for their skill and 
 ingenuity." But his instances come from the minor industries, and do not 
 imply the larger inventiveness. 
 
 2—5 
 
12 ENGLAND'S DRIFT TOWARDS MASSIVE PRODUCTION 
 
 I, in, 4. in a widespread industrial structure; and had neither the need 
 nor the inclination to be regimented. 
 
 In the Middle Ages the monarch and the compact ruhng 
 class were often vastly superior to the masses of the people in 
 education, in breadth of outlook and in knowledge of the world, 
 as well as in wealth and miUtary strength. With some excep- 
 tions for the great commercial cities, Government alone was 
 in a position to take the initiative in large economic affairs. 
 Custom was the main defence of the weak against the strong; 
 and the action of Government itself in small affairs was often 
 most blessed, when it did little more than enforce custom. The 
 fourteenth century saw indeed the beginning of a general 
 assertion of the spirit of individual liberty; and that was the 
 necessary condition for the spread among the people of habits 
 of independent thought as to the methods of their industry and 
 trade. From that time onward they made more rapid progress in 
 mental capacity and moral strength than their rulers did: and, 
 by the middle of the eighteenth century, they had moved perhaps 
 about halfway upwards from the semi-serf-like condition of 
 earlier centuries to that of the present day; when they are not 
 very far inferior in shrewdness, and constructive ability to the 
 ruling classes. 
 
 Every step of that progress increased the importance of the 
 advantage which the common people derived from the more 
 intimate knowledge possessed by each of his own circumstances, 
 and the technical problems of his own work, than could be 
 possessed by Government officials. It thus increased the pro- 
 babihty that industry and trade would develop on the most 
 advantageous lines, if left free to take their own courses: and it 
 diminished in some directions, as much as it increased in others, 
 the power of Government to control the courses of industry and 
 trade in the public interests. The possible functions of Govern- 
 ment expanded almost obtrusively in many directions: but 
 meanwhile there was so great an increase in the complexity of 
 the problems of industry, and so small an increase in the mental 
 capacity of Government for dealing with them, that its appro- 
 priate functions in the matter did not expand in like manner, 
 for the time at least. 
 
 There was however meanwhile a slow increase in the power of 
 
MERCANTILE POLICY ADAPTED TO TRANSIENT CONDITIONS 
 
 the people to govern the Government that governed them: and 
 this power was destined to become so large and far-reaching, 
 that many tasks may now reasonably be intrusted to Govern- 
 ment in the twentieth century which would have been grossly 
 mismanaged in the first half of the nineteenth, and would have 
 been hot-beds of corruption in the eighteenth: thus a certain 
 new tendency to a widening of the appropriate functions of 
 Government gradually set in. 
 
 Here it is to be considered that policies, such as those of 
 the Mercantilists, necessarily reacted on the moral character of 
 those who administered them. It increased their temptations 
 to use public authority for purposes of private gain. It de- 
 veloped the strong and the enterprising elements in human 
 nature: but it also gave great scope to those who were selfish 
 and cruel. 
 
 Moral developments are nearly always the complex results of 
 many causes; and a student of any one side of human life must 
 be on his guard against a bias to attribute them mainly to those 
 particular causes which loom largest in his eyes. But history 
 seems to show that wherever Mercantile policy has been active, 
 those persons, whose private interests have been closely touched 
 by it, have tried with some success to bend that poHcy for their 
 own benefit. Occasionally a strong upright personality, hke 
 that of Colbert, might stay the evil for a time. But corruption 
 seems generally to have increased when there has been much 
 money to be gained by political influence. The monopolies and 
 other special privileges granted by the Tudors and the Stuarts, 
 were permeated by evil uses of money. And on the larger stage 
 of the eighteenth century, a more highly organized corruption 
 was effected by the riches which the Trading Companies and the 
 individual "Nabobs" had drawn from the East and the West 
 under a poUcy framed on Mercantile principles^. 
 
 ' Leoky's England in the Eighteenth Century haa much information on these 
 subjects. The demoralizing influence exerted by the Mercantile slave trade 
 on the population of the great western ports of England, which were chiefly 
 concerned in it, is well known. Silver and sugar seldom came to Europe without 
 a stain of blood. We have been too quick to forget the horrors which caused 
 Samuel Johnson to give his famous toast: "Here's to the next insurrection of 
 the negroes in the West Indies " (Goldwin Smith, The United Kingdom, vol. u. 
 
ENGLAND'S DRIFT TOWARDS MASSIVE PRODUCTION 
 
 Corruption, thus initiated in one part of public life, must 
 have had some tendency to spread. The particular threads of 
 connection between immoral bargainings for commercial favours, 
 and a low moral tone in public affairs generally, are not easy 
 to be traced, especially in regard to distant times. But it is 
 to be noted that the protests against Mercantilist policy, which 
 came with increasing force during the eighteenth century, till 
 they culminated in Adam Smith's denunciation, were based on 
 moral as much as on economic grounds. 
 
 Accordingly it is argued in Appendix D that the inter- 
 ferences by Governments with the free courses of industry and 
 trade which the Mercantile Age inherited from the Mediaeval, 
 are not to be brought under any sweeping measure, either of 
 eulogy on account of the patriotic motives by which they were 
 generally induced, or of blame on account of their failure to 
 apprehend the vast difficulties of many of the tasks which they 
 undertook. 
 
 For indeed the further we are looking backwards the 
 greater is generally the allowance to be made for changes in the 
 prevalent standards of public and private morality. A states- 
 man may have fallen below the level that is customary in 
 England and several other countries to-day, and yet merit our 
 respect for having risen above the ordinary level of his own age. 
 And he may possibly have been right in constraining the 
 industrial energies of the people to move in certain limited 
 directions: because there was but little independent enterprise 
 in the land; while that little could not be brought up to high 
 intensity, unless concentrated on a narrow area. From this 
 point of view Adam Smith's criticisms on the Mercantilists of 
 his own age may seem harsh. But it is to be remembered 
 that he knew the weaknesses and the corruption of those who 
 
 p. 407). The profits on the slave trade would have been enormous if any large 
 part of the victims had survived the voyage (Craik, History of Commerce, vol. ni. 
 p. 113). 
 
 Forces, making for the degradation of morals, interact and mutually 
 strengthen one another. The general laxity of Court life, corrupt practices in 
 politics, the influence of the slave trade, and extreme drunkenness among the 
 highest and the lowest classes, were part cause and part consequence, each of the 
 others. In 1743 it was stated in evidence before a Committee of the House of 
 Commons that the annual consumption of spirits was 19,000,000 gallons, of which 
 4,000,000 were illicit. The total population was a little over six millions. 
 
MERCANTILE POLICY ADAPTED TO TRANSIENT CONDITIONS 
 
 were posing as masters of economic statecraft. His condemna- 
 tion of officious meddling by such men in the affairs of industry 
 and trade is indeed not limited to the conditions of his own 
 time. But he had no means of anticipating the vast increase 
 in the resources of Government, and in the honesty of public 
 officials which began in the nineteenth century. He could 
 look backwards only: and, though the growth of a sturdy up- 
 right middle class had given much strength to the country's 
 political structure, experience gave little reason to anticipate 
 that the leading statesmen of the country would cease to 
 regard public affairs as a source of private booty. He did not 
 suppose that private interest always leads traders and pro- 
 ducers on those paths which are most conducive to the public 
 weal: for indeed he continually pointed out cases in which it led 
 them in other directions. But he did show that the general 
 tendency of their conduct in pursuit of gain was to hunt out 
 methods by which their energies might yield goods or services of 
 increased value to the public. He did this work so thoroughly 
 that later generations have made no great addition to it; though 
 they have introduced many qualifications into it, and given it 
 scientific cohesion. 
 
 They have however made a vital change in its general 
 character, when regarded from a social point of view. For they 
 have laid great and ever increasing stress on a point, which had 
 not become prominent when he wrote. It is that his general 
 argument is valid only when "value" is expressed in terms of 
 money. 
 
 If a capable builder sets up houses all of a rental of £200 
 a year on a certain piece of land, his own interest will lead 
 him to adapt them to the requirements of his future customers. 
 But suppose he is to build two classes of houses, one of which 
 will accommodate twenty people to the acre, while the other will 
 accommodate two hundred to the acre; and that one part of his 
 ground is healthy, while the other is unhealthy: then his private 
 interest wiU lead him to put the denser population on the 
 unhealthy ground. For well-to-do people will generally pay a 
 higher percentage of increase in rental or purchasing price on 
 account of a favourable soil than working classes will. But, 
 from a social point of view, the health of two hundred of the 
 
ENGLAND'S DRIFT TOWARDS MASSIVE PRODUCTION 
 
 working classes is of more value than that of twenty of the 
 well-to-do persons; unless indeed some of them happen to be of 
 exceptional mental quaUty. Adam Smith's WeaUh of Nations, 
 interpreted by his Theory of Moral Sentiments, supplies a sound 
 basis for the introduction of such considerations. And, in fact, 
 nearly all the far reaching movements which his disciples are 
 starting in the modem world, for increasing the constructive 
 activity of the State in social matters, can be brought within the 
 scope of his policy by paying adequate attention to the difierence 
 between money value and social value. This consideration is 
 not always prominently expressed: but it will be found to underUe 
 nearly all the most serious modern economic studies. 
 
 5. The new structure of the textile industries, which 
 was set on foot in the latter half of the eighteenth century, 
 indicates the gradual transition from the methods of the 
 Mercantile Age to those of the nineteenth century. 
 
 The movement towards capitalistic and massive production, 
 which has proceeded in England with ever increasing rapidity 
 and volume during the last century and a half, has two sides; 
 both of which became prominent in the textile industries, 
 earlier than in any others of like importance. On the one side 
 was the growth of free capital, as distinguished from that which 
 was directly associated with ownership or use of land: and on 
 the other was the difEusion of habits of thought and action 
 among the various strata of the population in which tradition 
 and habit counted for less than in early times: movement be- 
 came larger and more general; and increasing attention was 
 given to new opportunities and new methods of turning old 
 opportunities to account. 
 
 Distrust of changes in the methods of work and pay died 
 out slowly. Old traditions of the villein's duty to his lord, and 
 his lord's reciprocal obUgations lingered for good, as well as evil, 
 long after villeinage had ceased to be formally recognized. The 
 old solidarity of the village left odours, some sour and some 
 sweet, in the largeness of the open commons on which lean 
 animals lingered out a meagre life. The enclosure of commons, 
 excellent as it was from a broad national view, was opposed with 
 some justice, as a plunder of the very poor, for the benefit of the 
 
CAPITALISTIC DEVELOPMENTS IN TEXTILE INDUSTRIES 
 
 well-to-do; and it increased the hardship which was inherent in 
 rigorous, if futile, edicts against wanderers from the place of 
 their settlement. Mobility increased: but it was often ill-directed; 
 and the consequent rapid increase in the numbers of the most 
 unfit became a great evil early in the nineteenth century, as we 
 shall see presently. 
 
 Large new opportunities were developed by the increasing 
 rate of growth of England's material wealth, which was largely 
 due to the continued freedom of her island territory from devas- 
 tating wars. This freedom gave to her manufacturers and her 
 agriculturists alike, security for reaping the rewards of effort 
 invested in improvements that would bear fruit slowly. The 
 choicest horses and cattle were left to breed in peace, being 
 beyond the reach of foraging bands of soldiery: and the 
 buildings, the machinery and the stocks of trade and industry, 
 were undisturbed. This cause had equipped England with the 
 sinews of industrial competition before she showed signs of 
 industrial leadership; and during the eighteenth century it con- 
 tributed much to her rise to the position of undisputed supremacy 
 in the world's market for capital. 
 
 The abundance of capital gave scope for men with marketing 
 ability of a constructive order. This is to be clearly distin- 
 guished from a laborious astuteness in bargaining, on which 
 people with small capitals, and especially agriculturists, in all 
 countries often lay stress: priding themselves on their skill in 
 buying a thing for less than it is worth, and selling a thing for 
 more than it is worth. That miserable ingenuity is no doubt 
 barren: it is the one side of trade, which is amenable to the old 
 sweeping charge against all trade : viz. that in it no one can gain 
 save at the expense of another; and that the more energy is 
 diverted to it, the poorer the country wiU become. 
 
 The constructive trader, on the other hand, aims high, and 
 sees far: he is constantly forecasting future developments of 
 demand, and endeavouring so to turn to account the rising force 
 of new methods of production as to supply something which can 
 be produced in large quantities at a low cost, and force its way 
 into general consumption. It is to force its way, because it is 
 sold for less than people had previously thought it to be worth; 
 while yet it has cost him, and is in a sense worth to him, much 
 
[8 ENGLAND'S DRIFT TOWARDS MASSIVE PRODUCTION 
 
 I, m, 5. less than what he sells it for. For this task elasticity of mind 
 and delight in hard work are needed : and these qualities are not 
 often found among those who have inherited wealth: but they 
 were found in high degree among the undertakers, most of whom 
 had risen from the ranks. 
 
 Such an undertaker sought out "homely" producers who 
 had the skill and aptitude for making certain classes of things 
 economically and well; instructed them as to the precise char- 
 acter of the thing which he wanted; supplied generally the 
 material and sometimes the requisite plant: and by ever 
 widening experience learnt how better to enlarge and economize 
 the processes of marketing. He himself needed the power 
 of going to the centre of each practical problem as it arose; 
 concentrating the forces of his mind on it; working out con- 
 nections between it and outlying considerations; developing 
 practical conclusions with a just sense of proportion; and pur- 
 suing resolutely the line of policy thus indicated, but with a 
 mind always alert for new ideas, especially such as were de- 
 manded by the changing circumstances and conditions of his 
 problem. These are faculties which have been conspicuous in 
 the Jewish race longer than in any other: but they were also 
 such as could be, and were, quickly and strongly developed in 
 that sturdy English character, of which the foundation had been 
 laid by the sea-rovers. 
 
 On the other hand, the undertaker of the work and risks of 
 organizing supply so as to meet and stimulate demand, was 
 drawn on continually to become increasingly in some sense the 
 employer of the homely producers whose work he controlled. 
 The process by which he was developed into a capitalist manu- 
 facturer was gradual and continuous; and, when it was com- 
 pleted, his functions as a "master of men" rose to an equal level 
 with his functions as an organizer of production and marketing. 
 For this he needed qualities of mind and character somewhat 
 similar to those of a capable captain of a ship trading on long 
 voyages far from home: and these also were natural to the 
 English and had been developed by their work in the world. 
 Similar combinations of faculties were to be found in all the 
 countries of Western Europe, and were afterwards to be con- 
 spicuous in North America. But Englishmen seem to have 
 
CAPITALISTIC DEVELOPMENTS IN TEXTILE INDUSTRIES 4£ 
 
 had a fuller and stronger supply of tliem than any other i, m, 5. 
 nation. 
 
 Under the new conditions, all risks of marketing were borne 
 by the capitalist trader, while the implements of production 
 were supplied in some cases by the trader, and in others by the 
 workers. When the trader supplied workshop or factory with 
 its equipment, the industrial side of his services became more 
 prominent, if not more difficult than the marketing side. He 
 was therefore commonly and appropriately described as a manu- 
 facturer, rather than a merchant. This change in organization 
 is commonly described as a transition from the "domestic" 
 phase of industry to the "capitalistic." But a great deal of 
 production, which is entirely under capitalistic control, is 
 domestic; in the sense that the work is done by operatives in 
 their own homes. The so-called "sweated" industries of the 
 present time belong to this class; and it is well known that 
 they give as large opportunity to the abuses of the power of 
 capital as any others. It seems therefore best to avoid the use 
 of the term "domestic"; and to contrast the man of means, 
 knowledge and resources with the "homely" producer: that is, 
 the man whose resources are so small, and whose outlook is so 
 narrow, that he cannot obtain good access to general markets. 
 
 The primitive homely manufacturing producer corresponds 
 to the peasant, who produces only for his own use and for sale 
 to neighbours; while he can, at the same time, be fairly certain 
 that such things as he needs will be brought within his reach 
 by traders, without requiring him to have knowledge or contact 
 with distant markets. He may himself be a small employer, 
 providing for his assistants all the requisites of their work: 
 but, as his capital is small, the capitalistic basis of his control 
 over them is commonly ignored. 
 
 A great part of the homely industries of the country, at a 
 later stage, were financed by capitalist traders to this extent at 
 least that they undertook in advance to buy specified products 
 at certain prices: that is to say the producer carried no con- 
 siderable risks in regard to any particular contract, when once 
 he had attained a fair security as to the prices he would pay 
 for material and for such labour as he might require. 
 
 Arrangements of this kind existed early in the South of 
 
)0 ENGLAND'S DRIFT TOWARDS MASSIVE PRODUCTION 
 
 1,111,6. England cloth industry: and they became common elsewhere in 
 the eighteenth century, when changes in the fashion and texture 
 of goods and in the technique of industry were bewildering 
 those who loved to tread in ancient paths : and they were giving 
 great scope for new energetic men, well supplied with capital; 
 who were also alert and fertile of suggestions for new patterns 
 for home consumption, and for adjusting the new English re- 
 sources to the tastes of foreign consumers, especially in the 
 Levant and in Asia. Such arrangements were very suitable to 
 transitional conditions; and are often regarded as peculiar to 
 them. But in fact they are common at the present time. For 
 instance, a capitalist builder often contracts to erect a house in 
 accordance with definite specifications, at a certain price: the 
 purchaser may intend to occupy the house, or he may be a 
 merchant, sometimes inappropriately called a "speculator," who 
 buys with the intention of letting or selling. 
 
 An almost equally familiar case is that of the textile manu- 
 facturer who contracts to deliver a quantity of some fabric, of 
 quality and design selected by a merchant, at a certain price: 
 though he often fortifies himself by buying in advance the 
 materials which he will need. This method enables the mer- 
 chant to turn to the fullest account his powers of contriving 
 improved models, patterns, etc., of the goods of which he has 
 attained a special knowledge; and also of anticipating the 
 future course of demand, with reference to coming changes of 
 fashion and taste, and to fluctuations of general economic 
 prosperity. The producer on the other hand (who may be a 
 man of rather narrower outlook, if not of homely disposition) 
 gains by freedom to escape from a task for which he is not 
 peculiarly fitted, and to give nearly his whole energies to the 
 administration and technical work of making^. 
 
 '■ Prof. Unwin, in reference to Prof. Westerfield's Middlemen in English 
 business, particularly between 1660 and 1760, says: — "Simultaneity of inte- 
 gration and differentiation is to be found in the sixteenth century, and even in 
 the Middle Ages, in all the more developed branches of industry and commerce. 
 The fact is that where a series of independent capitals are employed in close 
 contact with each other, any expansion of capital in one of the allied functions 
 tends to an overflow into the neighbouring functions, and thus to one form or 
 other of integration. The capital of the Hanseatio, Italian, or native exporter 
 of cloth in the fifteenth century tended constantly to flow over into the entre- 
 preneur functions; whilst, on the other hand, the prosperous clothier was always 
 striving to become an exporting merchant" (Economic Journal, Deo. 1915). 
 
CAPITALISTIC DEVELOPMENTS IN TEXTILE INDUSTRIES 5: 
 
 It is of course to be understood that the changes now dis- i, ni, 6. 
 cussed moved gradually and irregularly. The rising sea seldom 
 encroaches on the sand with uniform progress, even when the 
 wind is nearly still : and in stormy weather the retrogression of a 
 great wave may uncover the whole ground that belongs to the 
 rise of the mean level of the sea during an hour. The economic 
 atmosphere is never quite still, and it is often greatly perturbed: 
 therefore progress is seldom uninterrupted. 
 
 6. The financial structure of English agriculture and 
 its influence on progress. 
 
 For a long while agriculture and mining had been the only 
 industries, except those connected with shipping, in which large 
 capitals had been employed. In both of them nearly the whole 
 of the capital needed had been drawn from the revenues of 
 the territorial magnates, to whom the soil and the mineral 
 strata below it alike belonged: and though, as has already been 
 noted, mining took very early to joint stock finance, agriculture 
 moved persistently on its old lines. The direct economies to 
 be got by the aggregation of large areas of land under a single 
 management were small and doubtful. But the oumership of a 
 large area of land gave social prestige; and (especially in the 
 hundred years ending with the Reform Bill of 1832) it gave 
 political power and access to well paid posts under Government. 
 It therefore attracted rich men, more particularly those who 
 wished to buy their way into good society: and thus the 
 aggregation of ownership tended to provide the land with an 
 abundant supply of capital needed for the expensive improve- 
 ments towards which agriculture was steadily making its way. 
 "Farmer George" promoted the tendency to think that super- 
 fluous wealth might give a high return in the pleasure of 
 owning a large property well developed, just as easily as in that 
 of owning a castellated mansion. And though no outlay was 
 approved by those whose opinion was most worth having, unless 
 it aimed at a financial success, sufficient to lead other agri- 
 culturists in the same direction; yet men were willing to risk 
 capital freely in experiments which might yield no good return, 
 except in showing the way to others better conceived and more 
 fruitful of gain. 
 
J2 ENGLAND'S DRIFT TOWARDS MASSIVE PRODUCTION 
 
 1,111,7. Some of these ventures must be tried in the first instance 
 
 on "the home farm." But those which added to the value of 
 the land and its buildings, and not merely to the current flow 
 of stock or crop, could be safely made wholesale by the land- 
 owner for his tenants: the English system under which the 
 tenant looks to the landlord for the provision of buildings and 
 of capital to be sunk in the land was pecuharly appropriate to 
 the transitional stage in which agriculture then was. Except 
 in drainage, water supply and road making, it might be true 
 that an additional £10,000 applied in the improvement of 
 1000 acres would not give better returns than £500 appHed 
 with equal skill and intelligence in the improvement of 50 acres: 
 but, as things were, the £10,000 were more Ukely to be forth- 
 coming for the large property than the £500 for the small; and 
 on the whole they were Hkely to be applied with a broader 
 inteUigence, though perhaps not with as much care and know- 
 ledge as to details^. 
 
 7. The merging of England in Britain. 
 
 Henceforward it wUl be best to speak not of England but 
 of "Britain," as short for the "United Kingdom of England, 
 Scotland and Ireland." 
 
 It is indeed true that the main trend of the industrial 
 development of the eighteenth century and a considerable 
 part of the nineteenth was the result of work done south of 
 the Tweed. The great French war however fused England 
 
 * Of course this arrangement has its difficulties; as is shown by the agitations, 
 which have recurred at intervals during more than a century on the part of 
 tenant farmers, for increased security against the appropriation of the land: 
 but on the whole there seems good reason to think that it will hold its own, 
 when properly guarded, against all others, at all events on British soil. 
 
 As to the growth of the demand for large capitals on agriculture reference 
 may be made to Mr R. E. Prothero's English Farming. He quotes (p. 206) from 
 Arthur Young: — "Where is the little farmer to be found who will cover his 
 whole farm with marl at the rate of 100 or 150 tons per acre? who will drain 
 all his land at the expense of £2 or £3 an acre 7 who will pay a heavy price for 
 the manure of towns, and convey it thirty miles by land carriage ? who will float 
 his meadows at the expense of £5 an acre? who, to improve the breed of his 
 sheep, will give 1000 guineas for the use of a single ram for a single season? 
 who will send across the kingdom to distant provinces for new implements, and 
 for men to use them? who will employ and pay men for residing in provinces 
 where practices are found which they want to introduce into their farms?" 
 
THE MERGING OF ENGLAND IN BRITAIN 6 
 
 and Scotland into a single country in sentiment and in action, i, m, 7. 
 The trade of Ireland was regarded in some measure as on a 
 different footing from that of England, even after the goods 
 sent from one to the other had ceased to be reckoned officially 
 as "exported": but from the beginning of the nineteenth 
 century England and Scotland had become, in fact as well as in 
 name, a single country with one national spirit in regard to 
 economic problems generally, and especially those which related 
 to trade with the rest of the world. The chief agencies in this 
 vmification were roads, railroads, and common work in financial 
 and colonial enterprise. 
 
 Late in the eighteenth century good roads began to connect 
 the Lowlands of Scotland on the one hand with her own 
 Highlands, and on the other with the Northern counties of 
 England. The more potent influence of her railroads did not 
 become effective till the middle of the nineteenth century: 
 but meanwhile her banking had established its preeminence 
 as a safe and efiicient means for enabling a country with only 
 a very little free capital, so to economize its use, that those, who 
 were endowed with good business faculties, could generally 
 obtain control of the means needed for giving them eiiect. 
 The Enghsh system of banking was very iaefficient in this 
 direction; and Lancashire industries were largely financed by 
 their own Bills of Exchange with but little aid from the banks. 
 But the Bank of England was already the centre of stable 
 international finance: and the Scotch system owed its combina- 
 tion of economy with efficiency to being able to lean on English 
 support in international trade. This fact made for the com- 
 mercial unity of the two countries more powerfully than appears 
 on the surface: it went together with the security at home and 
 on the seas, which both derived from the strength of the British 
 navy and army. 
 
 But perhaps the strongest force makiM fpr unity was the 
 leadership which the special bent of the -^Qtch genius, aided 
 by a superb system of national education, achieved in pioneering 
 
 the expansion of the British Empire. Sootoh men have had a 
 much larger share, in proportion to their numbers, than 
 Englishmen proper, in discovering what parts of the world 
 ofiered the best field for western enterprise. They had com- 
 
54 ENGLAND'S DRin. TOWARDS MASSIVE PRODUCTION 
 
 I, m, 7. paratively little share in the foundation of the early "Plan- 
 tations": but they knew how to rise to difficulties, and how 
 to make their way up from the ground till they stood at the 
 top of great ventures; which, though often risky, have yielded 
 very high returns. So they have grown rapidly in wealth: 
 they hold high places in almost every part of "Greater Britain": 
 and their influence in finance generally is more prominent than 
 that of any other group of people of similar size, except the 
 Jews of Western Europe, whose mental aptitudes are indeed in 
 some respects similar to theirs. They are preeminently leaders 
 in agriculture; where their widely diffused intelligence has long 
 worked on lines similar to those on which Danish agriculture is 
 being developed. Their manufacturing industries hold a high 
 rank; while the ship-building on the Clyde, and that of the 
 Scottish colony at Belfast, are unsurpassed. England and 
 Scotland are now one. 
 
 Ireland, other than North Eastern Ulster, has suffered 
 grievous wrongs; and has done not a little wrong herself. 
 When England's tardy atonement for her wrong-doing has 
 borne full fruit, Ireland may become, what she has never been 
 yet, truly imited to her: but the large economic developments, 
 which may be hoped from that imity, lie beyond our present 
 range. The fact, that she has already developed the economies 
 of cooperative dairying in advance of most other countries, is 
 one of many that are of good augury for her future. 
 
CHAPTER IV 
 
 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS LONG 
 FREEDOM FROM CHALLENGE 
 
 1. Characteristics of modern manufacturing processes. i, ly, i. 
 
 The present chapter aims at setting out the essential difEer- 
 ence between Britain's industrial leadership and those which 
 preceded it; and at indicating the combiaation of causes which 
 enabled it to endure long without effective challenge. 
 
 Let us look backwards a little, and forwards a little. The 
 general features of the new industries were governed partly by 
 technical causes, partly by the special circumstances of the time, 
 and partly by the peculiar character of Englishmen. These 
 three diverse influences made for the same result; viz. the 
 massive production of things so uniform in substance and in 
 shape as to give large scope for play of the economies, which 
 the specialization of manual tasks had been developing for 
 several centuries with ever increasing intensity throughout 
 Western Europe. England lagged long behind; but she came 
 up with her rivals iu the seventeenth century, and was to pass 
 them in the eighteenth. 
 
 When a cyclist is learning to ride, each adjustment needed 
 to save hinri from falling demands the whole attention of his 
 miud: and yet practice enables him to make such an adjust- 
 ment, while thinking of other things and wholly imconscious of 
 the unevenness in the road or the pufi of side-wiad which has 
 demanded it. Again, as Prof. Biicher's Arbeit und Rhythmus 
 has shown, musical rhythm has been called in to the aid of 
 elementary industrial work by almost all races : and the Enghsh- 
 man, even when not specially musical, has ever been prone to 
 an exact regularity of movement, a firm coordination of eye and 
 
)6 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 I, IV, 1. hand, that have in them something of the rhythm as well as the 
 regularity of machinery. The cross-bow was a nearer approach 
 to a machine than the bow of an English archer: but the ceaseless 
 flight of English arrows, each straight to its aim, was in some 
 measure the mediaeval counterpart of the quick uniform flow of 
 bullets from a modern machine gun. 
 
 In early times an Englishman's sturdy joy in the feeling 
 that whatever his hand found to do, he did with all his might, 
 had been mingled with, and marred by, a proud and dull 
 contempt for whatever his hand had not as yet taken to: and 
 he had been a slow learner from foreign artisans. In the 
 eighteenth century he had not freed himself wholly from a dull 
 sense of superiority: but he was much readier to learn than 
 before: the Revocation of the Edict of Nantes in 1685 was a 
 chief incident in a sustained policy of Continental autocrats, 
 which rid them of sturdy subjects. More than half a million 
 of the ablest, of them came to England, bringing with them 
 that knowledge of technique, which was most needed by her 
 just at that time. In particular the Huguenots taught her 
 to make many light glass and metal wares, in which French 
 genius excelled: and in a very short time such wares, made by 
 the coal which was then coming to England's aid, were being 
 sent to France and sold at a good profit. She was then well 
 on her way to "outrun her teachers," as Defoe said: she out- 
 paced them in energy, and she outpaced them even more con- 
 spicuously in invention. 
 
 But England's chief strength lay in heavier industries, and 
 the eighteenth century hardly sufficed to make ready for her 
 chief work in her most appropriate material. For even at the 
 end of the eighteenth century, the reduction of iron to 
 standardized primary forms, suitable for further processes of 
 standardized production, could not be effected easily, nor on 
 a large scale. 
 
 The particular route on which English industrial tendencies 
 found development was determined by the fact that textile 
 materials are delivered by nature in standardized primary forms, 
 well suited for massive change into standardized finished pro- 
 ducts. Cotton, wool and other fibres are fine homogeneous 
 cylmders of different shanes. Cotton is flat, wool is round; but 
 
CHARACTERISTICS OF MODERN MANUFACTURE 
 
 both lend themselves to be laid out in orderly array by 
 machinery, and thus to be spun into yam. Yarn is a homo- 
 geneous cylinder of uniform diameter and unUmited length, 
 perfectly standardized: it is ready to be at once further worked 
 up into standardized cloth by standardized machinery, which 
 can be driven by the blind force of nature, being dependent 
 on the guidance of intelligent fingers only in its minor details. 
 This is the fundamental cause of the series of quick leaps, by 
 which machine-made textiles bounded beyond the reach of the 
 competition of more primitive forms of industry; and thus set 
 the tjrpe of that method which spread first over nearly all 
 England's industries, and in the course of time over those of 
 other western countries. 
 
 The essence of the method was to watch the action of the 
 human hand in fingering the wool and in twisting, and drawing 
 out the yarn; or in thromng the shuttle, and making the weft 
 lie compact; or in hammering or drilling iron; or in any other 
 operation that needed to be performed many times in the same 
 way. Next the work was divided into two parts, that which 
 was absolutely monotonous, and that which had an element of 
 variety. That which was various was left provisionally on one 
 side to be still done by hand: that which was monotonous was 
 ftirther studied, broken up into parts each of which was a simple 
 movement of the finger, or the hand. It was known that all 
 work of that kind could be done by a wooden or steel finger or 
 crank of some sort; the only question was whether the trouble 
 of isolating one or more of those tasks and making a separate 
 machine for them would be adequately remunerated. 
 
 But that was a vast undertaking, not to be fully grasped 
 at once: its difiiculties will indeed never cease. In the early 
 nineteenth century it had not made very great way: the 
 automatic agencies, which play a great part now in spinning 
 mills and weaving sheds, had not been developed: there was 
 still a great deal of purely mechanical work to be done, which 
 demanded no strength, no discretion, and not even a very high 
 degree of promptitude. Thus there were opened out, as the 
 aggregate output increased, a disproportionally large number 
 qf opportunities for the work of young children; and as the 
 new demand appeared in the first instance chiefly in places 
 
58 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 I, IV, 1, where the settled population was scanty, this demand had very 
 disastrous results^. 
 
 Mechanical standardization spread from one process to 
 another in the same industry, and from one industry to another. 
 And gradually it was found that the machines, adjusted to 
 standardized work, helped one another; because the uniformity 
 of the product, when it left one machine, suited it for being 
 operated by the next. So progress went on cumulatively. Each 
 step forward made the next simpler; and by slow steps were 
 evolved the root notions of those semi-automatic machines of 
 the present day, each of which performs a great many operations 
 one after another on the material fed into it. Thus the links 
 which had to be filled in by hand work became constantly 
 fewer and shorter, till in some branches of industry there was 
 
 ' In Book II attention will be drawn to modem developments of mechanical 
 technique, which turn on the power of a machine to use many hands instead of 
 two, and to perform operations beyond the reach of human hands. Wool was 
 the material to which the chief inventions were first applied. Even as late as 
 1783, cotton cost 16rf. a pound, and yet the value of the woollen (including 
 worsted) products of England was then nearly twenty times as great as that of 
 her cottons. The export of her cottons surpasses that of her woollens early in 
 the nineteenth century: but the total value of her cotton products did not pass 
 that of her woollens. (For further facts see Ellison, Cotton Trade of Great 
 Britain, ch. x.) The influence of early improvements in textile manufacture 
 was therefore most conspicuous in regard to wool. 
 
 The history of textile inventions and their results is in brief as follows: 
 Kay's Fly Shuttle and Paul's spinning by rollers began in 1738 a series of in- 
 ventions as to spinning; which was continued by Hargreave's spinning jenny, 
 Arkwright's improvements in detail, and Crompton's spinning mule (1779). 
 These together gradually increased the facilities for spinning so much that yam 
 was superabundant; for indeed "one spinner in 1812 could produce as much in 
 a given time as 200 could have produced before the invention of Cartwright's 
 jenny.'' (Ellison, I.e. p. 56.) Consequently weavers' skill rose for a time to a 
 relatively high value : and a vast number of them invested their capital in hand 
 looms and in attaining a skilful mastery of them. But in 1785 Cartwright's 
 power loom initiated a reversal of this process. The hand loom held its own for 
 a long while : partly because the power loom was slow to learn how to coax the 
 weft to lie compactly on the warp : but the hand loom weavers saw their employ- 
 ment gradually leave them, till in 1840 few but old or obstinate men remained 
 in the industry. The loss of employment by the hand spinners had not been 
 very seriously felt: because they had little specialized skill, and many of them 
 had some alternative employment: but the fate of the hand loom weavers 
 was very tragical. Meanwhile the power loom, added to the hand loom, had 
 been able to absorb all the vast output of yarn — except such as was exported 
 — turned out by the steam spinning mills: and that caused a disproportionate 
 demand for children's labour, which was to become a national calamity of the 
 first order. 
 
CHARACTERISTICS OF MODERN MANUFACTURE 5 
 
 little for the hiunan hand to do, except to act as a kind of over- i, iv, i. 
 seer over the machines that were its servants. Traces of the 
 method can indeed be found in nearly all mechanical work, 
 almost from the dawn of civilization: but England applied it so 
 systematically, with so much resource, and to tasks of such 
 magnitude as to make it her own. 
 
 The demands of foreign armies, not excluding the French, 
 for strong soUd cloth of standardized pattern, gave a great 
 stimulus to the massive production of her woollen factories. 
 And the vast consumption of large and small arms, and their 
 ammunition, added much to the value of mechanical appliances 
 for the wholesale manufacturer of metal products, each of 
 standardized form and fitting accurately with others^. 
 
 Thus production became ever more massive; till at last 
 a single business required so extensive a plant, so large an 
 operative stafE and so plentiful resources as to be beyond the 
 range of any but a powerful capitalist (or a union of small 
 capitalists in joint stock or "cooperation"). 
 
 This last stage developed slowly. British water power came 
 generally in such small driblets as not to facilitate the erection 
 of very large factories even in the textile industries. Massive 
 production in the full sense of the word was a creation of steam 
 power: and, as we are to see shortly, the total steam power used 
 in manufactures (the mining and smelting industries being left 
 out of account) did not become very important till the second 
 quarter of the nineteenth century. By that time railways had 
 become no mean competitors with factories in the consumption 
 of coal: and were beginning to become the chief factor of 
 those conveniences of marketing, without which massive pro- 
 duction (in the full sense of the term) could not have been 
 developed^. 
 
 ' Sombart'a Krieg und Kupiialismu-a develops this and other relations between 
 war and capitalistic concentration. 
 
 ' The textile industries in 1839 used steam engines of 74,000 h.p. and 
 water wheels, etc., of 23,000 h.p. : in 1907 they used engines mainly based on 
 steam power, of 2,000,000 h.p., and this was but a quarter of the total h.p. in 
 industrial uses, other than mining. The conclusion that in 1839, the textile 
 industries were the chief users (mining again being left out) of steam machinery 
 is suggested by the fact that even in 1851 they owned three-fourths of all the 
 factories which employed more than 350 persons. See Census Report for 1851, 
 vol. I. pp. cclzxvi — cclxxix. 
 
60 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 i>">2. 2. The massive results at which English inventions 
 were aimed, called for simplicity in m,ethod and machinery: 
 but that could seldom be reached without working patiently 
 through complexity. Nearly all of them were associated 
 with uses of coal and iron in making and driving the new 
 appliances. 
 
 Although coal and iron were not the original causes of 
 England's leadership, yet all that makes that leadership unique 
 in the world's history was partly dependent on them. Without 
 them she could at best have attained a prominence like that 
 of Holland, and on a rather larger scale. With their mighty 
 aid, she has pioneered so strongly, that the leading ideas of 
 those mechanical industries which are transforming the world 
 to-day are fundamentally hers. But iron, the material of all 
 these industries, was largely used in England because she had 
 large uses for it; though she had not a plentiful supply of it. 
 
 Iron is the great saver of time, and the chief engine of 
 thorough solid work; as well as the chief material of those 
 subtle and powerful engines and instruments, in which modern 
 invention has found its scope. Its strength, efficiency, and 
 perhaps its hardness, were appropriate to that sturdy resolute 
 Norse character; which, having been revived by Puritanism, 
 was working under the surface, even when the higher ranks of 
 society were dissolute. So the English insisted on having iron 
 at all cost. To make it, they burned down their own oak 
 forests and those of Ireland, till their supply of new ships was 
 imperilled: and then they bought it from abroad, in spite of 
 its high price, so insistently that they consumed seven times as 
 much per head as the rest of Europe^. 
 
 ' In 1740 it wa3 fifteen pounds against two annually on the Continent. 
 See Sir J. Guest's evidence before the Committee on Import Duties in 1840. 
 Thanks to her Norman conquerors, English smiths had early been famous. 
 But in the Middle Ages her lack of metallurgical skill caused iron to be nearly 
 as costly as brass and tin; so that its use could hardly be afforded in farm 
 implements and carts. Blast furnaces were introduced early in the fifteenth 
 century, and England soon did a large export trade in iron cannon. Late in 
 the seventeenth century her supply of oak for smelting ran short; and in 1740 
 her output of iron was but 17,000 tons. Iron was smelted by coal on a small 
 scale by the German Sturtevant in 1612; and by the English Dudley in 1621. 
 Darby developed it a century later. Roebuck's improved blast came in 1760; 
 Cort's rolling mills and puddling process about 1783. 
 
INVENTORS WORK UP THROUGH COMPLEXITY TO SIMPLICITY 6] 
 
 It was not till the middle of the eighteenth century that i, it, 2. 
 some old inventions for smelting iron by coal bore much prac- 
 tical fruit. But from that time onward English agriculture 
 and manufacture have had practically unlimited supplies of the 
 main implement needed in economizing human labour, and in 
 applying the force of waterfalls and steam power to the heaviest 
 and to many of the most delicate tasks of industry. 
 
 A special bent of the English genius had shown itself in 
 the multitude of operations to which water power, often supple- 
 mented by horse power, had been turned. But the steam en- 
 gine, before Watt's improvements, was too wasteful and awkward 
 to be applied except for pumping and similar work. And so 
 great was the leakage of steam from imperfect cylinders, that 
 his inventions by themselves would have failed to make steam 
 power very cheap; if Boulton had not trained up a generation 
 of mechanics, and of master mechanics, who could make 
 cylinders and pistons true. The work of Boulton and Watt 
 belongs wholly to the age of iron; it would have found no place 
 in the age of wood^. 
 
 Wood had indeed been the chief material by which Holland 
 had worked her way; and wood was tiU recently the material 
 of the ships that bore England's commerce. But her complete 
 emancipation from tutelage coincided with and was largely 
 caused by her mastery of iron. Her exports of iron products 
 have never approached in value her exports of textile goods; 
 and yet it was in iron industries, and not in textile that the 
 force of her character was most fully shown. And indeed the 
 later and more complex, though not the earlier and simpler, 
 stages of her progress in the textile industries depended on the 
 mastery of iron, and have been thought out largely by workers 
 in iron. 
 
 The leading characteristic of English inventions has not 
 
 ' Arthur Young in his Tour through the North of England, 1770 (vol. m. 
 p. 14), tells us about the Crawley works at Newcastle "supposed to be the 
 greatest manufactory of the kind in Europe," where they made anchors weighing 
 70 cwt. : and there were to be seen "copper rollers for squeezing bars into 
 hoops, scissors for cutting bars of iron, turning cranes for moving anchors 
 into and out of the fire, and the beating hammer lifted by the cogs of a wheel." 
 These were "all moved by water." 
 
62 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 I, IT, 2. been their ingenuity. For indeed the mechanical clocks and 
 other automata of Byzantium and jof Germany and France 
 showed an ingenuity, increasing through several centuries up to 
 the eighteenth; which has not been surpassed, if it has been 
 equalled, in England. But each was a separate work of a 
 master mechanic. Even late in the eighteenth century, the 
 resources of mechanical engineering did not reach out to the 
 making of complex machinery on a large scale, which could be 
 depended on to do its part without fail, quickly, and at the right 
 time; and thus create new master-pieces with little aid from 
 the human hand^. 
 
 Another special bent of English genius showed itself in the 
 resolution with which inventors sought simplicity: their in- 
 genuity had not completed its task until it had efEaced nearly 
 all traces of itself, and left behind no detail that was not ap- 
 parently simple. Such complexity as remains is chiefly in the 
 organization of the factory itself as a whole, and in the adapta- 
 tion of each part to others with which it needed to cooperate. 
 
 Massiveness of work has some drawbacks from the social 
 point of view. But it made England powerful: it carried her 
 through the great French war, and enabled her to subsidize 
 nations with greater natural resources than her own. And 
 incidentally it gave her for a long time almost a monopoly of 
 industrial invention. She moved forwards, the rest of the world 
 followed. 
 
 The EngUsh inventor was at an advantage in being able 
 to make a long series of working models of each invention; and 
 to improve and simplify them, till they were boimd to conquer 
 in competition with hand work : but the German or the French- 
 man could not. The Englishman could afford to sink capital in 
 experiments more easily than they could. For he had access to 
 a great variety of highly skilled artisans, with a growing stock 
 of engines capable of work more exact than the work of the 
 
 ' Nevertheless it seems probable that as much hard thought went into the 
 chronometer of the Englishman, John Harrison, in the middle of the eighteenth 
 century, as into many huge toy clocks. The Ust of England's early debts to 
 foreign inventors, especially in regard to mining, has been somewhat enlarged 
 by W. H. Pnce' a English patents of monopoly. An instructive account of England's 
 economic development during this period of the mechanical inventions is given 
 by Dr Clapham in The Cambridge Modem History, vol. x 
 
INVENTORS WORK UP THROUGH COMPLEXITY TO SIMPLICITY 63 
 
 human hand: thus every experiment cost him less; and it was i.it, 2. 
 executed more quickly, and far more truly, than it could have 
 been anywhere else. When at last success had been fully 
 achieved, the new contrivance could be manufactured more 
 cheaply; and could be applied in production on a scale far 
 greater, than in any other country. 
 
 The methods of industry changed so fast that the son of 
 a wealthy manufacturer, who had not exceptional energy and 
 adaptability, soon found himself undersold by rugged but power- 
 ful men; whom the banks were ever ready to furnish with the 
 capital needed for a quick rise from the artisans' bench to a post 
 of command. 
 
 Such men, in spite of their conspicuous limitations, were 
 admirably qualified to deal with simple direct problems of or- 
 ganization, and adaptation of mechanical means to ends; and 
 the high incomes, which they commonly earned, were but a low 
 price for their services to production. They retained their old 
 simple habits, sometimes even eating the plainest food out of a 
 conmnon bowl with their operatives; and they often added nearly 
 the whole of their net incomes to their capital. The manu- 
 facturing industry of England was thus favoured for a long time, 
 and on a great scale, by a large supply of high class ability, 
 which was exactly adapted to its needs; while it was to be had 
 for a relatively low price because it had no access to any other 
 opening for its ambitions except mere business. 
 
 The iudustrial energies of Englishmen were not indeed 
 entirely given to the organization of their own work in control 
 of the forces of nature. They achieved a striking success in 
 pottery under the guidance of Wedgwood, without the aid of 
 any important new mechanical device; but rather by that 
 delicacy of perception which had become conspicuous at various 
 times in their wood-carving and other decorative industries, as 
 well as in their literature. 
 
 And, with all, agriculture remained their chief industry; 
 their gentry threw equal energy into the chace of the fox and 
 of improved methods of farming. In agriculture, as in manu- 
 facture, they aimed at large measures, by which Nature might be 
 induced to use her forces on a great scale in their behalf. This 
 was shown by Bakewell and others, who realized that a relatively 
 
BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 small amount of labour directed to improving the fountain-heads 
 of a great breed of stock, would yield an abundantly increasing 
 return. And it was shown by Coke and others, who organized 
 improved rotations; and — what was no less important — turned 
 horse power to account in altering the character of the land, 
 and making clay soils porous and strengthening sandy soils; and 
 again in drawing horse hoes to clean crops that had been sown 
 with mechanical precision. For good and evil they were apt 
 4o disdain the Continental peasant's hand work, and his patient 
 care for petty details: the ruinous tendency of the farmer's wife 
 to withdraw herself from the work of the dairy and other light 
 labour had not then become prominent^. 
 
 3. The great war retarded Britain's economic pro- 
 gress: hut it threw other European countries back, and so 
 strengthened her leadership. 
 
 Recent developments of Britain's foreign trade will be 
 considered in the second Volume: but a little must be said here 
 as to the external influences which were acting on her industry 
 towards the end of the eighteenth century and in the first quarter 
 of the nineteenth. 
 
 Her ever growing mastery of the forces of nature and of 
 technique did not make wholly for the increase of her foreign 
 trade. In so far as it promoted her efficiency in those industries 
 in which she was already leading, it did indeed enable her to put 
 more of her goods on foreign markets at a profit to herself: gjid 
 thus it increased her trade. But in so far as it lessened her 
 relative disadvantage in the production of those things which she 
 had been accustomed to import, it checked her imports, and 
 therefore her exports; and her trade increased less fast than it 
 otherwise would have done^. 
 
 1 As late as 1850, 92,000 out of a total of 225,000 farmers in England 
 and Wales {i.e. 41 per cent.) employed no hired labour: 8000 employed ten 
 or more; while 5000 employed 20 or more. (See the Census Report, 1851, vol. i 
 p. Ixxix.) 
 
 ' For instance, the application of improved pumping and lifting machinery 
 to England's salt mines brought her salt industry from its backward place. She 
 no longer depended on the evaporation of sea water by the sun; and her lack 
 of the powerful sun of the Mediterranean Coast no longer gave her an import 
 trade in salt: later on, she obtained a relative advantage and began to export 
 it. Huguenot immigrants, having taught her to make many light textile, glass 
 
INFLUENCES OP THE FRENCH WAR ON BRITISH INDUSTRIES 6 
 
 Again the growing richness of her home markets lowered i, iv, 3. 
 the cost of production of those of her exports which conformed 
 to the law of Increasing Return, and therefore enabled her to sell 
 more of them abroad. But it acted ia the opposite way with 
 regard to wheat: and her exports of that dwindled away in the 
 later years of the eighteenth century. As soon as her population 
 had once outgrown her small territory, and had become depend- 
 ent on imported food, every further increase in its numbers 
 increased her foreign trade in wheat; except in so far as it was 
 coimteracted either by restrictions on importation, or by im- 
 provements in her own arts of cultivation. The one raised the 
 cost of imported wheat and impoverished her people; the other 
 lowered the cost of home grown wheat and enriched her people; 
 but the two affected her foreign trade in much the same way. 
 
 By the end of the eighteenth century the process of weeding 
 out her imports of those things, which she had learnt to produce 
 for herself, was nearly complete. Henceforward her industrial 
 advances were almost exclusively in industries in which she was 
 already leading: and, therefore, except when they were checked 
 by heavy import or export duties at home or abroad, they added 
 more to her foreign trade than to her general prosperity: that 
 is, they increased the percentage of her home products which 
 she exported. 
 
 And further her growing exports of her cotton, and other 
 goods made of imported material, increased her foreign trade 
 much more than in proportion to the value of the work she 
 incorporated in them: because the value of that raw material, 
 as to which she was only middleman, entered into her trade 
 twice, first as an import and afterwards as an export; whereas 
 the values of her exports of wool and iron, which were wholly 
 products of her industry, entered only once. 
 
 The period of the great French war is very instructive as 
 regards monetary policy, but not as regards trade. For, indeed, 
 the course of trade was governed largely by niilitary exigencies, 
 
 and metal goods which she had previously bought from the French, her trade 
 01 some of these goods was almost suspended for u. time: but later on, when 
 she was sending these goods to France, her growing skill in small metal work 
 increased her trade. These facts, and several which follow, illustrate general 
 principles discussed above, I, ii, 1. 
 
66 BRITAIN'S INDUSTEIAL LEADERSHIP: ITS PERSISTENCE 
 
 I. IV, 3. and by the success with which smugglers and others could evade 
 customs officers and Napoleon's cruisers. Partly for this reason 
 it varied violently and irregularly: while the import and export 
 statistics cannot be trusted,; and cannot even be interpreted 
 accurately. It seems, however, clear that England's total ex- 
 ports expanded more slowly (^uring the war than before it; and 
 that they consisted to an iiicreasing extent of re-exports of 
 tropical produce, in which Enjeland's command of the seas gave 
 her almost a monopoly. The economic value of this monopoly 
 was indeed overrated at the time, and has been overrated since, 
 in spite of Pitt's protest^. 
 
 The war impoverished the Continent, even more than England, 
 and therefore did not lessen the relative advantage, which she 
 had obtained before the war, in those manufacturing industries 
 which required a large stock of capital. Whatever of lasting 
 economic efiect it produced, was perhaps mainly through its 
 indirect influence in arresting her social and political develop- 
 ment, and even causing some reaction. 
 
 English manufacturers had counted on finding eager foreign 
 markets after the peace, but they were disappointed. The 
 countries, which had been the scenes of the war, turned their 
 energies to repairing its devastation: but, as iron was then very 
 Uttle used for structural purposes, England's exports were not 
 in demand for them. There was a slightly increased demand 
 for ordinary metal and textile goods: but that did little more 
 than compensate for the cessation of the demand for clothing 
 and other necessaries by armies in the field. Thus EngUsh 
 manufacturers were really poorer than they had expected to be; 
 and the fall in general prices, which followed the destructive 
 war, made them seem poorer than they were. But the springs 
 of prosperity were growing fast during those years when people 
 were most sad, and largely because they were sad. Twice indeed 
 they let their hopes get the better of their judgment. They 
 
 1 He computed that in 1798 England's foreign commerce yielded to the 
 merchants and others engaged in it a gross income of £12,000,000, and a 
 net income of £3,000,000. (Lowe, State of England, ed. of 1822, pp. 24—28 
 and Appendix 4 — 8.) It may be noted that Oddy {Analysis of European 
 Commerce, 1805, vii. ii) says that before the war "the French had greatly 
 more of the West India trade than we, and could undersell us on the 
 Continent." 
 
INFLUENCES OP THE FRENCH WAR ON BRITISH INDUSTRIES 67 
 
 boldly exported goods to the Continent in 1815, and to South i, iv, 3. 
 America in 1824 — 5. But in neither case could the goods be 
 marketed profitably. The crises of 1816 and 1826 however 
 sobered the impetuous, and strengthened the resolute. Men 
 worked hard, and lived sparely: so capital grew apace^. 
 
 Capital was needed in ever increasing quantity by the 
 new developments of industry. For, though the stream of 
 inventions involving fundamentally new ideas had somewhat 
 slackened, yet improvements in detail flowed in at an ever 
 increasing rate. And the old inventions as well as the new 
 made incessant demands for fresh capital: partly because, as 
 a rule, about a generation passed after the fundamental idea 
 of a new invention had been grasped, before it was ready for 
 general use. Very often indeed another generation elapsed before 
 the details had been so far perfected, and the general organiza- 
 tion of the manufacture had been so far adapted to its powers 
 and requirements, that it could take its proper place in industry. 
 Thus the demand for capital in manufacturing and other 
 industries increased constantly throughout the nineteenth 
 century; partly because the constructive ideas of one, two, or 
 even more previous generations, were simultaneously growing 
 more powerful, more economical, more adapted to large pro- 
 duction and more hungry for fresh resources^. 
 
 ^ The great French economist. Say, made a tour in England at the close of 
 the war; and he was filled with wonder, almost with horror, at the intense, 
 restless industry of all classes of EngUshmen. " Everybody runs, absorbed in his 
 own affairs. Those who allow themselves the smallest relaxation from their 
 labours are promptly overtaken by ruin" (p. 12 of the English edition of his 
 Notes). He finds the explanation of this hardness of life in his estimate that " the 
 Government had consumed one-half of the produce of the soil, the capital, and 
 the industry of the English people," ibid. p. 21. 
 
 ' Thus in spinning, the fundamental idea of spinning by rollers came in 
 1730, but was not made efficient for nearly forty years. By 1780 the spiiming 
 mule was in operation; and the great fall in the cost of spinning a pound of 
 yam came some time after 1784. Deduction being made of the price of the 
 raw cotton, this cost fell from nine shUUngs to one (for medium counts) between 
 1784 and 1812. The power loom had been invented at the beginning of this 
 period, but was not made efficient till the end of it: and during the same interval 
 the scarcity of raw cotton had been gradually relieved by the growth of a new 
 source of supply in the Southern States of America. Consequently the cotton 
 industry increased more than five-fold during the next generation; and by the 
 middle of the century it had absorbed not much less than a hundred millions 
 of capital. 
 
•8 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 1, IV, 4. And gradually a change in the nature of the investment of 
 
 capital showed itself. It is well known that in early times the 
 chief forms of immovable capital were improvements in land and 
 houses; and the chief forms of movable capital were farm stock 
 and merchants' stores and ships. The water-driven textile and 
 other machinery of the eighteenth century absorbed an amount 
 of capital which went beyond previous experience, but was yet 
 very small relatively to the demands of the nineteenth century. 
 In the second quarter of the nineteenth century the value 
 of the implements of production which were chiefly made of 
 iron, began to outrun that of the current stocks of materials 
 to which they were applied. The value of factories and other 
 business premises began to rival that of houses. Coal-miniag 
 took a place ia the front rank of industries, and the building of 
 railways absorbed more new capital than any other industry^. 
 
 4. In the second quarter of the nineteenth century the 
 growth of railways helped to consolidate England's in- 
 dustries, and to expand her trade. 
 
 In 1825, when Stephenson's locomotive had not won its 
 great triumph on the Stockton and Darlington Railway, a Com- 
 mittee of the House of Commons published a Report setting 
 forth the nature of England's industrial leadership, and its chief 
 causes; and among these it already found a high place for rail- 
 ways; though they were then worked by horses, or in a few 
 cases by stationary engines^. 
 
 ' The only definite statistics available as to the distribution of capital 
 expenditure relate to joint stock companies: of course manufacture wag almost 
 entirely in the hands of individuals and private firms. But it is interesting to 
 note that the new joint stock capital of the expansive years 1834 — 6 amounted 
 to a hundred and thirty-five milhons, of which seventy were for railways, seven 
 for mines, eight for canals and navigation, and the rest chiefly for finance and 
 miscellaneous. See Levi's History, p. 220. 
 
 ^ The subject of the Report is the advisability of removing the restrictions 
 on the exportation of tools and machinery. It owns that all well-known kinds 
 of machinery can be produced abroad without great difficulty; and that to pro- 
 hibit or put difficulties in the way of their exportation is in effect to give an 
 educative bounty to the growing manufactures of machinery of our rivals. And 
 on the other hand the price, which such manufacturers are willing to pay for 
 drawings or specimens of new contrivances, was so high as to much more than 
 cover the premium which insurance companies charged for guaranteeing its 
 safe exportation in spite of prohibition. The Report proceeds to argue, that in 
 
SERVICES RENDERED BY RAILWAYS TO BRITISH INDUSTRIES 6 
 
 But from 1825 onwards a new impetus to England's economic i, it, i. 
 freedom, mobility, and energy was given by the opening of a 
 railway on which coal and other goods were to be hauled by 
 a locomotive; though passengers were to ride in single coaches 
 drawn by horses. 
 
 The steps, by which Stephenson had made the engine a prac- 
 tical success, were characteristically English; and so were the 
 uses to which it was put. Steam railways suited the English 
 temper; and the configuration of England was specially suited 
 for their early work. There was no place in the world where 
 they could get at once so heavy and remunerative a traffic as 
 between her various industrial districts, and from them to 
 London. So small are the distances between the chief centres 
 of industry that the six thousand miles of railways that were 
 open in 1850 connected nearly all the chief towns and industrial 
 districts of England and Scotland. They carried goods and 
 passengers at charges which were much lower than those 
 demanded by other means of fairly rapid transport, though they 
 were high when measured by modern standards. They enabled 
 perishable goods to travel far; and thus raised the price of many 
 things to the producer, while lowering them to the consumer. 
 
 They saved time and fatigue in travel. They enabled the 
 head of a large business, even if pressed for time and weighted 
 by years, to keep its outlying connections firmly in hand. They 
 
 spite of the fact that it is impossible to prevent foreigners from using our best 
 machinery, yet it can always be a little ahead of theirs ; and we can hold our own. 
 " Our minerals have a neighbourhood, whence, from the proximity of railroads, 
 canals, and rivers, they may be conveyed with great facility to all parts of the 
 kingdom, either for home manufacture or exportation. Almost all our great 
 manufacturing towns, and establishments for the construction of machines, 
 enjoy similar facilities; and thus, with the continual improvement of machinery, 
 
 enable us to keep down the cost of production The freedom, which under our 
 
 government every man has, to use his capital, his labour, and his talents, in the 
 manner most conducive to his interests, are inestimable advantages; canals are 
 out, and railroads constructed, by the voluntary association of persons whose 
 local knowledge enables them to place them in the most desirable situations, 
 and these great advantages cannot exist under less free governments. These 
 circumstances, when taken together, give such a decided superiority to our people, 
 that no injurious rivalry either in the construction of machinery or the manu- 
 facture of commodities can reasonably be anticipated" (pp. 12, 16 of the Report). 
 The history of British railways and canals is considered in Book III in 
 connection with the relations of monopolies to national advantage. 
 
70 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 I, IV, 4. were aided by parallel developments of tlie banking system, the 
 newspaper, the telegraph, and the postal service, in all of which 
 England was ahead of her Continental rivals: and they gave 
 her for a time a preeminence in the concentrated force of her 
 internal trade and industry, and therefore of her external trade, 
 to which nothing in the history of the world had been com- 
 parable except the force which Holland derived from her water- 
 ways. They strengthened her industry in just those respects 
 in which it already had differential advantages, and thus in- 
 creased her foreign trade even more than in proportion^. 
 
 In the second quarter of the nineteenth century the Con- 
 tinent of Europe was no longer devastated by wars. Industry 
 was increasingly secure and free. English manufacturing 
 methods were introduced by English artisans, working machi- 
 nery that had been bought in England, or made on EngHsh 
 models; and ia many cases, capital, managing capacity, and 
 operatives were supplied from England. For enterprise was 
 still timid, especially in regard to railway and other industries 
 which were still unfamiliar. Thus at last England repaid to the 
 Continent services which Holland had rendered to her, when her 
 low-lying lands were drained by Dutch capital, Dutch engineers, 
 and Dutch workmen. The Continental demand for railway 
 material, however financed, opened out a good vent for England's 
 (or, rather, Britain's) iron products; though by this time her 
 iron-masters found some strong rivals in Belgium and elsewhere. 
 These new railways facilitated her foreign trade generally, 
 in spite of the pressure of high duties on almost every 
 frontier. 
 
 Her trade, and therefore also her industries, were promoted 
 also by great further improvements in the art of ship-building. 
 But here the initiative came from America: and the history 
 of Britain's shipping was not altogether creditable to her. 
 The volume of her tonnage reached a maximum at the end 
 
 1 Other causes aided. The telegraph began to be a considerable force about 
 1840; just when the penny postage had been forced on a reluctant Government 
 by the energy of Rowland Hill. The first electric cable to France was laid in 
 1850. The newspaper stamp was reduced from id. to Id. a sheet in 1836; and 
 it remained at a penny till 1855. The advertisement duty was reduced from 
 3s. 6d. to 1». 6d. in 1833, but was not abolished till 1853. The tax on paper was 
 reduced in 1835 and 1839, but not abolished till 1861 
 
SERVICES RENDERED BY RAILWAYS TO BRITISH INDUSTRIES 71 
 
 of the great war, when she had a real monopoly of much i, iv, 5. 
 maritime traffic: though her monopoly of trade was less complete 
 than is often supposed, and of course a large part of her 
 shipping was engaged in the service of the war. That level 
 was not reached again till 1840. For indeed the Navigation 
 Acts, which professed to foster the growth of British shipping, 
 had been counteracted by considerable duties on Colonial 
 timber; and by heavy duties on foreign timber, which in the 
 absence of preference would have been much cheaper. The 
 world's stock of shipping was indeed increasing; so that Britain's 
 trade was promoted by low freights. But she herself built 
 very little more tonnage annually than her Colonies did; and 
 the shipping of the United States grew rapidly till it passed 
 hers about 1850, just as the last vestiges of the Navigation 
 Laws were repealed and the almost prohibitory duties on 
 foreign timber were reduced to a moderate level^. 
 
 5. The groivth of factories made ^jrominent the evils 
 inherent in crude capitalistic control, hut was not largely 
 responsible for them. 
 
 The "Industrial Revolution" in that special use of the 
 term, in which it is limited to the end of the eighteenth century 
 and the first third of the nineteenth, is sometimes associated 
 with the supersession of the merchant undertaker by the 
 capitalist manufacturer: and the large factory is apt to be 
 taken as the centre of that capitalistic exploitation of labour 
 which Karl Marx denounced as characteristic of the modern 
 age. But the ground taken by Marx himself is broader than 
 that: for he says: "Capitalistic production only then begins, 
 when each individual capital employs simultaneously a com- 
 paratively large number of labourers^." 
 
 ^ The Navigation Acts incidentally forbade American produce to be brought 
 to Britain save in British ships : and, as America copied these Acts, both British 
 and American ships had as a rule to cross the ocean one way empty. But the 
 treaty of 1815 secured equal freedom to the ships of the two countries in each 
 other's ports. The operation of the Acts in their later stages was complex, 
 and raised some specially intricate questions in regard to reciprocity. At the 
 end, as at the beginning, much thought was given to their bearing on the supply 
 of men for the Navy. See Dr Clapham in The English Historical Beview, 
 1910. 
 
 * He adds: "The labourer can sell no more than what he has — i.e. his indi- 
 
72 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 I, IV, 5. We saw in Chapter iii how the ever increasing distance of 
 
 the operative producer both from the sources of supply of his 
 material, and from the ultimate purchasers of his product, 
 rendered him increasingly dependent on capitalist merchants 
 for employment. The dependence was direct and obvious when 
 he worked up his own material in his own cottage. It was less 
 direct and obvious when he worked for a small employer, whose 
 resources were so small and whose outlook was so narrow, that 
 he could not afford to carry much stock and could not obtain 
 good direct access to general markets: but it was not much 
 less thorough; for Lf the merchants could not, or would not, 
 accept the product on terms which enabled the small masters 
 of a neighbourhood to pay the current rates of wages, the 
 operatives would commonly be forced either to submit to a 
 reduction, or to go short of employment. 
 
 Moreover a small master was generally in a position to know 
 the necessities of each worker; and he was often tempted to 
 take advantage of that knowledge. In fact the system of work 
 for such masters, themselves under the control of capitalist 
 merchants, is familiarly described now as the "sweating" sys- 
 
 vidual isolated labour power.... The capitalist buys the labour power of 100 men, 
 and enters into separate contracts with 100 unconnected men instead of with 
 one.. ..He pays them the value of 100 independent labour powers, but he does 
 not pay for the combined labour power of the hundred" (Capital, vol. I. pp. 311 
 and 323 of Engel's English edition, 1883; pp. 285 and 297 of the sixth German 
 edition). We must not stay now to consider all the implications of this argument. 
 As is well known, he suggests that the capitalist employer obtains a "Surplus 
 Value," consisting of all excess of production of 100 men working '"coopera- 
 tively" with all the economy and eflScienoy of subtle organization, over a 
 hundred times the production of an isolated workman. He is not troubled by 
 the fact that in some Industries the "cooperative" efBoienoy of the hundred is 
 more than twenty times their efficiency when working in isolation: and that in 
 such cases the employer would, on Marx's showing, receive in profits about 
 twenty times as much as he pays in wages; whereas, in many such industries, 
 the net profits are in fact not a tenth of the wages bill. 
 
 It will be argued in the second Volume that so long as there is active com- 
 petition among employers, each will be forced to pay as wages the equivalent 
 of the net value that the hundred men, working cooperatively, add to the 
 product: 7ie(, that is after deducting all other expenses incurred in the production, 
 together with profits on the whole at a rate which, on the average, diminishes 
 slowly from generation to generation. Thus the main benefits of the efficiency 
 of "cooperative" production accrue to the consumers: that is, to the working 
 classes, in so far as the industry is occupied either directly or indirectly in producing 
 commodities or services which are consumed by them. 
 
CAUSES OF DISTRESS DURING AND AFTER THE FRENCH WAR 73 
 
 tem ; because it is coramonly believed that a crude employer i, iv, 5. 
 with small capital, suSering under pressure from above, will 
 resort without remorse to measures more harsh and petty than 
 any for which the large employer has, as a rule, either the inclina- 
 tion or the opportunity. Recent investigations have however 
 proved that this common opinion goes too far: it does injustice 
 to a class of men, many of whom work hard for low gains, and 
 are by no means lacking in human sympathies. The employ- 
 ment of children at an excessively early age was common under 
 the domestic system: and, though they were for the greater 
 part under the protection of their parents, yet on the whole 
 the evidence seems to show that they were often treated by 
 their parents more cruelly than the great majority of the 
 children in factories were. It is important to remember that 
 workmen, who were paid (directly or indirectly) by the piece, 
 often handled their young assistants barbarously^. 
 
 * Defoe was envious of the Flemish because their manufactures had kept the 
 people so busy that hardly a child above five years old, but could do something 
 to earn its bread: he says that Henry VII when in exile (i.e. before 1485) had 
 been set by this on considering the great injury that could be done to them by 
 stinting the supply of English wool [Plan of English Commerce, p. 126). And in 
 1671 Chamberlayne reported that in Norwich children from six to ten years of 
 age have earned £12,000 more than they spend, chiefly by knitting fine stockings. 
 See Hull's footnote to p. 308 of his edition of Petty'a Works. 
 
 The elder W. Cooke Taylor [Tour in the Manufacturing Districts of Lancashire, 
 1842, p. 145) reports how a very old man told him that in the days when spinning 
 was yet done by hand, and yarn was scarce, and "the spinners were the masters 
 of the weavers... were really the days of infant slavery," adding: "the creatures 
 were set to work as soon as they could crawl, and their parents were the hardest 
 of task masters.'' The old man with characteristic lack of reason "was indignant 
 at the clamour which had been raised for infant protection" which led up to 
 Lord Ashley's great Act of 1844; and contrasted his own hard life with "the 
 light toil and positive comfort of the factory children." See also Hutohins and 
 Harrison, History of Factory Legislation, ch. I. Popular history underrates the 
 hardships of the people before the age of factories. 
 
 The chief collection of material bearing on the subject is in the great Beporl 
 on the Employment of Children in Factories, 1832 — 4, by a Commission under 
 the presidency of Tooke, the great economist. It lays bare the grievous sufferings 
 and waste of life caused by very long hours, and the cruel discipline which 
 was thought necessary to induce the weary children to continue on the move; 
 and the Commissioners and Sub-Commissioners are agreed in calling for vigorous 
 State intervention. But stress is laid on the fact that in many kinds of hand 
 labour "manufacturers" (the word being used in its original sense) "work 
 hard from twelve to fifteen hours a day to earn a bare subsistence; and this 
 frequently from a very early age, and in a state of confinement which may be 
 truly called injurious to health" {Second Report, p. 6). The evidence also shows 
 
 3—5 
 
74 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 I, IV, 5. It appears clear therefore that other causes must have 
 
 cooperated with the extension of the factory system to make 
 the fate of manufacturing workers generally, and of children in 
 particular, as hard as it certainly was during the two generations 
 in which the system was taking its present shape: there were 
 in fact many causes acting powerfully in that direction. The 
 first of these causes was a continued increase in the rate of the 
 growth of population: it was itself partly the result of the 
 constantly increasing separation of the labourer from the land; 
 and it widened that separation still further. For a time harsh 
 Settlement regulations put hindrance in the way of marriage; 
 but they could not be maintained effectively, and the population 
 of England nearly doubled between 1801 and 1841. The deep 
 significance of this increase at a time when modem provisions 
 for the comfort of large densely populated lands was unknown, 
 is indicated by the fact that, if its rate had been maintained for 
 four centuries, the population would have multiplied a thousand- 
 fold in that time : and a million-fold in eight centuries. 
 
 Other causes of distress were the growing changefulness 
 and instability of employment: these were mainly attributable 
 to war; and to the violent fluctuation of prices, especially of 
 wheat, which resulted from it: to the growing separation of the 
 producer from the ultimate market for his wares: to that 
 increase of speculative trading, often on a relatively small 
 foundation of capital, which collapsed in an exceptionally rapid 
 succession of disastrous commercial crises; and lastly to the 
 increasing dependence of the cotton and other industries on 
 sales in countries so distant that news from them was several 
 months on its way. 
 
 This drift towards unsteadiness of employment did not 
 affect uniformly all industries, nor even aU parts of the same 
 
 that the worst orueltiea were confined to a relatively small number of factories: 
 though frequently practised by overlookers, by far the greater part of them were 
 wrought by ordinary workmen on their assistants; e.g. by cotton spinners on 
 piecers and scavengers (First Report, p. 45). Mr Tufnell states that the expensive 
 setting up of machines for carrying off dust from the card-rooms and scutching- 
 rooms, and ventilating by fans, and substituting a direct supply of steam for 
 the old plan of raising the whole rooms to an unhealthy temperature by huge 
 fires, had been efieoted in representative large factories, though not then prescribed 
 by law (Supplementary Report, Part i. p. 227). 
 
CAUSES OP DISTRESS DURING AND AFTER THE FRENCH WAR 75 
 
 industry. It has already been noticed that there was a time, i,iv, 5. 
 at which hand loom weavers were ever pressing spinners for 
 more yam; another, at which the spinning mills, driven by 
 water power, could furnish more yam than those weavers could 
 use; and a third, at which hand- weavers were left almost without 
 any remunerative work. And further, as Rogers observed, 
 the transition from farm work to factory work made the 
 employment of women more steady, without raising their 
 wages when employed. But it made the employment of men 
 less steady, even in those industries in which they were not 
 largely ousted by women and children. Hired men have always 
 been wont to spend their harvest wages unwisely; though the 
 peasant owner has seldom thrown aside his traditionary caution. 
 The employee of a manufacturer who works for an uncertain 
 market, is apt to have frequent harvest-like orgies of work 
 and high pay, followed by long intervals of low-paid work or 
 idleness: and, if it happens that his wife and children are in 
 relatively steady work, he is likely to squander his high wages. 
 Thus families in the manufacturing districts, whose aggregate 
 earnings were twice as high as those of families at work on 
 farms, often lived in greater squalor. 
 
 This brings us to the darkest spot in the dark field of the 
 struggle of the factory system with a crude and immature 
 mechanical technique. The centre of the evil lay in the fact 
 that much of the work done on the new methods was within 
 the range of even young children. Later on the machinery 
 became more massive, and adult males won back from both 
 women and children many of the operations, that had taken the 
 place of the old male artisan labour; and thus technical changes 
 facilitated the good work of factory laws. But there is much 
 pathos in the story of the older artisans, who lost the capital 
 value of all the skill invested in them, and did not live long 
 enough to see that later stage^. 
 
 ^. The simplicity of the first machines adapted for spinning, and their small 
 size, fitted them for being tended by children. The mills were by the side of 
 small streams, and had but little local supply of labour : and in the early period 
 of null labour, apprentices from six to twelve years of age were prominent 
 among the workers. Gradually a local population grew up, and apprentices gave 
 place to the children of neighbouring cottages. Later on, steam power drew the 
 factories into the broad valleys and the towns. The machines for spinning 
 
76 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 I, IV, 5. The technical conditions of the early textile factories; the 
 
 war; the high price of bread; the rough manners of the crude, 
 vigorous, keen-witted men, risen from the ranks, who had out- 
 paced and superseded the older race of employers; and, last 
 but not least, the ineptitude of the governing classes in legisla- 
 tion and in administration: all these causes combined to bring 
 misery and degradation to men, women and children. The 
 cruel enforcement of English ideas as to land tenure on the 
 Irish population had largely peopled Lancashire with miserable 
 immigrants, who tended to bring other workers down to their 
 own low level. A blundering poor-law had made it possible 
 for pauper children to be collected from the workhouses of 
 town and country throughout the land and sent to the factory 
 districts in waggon loads, there to be herded without care from 
 father or mothers- 
 There were indeed large and ever increasing groups of 
 highly paid artisans; strong in self-respect and sense of duty, 
 and rejoicing in a family life which for cleanliness, comfort and 
 sobriety compared favourably with any that could be foimd in 
 other countries, or had existed previously in England. But 
 the incursion of the offscourings of low-paid labour, largely 
 agricultural, from the South of England and Ireland into the 
 best hives of high -class industry, brought with it a degradation 
 
 became more bulky, and required greater skill and exertion for producing fine 
 counts. But children still remained in the majority : though they were not strong 
 enough for the heavier work, which these required, till a somewhat later age. 
 (This statement is quoted substantially from Gaskell, Artisans and Machinery, 
 pp. 137 — 142, 1836.) An overlooker had the boldness to tell the Committee of 
 1832 that small children were preferable to those over the age of 14; because 
 they had to stoop less to the low frames: and, on its being suggested that the 
 frames might be raised, replied that even then the older children could only be 
 paid as much as the younger (Q. 3076 — 9). 
 
 • In 1836 there were 120,000 persons, chiefly Irish, living in cellars in 
 Manchester alone, in fearful filth, often accompanied by a pig; poor, wasteful, 
 and dissolute (Gaskell, I.e. pp. 82—3). Many more details are given by him; 
 also by "Alfred" (Samuel Kydd) in his thoughtful and well-balanced History 
 of the Factory Movement, 1847; and in other histories. It was rightly argued 
 in the debate in 1815 on the elder Sir Robert Peel's Factory Bill that there was 
 need for stopping a system which could be so abused that a London parish 
 stipulated with a Lancashire manufacturer that "with every twenty sound 
 children, one idiot should be taken." Peel confessed that his own house at one 
 time employed nearly a thousand "parish children supplied from London, 
 Birmingham, and other populous districts." 
 
CAUSES OP DISTRESS DURING AND AFTER THE FRENCH WAR 7' 
 
 of the quality of life, from whicli the chief manufacturing i, iv, 6. 
 district of England has not wholly freed itself. There are still 
 to be seen there relics of the old time, when parish children, 
 brought to Lancashire mills to earn money for which they were 
 responsible to no one, started a habit among children, even of 
 respectable families, of "setting up on their own," as soon as 
 their earnings were sufficient. It was not easy to exaggerate 
 the evils of many of the new factories: but they were exag- 
 gerated; and, in return, partisan advocates exaggerated- the 
 great real difficulties which were involved in an efficient 
 remedy^- 
 
 The factories which were chiefly concerned in this conflict of 
 interests, had no special favours to demand from Parliament: 
 they worked largely for export, and had little fear of competitive 
 imports. But it was strenuously argued on their behalf that, if 
 the Protective duties on wheat were removed, operatives would 
 be able to buy more food with less money: and therefore their 
 real wages would rise; and yet the manufacturers might get 
 their labour at a lower money cost than before. Some economists 
 supported this suggestion, and were often supposed to be hostile 
 to the Factory Acts; but they were friendly to the Acts^- 
 
 6. Influences of war and fiscal policy on England's 
 industry and trade in the first half of the nineteenth 
 century. 
 
 We now pass to consider the influences which the war, and 
 the financial policy associated with it, exerted on the life of the 
 people; and especially of those classes, who were least able to 
 
 * For instance, the advocates of stringent factory regulation were apt to 
 put forward exceptional cases of wrong-doing as representative of the general 
 conditions of factory work: its opponents brought forward as representative 
 the experiences of people, living in places in which there was a large low-grade 
 population, who could honestly say that the children, employed in some neigh- 
 bouring well-conducted factories, were the healthiest and most moral whom 
 they saw. Again some expert evidence was given to the effect that England's 
 lead in the cotton industry was so strong that, if the hours during which the 
 machinery was at work were reduced, she could obtain for her diminished exports 
 a remunerative price ; whUe other expert evidence contended that even a small 
 increase in the costliness of her cotton goods would close many foreign markets 
 to her. 
 
 ' See Appendix E, 5. 
 
78 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 I, IV, 6. maintain themselves in the face of adverse circumstances. The 
 dark shadow of the French Revolution had enlisted the fears 
 of the well-to-do classes on the side of their human sympathies, 
 in arranging a system of poor-relief, which inverted the law of 
 nature: for it made life least uncomfortable for those of the 
 labouring classes who were least deserving: and it caused those, 
 who had the least nobility of character, to marry early and to 
 leave the largest number of descendants; and they in many cases 
 lived to become degraded helots in manufacturing districts. 
 
 Further, the capital required by war could not have been 
 obtained entirely by taxation without extreme measures, and 
 in fact a very large part of it was obtained by loans. The loans 
 could not be taken up abroad, so they came from the existing 
 stock of capital: thus making capital scarce for industrial pur- 
 poses, and securing high rates of interest and profits to capitalists 
 and employers. Meanwhile the rents of landlords were raised 
 by the high price of wheat. Thus the incomes of the well-to-do 
 classes were raised relatively to those of their fellow-coimtrymen 
 by the war: and, when it was over, they were left with a mort- 
 gage on the revenue of the coimtry. Under the circumstances, 
 the revenue ought to have been raised by taxes which fell lightly 
 upon the working classes : but in fact they were so levied as stOl 
 further to raise the income of the landlords; and, if the attempt 
 which they made in 1815 to fix the price of wheat at 80s. a 
 quarter had been successful, it would have compelled a great 
 number of labourers' families to live on an aggregate weekly 
 income about equal to the price of a single bushel of wheat. 
 According to Charles Booth's well-known estimate, at the end 
 of the nineteenth century, those Londoners were to be accounted 
 as "poor," (that is, "as living under a struggle to obtain the 
 necessaries of hfe,") who had a "regular income of 18s. to 21s. a 
 week for a moderate family," and 18s. to 21s. was fully the 
 price of six bushels of wheat^. 
 
 * The complaint that the system of war loans mortgaged industry to protect 
 property is voiced by Disraeli in SyUl. Newmaroh, in a memorable defence of 
 Pitt's loans, suggests that loans may come from "the overflowings" of capital 
 that would otherwise have been "wasted," and that in such a case they do not 
 materially encroach on the resources of industry {Statistical Journal for 1856, 
 p. 138). In Pitt's time capital was scarce, even in England: but, as the war 
 lasted long, more than half its expense was paid out of taxation; though in uo 
 
FISCAL POLICY DURING AND AFTER THE FRENCH WAR 79 
 
 These evils, grave as they were, affected England's leader- i, iv, 6. 
 ship less than might have been expected. In their most 
 intense form they afiected only a small part of the population. 
 The production per head was very much greater in England 
 than anywhere else; and though many employers were amassing 
 great wealth, that was because they were reaping the profits of 
 very large concerns: there was no other country in which the 
 working man was allowed to retain for himself anything Uke as 
 large a share of the value, which he produced when aided by a 
 given capital. This fact is sufficient by itself to raise doubts 
 as to the correctness of a statement, which has frequently been 
 made, that the substitution of work in large factories for work 
 in cottages and small workshops increased greatly the power of 
 the capitalist to exploit the people. 
 
 Nearly every sort of fiscal pohcy works some good and some 
 evil. Whether the good or the e\'il preponderates depends 
 much on the adaptation of policy to the conditions of industry 
 and trade in the country affected; and on the foresight, breadth 
 of vision and ability with which it is developed. British states- 
 manship was not deficient in these qualities at the beginning of 
 last century: but many a well-navigated vessel has missed her 
 best course in a cyclone. 
 
 The early excesses of the French Revolution had excited 
 beyond the boundaries of calm reason, not only the despotic 
 rulers of the Continent and the privileged classes which made 
 common cause with them; but also many lovers of freedom, as 
 may be seen by comparing Burke's earlier utterances with the 
 frenzy of his later years. On the other hand the general 
 declaration of war against France caused all Frenchmen, however 
 deeply they abhorred those excesses, to regard war to the end 
 without compromise as their first duty. And, while men's 
 motives were thus mixed, the results to the world were almost 
 exclusively evil. Britain indeed suffered in some ways less 
 
 single year was a contribution made from that source which absorbed nearly 
 as large a share of the national income as that levied in the later years of the 
 present World-war. Disraeli's jibe was, however, in some measure justified by 
 an abuse of the power of the landowners after the war; for they levied taxes 
 which increased their own incomes, and threw more than the whole burden of 
 the war on the industrial classes, and especially the poorer classes of workers. 
 Similar, though much milder, tendencies can be observed now. 
 
80 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 I, IV, 6. from the war than many other countries: but her fiscal policy 
 was set on evil courses. 
 
 Pitt, the pupil of Adam Smith, and of the French advocates 
 of Free trade, began his career with attempts to make the 
 British tarif more simple and less restrictive; and he pressed 
 for a commercial treaty with France, which would have gone 
 very far towards breaking down the tarif frontier between the 
 two countries. But his project was thwarted: and the events 
 which began with the French Revolution made him ultimately 
 responsible for a tarif which was grievously complex and op- 
 pressive. He seems indeed never to have formally abandoned 
 the hope of returning to his early projects, when the stress of 
 the war should be over: but meanwhile he was impelled to 
 seek revenue by paths of least resistance. 
 
 He laboured throughout imder exceptional difficulties. For 
 he found himself compelled to impose, or at all events to ac- 
 quiesce in imposing, heavy charges not always well considered 
 on all classes of the population. A great increase of local rates 
 was partly caused by bad methods of poor- relief: but the rise 
 of wheat to famine prices, chiefly under the influence of war 
 and bad harvests, would in any case have demanded a large 
 local outlay, to be defrayed by the well-to-do for the benefit of 
 the needy. The expenses of the war called for a renewal of the 
 income tax, which reached at one time two shillings in the pound. 
 These causes lessened Pitt's power to withstand, and perhaps 
 even his eagerness to withstand, the pressure put on him by 
 landlords and manufacturers to give them some sort of com- 
 pensation by the imposition of duties on products that competed 
 with theirs, even when the taxes were such as would yield but 
 little to the revenue. He was compelled to levy many excise 
 duties which he knew to be very impopular. And, far-seeing 
 man though he was, he did not care to look very far ahead when 
 arranging a new import duty; for the independence of England 
 was at stake; and, if that could be rescued, his emergency 
 measures might be repealed before they had done lasting harm. 
 
 Pitt, killed by Austerlitz, left a heavy task to successors less 
 strong than himself; and it would have needed men of excep- 
 tional strength, either during the war or immediately on its 
 close, to work upwards along the steep and narrow path that led 
 
FISCAL POLICY DURING AND AFTER THE FRENCH WAR 8 
 
 back to the ideals which he had left behind. So England was I, it, 6. 
 afflicted by an exceptionally ill-conceived protective tarif for ^ 
 many years. It was so complex that, if its origin in the crisis of 
 the war were forgotten, it would appear to have been the work 
 of self-confident men; and its details were generally so full of 
 needless vexations and hindrances to industry and trade, and 
 so ill-adapted to the ends at which they aimed, that it would 
 have appeared to be the work of dull men. 
 
 This fact had a great influence on history. For EngUsh- 
 men were averse to abstract discussions. They did not care to 
 inquire whether a system of Protection could be devised which 
 would be free from the meddlesomeness and the waste, the 
 corruption and the cruelty of that system which they knew. 
 And as soon as the pubUc could be induced to overcome their 
 repugnance to the idea of change, the reformers found no serried 
 ranks of firm reasoning to oppose them. The course of the 
 battle might have been nearly the same, but its after-effects 
 would have been widely different, if the task to be accomplished 
 had been one for hard thinkers rather than expert orators. 
 
 The task indeed was not quickly accomplished. For violent 
 change was uncongenial to the English temper: and some of 
 those statesmen, who did most for free trade, had to conquer 
 themselves before they began their struggle with others. This 
 was especially the case with Peel. And yet the twenty years 
 which elapsed between his great reforms and those of Huskisson, 
 had broken down much of the crust of traditional opinions; 
 and, by aid of the extension of the franchise in 1832, they had 
 so much lessened the force of vested interests, that Peel, though 
 less venturesome than Huskisson, was able to venture far more 
 boldly than he had done^. 
 
 1 Huskisson, 1823 — 7, abolished most prohibitions and many duties which 
 were in operation. But many Protective duties appealed strongly to vested 
 interests, and he did not venture to do more than lower them. Even in 1839, 
 after his work had been carried a good deal further, there were left nine hundred 
 separate articles on the Customs list. The taxes on many of these were in 
 effect prohibitive. (The details are set forth in an instructive appendix to the 
 great Report on Import Duties of 1840.) The excess of aggregate receipts over 
 drawbacks on six hundred of them was less than £3000. Speaking in 1825, 
 Huskisson said (Speeches, vol. ii. p. 343) that any one who walks along the 
 beach from Brighton to Hastings can find at almost every village "persons who 
 will engage to deUver him, within ten days or a fortnight, any prohibited 
 
s2 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 I, IV, 6. It is doubtful whether Pitt's early movement for tarif 
 
 reform would have had sufficient driving force, even if it had 
 not been cut short by the great war. But in Peel's time 
 motive power was supplied by the increasing strength of vocal 
 manufacturing interests; and by the irritation resulting from 
 the confidence with which the landlords assumed that the well- 
 being of agriculture was the supreme interest of the country, 
 and by the relentless import duties and prohibitions which 
 they consequently imposed on grain. Without that driving 
 power the subtle arguments of Ricardo and other thorough 
 thinkers could not have been effectively rendered into the 
 language of the market-place, even by interpreters as lucid as 
 Cobden and as eloquent as Bright. But the wishes of the 
 townsfolk helped them to thread their way through difficult 
 reasonings: enthusiasm grew, and spread to the country folk; 
 and at last it became possible to convince agricultural labourers 
 that their real wages would be raised by the free admission of 
 products that competed with those of the fields which they 
 ploughed. Their money wages might conceivably fall a little; 
 and so might even the wages of those who worked at other 
 pursuits: but the prices of their food would fall much more; 
 and their worst miseries would be over^. 
 
 In Peel's time the centre of the conflict was the Sliding 
 Scale of duties on corn. That showed Protectionist ingenuity 
 at its worst. At the beginning of the controversy the majority 
 of Englishmen probably beheved, what they were told on 
 authority, that it would steady the price of wheat. At the end 
 of the controversy there was scarcely any thoughtful Englishman 
 who was not convinced that it increased fluctuations in the 
 
 article of manufacture, which he can name, upon an advance of £30 per cent, 
 beyond the prime cost in Paris." 
 
 1 This broad statement must be left for the present: a study of the complex 
 issues involved in it belongs to a later stage of our study. The general belief 
 that money wages would fall a little does not seem to have been based on any 
 careful or exact reasoning: but it was probably correct. For up to that time 
 wages had seldom been governed directly by economic forces. Employers 
 nearly always had the upper hand in bargaining. Farmers especially raised 
 or lowered wages by agreement among themselves, at such levels that labourers' 
 families could just live in moderate health and moderate strength, provided the 
 whole of their income was spent for strength -giving ends : and similar in- 
 fluences operated in manv industries, though with less force. 
 
FISCAL POUCY DURING AND AFTER THE FRENCH WAR 81 
 
 price of wheat; that it made the trade of farming precarious, i, iv, 6. 
 and intensified agricultural depressions; but that meanwhile 
 it so discouraged importation as to keep the average price high 
 to the consumers, without conferring any proportionate benefit 
 on the landlords, stiU less on the Exchequer or on the farmers. 
 The Sliding Scale was not an essential part of the Protectionists' 
 policy. But they defended it, and thus it served as a measure of 
 their economic insight; and when the plain man was convinced 
 that its claims could not be defended, he was inclined to give 
 willing ear to criticisms of their other claims. Thus the great 
 bulk of popular opinion swung round with irresistible force. 
 
 The defenders of the old system were, with few exceptions, 
 ill-informed and weak in argument: they were discredited by 
 the personal interest which most of them had in maintaining 
 a high price in corn; as well as by the old-fashioned way in 
 which they assumed that the welfare of the country depended 
 on the prosperity of those who had a stake in it, and especially 
 the owners of land; and they were worsted in almost every 
 encounter on Eoyal Commissions, in Parhament, and on the 
 platform. Their case was weakened before the Reform Bill of 
 1832 had transferred political power from the owners of land 
 and decayed boroughs to the commercial and industrial classes: 
 and after that the old Protection of agriculture could not long 
 survive^- 
 
 Disraeli had assailed Peel's action bitterly; but on becoming 
 Chancellor of the Exchequer in 1852 he frankly said that a return 
 to Protection was impossible. The subsequent vigorous reform 
 of the British Parliament gave a free course to experiments in 
 production and traffic; which it might not have been worth while 
 to make if each step had needed to be defended and explained 
 
 ^ Reference may be made to Appendix E for some account of the causes of 
 the failure of sliding scales: and for an argument that the movements of the 
 price of wheat after 1849, though not what was expected by those who advocated 
 the repeal of the duty, was just that which they might have anticipated if 
 (1) they had known the peculiarly narrow conditions of the world's supply of 
 wheat, so long as land transport was dear, and even sea transport not very 
 cheap: (2) they could have foreseen the influx of gold beginning in 1850; also 
 the war with the country from which England expected her chief supplies of 
 wheat; also the disturbed conditions of the world till 1871 ; and lastly the building 
 of railroads to American wheat fields, sometimes at the rate of nearly 10,000 
 miles a year; and so on. 
 
$4 BRITAIN'S INDUSTRIAL LEADERSHIP: ITS PERSISTENCE 
 
 I, IV, 6. to Customs and Excise officers, with the risk of being prohibited 
 by them after some delay and when already half taken. At last 
 every harbour on the coast line became a free port for the importa- 
 tion and housing of all goods except tobacco, alcoholic and 
 stimulating drinks, and sugar; and for the exportation of all 
 goods whatever. And the country became a free factory for the 
 production of all goods except alcoholic liquors. 
 
 The freedom to adopt whatever trade one would, and manu- 
 facture whatever one would {laisser /aire in its original sense), 
 together with the freedom to send goods whithersoever one 
 would, and to fetch them whencesoever one would (laisser aller), 
 made England the entrepdt of the world. They gave her not only 
 unprecedented trade, but also imprecedented advantages for 
 developing every new idea of her own, before it reached other 
 nations; and for learning any new foreign idea that could be 
 adapted to her use. 
 
 But a difficult investigation always loses something from 
 contact with the market-place. Nature is not simple, but 
 complex. The immediate efEects of any system of taxation are 
 lilcely to differ from their ultimate efEects: and both immediate 
 and ultimate efiects may vary much with the varying conditions 
 of different countries. And, as the case against Protection in 
 England (and Scotland) was far stronger than that against Pro- 
 tection in any other country, it was not to be expected that the 
 reformers should confuse their English hearers by taking account 
 of the conditions of other coxmtries, unless they were compelled 
 to do so: and from that they were saved by the low intellectual 
 character of the opposition with which they had to contend. 
 So they based sweeping general propositions on English facts 
 and EngHsh conditions. 
 
 This gave to their argument much apparent lucidity and 
 simplicity, which hastened their victory. And their victory 
 was twofold. For it was followed by so great an increase of 
 England's prosperity, that other nations began to open their 
 ports m imitation of her; and this doubled the benefits which 
 Free trade conferred on England. 
 
 But in the long run it might have been better both for 
 England and for Free trade, if they had been compelled to make 
 prominent those cumbrous qualifications which they omitted. 
 
FISCAL POLICY DURING AND AFTER THE FRENCH WAR 85 
 
 For then other nations would have been warned beforehand i, iv, 6. 
 that the removal of Protective duties could not be expected to 
 confer the same unmixed benefits on their best industries as it 
 had done on those of England. As things were, they had to 
 learn it in the hard school of experience: and they are now 
 further removed from a calm inquiry as to whether the benefits 
 of Protection outweigh its evils even to them, than they might 
 have been if the English reformers had gone to work in a- more 
 scientific way^. 
 
 • The above statements are developed in Appendix E, 4. 
 
CHAPTER V 
 
 BRITAIN'S INDUSTRIAL LEADERSHIP UNDER 
 STRONG CHALLENGE 
 
 I, T, 1. 1. A rare consilience of favourable influences promoted 
 
 the expansion of Britain's industry and trade after she 
 had thrown her markets open to the world. 
 
 The main purpose of this chapter is to indicate the new 
 conditions of industrial leadership, which call for at least as high 
 and sustained energy as Britain showed when she first outpaced 
 her rivals. 
 
 The events of the second half of the nineteenth century 
 belong to a survey of contemporary conditions. The few 
 remarks made on them in the present chapter, are designed to 
 do little more than indicate the way in which Englishmen 
 have settled down to work out and develop, in cooperation 
 with other nations, those methods of large, highly organized 
 industry and trade in which they received but little aid from 
 others up till about 1850. "We have first to consider the causes 
 which accelerated their advance in the third quarter of the 
 eighteenth century, and those which led them generally to 
 overrate that advance: secondly, the causes which brought 
 about a well-founded, but exaggerated suspicion that all was 
 not well with them. Thus we shall be brought to the present 
 time, and come in touch with problems which will occupy the 
 remainder of this work. 
 
 Looking back again, we see that a combination of causes, 
 which is unprecedented in the history of the world, had de- 
 veloped England's industrial leadership from 1750 onwards. 
 She had indeed been struck by several great misfortunes, 
 especially her quarrel with her chief colony, her war with France, 
 her poor laws and her corn taxes. But these evils were nothing 
 in comparison with those which had afflicted her rivals on the 
 Continent; while in America both capital and industrial skill 
 
CONSILIENCE OF FAVOURABLE CONDITIONS 1850 TO 1873 8 
 
 were still scarce. After 1850 England had rid herself of her i, v, j. 
 corn law; and of other restrictions, which were less injurious 
 practically, though perhaps not better conceived: and she then 
 had an equally unprecedented combination of advantages ' 
 enabling business men to make money, even when they were 
 not throwing themselves with energy into that creative work 
 by which industrial leadership is made and maintained. 
 
 It has often been remarked that a man's energies are at their 
 best when he is emerging from poverty and distress into the 
 command of great opportunities. He rejoices in a Uttle comfort; 
 but he does not care to spend too much money or time on 
 luxury. He is happy and proud in conquering difficulties. 
 The fear of distress is still so fresh in bis mind, that he 
 subordinates, naturally and without eftort, the allurements of 
 the present to making secure provision for the future: he 
 works hard without pain, and he accumulates capital greatly. 
 That was the position even as late as 1850 of a large niunber, 
 perhaps nearly half, of the older captains of industry: they had 
 grown up in cottages, in which bread was often so scarce that 
 the mother was forced to stay the children from eating before 
 they had had enough. Such men sometimes indulged in bouts 
 of gross indulgence: but they did not care for, and did not 
 even know how to manage, those forms of elegant display, 
 which in later years were to consume a large part of the national 
 income^. 
 
 England's relative strength was further heightened by the 
 distresses of war which fell upon her neighbours. The chief of 
 these were the slaughter and enfeeblement of bread winners, 
 and the destruction of capital. Those who are killed, injured, 
 or invahded in war, are mostly young men: the whole expense 
 
 " Newmaroh remarks (History of Prices, vol. v. pp. 368 — 9) that during the 
 five years 1846 to 1850 ag many people found employment on the railway works 
 as in the whole of the factories of the United Kingdom; and that nearly the 
 whole of the railway calls, which supplied the means for their employment, were 
 met either by efforts of economy or by increased exertions; and that the conse- 
 quent distribution of extra wages "mitigated the disastrous effects on the working 
 classes of the commercial and political convulsions of 1847, 1848, and 1849." 
 In 1851 England was ready to open the great Exhibition, at which the whole 
 world learnt suddenly how great were the numbers of those things which could 
 be bought in London better or cheaper than elsewhere; and of those which 
 could not be bought at all elsewhere. 
 
88 BRITAIN'S INDUSTRIAL LEADERSHIP UNDER CHALLENGE 
 
 I, V, 1. of their nurture has been borne by the community, and they 
 have as yet repaid but little of it by their industrial work. This 
 is true generally; and especially when nearly the whole nation is 
 in arms. 
 
 England of course had her own troubles: especially those of 
 the Crimean War 1854—6 and the Indian Mutiny 1857—8; 
 but her finances were handled with courage; and her debt was 
 very little increased^. On the other hand, the American Civil 
 War of 1860 — 4 destroyed more wealth and industrial energy, 
 and closed more opportimities of producing wealth, than any 
 other war of nearly equal duration up to that time. And from 
 1859 to 1871 Western Europe was the scene of a series of wars, 
 the last of which was more destructive than any otjjer short war 
 except the American Civil War*. 
 
 During all these wars many nations, which remained neutral, 
 reaped high gains: but none of them reaped gains to be com- 
 pared to England's. For she had a preeminence, amounting 
 V under the special circumstances of the time to a partial mono- 
 
 poly, in the three things that were most urgently needed by 
 those who were preparing for war, or engaged in war, or repairing 
 the wastes of war; viz.: the material of war, including the 
 personal outfit of the soldiers; the services of trading ships; 
 and the loan of capital. These gains were high in substance: 
 and they were higher still in appearance; that is, when expressed 
 in terms of money. For the general tendency towards a rise 
 of prices, as a consequence of the increased supply of gold, 
 was reinforced in regard to many things, not only by increased 
 consumption and destruction of them in connection with the 
 wars; but also by the temporary or permanent removal of 
 many producers from their factories and workshops to the 
 battlefield: — a fact which recent experiences have brought home 
 to the whole Western World. 
 
 Further, these wars, while retarding the progress of her 
 
 ' It waa as low in 1860 aa in 1850. The war did little to hinder any of 
 England's exports: but she was largely dependent on Russia for tallow and 
 kindred products, and to a less degree for wheat. These therefore rose much in 
 price here (though, after a while, considerable supplies found their way to North 
 German ports and thus to England). 
 
 ^ France and Sardinia were at war against Austria in 1859; Prussia and 
 Austria against Denmark in 1865; Prussia against Austria in 1866, and against 
 France 1870—1. 
 
CONSILIENCE OF FAVOURABLE CONDITIONS 1850 TO 1873 8 
 
 rivals, increased the demand for her iron. The implements of i, v, i. 
 war, which were chiefly made of it, grew in volume and in ex- 
 pensiveness. And as in the old times great roads had been made 
 for military purposes; so every successive war strengthened the 
 lessons first taught by the Crimean War, that under modern 
 conditions an efficient railway system is a strategic necessity^. ] 
 
 By 1870 England had built about two-thirds of her prgsent 
 railways. She had joined every important centre of ijidustry * •^- 
 with every other; and there was little room for the making 
 of new lines which would create important additional traffic. _ 
 But she still found much to be done in providing additional 
 tracks, in increasing the number of quick trains, and in admit- 
 ting third class passengers to them, not only on a few trunk 
 lines, but on cross lines in every direction. This practice, which 
 was not adopted thoroughly by any other large country, turned 
 the special configuration of England to the best account, and 
 it bound her chief industrial centres into a more compact imity 
 than was to be found on a scale at all comparable with hers 
 anywhere else. Combined with the freedom of her business 
 from the inspection of Excise and Customs officers, and with the 
 efficiency of her banking system, it gave her exceptional facilities 
 for the rapid and elastic adjustments of business. 
 
 But there was menace in the fact that railways had, in 
 1870, rendered a much larger percentage of aU the services 
 which they were capable of rendering to England than they had 
 done to any other large country: and that from that time forward 
 the development of railways has done more for the industrial 
 efficiency of her chief rivals than it has done for her^- 
 
 1 Thus the Northern States built a railway across the American continent, 
 partly because the isolation of the Pacific Slope had been felt as a peril to national 
 unity daring the stress of the Civil War. The railway building of Germany for 
 some years before and after her great war with France was mainly directed by 
 strategic considerations; and the German railway personnel is organized in 
 peace to be ready as a department of the army in war. 
 
 ^ The railway mileage of the United Kingdom was 6,600 in 1850; 15,500 in 
 1870; and 23,400 in 1912. This mileage of 6,600 in 1850 was nearly twice as 
 great as that of Germany, and nearly four times as great as that of France; but 
 it was passed by that of Germany just after the Franco-German War, and by 
 that of France about twelve years later. The railway mileage of the United 
 States, which was about three times as great as that of the United Kingdom 
 from 1840 to 1870, is now more than ten times as great nominally. But of 
 course in the more thinly peopled districts the lines are very lightly equipped. 
 
BRITAIN'S INDUSTRIAL LEADERSHIP UNDER CHALLENGE 
 
 1, V, 1. But, though her territory was so small that she was bound to 
 
 see railways rendering new benefits of the first order to other 
 countries after they had ceased to increase her advantages very 
 greatly, it was otherwise with shipping. The contest between 
 wood and iron as a material for shipbuilding became acute about 
 1850. The first place, at all events for steam-vessels, was taken 
 by iron a little later; and by 1870 the contest was finished. 
 
 In the first half of the nineteenth century it had seemed 
 that England's children beyond the seas would contest with her 
 the primacy in shipping. But iron, which was ultimately to be 
 a chief source of America's strength on the seas as well as on 
 the land, was then needed so urgently for the land as to divert 
 her energies from the seas. It was used chiefly for her railways; 
 and she could invest capital in them to yield her a much higher 
 rate of profits than that for which English capital was compelled 
 to work, and to which therefore American capital would be 
 limited in the general shipping trade. Up to the middle of the 
 century she had derived a great benefit from the material for 
 shipbuilding afforded by the forests of Maine. But wood was 
 yielding place to iron just as the Civil War drove her shipping 
 from the ocean. And when the war was over, her new fleet 
 was built to trade on the great lakes and along the coasts, where 
 native shipping had a monopoly, rather than on the great world 
 routes. England therefore was freed from the chief rivalry 
 with which she had been threatened; and she found in the 
 shipping trade a profitable and ever-growing scope for her iroE 
 and for her energies^. 
 
 Also the train traffic per mile is denser in England than in any other large country : 
 and this in spite of the fact that a great deal of internal trade in heavy products, 
 which in most other countries would go by land, goes by sea from one part of 
 England to another. These points are developed in another connection in 
 Book ni. 
 
 1 The victory of iron over wood as the material for ships, though not fast, 
 was not so slow as that of steam power over sails ; and of course, while England 
 used to import most of the materials for the rigging of ships, she herself provided 
 the engines and the coal for steam-ships : this tended to lessen her foreign trade. 
 
 In 1850, thirty-five years after steam propulsion had been proved a success, 
 only about one ship in sixty was driven by steam; though there were in addition 
 a large number of steam-boats. In 1860 about an eleventh of the British tonnage 
 engaged in the foreign trade was driven by steam, and in 1870 about a fifth. In 
 the decade 1860 to 1870 the British iron steamer fleet grew from 454,000 to 
 1,113,000 tons. 
 
CONSILIENCE OF FAVOURABLE CONDITIONS 1850 TO 1873 9: 
 
 As roads ninning at right angles to railways fed them and i, t, i. 
 increased their traffic, so railways fed ships. Steam-ships became 
 cheaper to build, and cheaper to work; they carried increased 
 cargoes in proportion to their displacement, and required for 
 a given displacement fewer men and less coal to drive them at 
 a high speed. And exactly as Holland had done before her, 
 England found in the carrying trade a rich field in which to turn 
 to account her large stores of movable capital. 
 
 Further, her capital, her trade, and her industries had com- 
 bined to give her better foreign connections than any other 
 country had by post and telegraph, and by banking and other 
 credit agencies; and London had become the clearing house of 
 the world. These causes mutually strengthened one another: 
 each new means of communication developed her foreign trade; 
 and each extension of her foreign trade made new communica- 
 tions practicable and profitable. 
 
 Meanwhile Bessemer's process had much cheapened the cost 
 of making steel of a kind which was shortly to displace iron 
 from most of its uses. The process required ores nearly free 
 from phosphorus: but there was a good, though small, supply of 
 these ready at hand; and one great company, which had access 
 to them, paid a dividend of nearly a hundred per cent, on its 
 capital in an exceptional year. 
 
 Lastly, the Free trade policy of England had been largely 
 followed on the Continent; and just those years, in which the 
 industries of her chief rivals were most interrupted by the alarms 
 and the ravages of war, were the years in which they offered not 
 only the most eager demand for her goods, but also the freest 
 entry for them. 
 
 These causes combined to increase her external trade rapidly. 
 In fact its money value was twice as high from 1870 to 1874 as 
 it had been before the gold discoveries. The importance of this 
 fact was, however, much exaggerated by popular opinion, which 
 pays more attention to movements of prices, than to movements 
 of real values. 
 
 Thus rich old firms could thrive by their mere momentum, 
 even if they had lost the springs of energy and initiative. 
 Men whose childhood had been passed in the hard days 
 before the repeal of the com laws; who had come to business 
 
92 BRITAIN'S INDUSTRIAL LEADERSHIP UNDER CHALLENGE 
 
 I, V, 2. early in the morning, and stayed late in tlie afternoon; who had 
 been full of enterprise and resource, were not infrequently 
 succeeded by sons who had been brought up to think life easy, 
 and were content to let the main work of the business be carried 
 on by salaried assistants on the lines laid down in a previous 
 generation. But yet so strongly were such men supported by 
 the general inflation of prices, that in most cases they made 
 good profits and were satisfied with themselves. Thus an extra- 
 ordinary combination of favourable conditions, induced undue 
 self-complacency — the arch enemy of strength. 
 
 2. After 1873 various signs of weakness were perceived ; 
 and later on some exaggerated alarms arose. But the 
 national character is again showing itsdf in a resolute 
 facing of difficulties. 
 
 This over confidence was startled by the crisis, or more 
 strictly the commercial depression, of 1873. But its immediate 
 causes lay chiefly outside of Britain: and indeed the disturb- 
 ance reached her in two sets of troubled waves, of which the 
 centres were respectively the United States and Austria, ia 
 both of which countries the inflation of credit had been reckless. 
 There was nothing in the depression to force on her notice 
 the more permanent underlying dangers of her position^: she 
 seemed to many to combine the solidity of mature age with the 
 energy of youth. 
 
 But the depression lasted long; and was accentuated by 
 
 ^ It may be well to quote a passage from one of the ablest, most broad 
 minded and acute of British economists : but one who used to say that he was 
 the last of those who had learnt from Ricardo direct without the mediation of 
 MUl. 
 
 Bagehot, after referring to the little roughnesses, and sharp practices, 
 which were making their appearance in England as the result of the in- 
 creasingly "democratic structure of commerce," observed that such defects 
 "are compensated by one great excellence. No country of great hereditary 
 trade, was ever so little 'sleepy,' to use the only fit word, as England; no other 
 was ever so prompt at once to seize new advantages. A country dependent 
 mainly on great 'merchant princes' will never be so prompt; their commerce 
 perpetually slips more and more into a commerce of routine. .. .The rough and 
 vulgar structure of English commerce is the secret of its life; for it contains 
 'the propensity to variation,' which, in the social as in the animal kingdom, is 
 the principle of progress" (Lombard Street, 1873, pp. 10, 11). But when such 
 matters are discussed to-day, Germany is seen to have much of the strength 
 both of an old and a new country. 
 
SLACKENED ENERGIES ARE BRACED TO HARDER TASKS 9! 
 
 monetary troubles. For the yield of the gold mines had been i, v, 2. 
 diminishing; wliile currency changes, which really caused some 
 new demand for gold, and appeared to cause a great new demand 
 for it, accentuated the fall of prices that would in any case have 
 been caused by the collapse of credit. Distress was nearly 
 universal in the western world. France indeed had calmly set 
 herself to solid business as soon as the second siege of Paris was 
 finished, and she was little affected by the general collapse of 
 credit. But Germany had been rendered over-confident by the 
 successes of the war; the influx of the French indemnity had 
 thrown her speculative classes oS their balance, and in 1875 
 she was in even a worse plight than Britain. So Britons nourished 
 for nearly another decade the comfortable notion that they could 
 afford to take things easily and yet expect a better income than 
 anyone else. 
 
 But gradually the continued fall in prices caused people to 
 repeat the error which they had made when over-estimating pro- 
 gress during the earUer time of inflated prices. The country's 
 foreign trade was increasing very slowly; and the fall of prices 
 made people suppose that it was shrinking. Thus they now 
 doubly over-estimated the misfortunes of the years of shrinking 
 prices: and many of them were made anxious by obser^'ing that 
 in some branches of trade and industry other countries were 
 making progress which, if not greater in amount, was yet at 
 a greater rate than their own. This feeling of disquiet grew; 
 and the able Commission on the Depression of Trade in 1885 — 6 
 reported that: "In neutral markets, such as our own colonies 
 and dependencies, and especially in the East, we are beginning 
 to feel the effects of foreign competition in quarters, where our 
 trade formerly enjoyed a practical monopoly. The increasing 
 severity of this competition, both in our home and in neutral 
 markets, is especiaUy noticeable in the case of Germany. In 
 every quarter of the world the perseverance and enterprise of 
 the Germans are making themselves felt. In the actual pro- 
 duction of commodities we have now few, if any advantages 
 over them; and in a knowledge of the markets of the world, a 
 desire to accommodate themselves to local tastes and idiosyn- 
 crasies, a determination to obtain a footing wherever they can. 
 
4 BRITAIN'S INDUSTRIAL LEADERSHIP UNDER CHALLENGE 
 
 I, V, 2. and a tenacity in maintaining it, they appear to be gaining 
 ground on us. We cannot avoid stating here the impression 
 which has been made upon us during the course of our inquiry 
 that in these respects there is some falling off among the 
 trading classes of this country from the more energetic practice 
 of former periods." The information collected by the Com- 
 mission while tending to "dispel much misapprehension. . .and 
 to encourage a more hopeful view. . .of our commercial position 
 . . . will also show that if our position is to be maintained it 
 must be by the exercise of the same energy, perseverance, self- 
 restraint, and readiness of resource by which it was originally 
 created^." 
 
 Things went smoothly during the upward swing of com- 
 mercial credit which culminated in 1890 — 1; and troubles of 
 the United States, arising out of a doubt as to the soUdity of 
 their currency, kept back for a time the competitor from whose 
 power of initiative there seemed most to fear. But a series of 
 failures of British investments in South America, Australia and 
 elsewhere had undermined confidence nearly as much as those 
 of 1873 — 5. Labour disputes also became rife, and indeed those 
 of 1892 — 3 were partly the cause and partly the effect of a 
 deadening of British enterprise, which showed itself in an 
 unparalleled prolongation of a two per cent. Bank rate of dis- 
 count (the market rate being seldom above one per cent.) for 
 three years 1894 — 6. 
 
 Meanwhile attention had been directed to instances in which 
 Britain's industrial technique had been surpassed by those of 
 Germany and America. The most important case was that of 
 the heavy steel industry. That had received a strong impetus 
 from Bessemer's great invention in 1856. But the small supply 
 
 ' Final Report [C. 4893], §§ 74, 75, 76, and 106. It ia noteworthy that this 
 trouble was most conspicuous in parts of the country in which the social dis- 
 tinctions between employers and employed have been greatest. Thus an account 
 of the "Decay of a famous industry" {Times, 19. 12. 04), mentions as one among 
 several causes of the weakness of the West of England wooUen trade the fact 
 that, while "many mills have been worked by the same family for over a cen- 
 tury. ..some of the manufacturers, who had made large fortunes and acquired 
 large landed estates, retired to these and took a good deal of their capital 
 with them." But in Yorkshire there was more energy; artisans were better paid; 
 and the Industry "was not content to go on making the same old cloths with 
 the same old slow-going looms." 
 
SLACKENED ENERGIES ARE BRACED TO HARDER TASKS 95 
 
 of Britain's ores suitable for his treatment speedily ran short, i, v, 3. 
 Meanwhile America's greatly increased output of steel was 
 matched by an equal increase in her own demand for its struc- 
 tural and other uses; but the markets, to which Britain had 
 access, were assailed by German steel made with consummate 
 technical skill by aid of a new process. It had been invented 
 by an Englishman; but it was specially adapted to the ores of 
 Alsace and Lorraine, and not to those to which Britain has good 
 access. However alert she had been in improving and develop- 
 ing the technique of her heavy steel industry, it must have been 
 outpaced by that of Germany: but the continued use of old- 
 fashioned plant by many of her works caused her output of heavy 
 steel to remain almost stationary while that of Germany in- 
 creased fast^. 
 
 Britain lagged even more conspicuously behind in many in- 
 dustries that called for high and extended scientific training: the 
 chief of these were devoted to the manufacture of colours, and of 
 medical and explosive products, from coal-tar bases. This was 
 the more striking because Germany, being indifEerently supplied 
 with gaseous coal, imported much of her tar from Britain. 
 
 3. The needs of Britain's industries gave additional 
 momentum to a movement, that had long been on the way, 
 for a reform of her educational system^ 
 
 English business men were slow to recognize a chief cause 
 of decline in their industrial leadership. But about 1901 they 
 began to see clearly that they must follow other nations in pro- 
 moting industrial efficiency by improved education. The move- 
 ment, thus initiated, is making way, tardily indeed for the lack 
 
 ^ The Metallurgical Committee of the British Iron and Steel Institute as 
 late as 1917, reported with reference to the output of the British basic open- 
 hearth furnaces, that British technique and organization generally compared 
 unfavourably with that of Germany; and that this was the chief cause of their 
 relatively small output. They added that, though the efficiency of the indi- 
 vidual British workman was maintained, his short hours of working and high 
 wages stinted the supply of capital needed to bring the plant of the industry 
 up to its highest possible efBciency. It may be added that British production 
 of finished steel products, including ships, remains high ; and her exports of them 
 remain very high. 
 
 ^ The large matters opened out in this Section and the next are considered 
 here chiefly in relation to Britain's leadership: their broader relations will be 
 studied in the course of Books II and III. 
 
96 BRITAIN'S INDUSTRIAL LEADERSHIP UNDER CHALLENGE 
 
 I, V, 3. of hearty support from those who themselves received no good 
 education. But it does make way in school and in college; for 
 the working classes, and for the well-to-do, and even for the re- 
 latively sluggish lower middle classes. The nation is beginning 
 to recognize that mere accumulation of knowledge stunts rather 
 than educates the mind ; that the mind can be strengthened only 
 by gradually increasing calls on its strength and spontaneity; 
 and that while much general education may be advantageously 
 given to aU youth, there is also a need for specialized education 
 adapted to the needs of agriculture, and every other industry, 
 as well as to the learned professions. This matter is of vital 
 importance : and must detain us a little. 
 
 There is consolation in the reflections that the poverty of 
 England's educational system has been in large measure due to 
 a strange freak of fortune; and that she still holds a leadership, 
 almost unchallenged except by other English speaking countries, 
 in that education of character which is obtained from individual 
 activities, rather than from instruction whether verbal or in priat. 
 The playground had a notable share in the "real" education of 
 her youth : and the paths of the ocean have been the Universities 
 of an exceptional number of her men. During the last two cen- 
 turies, at all events, they have had a more intimate acquaintance 
 at first hand than any other people with the physical conditions 
 and the habits of the populations of the world at large. 
 
 It is to be noted also that the intellectual alertness, which 
 this real education developed, was well adapted to stimulate that 
 sort of invention which was most needed in the second half of 
 the eighteenth century and the first half of the nineteenth. But 
 the present age calls increasingly for a new class of improvements 
 of method, and — in a less degree — for improvements of apph- 
 ances, which cannot be created by a single alert individual. 
 Many of those, by which man's command over nature has been 
 most enlarged during the last few decades, have been the pro- 
 duct of sustained researches by large groups of specially qualified 
 students extending over long periods of time. 
 
 It has already been observed^ that Scotland developed an 
 excellent system of education very early; and that partly in con- 
 sequence, Scotchmen have taken a large share in the expansion 
 ' Above, pp. 53, 54. 
 
EDUCATION BREAKS THROUGH ITS MEDIAEVAL BOUNDS 97 
 
 of the British Empire : thus the weaknesses which have prevented i, v, 3. 
 Britain from taking her proper place in the studies, that lie on 
 the borderland between academic and business work in the 
 present age, belong to England in the narrow sense of the term, 
 more than to Scotland. But subject to this correction it must 
 be confessed that British education has lagged behind that of 
 Germany in some respects by more than a generation^- 
 
 The causes of this hindrance to Britain's industrial leadership 
 seem however to be due to unfortunate accidents in political 
 structure, more than to weakness of national purpose. Popular 
 education, which ought to have been accepted two centuries ago 
 as a chief duty of the State, was regarded in England till recently 
 as an incidental duty of the clergy of the Established Church: 
 for they almost alone were possessed of property that had been 
 set aside for purposes higher than the immediate pursuit of 
 material gain. But a large part of the industrial and trading 
 classes had passed into other religious denominations: some of 
 the country clergy shared the prejudice of neighbouring squires 
 against educating the working classes above the mere necessities 
 of manual work; and in new industrial districts the clergy had 
 no funds available for education. 
 
 A new ferment appeared late in the nineteenth century: and 
 ere long, in spite of opposition from some of those, whose larger 
 
 ' In 1872 a British deputation visited Germany and Switzerland to study 
 their methods of education. The following notes are abstracted from an account 
 of some of their experiences which has recently been given by one of its chief 
 members: — "In Saxony we found a national system of education, conducted 
 in magnificent school buildings, attended by all, with scholarships admitting 
 clever poor boys from elementary to secondary, and thence to technical schools, 
 or to the Polytechnic or University. Attendance was compulsory till the age 
 of 14. In England at that time there was no national system, no compulsion. 
 Many children did not go to school at all: those who did, attended irregularly. 
 The school buildings were meagre and unsuitable: there were no secondary 
 schools for the masses; and therefore no promotions of able students from 
 below. 'The best educated children in English elementary schools were half- 
 timers from the factories, who attended half-time from 8 to 13. In Germany 
 the boys, who left school at 14, were required to attend evening continuation 
 schools; there were also such schools for girls, with apprentice workshop schools, 
 special classes for those engaged in certain trades, and agricultural schools.' All 
 the Universities and Colleges in England together contained less students 
 'taking up research and the higher branches of chemistry' than a single German 
 University (that of Munich) which was visited" (The Real German Rivalry, 
 by Sir Swire Smith, 1916). 
 
98 BRITAIN'S INDUSTRIAI, LEADERSHIP tFNDER CHALLENGE 
 
 I, V, 8. opportunities should have made them the best friends of the 
 education of the people, the State began to take up its neglected 
 duty. For a time nothing more was attempted than a sound, 
 but strictly elementary education, which began rather late and 
 ended very early. But almost every year brought new evidence 
 that a niggardly policy of education was a mistake even from a 
 purely commercial point of view: and now, Britain has gone a 
 long way towards providing the children even of the poorest 
 classes with opportunities for sound general education, and for 
 semi-technical education in continuation schools and otherwise; 
 together with a series of scholarships, or educational ladders, by 
 which an able child, bom even in the lowest ranks, may rise to 
 high work. In the course of a generation the more intelligent 
 artisans and agricultural labourers may be expected to have a 
 better comprehension of the fundamental principles of their 
 work than had been possessed two generations ago by many 
 farmers and manufacturers. 
 
 The education of the well-to-do classes in England had not 
 been as much neglected as that of the working classes. But it 
 was held back by mediaeval shackles. For imtU the middle of 
 last century nearly all the instruction at Oxford and Cambridge 
 was given by men, whose incomes were chiefly derived from 
 College Fellowships. They were compelled to be in Holy Orders; 
 and as they would vacate their Fellowships by marriage, they 
 generally looked forward to spending the second halves of their 
 lives in country rectories, where learning would be of little use 
 and science of no use. Celibacy remained compulsory for some 
 time longer: not till the present century have the majority of 
 the teachers at the chief English Universities regarded the ad- 
 vancement of knowledge as the main business of their lives. 
 Oxford had indeed long ago contrived to use Plato, Aristotle and 
 Thucydides as stalking horses, from behind which to practise 
 demure shooting at problems of the day; and in recent years she 
 has developed considerable scientific schools. The Cambridge 
 school of mathematics has long been unsurpassed in the training 
 of the reasoning faculty, in so far as that can be dissociated from 
 experimental initiative: and her physical and biological labora- 
 tories already supply a considerable number of leaders of the 
 world's studies in their several departments. 
 
EDUCATION BREAKS THROUGH ITS MEDIAEVAL BOUNDS 9 
 
 Meanwhile new Universities liave sprung up in several great I, v, 4. 
 centres, modelled in some respects on that at Manchester, whose 
 chemical laboratory had been brought into the front rank by 
 Roscoe; and all of them give the chief place to chemistry, en- 
 gineering, and other studies, which bear directly on industry. 
 Their influence furthers the growing inclination of manufacturers 
 and other business men to profit by German and American ex- 
 perience; and make large use of scientific knowledge and research 
 in their works. A strong impulse in the same direction is now 
 given by the establishment in 1915 of the Committee of the 
 Privy Coimcil for Scientific and Industrial Research; which, 
 aided by a powerful Advisory Council, with appropriate Com- 
 mittees, is bringing a great part of the best scientific ability of 
 the country to bear on the requirements of business; thereby 
 continuing and enlarging earlier efforts, of which the foundation 
 of the National Physical Laboratory in 1900 may be taken as 
 representative. 
 
 The new demand for the extended study of science, with 
 special reference to the requirements of industry, might have 
 been in danger of laying too much stress on technical details, to 
 the relative neglect of those fundamental discoveries, which are 
 parents of all scientific technique. But the critical position of 
 the country, arising out of the World-war, has caused the most 
 eminent scientific men among others, to put their services with- 
 out stint at the disposal of the Government: and it has also 
 gained the public ear for their counsels. Under their guidance, 
 care is being taken that even technical education shall be so 
 used as to develop the faculties; it is not being directed mainly 
 to loading up the minds of the students with facts, and enabling 
 them to feel at home in the workshop. 
 
 4. National funds are rightly given liberally to the 
 advamcement of knowledge for its own sake. Research for 
 the attainment of particular ends is receiving some support 
 from open associations of producers or traders, specially 
 interested in their attainment. 
 
 It is now generally recognized that national industry requires 
 three distinct classes of laboratories. The first seeks the exten- 
 sion of knowledge at large: the second aims at knowledge in 
 
100 BRITAIN'S INDUSTRIAL LEADERSHIP UNDER CHALLENGE 
 
 I, V, 4. regard to special requirements of a particular branch of industry: 
 the third checks the quality of the output of individual works. 
 
 History shows that almost every scientific discovery, which 
 has ultimately revolutionized methods of industry, has been made 
 in the pursuit of knowledge for its own sake, without direct aim 
 at the attainment of any particular practical advantage: Uni- 
 versities are the proper places for such pursuit of "pure" science, 
 and for the establishment of laboratories, etc., devoted to it. 
 But though the eagerness of an academic student should increase 
 with every prospect of establishing a new truth, independently 
 of any practical gain which it may promise; yet his studies will 
 lose nothing, and the world may gain much, from his keeping in 
 touch with some of those industries, whose methods might be 
 improved by increased knowledge of the properties of the pro- 
 ducts which he is studying. Therefore it is well that laboratories 
 devoted to the advance of pure science should take some accoimt 
 of the work of a second class of laboratories, whose researches 
 are specialized on the attainment of particular practical ends. 
 
 In some cases a single giant business which is pioneering 
 new developments of a subtle industry may reasonably set up a 
 great laboratory for the conception and testing of improvements 
 on current usage : and the influences which such laboratories may 
 exert on industrial structure wiU take prominent places in this 
 and the following two Books, with special reference to German 
 practice. But such a laboratory, if adequate for dealing with 
 any important issue that may arise, is Ukely to be too costly iu 
 original outlay and maintenance for any but very exceptional 
 businesses: and therefore the task is one of those in which the 
 growing tendency to association among businesses in the same 
 branch of industry is to be welcomed. It may be arranged that 
 each member of the association has some duly qualified right to 
 request that a particular investigation should be made in the 
 laboratory: suitable arrangement being made for a special con- 
 tribution in case its expense should be great, as well as for the 
 ownership of patents in exceptional cases. 
 
 Such association, so long as it remains true to its avowed 
 design, is whoUy constructive: and has no kiuship with "com- 
 binations" in the dyslogistic sense of the term; that is, con- 
 spiracies to monopolize a particular branch of industry or trade 
 
VARIETIES OF RESEARCH HELPFUL TO MODERN INDUSTRY 101 
 
 in such ways as would cause the public to pay higher prices than i, v, 4. 
 they would if that branch were open without contest to the 
 enterprise of any new comer. But the experience of the ages 
 shows that associations set up for constructive purposes are in 
 danger of being turned to destructive ends : and therefore it may 
 perhaps be to the public interest that some limited contribution 
 should be made from public funds to the support of such asso- 
 ciations; partly in order to facilitate the intervention of public 
 authority in case an association should develop anti-social ten- 
 dencies. The exigencies of the World-war have enabled many 
 men to break away from old habits, old prejudices against neigh- 
 bours, old delights in the secrecy and autonomous control of 
 their own affairs; and to work with old rivals for the common 
 good of the country: therein lies much public gain. But on the 
 other hand caution is needed lest arrangements should be set up, 
 which depend for their beneficial working on altruistic senti- 
 ments, that may fade when the national emergency has passed. 
 
 Similar remarks apply to the suggestions that a locality, 
 which is the chief seat of any branch of industry, may properly 
 subsidize an appropriate technical laboratory; with a general 
 understanding that its own rate-payers should have priority 
 in all claims on its services. Public opinion seems to have re- 
 ceived a strong and wholesome stimulus in this direction from 
 the fuU recognition of the fact that many things, which Britain 
 used to buy from Germany, were the products of more extended 
 technical research than could easily be brought to bear by 
 herself. 
 
 Technical research laboratories, while in touch with the chief 
 scientific laboratories on the one hand, could on the other lend 
 help to a third class of laboratories which have long been found 
 necessary in the steel and many other industries, whose chief 
 work is mechanical rather than chemical. Such a laboratory 
 does not, as a rule, do any considerable research work: but it 
 enables the business, to which it is attached, to make sure that 
 each of its products from day to day, or even from hour to hour, 
 is chemically or mechanically true to its proper standard^. 
 
 ' Authoritative studies of this matter by specialized experts may be 
 tound m Science and the Nation, by Cambridge graduates, 1917; and in The 
 British coal-tar industry, its origin, development and decline, edited by Prof. 
 
02 BRITAIN'S INDUSTRIAL LEADERSHIP UNDER CHALLENGE 
 
 I, V, 4. Every industrial country obtains some information bearing 
 
 on industry and trade from its Ambassadors and Consuls. But, 
 with a few brilliant exceptions British Consuls seem to have 
 lagged far behind those of America and Germany in such matters. 
 Great improvements in this direction are contemplated: but the 
 Consular service is not likely to be able to meet all the wishes 
 of producers and traders as to the requirements of each country 
 for particular manufactures, and as to her sources of supply of 
 special materials needed in manufacture. For large questions 
 arise when access is opened out to materials that require treat- 
 ment somewhat different from those already in use: and a firm, 
 which makes a thorough study of such a problem, is likely to 
 confer at least as great aggregate benefits on other firms as on 
 itself: but, as the cost will be heavy, few will venture on it, un- 
 less those will share in the cost, who are likely to share in the 
 reward. The Eesearch Committee of the Privy Council finds an 
 appropriate field in promoting such associations. 
 
 Private associations for obtaining facts as to the solvency, 
 etc., of customers in foreign countries have long done good work. 
 This is a delicate matter on which the best opinions seem to 
 differ; but it is probable that, with larger experience, an ex- 
 tension of this plan may enable British firms to sell with ad- 
 vantage more extensively in countries in which purchasers 
 require long credit on small tangible security. This class of 
 trade is chiefly in the hands of Germans, especially in South 
 America, and other countries in which the English language 
 does not carry far: and there seems to be some justification for 
 
 W. M. Gaidiner, 1916. These works record numerous cases in which members 
 of the small band of British scientific men have made revolutionary discoveries 
 in science; but yet the chief fruits of their work have been reaped by businesses 
 in Germany and other countries, where industry and science have been in close 
 touch with one another. Sometimes a British inventor has set up a manu- 
 facture on his own lines, with the best results; but after his death the business 
 has fallen into the hands of men with merely administrative and commercial 
 instincts; and it has then been left behind by foreign rivals, who have con- 
 tinued to work on the lines of the original inventor with patience and system, 
 though not always with much creative genius. An excellent compressed ac- 
 count of the new movement has been begun in the two first Reports (1916 
 and 1917) of the Committee of the Privy Council for Scientific and Industrial 
 research [Cd 8336, 8718]: and their continuation is likely to constitute a good 
 history of Britain's awakening from her too easy contentment with the equip- 
 ment that sufficed for the middle of last century. 
 
VARIETIES OF RESEARCH HELPFUL TO MODERN INDUSTRY 103 
 
 the claim by Germans that their methods of financing business i, v, 4. 
 meet some requirements of the new age, to which the methods 
 of "conservative" British houses are not altogether appropriate. 
 But more of this hereafter. 
 
 The maxim "know thyself" applies to nations as to indi- 
 viduals. Old and young are alike inclined to think more of 
 their own strengths than of their weaknesses : and it is specially 
 incumbent on Britain to strive against that stiffness of the joints 
 that is almost inevitable in each old industry, and in the general 
 relations of industries and trades in each old country. Above all 
 is an old business in an old coimtry in danger of underrating the 
 advantages of that which is new. Much that passes for heavy 
 conservatism is one of those faults of judgment, from which 
 neither young nor old are free: but such errors are probably 
 more injurious to an old country or industry than to one that is 
 relatively young and therefore alert. 
 
 Britain has perhaps suffered as much from the conservatism 
 of her working men as from that of her business men. It seems 
 that where no restrictive traditions interfere, the British skilled 
 artisan gives generally as much good work for a given pay as 
 any other. But often operations, which had been difficult and 
 therefore highly paid, are made easy by improvements in 
 machinery or technique: and then obstacles are apt to be put 
 by the artisans in the industry in the way of their being per- 
 formed cheaply in an old country. Meanwhile they are relegated 
 to unskilled men, women and boys in countries whose industries 
 have not developed firm traditions: this is a matter of great 
 importance to Britain; but it belongs to the second Volume of 
 this work. 
 
 Again, the charge of excessive conservatism is sometimes 
 brought against British banks. No one disputes their unrivalled 
 efficiency in the rather narrow range of tasks which they under- 
 take: but there is a growing feeling that, especially in regard 
 to new ventures abroad, rather more elastic financial enterprise 
 is required than that of the British banking system; even when 
 the great "accepting houses" are reckoned in^. 
 
 ' See below, pp. 341 — 349. A German writer claims that Germans lead in 
 every part of the London market, and especially in the great Accepting Houses 
 through whose hands much of the national capital passes But the instances 
 
104 BRITAIN'S INDUSTRIAL LEADERSHIP UNDER CHALLENGE 
 
 I, V, 5. 5. Britain's industrial leadership is in process of being 
 
 fulfilled and merged in that of the British Federation of 
 Nations ; the younger members of which are learning much 
 from the present leadership of her first great Colony. 
 
 Britain surprised tlie rest of the world, if not herself, by the 
 energy which she has shown in the World- war: and the English- 
 speaking peoples of four continents have proved themselves to 
 be united in spirit and in truth. This chapter may therefore 
 appropriately end with a claim that Britain's industrial leader- 
 ship is to be measured by the achievements of Britons in their 
 new homes as well as in their old: it is but carrying into 
 larger afiairs the familiar truth that parents, who have brought 
 up a goodly array of noble and vigorous children, have done 
 more for the world than is shown by their own achievement, 
 somewhat narrowed as this may have been by their responsi- 
 bilities. 
 
 It was observed long ago that a colony often outstripped her 
 mother-state. For emigrants are on the average bolder, sturdier, 
 and more fertile of initiative than those who stay at home; and 
 their departure leaves the old country poorer in human resources 
 than she would otherwise have been. They may take but little 
 of her capital with them : but much of her capital follows them. 
 Her own people are wealthier individually than they would have 
 been without opportunities of investing their means in the de- 
 velopment of rich natural resources in the care of their trusted 
 relations: but she herself is poorer, and is to some extent less 
 able to maintain her leadership, than she would have been if her 
 territory had been large and rich enough to enable all her labour 
 
 quoted by him include, as might be expected, names of Jews, long domiciled 
 in this country. The splendid faculties of that race for such work have brought 
 them to the front here, and to an even greater extent in Eastern and Central 
 Europe : and the writer believes that he has found that " though English manu- 
 facturers of textile machines supplied practically the whole world,... those who 
 obtained orders for the manufactures of Manchester, Oldham, or Aoorington, 
 from Spain, South America, and even France, were commission firms founded 
 by Germans. The Englishman refused to make quotations otherwise than in 
 yards and shillings, and to sell them otherwise than for cash payment." See 
 pp. 24, 25 of an English translation (published under the title England's Financial 
 supremacy) of some recent articles in the Frankfurter Zeitung, under the head- 
 ing, "English preponderance in finance (Finanzvormacht): England's mistaken 
 calculation: Germany and the inheritance of the City." 
 
LEADERSHIP OP THE BRITISH FEDERATION OP NATIONS 105 
 
 and capital to be applied witMa her own limits, without forcing i, v, 5. 
 reluctant nature to yield large returns from a limited area of 
 agricultural land and mineral strata. No doubt improvements 
 in transport by land and sea enable her to obtain food and 
 minerals from ber Dominions and elsewhere at relatively low 
 cost, so long as the paths of the ocean are relatively secure 
 under the protection of a strong fleet. No foresight of the 
 dangers to be developed by submarine warfare could have pre- 
 vented the restraint which it threatens to the easy development 
 of Britain's economic life, and industrial leadership. But the 
 prosperity of her daughters beyond the seas; and the generous 
 and wise assistance, which they have given her when under 
 assault, are indications of rare quahties, which have been at the 
 root of her industrial leadership. 
 
 Her daughters will probably be recognized in their turn as 
 industrial leaders in various directions. But the time for that 
 has not yet come: for a yoimg country must win elementary 
 victories over nature. Her free capital is seldom equal to the 
 urgent demands for it, which are made by the industries of agri- 
 culture and transport: and therefore, vigorous as her people may 
 be individually, she has little opportunity for pioneering the 
 more complex methods of industry in advance of older countries, 
 which have abuadant capital and energy free for such work. 
 
 The British Confederation of Nations, to use a fine term 
 suggested by General Smuts, was struck almost to the death by 
 a crude blunder of dull, though well meaning men, out of touch 
 with the spirits of Uberty and progress, who drove away Britain's 
 first great colony. She has become a chief leader for all the 
 world; and the supreme leader for those peoples, who are bring- 
 ing spacious territories under control. England herself has only 
 one acre to each inhabitant, the United Kingdom has only two. 
 But the United States even now has thirty: the Canadian 
 Dominion has three hundred, and Australia has six hundred. 
 Therefore it is natural and right that they should look to the 
 past development and the present experience of their eldest 
 sister for guidance as to their own development: by such means 
 may the Industrial Leadership of Britain attain its broadest and 
 fullest development^. 
 
 ' A little more is said on the matter below, I, vin, 6. 
 
 4—5 
 
106 BRITAIN'S INDUSTRIAL LEADERSHIP UNDER CHALLENGE 
 
 I, V, 6. To conclude, we have seen that leadership in industry and 
 
 trade has been obtained in the past by cities or by nations, which 
 have thrown energy into the use of their own "native com- 
 modities," to use Petty's phrase; and that victories in the home 
 market have prepared the way for victories in foreign markets. 
 We have seen that England's leadership was cast in a larger 
 mould than any which went before it: partly because her 
 resources were greater than those of any of her predecessors in 
 leadership; and partly because, when her time came, the sphere 
 of trade had been enlarged by opening up of new continents 
 and improved means of communication: but mainly because she 
 yoked the forces of nature in her service in production on so 
 large a scale and by such powerful methods that her people 
 could with relatively small efforts to themselves produce large 
 quantities of things that were in general demand abroad. By 
 applying the law of Increasing Return to production on a large 
 scale she made the whole world tributary to her wants, so that 
 the EhgUsh artisan could in many respects fare as sumptuously 
 as the well-to-do classes in some parts even of Western Europe. 
 As has already been suggested, France affords the chief 
 instance of a leadership based mainly on individual skill; and 
 Germany of a leadership based mainly on trained ability and 
 high organization. But the dominant instance of the economies 
 of massive production is afforded by the United States; though 
 the lessons to be learnt from her are obscured by the fact that 
 the richness and variety of her natural resources render her 
 almost independent of many of those benefits of foreign trade, 
 which are essential to Western Europe. A chief question towards 
 which we have to work our way is this: Will the new "giant" 
 production exercise as far-reaching an influence over the social 
 and industrial structure of each several country and of the 
 world as a whole, as was exercised by large production in the 
 middle of the nineteenth centxiry? 
 
CHAPTER VI 
 
 THE INDUSTRIAL LEADERSHIP OF FRANCE. 
 INDIVIDUALITY AND REFINEMENT IN PRODUCTION 
 
 1. The physleal featv/res of France have not favoured i, vi, i- 
 industrial concentration. 
 
 The economic development of France has been more con- 
 tinuous than that of any other great country except England: 
 and yet it has diverged from that of England more widely than 
 has that of any other, which bears equally high marks of con- 
 structive genius. And further, her industrial qualities are repre- 
 sentative of those of Western Europe generally in a fuller degree 
 than are those of any other country. 
 
 There was a time indeed, at which the ascendancy among 
 Latin nations belonged clearly to Italy: and, though crippled 
 during centuries of internal conflict and of oppression by external 
 force, she is throwing out flashes of genius, so reminiscent of 
 the two ages in which she was the centre of the world, that 
 she may ere long be again a chief leader: but the time is not 
 yet. Spain contested for a while the leadership of the Latin 
 nations on at least equal terms with France: but her best 
 industrial qualities were largely due to Saracenic blood; and 
 the Inquisition purged her of individual originality so thoroughly, 
 that her later economic history is almost devoid of interest. 
 Portugal's genius for exploration was brilliant; but passed 
 quickly. Belgium contains many cities, which have made their 
 mark in economic history; and there was (before the World- 
 war) no country of equal size that could compete with her output 
 of agricultural, mineral, and manufactured products. But she 
 has been the battlefield of Europe; and foreign rule has left its 
 marks on her. 
 
108 LEADERSHIP OF FRANCE IN FINE DELICATE WORK 
 
 I, Ti, 1. France is in close touch with all these countries: she has 
 
 given to them and received much from them; as well as 
 from her eastern neighbours, Germany and Switzerland. She 
 is thus in a sense the epitome of aU Western Europe. But 
 on the other hand, she affords the most important instance 
 of a great industrial country, whose people are not inclined 
 to the methods of massive production; and whose chief 
 strength lies in the fine results, which they attain with 
 comparatively little aid from those methods. This is a reason 
 for making some study of her leadership before passing to 
 those of Germany and the United States of America; for 
 their chief industrial achievements have been the develop- 
 ment of those methods, in various directions beyond the 
 lines to which England herself has brought them. Among 
 the influences, which have contributed to the special features 
 of French industry, three groups appear to be prominent — 
 geographical, racial and political. The geographical group has 
 of course largely shaped the racial; and both have affected the 
 political. 
 
 The soil of France has been the meeting place of the best 
 energy of the North with the best culture of the South. But 
 during the Middle Ages there was no political unity; and the 
 various parts of what are now France were continually at war 
 with one another. Industry made progress in some of the towns: 
 but few of them rivalled those of Italy in population and wealth. 
 And her industrial forces lacked concentration. The in- 
 fluences of Italian and Spanish culture, which were working 
 northwards in the South of France, had a long way to go before 
 they met those coming southwards from the Low Countries. 
 The Seine, the Loire, the Garonne serve for internal commimica- 
 tion on a small scale; and nearly all of the chief centres of French 
 industry have clustered along their banks and those of the Rhone; 
 or else at her relatively few sea-ports, or near her frontiers. The 
 industries of the North, the South, and the East have never been 
 intimate with one another^. 
 
 * The only French port which has ever attained quite the first rank in 
 world commerce is Marseilles: and that indeed was a considerable centre of 
 trade for an exceptionally long time. It is a good haven, with fair access to other 
 trading ports, and with a great river near at hand. But the mountain barrier, 
 
PHYSICAL FEATURES HOSTILE TO INDUSTRIAL CONCENTRATION 10 
 
 France had excellent main roads very early. And long i, ti, i, 
 before England had any canals, the engineering genius, which 
 distinguishes the French, had provided a splendid system of 
 them. In the eighteenth century the good roads and the canals 
 of England had passed those of France in number and in adapta- 
 tion to the needs of business. But France set herself to bring 
 both up to a high standard: and in consequence of England's 
 neglect of her canals those of France soon passed far ahead. 
 Their chief work is, however, limited to the great plain between 
 Paris and the Northern coalfields^. 
 
 The geographical distribution of the industrial districts of 
 France has retained its general character with comparatively 
 little change to the present time. Railways have indeed spread 
 over her whole surface. But Paris dominated France; and 
 the railway coiApanies trusted to Government aid more than to 
 local initiative. So the country divided out into a number of 
 basins, each with its apex at Paris and extending to the 
 frontier, and each with its own railway system: so there is 
 very little easy communication between the industrial districts, 
 save through Paris; and in all France there is no dense industrial 
 district nearly as large as can be found in England, Germany, 
 or even Belgium^. 
 
 through which the Rhone outs its way, is so near to the sea, that its delta is too 
 shifting, its mouth is too shallow, and its main course is too rapid for easy 
 navigation. Had the Rhone been gentler, France might have been reckoned 
 with the Southern rather than the Northern countries of Europe. 
 
 1 Wood was the predecessor of coal as the chief freight on French canals. 
 See Dupin, Forces productive^ et commerciales de la France, 1827, Livre vn. His 
 study of English roads and canals had been translated into English in 1825 and 
 exercised much influence in England. Foville {La France &onomique, p. 94), 
 as evidence of the low viability of France before the days of railways, states that 
 in 1817 wheat sold for 37 fr. the hectolitre in the Cotes du Nord, and for 80 fr. 
 at Colmar; and even in 1847 for 29 fr. in I'Aude, and for 49 fr. in le Bas Rhin. 
 And yet the main roads were so good that the journey from Marseilles to Paris 
 could, Lardner tells us (Railway Economy, p. 28), be effected by road in sixty 
 hours. A map, showing on an excellent plan the volume of the traffic on the 
 various French waterways, is reproduced in Colson'a Transports et Tarifs, and 
 in an English Report [Cd 1636—7]. 
 
 ' See the maps in Levasseur, Population Franfaise, vol. l; and Dieroke's 
 Schul-Atlas fur hohere Lehranstalten, a most handy book for the student of 
 economics. The great mining and industrial district in the North of France 
 adjoins the stiU larger Belgian district. The department of Meurthe et Moselle 
 is exceptionally prosperous; but its chief trade is with its old comrades which 
 have been under German rule since 1870. (See Blondel, La France et le marchi 
 
110 LEADERSHIP OF FRANCE IN FINE DELICATE WORK 
 
 i,Ti,2. 2. The political conditions of the seventeenth and 
 eighteenth centuries swppressed the middle class; so that 
 French industry was mainly given to cheap local products, 
 on the one hand; and, on the other, to fine goods, embodying 
 some artistic feeling and individual judgment. 
 
 The obstacles, which geographical and racial causes thus 
 opposed to the growth of concentrated massive production, 
 might have been overborne without much difficulty, if France 
 had . contained a strong middle class, and large well-to-do 
 working population such as existed in England: but in this 
 matter the course of her political evolution had been exception- 
 ally unfortimate. 
 
 The internal wars, which had desolated France, died out 
 slowly during the sixteenth century: and in the seventeenth the 
 royal power was consolidated by Richelieu and Mazarin. When 
 Louis XIV took the reins into his own hands in 1661 France 
 was prosperous and rich. He strove to make her also glorious 
 and orthodox: but his wars impoverished her; his taxes were 
 fatal to the growth of capital; and, by revoking the Edict of 
 Nantes, he presented to the rivals of France a bounteous gift of 
 an industrial population sufficient to have created a wealthy 
 Kingdom. In fine, the last of the able Kings of France left 
 her partially exhausted^. 
 
 As the eighteenth century drew on, the extravagance of the 
 French Court, and the selfish use which the privileged classes 
 made of their power, pressed heavily on the people. The taxes 
 were paid chiefly by the working classes, who stinted themselves 
 perforce with a wasteful economy. The luxury of the rich and 
 the poverty of the poor combined to make France a bad market 
 for substantial simple goods, which were not choice enough for 
 
 du monde, p. 99.) The geographical distribution of industries in 1789 is set out 
 by Levasseur (H\sU>ire...avant 1789, Book vn. ch. vi). The development of the 
 vast water power of the Jura, the Alps, and the Pyrenees, may possibly create 
 a new centrifugal force. If the mountains of central France had been rich in 
 water power they might have ultimately linked together the scattered industries : 
 but they are very dry. 
 
 ' See some statistics in the account given by Levasseur of "the decadence 
 of France during the wars of religion" (Histoire dea classes ouvrierea avant 1789, 
 vol. n. pp. 55 — 56) ; following on a description of her vigour during the Renais- 
 sance. 
 
WEALTH DNEVENLY DISTRIBUTED BEFORE 1800 111 
 
 the rich, nor cheap enough for the common people. But all i, vi, a. 
 the more did the market which she offered for high-class tasteful 
 goods excel all others in richness and discernment. More and 
 more did her best artisans specialize themselves on work that 
 called for individual taste and thought as regards form, arrange- 
 ment and colour: meanwhile English artisans were specializing 
 themselves rather on work that required strength, resolution, 
 judgment, persistence, power to obey and to command, and 
 withal an abundant use of capital. France produced more and 
 more delicate textile and metallic work made by individual care 
 to catch individual choice. England (while attaining brilliant 
 success in some decorative industries and especially in furniture) 
 produced more and more of the implements and the solid com- 
 forts, which are needed by a strong well-to-do people, and which 
 make them stronger and more well-to-do. 
 
 So far stress has been laid on the influences which demand 
 exercised on supply. Rich and discriminating purchasers evoked 
 the fine and delicate sensitiveness, and the best power of in- 
 dividual initiative from artisans, shopkeepers and merchants: 
 while the absence of a strong middle class and the poverty of 
 the working classes, except in Paris and a few other places, 
 prevented the growth of large and profitable businesses, engaged 
 in producing and marketing common goods by highly organized 
 methods in specialized centres of industry. 
 
 This is, however, only one side of the case. The other, which 
 redounds wholly to the credit of France, is that her people 
 like most of her neighbours, but perhaps more than any others, 
 except the Italians, from whom they learnt much, early loved 
 every form of Art. They held artists in high esteem; gloried 
 in architecture, the mother of the arts; and gently persuaded 
 artistic ideas to filter down, through those industries in which 
 a dehcate taste is generally required, to those which cater for 
 more common wants^. 
 
 ' Thia tendency has been brought into prominence by Levagseur's histories. 
 He generally places "Industry" between "Arts" and "Commerce": and, a 
 long series of chapters stretching from the Middle Ages to the Second Republic, 
 begins by considering the predominant influences, home and foreign, which 
 were at work in the fine arts, with architecture at their head. Through those 
 "producers" who earned their living by sculpture, painting and engraving, he 
 proceeds to the artistic side of high-class furniture, jewellery and enamelling; 
 
112 LEADERSHIP OF FRANCE IN FINE DELICATE WORK 
 
 I, VI, 2. In short, the more the people of France were oppressed by 
 
 evil courses which were heading for the Revolution, the more 
 brilliant was her success in many branches of decorative work. 
 But a deep-set national contrast is illustrated by the fact, that 
 in the eighteenth as well as the nineteenth century Paris was 
 surpassed by London in designing masculine costume; which 
 is required to subordinate itself to the free movements of its 
 wearer, and to combine something of grace with solid strength 
 and durability: while French products held the lead in regard to 
 feminine costume^ - 
 
 Thus France afiords yet another illustration of Petty's great 
 rule that the commodities, in the manufacture and export 
 of which a nation has flourished, have been generally of native 
 materiaP- But they have also been chiefly of such a fashion 
 as to meet a distinctive home demand; thus obtaining the 
 advantages of organized division of skilled labour for the home 
 market before they venture out far into foreign markets : and the 
 fact that the home market of France was highly specialized on 
 fine products, gave her an advantage in making them for export; 
 much of which remained with her after an end had been put 
 by the Revolution to that imeven distribution of wealth in 
 which it took rise. Thus the special features of French industry 
 seem to be attributable mainly to political, military and social 
 * causes, and perhaps to some subtle racial influences, which lie 
 outside our present view. 
 
 Lord Lauderdale writing in 1806 dwelt on this aspect of 
 French export trade: and held that its basis in mere division 
 
 passing thence to "industry,'' in which a. modicum of artistic instinct sup- 
 plements a large amount of common labour in its application to metal, textiles, 
 etc. In the later periods of French history, science is found associated with art 
 in relation to industry. 
 
 Perhaps it is not an accident that the chief centre of artistic industry in 
 France was on the main route from the Mediterranean to Paris. Silk, its 
 material, belongs to the climates of Italy and the South of France: it was the 
 favourite material of Italy; and it lends itself more than any other textile to 
 fine artistic effects. 
 
 ' It may be noted that in 1785 a tide of fashion for English goods of various 
 kinds swept over France: but was repressed by strong decree (althovigh Free 
 trade was just then in favour with the French Court) on the ground that England 
 would not reciprocate (Macpherson's Annals, vol. iv. p 82). 
 
 2 See above, p. 33. 
 
WEALTH UNEVENLY DISTRIBUTED BEFORE 1800 113 
 
 of labour was less firm than that of England, which was "derived i, vi, 3. 
 from dexterity in supplanting and performing labour by capital" : 
 or, to use another phrase which he quotes from a French docu- 
 ment of 1785, from "the use of machinery in every operation in 
 which it can be employed^." 
 
 3. The Revolution removed many obstacles to massive 
 production. But the equal division of property made for 
 industrial quietism; and in spite of the exceptional brilliancy 
 of her engineers, France owes relatively little to the aid of 
 mechanical power in manufacture. 
 
 One of Colbert's chief ambitions was to endow his favourite 
 manufactures with the strength that may be derived from 
 capitalistic production on a large scale. Accordingly he set up, 
 directly or indirectly, many considerable factories, which had 
 some sort of royal privilege, and which were called "Royal." 
 The Gobelins and a few others belonged to the King and were 
 managed on his account: the majority had merely a more or 
 less extensive monopoly granted to them; supplemented often 
 by some grant of money, or at least some exemption from taxa- 
 tion. But the seed was sown in uncongenial soil. Royal protec- 
 tion barely defended them against the hostility of the Metiers, or 
 brotherhoods of the masters of crafts. A new era began with 
 the Revolution, though it inherited very much from the old^. 
 
 ^ Basing himself on the same document, he shows that the finer qualities of 
 woollen, silk, linen, and glass-ware were better and cheaper in France than in 
 England; whUe the coarser kinds were better and cheaper in England. France 
 excelled in china, England in earthenware; France in gold and silver work, 
 England in hardware. Similar contrasts had been made earlier. Thus Britannia 
 Languens, 1680, lamenting that "the English have never attained to near so 
 universal a manufacture as the French," is full of comparisons of the flimsy, 
 but tasteful French goods, with the strong, serviceable English: and so are 
 the Dialogue between Content and Complaint, 1677; and Fortrey's England's 
 Interest and Improvement, 1673. Defoe says that "As the Englishman gives 
 more strength of sinews to his strokes in the loom, his work is firmer and faster 
 and carries a greater substance with it" than foreign goods do. 
 
 In Marlborough's wars the French armies dispensed with English woollens, 
 and so they went in rags {Atlas Maritimus, a.d. 1728, p. 109). Napoleon there- 
 fore connived at the clothing of his soldiers in English stuffs, even while strain- 
 ing every nerve to exclude English goods in general from the Continent. 
 
 ' These observations may be taken in conjunction with the general discussion 
 of Colbert's economic policy in Appendix D, 6. A study of the struggles of "la 
 grande Industrie" will be found in Levasseur's Histoirc.avant 1789, especially 
 Book VI. oh. m. See also pp. 762 — 7; and 952—4. 
 
114 LEADERSHIP OP PBANCE IN FINE DELICATE WORK 
 
 I, VI, 3. The troublous period 1793 — 1815 saw France deprived of 
 
 many of the bravest, strongest, and best of her sons. But those, 
 who remained, derived a new spirit from that partial freedom 
 which they had won; and, the Taille being removed, even the 
 poorer peasants were no longer pressed down by extreme want. 
 So fresh energies were given to the arts of peace. But those 
 arts were cultivated in the main on old lines. There was still a 
 lack of the capital required for the general adoption of English 
 machinery; and the people were still, for good and evU, some- 
 what disinclined towards English conditions of work. 
 
 The restrictive regulations of the State and of the Metiers 
 before the Revolution had checked the spirit of enterprise: and 
 the universal application throughout France of the law of equal 
 inheritance (which had been only local before) is said to have 
 materially lessened the inclination of a manufacturer to get 
 together an expensive plant; since it was almost sure to be 
 broken up at his death^. 
 
 Again, this law of equal inheritance increased the number of 
 artisans whose minds were partly given to their little plots of 
 land; and who, while willing to work at convenient times for 
 low pay in or near their own homes, were not willing to abandon 
 their land except for very high wages. These causes strengthened 
 the individuality of the French work. 
 
 There is a sense in which solidarity is characteristic of the 
 French temper. It is an integral part of French idealism. It 
 dominates those great waves of sentiment which from time to 
 time sweep over the nation. It gives an intense fervour to 
 their patriotism. It promotes, and is promoted by, their ten- 
 dency to lean upon the Government for aid in difficulty; and to 
 approve an amount of regulation and authoritative interference 
 in their affairs which would be burdensome to Enghshmen. 
 Pushed to extremes it becomes hostile to independence and self- 
 reliance^. 
 
 ' See Poinsard, Libre-Mange el protection, pp. 479 — 485, 489 — 490, and 522 — 
 623. The gradual growth of joint stock companies for manufacture slightly 
 diminishes the force of these considerations, since shares in a company could 
 be divided without disturbing the business. 
 
 ^ Compare M. Demolins' discussion of the different conceptions of solidarity 
 held by the Frenchman and the Anglo-saxon, A guoi tient la aupiriorili dea 
 Anglo-Saxons, m. 4. 
 
INDIVIDUALIT? VERSUS MASSIVENESS OF PRODUCTION 115 
 
 But on the other hand the great economic solidarity of the I, vi, 3. 
 French family, especially in the country and small towns, fosters 
 a certain aloofness, a certain disinclination to the organization 
 of self-help, as well as to the steady and unyielding routine of 
 the factory. M. Blondel says: — "It is because the spirit of 
 association has remained very superficial with us, that people 
 have been able to say with good reason that, what we want to 
 learn is not so much how to produce, as how to combine the 
 elements that constitute an industrial operation, and how to 
 turn our own inventions to account and derive benefit from 
 themi." 
 
 In all this time France was held back by the scarcity of her 
 capital; by some lack of initiative among her business men, as 
 distinguished from her professional classes; and not least by 
 the meagre food of her working classes. For machinery had 
 already increased greatly the volume and weight of the work, 
 for which each operative was responsible: but had not attained 
 to anything like its present facility in taking the main brunt of 
 all heavy work on its own shoulders*. 
 
 Here seems to lie the chief explanation of the fact that even 
 when English methods of massive production were introduced 
 into France, they seldom attracted the best workers. Cotton 
 factories grew up under the shelter of Protection: but their work 
 went heavily, and they did Uttle credit to French energy. To 
 the same cause it was due that England was able to export 
 considerable quantities of plain silk stuffs to neutral markets in 
 the face of French competition, and a little even to France 
 herself. 
 
 ' La France et le marchi du monde, p. 109. The considerable success of the 
 cooperative movement in France may be quoted on the other side. But its 
 most brilliant example at Guise has been marked by the dominance of an 
 individual will. 
 
 ' Arthur Young [Travels in France, 1787 — 9) tells of the great state which 
 could be kept up in France on a moderate income, partly because servants were 
 contented with low wages and cheap food. It is well known that when Thomas 
 Brassey was building railways in France, the native navvies could do but little 
 work in comparison with the English standard, until he had got them on to 
 English diet: after which they did not lag very much behind. But, aa might 
 have been expected, a similar experiment in regard to French textile operatives 
 did not yield equally good results [Report of Committee on Factories, 1832, Q. 
 6441). Much information on wages and food in France and elsewhere is to be 
 found in Symons' Arts and Artisans at home and abroad, 1839. 
 
116 LEADERSHIP OP PEANCE IN FINE DELICATE WORK 
 
 I, yi, 3. The finer silk manufactures called out all the best French 
 
 qualities. The French climate favoured the production of raw 
 silk and its manufacture. And, what was much more important, 
 the French understood the importance of taste, variety and 
 novelty in design, which the English did not. They had schools 
 for designers; they granted copyright to new designs. In France 
 a single manufacturer would have several designers at work on 
 his premises, while in England a single designer would work for 
 several manufacturers. And in the more delicate and intricate 
 patterns, the economy of machine power counted for little: a 
 rather proud retiring worker in his own cottage would do the 
 best work, caring for the design and sometimes improving on it^. 
 
 This organized team work in design anticipated organized 
 team work in the technical applications of science. As far back 
 as 1833 French manufacturers had anticipated the modem prac- 
 tice of Germany and other countries in applying chemical skill 
 to " beautiful improvements in calico printing. . . . There is not 
 a printing ground there without its laboratory, or without its 
 working chemist, whose business it is to carry on experiments 
 with a view to improve the processes*." 
 
 The case was similar as to machinery. A few men of excep- 
 tional ability and aptitude organized excellent machine factories, 
 the products of which were unsurpassed. But in general French 
 machine factories were behind those of Belgium, and not in 
 advance of those of Switzerland*. 
 
 • There is much evidence on this subject in the Report on Import Duties, 1840, 
 and Leaf (Q. 3260) gives as one reason for the superior taste of the French 
 artisans, that "provisions being cheaper, they are not compelled to work such 
 long hours for their maintenance, and they are able to take more pleasure, and 
 to cultivate taste more than the workpeople do here." 
 
 The Select Committee on Arts and their connection with Manufactures 
 1835 — 6 also were much occupied with the influence of foreign importations in 
 rousing the British manufacturer to a sense of his deficiencies in design and 
 in technique : when the excellence is in quality, and not in cheapness, the 
 "foreign goods are found to be French in nearly all cases." The present writer 
 has seen a man weaving, in a cottage not far from Lyons, a fabric which was 
 to be sold for 130 francs a metre: he scorned power looms, partly because a 
 single spot of grease would cost more than a week's earnings. 
 
 ^ Evidence of a Lancashire cotton printer before the Committee on Manu- 
 factures, etc., 1833, Q. 3577—3587. 
 
 ' See the evidence of the famous Maudslay and of Galloway before the 
 Committee on the Export of Tools and Machinery of 1825 : also that of Withers, 
 
INDIVIDUALITY VERSUS MASSIVENESS OF PRODUCTION 117 
 
 In the latter half of the nineteenth century the increase of i, ti, 3. 
 wealth in France became very rapid, in spite of her great 
 military expenditure in peace and in war. For the Frenchman . 
 works well, though he is averse to being driven; and though 
 fond of amusements, especially in the towns, he takes them in 
 inexpensive ways. His income is generally smaller than that of 
 the Englishman; but his wife is an economical manager, and 
 turns inexpensive food to good account. So expenditure is 
 generally kept down below income; and France is in the first 
 rank of capitalist countries^. 
 
 It is however a noteworthy, and not altogether healthy 
 sign, that she appears to devote no very large share of her 
 wealth to new industrial and commercial enterprises at home 
 or abroad. The growth of her factories hardly keeps pace with 
 that in several neighbouring countries. And her very large 
 holdings of foreign securities are said to consist mainly of 
 Government bonds, with a relatively small addition in the shares 
 of industrial undertakings: in so far as this is true, its cause 
 may perhaps be sought partly in the fact that her people do 
 not travel much. And yet Frenchmen are specially fitted for 
 certain large enterprises by their talent for engineering. From 
 early times French cathedrals and fortifications, French roads 
 and canals have borne evidence to high creative faculty. Since 
 the Eevolution the engineering profession has been held in 
 special honour in France: there is perhaps no other country in 
 which the ablest lads are so generally inclined towards it. The 
 excellent technique of her railways testifies to a high level of 
 engineering ability; and the success of the Suez Canal and 
 other great undertakings indicates largeness of conception on 
 the part of her leading men. 
 
 an English engineer established in Belgium, before the Corresponding Committee 
 of 1841. 
 
 ' It is said that, where there are only one or two children, French parents are 
 apt to work less and to save less than where there are many children for whom 
 portions have to be provided. In so far as this is true, we may not count as 
 a cause of the high average wealth of the French the fact that they have spent 
 less on rearing their families than more proUfio races. But of course the aggre- 
 gate wealth of France, and her importanee in the world would have been much 
 greater if they had been more prolific. On the general subject of the influence 
 of a low birth-rate on the growth of wealth see Levasseur, Population Franfaiae, 
 vol. in; and Leroy Beaulieu, iSconomie Politique, Part vn. ch. n. 
 
118 LEADERSHIP OF FRANCE IN FINE DELICATE WORK 
 
 I, VI, 4. Anotlier side of the same faculties is shown in such manu- 
 
 factures as those of the bicycle, motor car, submarine, and 
 aeroplane; where French inventors have led, and a few French 
 operative mechanics displayed a skill, a judgment and a resource 
 which are nowhere surpassed. As these new delicate industries 
 have reached the stage of massive production, the faculty of 
 disciplined steadfast work becomes more important: the motor 
 car, the submarine and the aeroplane tend to find their chief 
 homes in other countries, as the bicycle did long ago. But there 
 is no sign that her engineers will cease to devise, or that her 
 small but noble army of first-class mechanics will cease to execute, 
 new constructions in the van of progress. 
 
 4. Individuality in production contends under ever 
 increasing difficulties against the forces of massive organiza- 
 tion. Illustration from industries connected loith fashion. 
 
 This same tendency is shown even more conspicuously in 
 those industries in which the leadership of France has been 
 long established. The individuality of her designers and her 
 best operatives still shows itseK most fully in that mastery of 
 form and colour which calls into being an endless variety of 
 products, each of which is individual in character and each of 
 which is a harmonious whole. Thus new Parisian goods are 
 sold at very high prices to the richest customers in all countries. 
 In the next stage copies of them, made chiefly by local hand 
 labour, are sold at rather high prices to the moderately rich. 
 The last stage is the adoption of the new fashion for general use: 
 and, for that purpose, people in commercial countries, endowed 
 with a high faculty for organization, study the imported French 
 model, catch the kejTiotes of its ideas : they translate these ideas 
 as far as possible into mechanical language, and produce passable 
 imitations for the middle and working classes^. 
 
 To meet such competition France is driven to make a httle 
 
 ^ Going further, American and other dealers in various textile fabrics of 
 changeful fashions will get independent ideas as to some new fabric or pattern, 
 by studying the general trend of textile products and costumes in Paris. But 
 these ideas need to be translated into the language of highly specialized 
 machinery before they can be commercially successful. So they have been taken 
 to some appropriate centre, perhaps Saxony, where they are put into practical 
 shape. 
 
STRUGGLE AGAINST THE GROWING FORCE OF MASSIVE WORK 119 
 
 use of massive methods herself, even in industries to which they i, vi, 4. 
 are not wholly appropriate. But the tendency of the age is to 
 require the producer to show his goods to the purchaser. The 
 purchaser does not, as a rule, now go to the producer unless he 
 is in quest of goods of a very special kind: therefore, when the 
 French goods have reached the stage of semi-mechanical imita- 
 tion, the untiring push and bold energy of the travellers for 
 German and other firms have had an advantage over their 
 French rivals. Meanwhile, however, Paris may have made one 
 or more new models, which can be sold at scarcity prices to those 
 who are tired of the last model, partly because it has become 
 somewhat vulgarized. Thus French creative faculty is the 
 source of a constant stream of wealth: but the breadth of this 
 stream does not increase as fast as does the number of people in 
 the two hemispheres who follow the lead of France. 
 
 Her special faculties are of more force in the clothing than 
 in the textile industries. But the texture and patterns of some 
 of her woollens as well as her silks, and the patterns even of her 
 cottons enable her to sell at prices that yield good wages to 
 her operatives. The fine and delicate perception shown in her 
 wines and other food products is as marked, though not as 
 imique, as that shown in her ornamental fabrics. 
 
 To maintain her position France needs a continual supply of 
 fresh inventive minds; and here the predominance of Paris may 
 possibly prove a source of danger: even Lyons is said to depend 
 increasingly on Paris designers. Every great capital city attracts 
 the brightest and strongest minds from the whole coimtry: but 
 in France this attraction is more powerful than elsewhere. Com- 
 paratively little of the intellectual and artistic vigour of Paris 
 is to be seen in provincial towns, and stiU less among the 
 agricultural population. The sterling qualities of resolution, 
 family affection, and thrift, which prevail among the peasants, 
 give strength and stability to France in an hour of peril. But 
 they do little towards filling the gaps in the ranks of brilhant 
 inventors and designers, which are caused by the exhausting 
 nervous strain of Paris, as of every huge city. Worth himself 
 was not a Frenchman. The strong designs of Morris and some 
 other Englishmen for wall paper, and other decorations have 
 made way even in Paris. And such work as that of Liberty 
 
120 LEADERSHIP OF FRANCE IN FINE DELICATE WORK 
 
 I, Ti, 4. has shown Paris how Englishmen have profited by the supreme 
 lessons of Indian art. 
 
 England must herself look forward to a time when her 
 natural resources will have become scanty, whUe the arts and 
 resources of routine mechanical maniifacture will be the common 
 property of all the four quarters of the globe. The experience 
 of France in the past must raise for England some hopes and 
 some anxieties. These are likely to be heightened and deepened 
 as the twentieth century draws on: and Englishmen wiU learn 
 in the futiire, as in the past, some of their most instructive 
 lessons from across the Channel. 
 
 In conclusion it may be remarked that those French in- 
 dustries, which have received most aid from Government by 
 bounties, and by Protective duties against competitive imports, 
 are not those which have flourished most. Chief among them 
 are her shipping industries, her heavy steel industries, and her 
 manufactures of common textile stuffs. None of these indeed 
 are specially congenial to the temper of her people: but their 
 progress has been sufficiently slow to give some support to the 
 notion that Governmental aid to old industries tends to check 
 enterprise; unless indeed those, who receive it, are exceptionally 
 full of energy and encouraged by openings for great work. 
 Government has given little or no special aid to those industries 
 whose products confer distinction on France on account of their 
 fineness and delicacy; and cause them to be preferred to all 
 others in neutral markets, and therefore to sell at higher prices 
 than are to be had for similar products of other countries. 
 
CHAPTER VII 
 
 THE INDUSTRIAL LEADERSHIP OF GERMANY: 
 SCIENCE IN THE SERVICE OF INDUSTRY! 
 
 1. Theecoiiomicv/nity of Germany was achieved tardily, i, vn, i. 
 and in spite of many hindrances : hut the movement was 
 working under the surface for some time before it succeeded 
 with apparent suddenness. 
 
 At various times in her history France has disputed the 
 leadership of the Continent of Europe with Spain and Austria. 
 But Spain has declined; and Austria is no longer the chief 
 leader of the German people. In fact her richest province is 
 Bohemia, which is Slav rather than German; and less than a 
 quarter of the population of Austria-Hungary is German. There- 
 fore the "German Empire" of to-day stands out as the chief 
 heir of the great traditions of the German race. 
 
 We have seen that England and France have passed each 
 through alternating periods of rapid progress and relative 
 retrogression: but that their history has been in the main one 
 of continuous increase in unity and strength. In marked 
 contrast has been the history of the German people. During a 
 great part of the Middle Ages and for some time afterwards, it 
 was full of glory. For several centuries internal discords and 
 hostile invasions forced Germany into the backgroimd; but 
 
 ' This chapter was written before the World- war, and the use of the present 
 tense in it may be taken to refer generally to the years 1910 — 13. As little change 
 as possible has been made in revising it during 1917: though many of those, 
 who have owed much to Germany in the past, have felt that German character 
 has changed, since the whole youth of the nation in their most susceptible years 
 were brought under the influence of a militarism, whose spirit and ethics were 
 those of Frederick II. 
 
122 GERMANY'S LEADERSHIP: SCIENCE IN INDUSTRY 
 
 I, vn, 1, in the last half century she has moved rapidly and steadily 
 forwards to a place in the first rank of the pioneers of political 
 and economic progress. In this sense she is a new country; 
 and we shall see presently how she shares with America and 
 other countries, which are commonly regarded as "new," some 
 of the advantages of youth. But her present strength is not 
 fully to be understood without some reference to her inheritance 
 of germs of great qualities from the distant past. Atavistic 
 influences need to be noted in regard to races, in the same way 
 as in regard to individual families. 
 
 History shows the German as affectionate to those near 
 him; but as rather narrow in his sympathies, and as inclined 
 to "particularism"; that is, to undue insistence on the separate 
 interests of the particular social, economic or political group 
 in which he finds himself; and yet finding pleasure in fighting 
 in the pay of strangers. The present German inclination towards 
 Cartels has something reminiscent of the Hanseatic and other 
 Leagues of German cities in the Middle Ages. 
 
 The land, that is now Germany, contaiaed in the Middle 
 Ages more cities that could claim leadership in trade and 
 industry than any other except Italy. They joined together 
 in Leagues, generally of an informal character, and with ever- 
 shifting boundaries: though with enough consistency to per- 
 form the almost national task of clearing the northern seas of 
 piracy. This shifting of boundaries was due partly to the 
 dominant note of German character, partly to the fact that 
 changing conditions favoured afBnities, first in one direction, 
 and then in another over the wide land. 
 
 Gradually most of the cities lost prominence and sank back 
 into the surrounding dominion, from which indeed they had 
 never been wholly emancipated. Then came the Provincial 
 stage, in which German Principalities, great and small, grew 
 and declined: they combined and recombined under the influence 
 of the same causes as had operated before, together with the 
 alliances and the intermarriages of princely families. • 
 
 The Roman Empire, though by this time regarded in- 
 creasingly as a German Empire, was not a very efiective bond 
 of union: partly because its chief seat was in remote Vienna 
 and it looked eastwards as well as westwards and northwards. 
 
DEVELOPMENT OF ECONOMIC UNITY 123 
 
 Even the rise of Prussia seemed rather to accentuate than to i, vn, i. 
 allay German discord: for Prussia was suspected of some want 
 of consideration for the interests of others. 
 
 Misfortune followed Germany till about 1850. A few of her 
 industries, especially in Saxony and the Rhineland, attained 
 some success; but speaking generally she remained poor rela- 
 tively to Prance as well as England, and backward relatively to 
 both of them as well as to Belgium and Switzerland. But when 
 one looks below the surface, one can see that the true German 
 spirit was merely overlaid by incessant strife. It never died: 
 its revival was largely due to a revolt against the slaughter of 
 Germans by Germans under Frederick II and under Napoleon. 
 Driven in on themselves by political failures their thoughts 
 founded "an empire in the air," that is, an empire in philosophy, 
 literature, and music. This empire in the air was not Prussian. 
 It was German. And the ideal empire was the foundation of 
 the material^. 
 
 In the first half of the nineteenth century the Universities 
 were common meeting places of men from all parts of Germany. 
 Passing from one to another, teachers and students alike propa- 
 gated a German, as distinct from a Provincial, movement in 
 philosophy and learning, in literature and music. This intellec- 
 tual unity had made great progress before much attention was 
 paid to economic problems. But gradually the inconveniences 
 of the commercial subdivision {Zersplitterung) of Germany 
 became prominent: so that some, who cared but little for mere 
 material considerations, took advantage of the irritation caused 
 by these inconveniences; and pressed for commercial unity, 
 partly for its own sake, and partly as a means to larger ends. The 
 movement took the form of the Zollverein, or Fiscal-league. 
 In 1852 the League encircled practically the whole of Germany 
 by a single customs frontier, within which goods moved freely: 
 
 ' When Frederick II died, the following incomparable groups were alive: 
 Haydn, Mozart and Beethoven; Kant, Fichte and Hegel; Leasing, Goethe and 
 SohiUer. But Maopherson, Annah of Commerce, under date 1762, quotes, as 
 proof that Prussia would not become industrial, a proclamation by a Prussian 
 Governor of Saxon Freiburg, who was less liberal than his master: — "It is an 
 indecency not to be suffered for burghers to presume to talk of state affairs, in 
 which such pitiful creatures can do neither good nor harm." 
 
124 GERMANY'S LEADERSHIP: SCIENCE IN INDUSTRY 
 
 I, vn, 1. the taxes collected at the frontier being paid into a common 
 pnrse^- 
 
 The League finally removed those hindrances to internal 
 commerce, which in List's words "lame internal traffic, and have 
 much the same effect as if every limb of the human body were 
 bound by tight ligatures, so that the blood could not flow from 
 one to another." Its benefits were unalloyed by any consider- 
 able drawback from the point of view either of the enlightened 
 Free-trader Nebenius or the enlightened Protectionist List. This 
 was mainly because it introduced a free circulation into a terri- 
 tory which nature had made compact, and which man's quarrels 
 and jealousies alone had separated. Of course the success of 
 the ZoUverein afiords no good argument in favour of a com- 
 mercial union, imposed on coimtries to which nature has assigned 
 separate frontiers, widely removed from one another. For that 
 would introduce much friction : and, if it involved the imposition 
 of complex difierential duties on things which now pass British 
 frontiers freely, it would perhaps reproduce on a larger scale 
 many of the evils from which Prussia suffered, when her territory 
 consisted of some seventy fragments scattered over Germany. 
 The success which has followed the founding of the German 
 ZoUverein, so far from affording a strong argument in favour of 
 such a union, tends rather to suggest that it should not be under- 
 taken lightly^, though a closer union in spirit of the various 
 members of the British Confederation of States would be worth 
 more than much economic gain. 
 
 * The need for it is best comprehended by a glance at maps, showing the 
 tarif frontiers which it removed. In this connection see the map in the En- 
 cyclopaedia Britannica, s.v. Germany; also map 107 in the Atlas of the Cambridge 
 Modem History. The present subdivision of Thuringla corresponds rather 
 closely to those which were common throughout Germany not long ago: but 
 import duties are not levied at the frontiers of the several Principalities now. 
 The human element in the formation of industrial Germany is well shown in 
 Dawson's masterly study of the Evolution of Modern Germany, especially chs. 
 m, V, VI. 
 
 ^ We must return to these subjects at a much later stage; meanwhile refer- 
 ence may be made to the further account given of the ZoUverein in Appendix F. 
 Sombart, Die Deutsche Volkswirthschaft, I. n. lays stress on the hindrances which 
 the minute subdivision of her territory put in the way of specialized production 
 for sale at a distance. They are partly responsible for the fact that simple 
 homely "domestic " work held as prominent a position in many parts of Germany 
 a hundred years ago, as it did in England some two hundred years ago. 
 
INDUSTRY CONCENTRATED BY ZOLLVEREIN AND RAILWAYS 125 
 
 2. The facilities for traffic, begun by the Zollverein, were i, vu, 2. 
 developed by railways, arid have helped to build up mueh the 
 largest industrial district in Europe. 
 
 The Rhine, deepened at critical points, now bears a large 
 number of barges of 5000 tons each, which carry coal and other 
 heavy products at relatively low freights, nearly up to the 
 Swiss frontier. Other rivers have been improved in like manner 
 though to a less extent: while an admirable system of canals 
 connecting the chief river basins of Germany is already doing 
 much, and is expected ere long to do a great deal more, for the 
 general cheapening of heavy traffic throughout the northern 
 half of the country^. 
 
 Her first railways came chiefly to those districts, which were 
 already best supplied with water conmiunications; and were 
 the richest, partly for that reason. Even in 1850 Westphalia, 
 Rhineland and neighbouring parts of Germany formed an "ex- 
 tensive basin of population, commerce and industry, subordinate 
 and tributary to which the other systems of railways of the 
 Germanic states may be considered^." In this, as in other cases, 
 strength has been the source of strength. 
 
 Railways have made the lower Rhineland and Westphalia 
 into much the strongest compact economic unit which exists, 
 or which seems to be in progress of growth, anywhere on the 
 Continent of Europe. And it is connected by close networks 
 of railways on the south with the iron-mines of Luxemburg and 
 Alsace, and the industrial districts of the upper Rhine; while 
 on the east a similar band stretches out through Saxony to 
 
 ' By aid oi canals gooda can be sent from the Rhine into Switzerland and 
 the South of France; and Berlin, in a level district, has been connected without 
 difficulty with Hamburg, Stettin and Breslau; and so on. Much of the inland 
 water traffic is indeed b'able to be suspended in winter by ice; and summer 
 drought often obstructs traffic in the higher reaches of most rivers. But in 
 spite of this compulsory idleness of the plant during a considerable part of the 
 year, the inland freights by water are generally about a third of those by rail; 
 though they themselves are low in comparison with the English rates. More 
 is said on these matters below. III. 
 
 * Lardner, Railway Economy, p. 460. Railways came late to Germany: in 
 1840 she had only 400 miles of them; and she had imported from England and 
 Belgium most of their plant. Now she has a larger mileage of them than any 
 other country in Europe: their density of traffic is much less than that of 
 English railways, but it grows rapidly. 
 
126 GERMANY'S LEADEESHIP: SCIENCE IN INDUSTKY 
 
 I, Tii, 2. Silesia. These two broad bands produce about half of the iron 
 and steel products of the Continent of Europe^. 
 
 To the advantages of a central position, and the absence 
 of any considerable range of mountains, except in Southern 
 Bavaria, Germany adds those of a very large expanse of land, 
 nearly the whole of which repays diligent and wise cultivation. 
 Her soil is not indeed as rich, nor her climate as favourable, as 
 that of France; nor has she much land that is as good as 
 (say) the best fourth part of that of Britain. But she has no 
 hopeless waste lands to compare in the aggregate with the cold 
 rain-sodden moors and low mountains of Scotland, Ireland, 
 Wales and England: and her hot summers are better suited for 
 wheat, sugar-beet and some other crops, than those of Britain 
 are. On the whole she could probably supply food to a larger 
 population in proportion to her area than Britain could, though 
 less than France could, with an equal application of labour and 
 mechanical appliances per acre. But in fact her population is 
 less dense than that of Britain and much denser than that of 
 Frances- 
 Further she has half of the known coal deposits of Europe; 
 and her potash deposits are without any rival. But her supplies 
 
 • There are rather thin places in these two bands, especially near the Middle 
 Rhine and in the stretch between Westphalia and Saxony. The extension of the 
 band running eastwards beyond Saxony is narrow. But the two bands together 
 are quite beyond the rivalry of the two national districts on the Continent next 
 in industrial importance, which cluster round the old seats of mediaeval in- 
 dustry in Italy and the Low Countries. A general map of Europe shows an 
 area of dense population made up of most of Belgium, together with the neigh- 
 bouring parts of France ; and this is so compact as to be comparable with Rhine- 
 land plus Westphaha, to which it is next in rank. 
 
 ' The percentages of the occupied population, male and female, in the three 
 great divisions (1) agriculture, forestry, and fishing; (2) manufacture and 
 mining; (3) trade and transport respectively, are: in the United Kingdom, IS'O; 
 45-8; 16-3: in Germany, 35-2; 400; 12-4: in France, 41-8; 35-5; 9-5. (The 
 figures for Germany relate to 1907; the rest to 1901.) Forty-five per cent, of 
 those Germans whose occupation is mainly in agriculture, etc., are women: but 
 this fact is partly accounted for by the considerations that, (1) many men 
 whose main occupation is difierent, work in the fields a good deal; and (2) 
 agriculturists in military service are not reckoned in these figures; nor are 
 Poles and others who work in Eastern Germany in the summer and return 
 home for the winter. The families connected with the first group in Germany 
 number in all only 17-7 million, while the corresponding figure for the second 
 group is 26-4 million: though the numbers of those employed are not very 
 different. 
 
INDUSTEY CONCENTRATED BY ZOLLVEBEIN AND RAILWAYS 120 
 
 of iron ore came cMefly from Alsace and France before the i, v", a. 
 World-war. 
 
 It is a notable, though, not altogether accidental, fact that 
 the richest, or nearly richest, provinces of all the seven countries 
 by which Germany is surrounded, are contiguous to her frontiers; 
 and find traffic for her railways. Part of this is transit or 
 "through" traffic. But much greater importance attaches 
 to trade which is conducted in through trucks between 
 every part of Germany and the countries by which she is 
 surrounded. 
 
 British exports and imports must generally be moved at 
 some expense, and often with some extra risk, from truck to 
 ship and from ship to truck. But, in suitable cases, truck loads 
 can be sent straight from the producer into the warehouse of 
 the consumer alike in Germany's import and in her export 
 trade. She does not send as much as three per cent, of her ex- 
 ports to any country whose frontiers do not march with hers, 
 except only the United States and the United Kingdom. 
 
 The markets of Europe are at present richer in the aggregate 
 than those of any other quarter of the world. Germany is in 
 the heart of them, and railways have made Europe like a steppe 
 which a caravan can traverse in any direction; while the cost 
 of carriage by the modem caravan is but a very small fraction 
 of that by the old. Were it not for the heavy tarifs which she 
 and her neighbours levy at their frontiers, it is probable that the 
 economy of transport which railways within and beyond her 
 territory are providing, would have widened the European 
 markets accessible to her manufacturers nearly in proportion to 
 the square of that increase in economy: and, even as it is, they 
 have widened the markets very greatly^. 
 
 Thus the geographical features which have always adapted 
 her for unity, have been turned to full account. During the 
 long years of her subdivision, she had singularly little oppor- 
 tunity for massive production: suddenly she obtained excep- 
 tional advantages for it. She has developed these advantages 
 on lines peculiarly her own. On one side they represent the 
 
 '■ As to the Law of Squares in transport and trade, see above, p. 27. As, to 
 the advantages which Germany derives from her configuration and position, see 
 Gruber, Wirtschaftsgeographie, Division i. 
 
128 GERMANY'S LEADERSHIP: SCIENCE IN INDUSTRY 
 
 I, VII, 2. strict discipline which men of iron (Frederick II, Bismarck and 
 others) have developed for good and evil ia Prussia, and in a 
 less degree in the rest of Germany. On the other side they 
 represent that zeal for education, which was associated with the 
 rise of the national spirit. These two motive forces, acting on 
 Germany's great geographical advantages, have naturally, if not 
 necessarily, made her the leader in the applications of science to 
 massive production. 
 
 In fine, from the geographical and material points of view 
 France and Germany are in some respects similar to one another, 
 but from the human point of view the contrasts are more marked 
 than the resemblances. For two hundred years, during which 
 (France was united by a strong national feeling, Germans were 
 [largely occupied in fighting one another: and yet individualism 
 is a French rather than a German characteristic. 
 
 Thus the products of the workshops of France make their 
 way through their excellence and in spite of their high price: 
 and, when they yield ground to products of her factories, 
 the cause is often that her high grade individual work can 
 no longer hold its own ia competition with cheaper machine- 
 made productions: for these are ever approaching nearer to the 
 delicacy and variety of that work, in which the sensitive hand 
 does more, and the machine does less, than in the large factory. 
 But ia Germany the case is the reverse. Where artistic sensi- 
 bility is required, the best handiwork of Germany is seldom 
 either as individual or as fiine as that of France; and it does 
 not always reach the highest standard of England ia products, 
 that demand absolute exactness and delicacy of finish. As 
 a rule the products of her workshop and domestic industries 
 rank rather below than above the products of her factories, and 
 make their way by a cheapness which reflects long hours of 
 labour and low earnings. A displacement of such exports by 
 factory-made goods generally indicates a diminished use of in- 
 efiective methods of production, and an increased use of methods 
 in which her faculty for organization, her habits of order and 
 her methodical training are turned to good account^. 
 
 ' The growth of large businesses in some parts of Germany has been very 
 rapid; but not in all. The last industrial census, that of 1907, showed as many 
 persons employed in small businesses (1 — 6 employees) as in large concerns 
 
SOLID EDUCATION FOSTERS PROGRESSIVE INDUSTRY 129 
 
 3. Germany's zeal for solid education lays the foiinda- i, ^u, 3. 
 tion of her industrial progress. 
 
 Germany holds a leading place in scientific studies; and she 
 is without a rival in the organized applications of science to 
 practical problems. In 1828 Liebig set up a chemical laboratory 
 at the University of Giessen; and a great part of the subsequent 
 rapid advance in the chemical technique of production is due to 
 his pupils, and to others taught by them in Germany and 
 elsewhere. France indeed, the true mother of chemistry, has 
 continued to work mainly on her own lines. But America's 
 scientific studies came early under German influence; and 
 Britain followed gradually. 
 
 A chief strength of German education lies in its order 
 and system. Discipline is indeed a foe to spontaneity; while 
 spontaneity is the chief creator of original work, and especially 
 of that which makes epochs in thought. This danger has not 
 been overlooked: and organized efforts for the increase of spon- 
 taneity have a place in Germany's educational as well as in her 
 military system: but after all spontaneity is the only effective 
 inspirer of spontaneity, and its only trusty guide. The disciplined 
 life of the German schoolboy is indeed a good preparation for 
 subordinate work in factory or counting-house. But it attains 
 only a partial success in the education of self-reliance; of the 
 ability to forbear as well as to bear; and of quick intuitive 
 sympathy. The education which boys receive from boys is the 
 chief source of that political faculty, which in spite of some 
 blemishes, has held together the British Federation of Nations 
 in bonds of sympathy and affection; and history seems to show 
 that the German people are somewhat deficient in it. 
 
 Not the least of the benefits which railways have conferred 
 on the industries of Germany, lies in their quickening of the 
 intercourse of her Universities. Though German Schools have 
 a severer discipline than the English, yet in German Universities 
 both students and teachers have great freedom; while the con- 
 stant migration of teachers as well as students from one Uni- 
 
 (51 or more). Medium concerns (6—50 employees) showed only two-thirds as 
 many as each of the other groups. An excellent compressed account of Industrial 
 Oermany by Mr W. H. Dawsou throws much light on the subjects of this and of 
 some later chapters 
 
130 GERMANY'S LEADERSHIP: SCIENCE IN INDDSTRY 
 
 I, VII, 3. versity to another brings a national opinioa to bear on each one: 
 and thus, in spite of the freedom, which is generally allowed to 
 each Professor to choose his subject and his method of dealing 
 with it, German Universities combine order and efficiency in a 
 remarkable degree. 
 
 Thus all the world has had much to learn from German 
 methods of education. But the lesson must be itself criticized, 
 and made the starting point for further progress. In particular 
 it seems doubtful whether the discipline of German school life is 
 a good preparation for making use of the unlimited opportunities 
 for spontaneity which are offered at the University. Moreover a 
 wayward teacher sometimes turns his hberty to bad account 
 by directing his pupils' attention to secondary issues before 
 they have mastered leading principles. In the result it appears 
 that though German original work is of prodigious volume, it 
 often is somewhat lacking in penetrative power. The matter 
 is one on which an Englishman will speak with diffidence. But 
 there are some reasons for doubting whether the average student 
 at a German University is as well taught, or takes his studies as 
 seriously as the average student at English Universities, ia spite 
 of the undue predominance of games in them. But most of the 
 vast number of German University students (some 65,000) get 
 so far in touch with scientific studies, that in after life they are 
 inclined to take seriously any scientific issue that impinges on 
 their business; and they then find some five thousand trained 
 chemists ready to respond to invitations to earn their livelihood 
 by special skill^. 
 
 Again, the military drill, which is imposed on all citizens 
 of full physical strength, gives some firmness to very weak 
 characters, and helps to prevent the growth of a class of pro- 
 fessional paupers. But perhaps it does some injury to many 
 fine and sensitive characters, and even checks the development 
 of the subtler forms of manual skill; as well as of the highest 
 genius that might find vent in literature, art, and science. 
 
 These qualifications are important, but it remains true that 
 the amount of intellectual activity in Germany is greater than 
 
 * Some trenchant opinions on these matters, supported by statistios of which 
 use has been made in the text, will be found in Modern Germany by J. Ellis 
 Barker, 1912, chs. xs and sxc. 
 
SOLID EDUCATION FOSTERS PROGRESSIVE INDUSTRY 131 
 
 in any other country; and that the broad enlightenment, which i, vii, 3. 
 most high officials and heads of large businesses have acquired 
 at the Universities, enables Germany to apply science to industry 
 with a breadth and system which establish a claim to industrial 
 leadership of a special kind^. 
 
 Availing herself of the economies of massive production in 
 education, Germany can afford to offer it at charges which are 
 within the reach of the lower middle class, and even of artisans; 
 and therefore the supply of scientific routine-services rises 
 faster than the demand for them does: though that grows very 
 fast, as a consequence of the rapid increase in Germany's 
 exports of goods in the production of which those services can 
 be turned to account. Consequently the great benefits of a 
 large system of education are accompanied by some evil, which 
 is sometimes described as the growth of a " scientific proletariat." 
 The clerk who can merely write and do simple arithmetic has 
 found at last his proper place and the routine experimenter must 
 find his only a little higher up: but, when that has been done, 
 he will become a source of strength to his country from the 
 social point of view, as he is already in an eminent degree from 
 the economic point of view. He contributes increasingly to the 
 success in foreign markets of many of those industries from 
 which Germany derives a chief claim to leadership^. 
 
 In Germany — and the same may perhaps be said of Scandi- 
 navia and Switzerland — education gives sobriety and strength 
 to the conduct of the citizen in every-day life: it develops 
 civic virtues; and it inclines the German of to-day to adhere 
 to the habits of low living and high thinking which he has 
 inherited from a generation of forced economy. He is better 
 
 ' The trade solioola, which Saxony started in the eighteenth century, were 
 doubtless a chief oauae of her early success in' manufacture : and German trade 
 schools of all kinds, but especially her "continuation schools," have raised 
 and partly solved questions of ever increasing importance. It is noticeable 
 that some of the moat suggestive experiments in this direction have been made 
 in parts of Germany which are not inclined to the extreme stringency of Prus- 
 sian discipline. 
 
 ' Similarly, the thoroughness and universality of the musical training of her 
 people have given her piano-manufacturers a large choice of designers, and 
 workers apt to judge tones with a true and fine instinct: several of the English, 
 French, and American firms, which have attained the highest success in the 
 industry, were founded by Germans, 
 
132 GERMANY'S LEADEESHIP: SCIENCE IN INDUSTRY 
 
 I, Tii, 4. fed ttan his father was : the care for his health is directed by 
 more knowledge, and his food, though still simple and not 
 always cooked with French skill, serves its purpose well; because 
 it is chosen and prepared in accordance with the popularized 
 results of chemical and physiological research. 
 
 Sixty years ago, perhaps even forty years ago, the German on 
 the average did no more in three hours than the Englishman in 
 two. But while the Englishman has possibly been a little spoilt 
 by prosperity, the German in most trades works harder than he 
 used to do. He does not very much less work in an hour than the 
 Englishman, and he works for longer hours: now, where double 
 shifts are not in vogue, a man who will keep expensive plant 
 working two hours longer than another, may be the cheaper to 
 the employer even at higher wages in proportion to an output 
 per hour, which is only slightly less. Again, the German woman, 
 though well educated, is in no way emancipated from the old 
 ideals of patient devotion to family cares. And the intense 
 interest, which parents take in the schoolwork of their children, 
 is in the first rank among the sources of German progress. 
 
 4. Germany's leadership is mainly in industries, in which 
 academic training and laboratory worh can he turned to good 
 account ; and these are groudng in relative importance. 
 
 In the early stages of modern manufacture scientific training 
 was of relatively small importance. The Germans accordingly, 
 recognizing their own weakness in practical instinct and organiz- 
 ing faculty, took the part of pupils, whose purpose it was to 
 outrun their teachers. They began by the direct copying of 
 English machinery and methods: and they next set themselves 
 to get employment in English firms ; and to offer steady, intelU- 
 gent services in return for a low pay in money, and a silent 
 instruction in the inner workings of the business^. 
 
 The practical knowledge and faculty thus obtained served as 
 
 * The Committees on Import Duties and on the Exportation of Machinery of 
 1840, 1841, already referred to, were told that in Prussia "every man is intelligent, 
 and every man thinks." In spite of the prohibition of exportation, every new 
 English machine was bought at Government expense and sent to the Gewerbe 
 Institut at Berlin. It was there tried; and, if successful, a working model was 
 made of it for preservation in the Museum; while the machine itself was given to 
 some progressive manufacturer. 
 
ORGANIZED TEAM WORK IN LABORATORY RESEARCH 133 
 
 the basis on which to build a large superstructure of business I, vn, 4. 
 efficiency. This ran out into all branches of industry and trade; 
 but especially into those, in which the systematic training of 
 school and university and technical institute could be of most 
 avail. And all the while Germany has been quick to grasp the 
 practical significance of any master discovery that is made in 
 other coimtries, and to turn it to account. 
 
 Her hopes of an enlarged industrial leadership would however 
 be less than they are, if progress were likely to depend in the 
 future mainly on that mechanical adaptation of means to ends, in 
 which a ready wit and sound judgment are more important than 
 elaborate mental training. But science has had a consider- 
 able share in the brilliant mechanical advances made by the 
 present generation; and the greater part of the increased 
 command over nature which man is obtaining, may be traced to 
 the aid of chemical, electrical and biological sciences. Here 
 there is a vast field which has as yet been little cultivated, and 
 for which the resources of the twentieth century are beyond all 
 comparison greater than those of the age of the early mechanical 
 inventions — a field therefore which may, for many generations to 
 come, yield Increasing Returns to effort. In this field mother- 
 wit coimts for much, but only on condition that it is equipped 
 with thorough training and with high-class laboratories; just 
 as in a naval battle mother-wit and courage are needed for 
 victory to-day as much as ever, but yet are of little avail unless 
 aided by modern equipments. 
 
 It is moreover a matter of common knowledge that applica- 
 tions of chemistry and other sciences dominate nearly all the 
 chief recent advances of agriculture: of the industries connected 
 with all but the simplest forms of food, solid and liquid; with 
 new textile materials and dyes; with subtle forms of glass; 
 with compounds of steel and other metals, which render possible 
 far more intense applications of pressure, explosive power, heat, 
 and other forms of physical force, than seemed attainable even a 
 short time ago. In all this Germany has played a conspicuous 
 part. Two or three coimtries are perhaps fully on a level with 
 her in scientific conceptions of that rare kind, characteristic of 
 the highest genius, which makes epochs in thought and lays 
 the foundations of epochs in industrial practice La the same 
 
134 GERMANY'S LEADERSHIP: SCIENCE IN INDUSTRY 
 
 I, vn,5. or a later generation. But none can compare as yet with her 
 in the organized work of detail, by which the epoch-making 
 thought is brought to bear on practice in such a way as to make 
 an epoch in industry. 
 
 It has already been noticed that France led the way in the 
 employment of chemists as officials of particular factories. The 
 Germans have led the way in dividing up a scientific problem 
 — whether mainly of the academic sort, or concerned with the 
 attainment of a particular result of commercial value — between 
 a group, or class, or "team" of workers of inferior rank, and 
 generally rather young. The main responsibihty for the work 
 lies with a chief, who sets to each man his task: very often the 
 whole group is put to the same, or nearly the same, experiment 
 and other investigation, applied to various products. The 
 German temperament is specially adapted for this work; and 
 the practical applications of science, in which Germany leads, 
 give very large scope for it. Other countries, and especially 
 England and America, seem inclined to move, for good and for 
 evil, on the same lines of massive production of knowledge by 
 methods that are partially mechanical. But Germany holds an 
 unquestioned lead in those fine chemical (including glass) in- 
 dustries which offer large scope for the appUcation of science to 
 practical work. She has larger and more numerous laboratories 
 than any other country both of the first and the second order — 
 that is both such as are devoted to the advancement of science 
 as an end in itself, and those which pursue various technical 
 ends^. 
 
 5. Germany's industry and trade have some advantages 
 which attach to youth ; their strength and its limitations. 
 
 It is noteworthy that in the steel and some other industries, 
 a greater proportion of German works than of English are on 
 that large scale which recent experience has proved to be the 
 most economical: they are equipped with the best semi-auto- 
 matic plant, and turn their waste heat and gas and other by- 
 products to the fullest account. This by itself proves nothing, 
 
 ' As to relations between the varioaa orders of laboratories see above, 
 pp. 101 — 2. More is said below (pp. 203 — 5] as to the need of suppletneating 
 the creative work of men of genius by teams of well-disciplined association. 
 
LIMITED ADVANTAGES OP YOUTHFUL INDUSTRIES 135 
 
 for the English works are older oa the average than the German; i, vn, 5. 
 and it is asserted that a comparison between new English works 
 and new German works is not to the disadvantage of English: 
 but it must be admitted that a large share of the improved 
 scientific methods has come from Germany^. 
 
 A couple of generations ago the inexperienced firm was 
 everywhere grievously handicapped by its lack of trained in- 
 stinct and experience, and perhaps by its ignorance of important 
 trade secrets. But now the application of scientific principles 
 is constantly ousting established practice; and the new firm 
 can generally buy from a pioneer maker a more efficient and 
 economical plant than the average of that of his older rivals, 
 even if they are quick to throw away all that is obsolete. Again, 
 so fast do the methods of industry change, that employees 
 frequently lose, rather than gain, in efficiency as they approach 
 middle age: and thus what used to be one of the chief advan- 
 tages of an old-established firm, is now of little service; and 
 indeed it sometimes becomes a hindrance. In this and other 
 ways German industries have advantages over British in being 
 free from the trammels of traditional organization. 
 
 She can bring to bear the powers of large concentrated 
 capital and labour on great tasks, in which she can profit by the 
 experience of others, assimilating and improving on their best 
 methods, machinery and organization. Her employers and her 
 workmen in the growing industry are generally younger, have 
 more elasticity and are more free from the fetters of trade 
 custom and usage than they would have been; had not the new 
 age broken suddenly with the traditions of the old, especially 
 in regard to those branches of industry, trade, and transport, in 
 which massive operations have the fullest scope. 
 
 Again, a German, when wanting to get a foothold in a 
 market in which English or French traders are established, will 
 take a small order to meet some special or local need; though it 
 requires him to make new patterns or other plant, and to take 
 trouble, for which the order gives no adequate return. But an 
 
 ' Reference has already been made (p. 95) to the curious fortune which aided 
 Germany's steel industries in rising to the first rank by means of an invention, 
 made by an Englishman, but exclusively applicable to phosphoric ores of which 
 Germany could procure large supplies from Luxemburg and Lorraine. 
 
136 GERMANY'S LEADERSHIP: SCIENCE IN INDUSTRY 
 
 I, vii, 5. old-established firm may be as wise in refusing some of these orders 
 as the new firm is in taking them^. 
 
 The Germans excel in the sedulous adaptation of their 
 manufactures to local needs, high and low. They are quick 
 to take account of differences in climate, of taste and custom, 
 and even superstition. They make cheap things for people of 
 impulsive temperament; who prefer a brilliant gala dress, to 
 one made of solid durable material. And with equal patience 
 they get to know enough of the business affairs of individual 
 traders to be able to sell with relatively small risk on long 
 credit, where Englishmen sometimes demand prompt payment: 
 in all this they are much aided by their industry in acquiring 
 the languages of Eastern Europe, Asia and South America. 
 Even in markets in which English is spoken they push their 
 way by taking trouble in small things to which the Englishman 
 will not always bend himself. 
 
 On the other hand Germany is in a weak position, in so far 
 as a considerable part of her exports to Eastern Europe, and 
 elsewhere, still consists of simple textile and other goods for 
 sale to homely consumers with limited means, to whom low 
 prices are especially attractive. For countries that started a 
 little behind her in the industrial race are already learning to 
 make such things for themselves; and the causes which have 
 tended to exclude the commoner and cheaper forms of EngUsh 
 and French goods from Germany's markets may possibly affect 
 her export trade in the future somewhat prejudicially. More- 
 over some of those parts of Europe, which are economically 
 within her sphere of influence, are already adopting her own 
 methods of fostering by Protective duties those simpler forms 
 of massive production, in which almost unskilled labour can 
 get fairly satisfactory results by working new machinery bought 
 from western countries or made on western models. She may 
 therefore be forced to turn her export industries, as France and 
 
 ' British manufacturers and merchants complain that some disparagements 
 of their methods, in official reports and elsewhere, ignore considerations such as 
 this. That may be granted : but when all just deductions have been made, the 
 reports of travellers and Consuls leave no room for doubting that Britain has 
 something to learn from Germany in these matters. A similar conflict of opinion 
 exists as to the aid given by German banks to old and new German businesses 
 jp foreign conntrie?. 
 
LIMITED ADVANTAGES OF YOUTHFUL INDUSTRIES 137 
 
 England have done, towards making those finer goods, which i, vu, 5. 
 half-developed countries cannot make for themselves at all; 
 but which the wealthier consumers in all parts of the world may 
 be willing to buy almost without regard to their price. There 
 are already signs that she is setting herself to this task, with her 
 wonted resolution and energy. 
 
 She is also setting herself with much originality and re- 
 source to emulate the individual taste and fancy of French 
 goods. And she is bringing her great organizing faculty to 
 bear on work belonging to the border between mechanical 
 and manual production, which is partly industrial and partly 
 artistic. As has already been indicated, France is moving almost 
 against her will somewhat in this direction; and many other 
 countries and especially the United States are moving in it not 
 unwillingly!. 
 
 Again Germany obtains supplies of strong physical workers 
 for her iron industries, for building and for agriculture, from 
 nearly the same Slav and Latin races from which America draws 
 similar supplies. Their standards of life are not high: they 
 are often willing to labour hard for low wages; and they are 
 serviceable not only for unskilled manual work, but also for 
 the management of semi-automatic machines. In this respect 
 Germany and America have an advantage over England, 
 similar to that which, more than a century ago, the new centres 
 of textile industry in England had over its old homes: for in 
 the new centres everyone was willing to do work that was new 
 to him by new methods; while the spirit, if not the formal 
 regulations, of the old gilds ofEered a more or less open opposi- 
 tion to the introduction of new methods, that tended to lower 
 the value of the knowledge and skill obtained by long training. 
 This advantage will diminish in time. But for the present 
 American manufacturers, who have travelled in England and in 
 Germany, appear to be unanimous in their opinion that a modern 
 American machine is less likely to be worked grudgingly and to 
 Ibss than its full capacity in Germany than in England^- 
 
 ' Germany will soon become old in some respects, relatively to her Eastern 
 neighbovirs. In 1891, when the present 'writer visited some large enginee'ring 
 works in Bohemia, the manager said: "Look at that lad. A {ew months ago 
 he was working in the country for 5s. a week. I now pay him 12s., and he is 
 
 5—5 
 
138 GERMANY'S LEADERSHIP: SCIENCE IN INDDSTRY 
 
 I, VII, 5. There is another side to the progress which the German 
 makes in foreign markets by his alertness, his readiness to take 
 trouble about small details, his familiarity with foreign lan- 
 guages and so on: but that side may be best presented in the 
 words of a German. "In those industries where cartels and 
 syndicates have not yet been formed, too great a role is played 
 by dubious practices of many kinds, by infringement of payment 
 stipulations, by unjustifiable deductions, etc.: while on the other 
 hand the cartels are often too ruthless in their action. In this 
 field we have much to learn from the English business man. 
 Long commercial tradition and international business experi- 
 ences have taught him long ago that broad-mindedness is the 
 
 best business principle Tolerance, another quality, which the 
 
 German lacks, has been of great practical advantage to the 
 Englishman'." 
 
 There are several matters, closely connected with those just 
 discussed, on which it might have been proper to say some- 
 thing here; but, as they will need to be studied on broad lines 
 later on, it seems best to pass them by. Such are the growth 
 ot cartels and other forms of associated action in production 
 and trade, with or without monopolistic tendency: the parts 
 played by German banks in promoting and controlling indus- 
 trial enterprises; and recent developments of Germany's fiscal 
 policy. 
 
 It is obvious that an industry which offers large scope for 
 the economies of massive production stands to gain much from 
 Protective duties, if they can be so arranged as to insure it the 
 ' almost undisturbed possession of the home market, while keeping 
 
 open for it opportunities for large sales abroad: its sales at 
 home, and its sales abroad, alike increase its command over 
 economies that help it to undersell rivals in neutral markets. 
 German and American thought has been much occupied with 
 looking after three semi-automatic machines. In your country none but skilled 
 engineers are allowed to work those machines, though no skill ia needed for it: 
 and each engineer ia compelled to confine hia attention to one machine." 
 Shortly afterwards more liberal methods were adopted in England, partly as the 
 result of the great lock-out of 1893: and in this matter England is now at a less 
 disadvantage than she was relatively to her young competitors. 
 
 • From the chapter on "Germaily and the inheritance of the City" [of 
 London], in England's Financial Supremacy, from which the opposite side of 
 the case was quoted above (p. 104 fn.). 
 
LIMITED ADVANTAGES OF YOUTHFUL ESTDUSTRIES 139 
 
 this class of considerations; and has made out a strong prima i, vn, 5. 
 fade case for the conclusion, that national policies in regard to 
 international trade need to rest on a basis somewhat different 
 from that which was appropriate to them before the modern 
 economies of massive production had come into view. We shall, 
 however, find reason for thinking that the prima facie suggestions 
 thus made are inadequate. To begia with, they do not take 
 account of the fact that the economies of massive production 
 are of many different kinds: some are cosmopolitan property, 
 some are national, some are local, and some belong to indi- 
 vidual firms: each of these difierent kinds has its own method 
 of affecting both the national and social issues in question. 
 Further, the new point of view will be found to give reason for 
 attaching not less, but greater, cogency to the old argument 
 that many of the advantages which a single industry derives 
 from a Protective duty in its favour, involve loss and hindrance 
 to other industries; and that, even if it be thought fit to select 
 the whole class of massive production industries for special 
 favour, the ultimate result may be of little service to that class; 
 and may perhaps injure the nation at large. Problems of this 
 kind have not the highest claim on the attention of the econo- 
 mist: but they are closely associated with those which have 
 that claim, as will gradually be made clear. Meanwhile reference 
 may be made to some short remarks on the varying trends of 
 German tariE policy since the complete setting up of the Zoll- 
 verein, which will be found in Appendix H. 
 
 It may be added that erroneous conclusions are sometimes 
 suggested, especially in partisan writings, by comparisons of 
 Germany's industry and trade with those of Britain, without 
 taking account of differences in their industrial ages, their 
 populations or their areas. German industry and trade being 
 younger than British, naturally grew faster: a young boy grows 
 very fast. And since Germany's population is more than a third 
 greater than Britain's, and her area more than a half greater, 
 her industry and trade will not have attained equal distinction, 
 till they exceed those of Britain by at least a third. 
 
CHAPTER VIII 
 
 THE INDUSTRIAL LEADERSHIP OF THE UNITED 
 STATES: MULTIFORM STANDARDIZATION 
 
 I, Tin, 1. I. Introductory. 
 
 Germany's contributions to industrial leadersliip belong to 
 the modern age; and they will doubtless spread widely and be 
 developed in coming generations: but the range of industries 
 which have been much affected by them up to the present time 
 is not very large, and there seems to be no immediate prospect 
 of its being very greatly extended. On the other hand those 
 tendencies to industrial evolution, in which the United States 
 of America is the chief leader, are likely to influence in various 
 degrees a very large part of the field of manufacture. They 
 are not indeed new: some of them may be traced back to primi- 
 tive forms of the loom, or to an early printing press; and they 
 have long dominated nearly all textile manufactures, together 
 with a large part of the lighter metal industries. Thus the 
 provinces of I'rench and American methods are on the opposite 
 sides of the broad field of industry. French instincts enable the 
 hand and eye to make subtle discriminations, and ceaseless varia- 
 tions in form and colour; and thus to gratify the fancy and the 
 artistic taste, at prices which are generally beyond the reach of 
 the masses of the people. American methods on the other hand 
 make for the production of business plant and of products for 
 immediate consumption in an almost infinite variety of stan- 
 dardized forms. They analyse the ultimate product into simple 
 parts; and provide a sufficient number of semi-automatic ma- 
 chines with the adjustments necessary for fashioning each part; 
 and, if possible, for finishing it. In some cases a single model 
 
INTRODUCTORY 14] 
 
 of the product will meet fairly well the wants of all purchasers, i, vm, 2. 
 But, if not, careful study is given to the question how much 
 increase of sales will result from any proposed increase in the 
 number of models made, and how much extra custom it will 
 yield. If the answer is favourable the number of varieties is 
 increased; and the standardization becomes "multiform." 
 
 Standardization is of several different kinds, corresponding to 
 differences of the materials used, and the purposes for which the 
 product is needed. It varies also with the structure of the in- 
 dividual businesses which make use of it, and with the marketing 
 and general organization of the industry to which they belong. 
 But such matters must stand over for Book II, where they will 
 occupy a considerable space: our present concern is only with 
 its general characteristics and with the striking consilience of 
 causes, which have given to America the leadership in it. The 
 causes will be considered under the following heads : — her main- 
 tenance of the spirit of youth, when already strong among the 
 strongest: the homogeneity of the methods of living of her vast 
 population, in spite of racial differences: her large supplies on 
 the one hand of strong immigrant labour, devoid of special skill, 
 but able to work semi-automatic machines; and on the other 
 hand of keen, resolute, native Americans ready to plan and 
 control: the inevitable preference given by great railways to 
 large consignments travelling long distances, by which a giant 
 business, even if far off, is at an advantage in competition with 
 a smaller business near at hand: and, lastly, the tendencies, 
 partly caused by these conditions, for large masses of capital 
 to be accumulated in the hands of a few strong men, who retain 
 its control in their own masterful hands. 
 
 2. The United States has remained young very long, 
 partly because the geographical distribution of her resources 
 has been such as to tempt men of strong character to move 
 to new scenes, in which their enterprise has been further 
 stimidated. 
 
 A "new country" is commonly taken to be one which has 
 newly come under effective control of an advanced western 
 people : so that, though her aboriginal population may still linger 
 on, it no longer exerts any great influence on the destiny of the 
 
142 AMERICA'S LEADERSHIP: MULTIFORM STANDARDIZATION 
 
 I, VIII, 2. land; and tte new inhabitants develop her resources in their 
 own way. In some countries, on the other hand, the new in- 
 habitants are in a small minority; and, even while they direct 
 the work of the older population, they are compelled to acquiesce 
 to a great extent in the survival of primitive forms of industry. 
 It is, however, obvious that these two classes of countries range 
 into one another: there is no broad, clearly marked, dividing 
 line between them. 
 
 Again, a country, which has been regarded as old, may become 
 in fact new almost suddenly: for the great body of its people 
 may awake to the attractions of modern industrial methods; and 
 apply them energetically to rich natural resources, which have 
 hitherto lain almost dormant. Japan has become new in this 
 sense during the present generation: India, China, Siberia and 
 even Brazil, with much larger natural resources, may become 
 new ere the present century has passed. All such countries 
 have much to learn from the United States of America, which 
 more than any other, has pioneered the path of new countries; 
 though only those of them, whose resources are comparable 
 with hers in volume and variety, can profit fully by all her 
 experiences. With these facts in view, it seems advisable to 
 enlarge the triangle, of which the three corners are in England, 
 France, and Germany, into a quadrilateral, of which the fourth 
 corner is in the United States. That quadrilateral reaches very 
 far: for deep set physical conditions have combined with various 
 incidents in her history to cause the United States to retain her 
 youth long after she had become a leader in industry. 
 
 Colonies established by strong European races in a temperate 
 and stimulating climate, such as that of North America, almost 
 always flourish, in spite of the hardships which they must 
 endure at first. Meat and wood and dairy produce are sure to 
 abound; rude houses are easily built; and a little grain is won 
 from select patches of favourable soil: so the people and their 
 children are well fed, and sturdy. As Adam Smith said, the 
 most important wealth which they bring from their old homes 
 is a "knowledge of the arts of agriculture,. . .the habit of sub- 
 ordination and some notion of regular government^." They 
 
 • Wealth of Nations, Book iv. oh. vii. Part ii. 
 
HER ENERGIES RETAIN FULL VIGOUR OE YOUTH 143 
 
 bring also habits of forethought and the willingness to incur i, vm, 2. 
 present exertion in the expectation of a remote benefit. The 
 splendid material resources of America slumbered until a capital 
 stock of "moral wealth," which is the heir of the ages, arrived 
 from Europe. 
 
 The immigrants developed the physical riches of America: 
 and, in return, the new hope, freedom, and changefulness of 
 their lives developed in them germs of high spirit and initia- 
 tive: these are indeed latent in most people and especially in 
 those who seek new lands, even though they have been driven 
 forth by oppression, rather than allured by the promise of larger 
 opportimities. 
 
 The stabihty and quiet of settled hfe affect character for 
 evil as well as for good. Few men are prophets in their own 
 land: neighbours and relations are generally the last to pardon 
 the faults, and to recognize the merits, of men who differ from 
 themselves by being less docile and more enterprising. It is 
 doubtless chiefly for this reason that in almost every part of 
 England a disproportionately large share of the best energy 
 and enterprise is to be found among those who were born 
 elsewhere; while, by converse with others who come from dif- 
 ferent places and have different customs, travellers learn to put 
 on its trial many a habit of thought and action, which other- 
 wise they would have always acquiesced in as though it were a 
 law of nature. The fact that colonists generally have keener and 
 more elastic minds than the majority of those whom they left 
 at home, is a special instance of the rule that change of environ- 
 ment is likely to be caused by activity of mind, and to stimulate 
 that activity. But this assumes that the conditions of the 
 environment are favourable: and that has not always been the 
 case throughout the early years of a new country. 
 
 In fact life in secluded villages of a new country, before the 
 age of railways and telegraphs, often became more rigidly set 
 than even in the villages of the mother country. Thus, even 
 Anglo- saxon colonies, when isolated, have aged rapidly: the 
 colonies of Holland are older than Holland, and parts of the pro- 
 vince of Quebec are older than France. Some English in North 
 America were touched by this somnolence: but the opening up 
 of the Mississippi Valley shook them out of it: and in some 
 
144 AMERICA'S LEADERSHIP; MULTIFORM STANDARDIZATION 
 
 I, vni, 2. respects the United States is younger now than at the beginning 
 of last century. For, indeed, the people of the United States 
 differ from other European colonists of the New World in that 
 their nervous energies have been stimulated not only by one 
 great migration across the ocean, but by an exceptional per- 
 sistence of migration within their own large country. This habit 
 rose rather slowly; but has been in full strength for the last 
 sixty years, and it has been supplemented recently by new strains 
 of immigrants of excitable temperament. 
 
 The chief causes of these internal migrations have lain in the 
 facts that the richest parts of the Continent were not accessible 
 to the earlier immigrants : and that the qualities of the best land 
 in the centre of North America made it specially attractive to 
 those new immigrants, and to those descendants of the earlier 
 settlers, who had the greatest vigour, and enterprise. The 
 focus of the economic strength of the United States has there- 
 fore not remained by the Atlantic, but has moved into the heart 
 of the Continent. This fact is obviously of primary importance 
 from the political point of view: those, whose sturdy determina- 
 tion prevented the disruption of the nation half a century ago, 
 came in great part from the " Middle West " : but its significance 
 is equally vital, though not equally conspicuous, from the 
 economic point of view. Let us look into this. 
 
 The soil of the Atlantic Coast, especially in the north, was 
 relatively poor. The best soil of the great Mississippi Valley 
 was so tender that "a walking stick could be pushed into it up 
 to the handle": and the greater part of it was so stored with 
 plant food that it would yield many successive stocks of grain 
 without being manured. In its Northern half, soil and climate 
 specially favour wheat; while further South, maize is the stand- 
 ard crop. The power of dispensing with manure for several years 
 attracted strong men whose resources did not suffice for setting 
 up the appliances of a "mixed" farm, and stocking it with 
 cattle; and this advantage, combined with the general richness 
 of the land, caused "the West," as the Mississippi Valley was 
 long called, to attract those whose sturdy, independent char- 
 acters fitted them to become the backbone of a great nation^. 
 
 ' More is said on these matters in Appendix G, 1. 
 
 The westward movement in the South, especially before the Civil War, 
 
HER ENERGIES RETAIN FULL VIGOUR OF YOUTH 145 
 
 The selection of the stronger agriculturists for the work i, vin, 2. 
 of the far west was reinforced by a similar selection of the most 
 alert, though not the most technically skilled artisans. "As 
 a people," said Horace Greeley, in 1870, "we may be viewed as 
 on the march from the East to the West; the active, aspiring 
 mechanic, who was born in Maine or New Hampshire, migrates 
 to New York or some other Middle State soon after attaining 
 his majority, reaches Illinois or Missouri two or three years 
 later; and will often be found traversing Montana or California 
 before he is thirty^." 
 
 The movements of the miner are governed by natural 
 causes even more absolutely than those of the farmer: and 
 the two have much in common. Both make heavy freight for 
 railways: and the two largely control the course of railway 
 building: while the geographical distribution of other industries 
 follows rather than directs that course. Water power may 
 indeed attract manufactures to itself in some coimtries. But it 
 happens that the main cause of the infertility of the mountain- 
 ous band, which extends from about the hundredth to the 
 hundred and twentieth parallel of longitude, is its want of 
 water: and any railway net, which may spread over it and 
 unite the Pacific Coast to the Mississippi Valley, must depend 
 for local custom largely upon mining centres, together with some 
 basins of land that are naturally rich; and some mountain 
 
 was of a different character from that in the North. The cultivation of cotton 
 had been adopted for slaves, because it did not require or even offer much 
 opportunity for the use of expensive appliances; and because it gave nearly 
 continuous occupation throughout the year and therefore required no versatility. 
 Food for workers was grown on the spot: but in the main cotton was a sole 
 crop, and therefore an exhausting crop, and cotton moved westwards because, 
 as Jefferson said, one could "buy an acre of new land cheaper than one could 
 manure an old one." * 
 
 ' Greeley was one of the ablest of American journalists, and very great 
 influence was exercised by the articles which he ultimately compressed into 
 "Essays designed io elucidate the science of Political Economy, while serving to 
 explain and defend the policy of Protection to Home Industry, as a system of 
 National Cooperation for the elevation of labour." The passage quoted (p. 286) 
 is part of a characteristic argument that the American working-man "is unlikely 
 to trouble himself with aught to which stability is so essential as it is to co- 
 operators" on the Rochdale model: its "petty and paltry problems" are 
 worthy of "the assembled wisdom of the humble weavers of Toad Lane." His 
 life is oast in a larger mould: nothing less than "National cooperation" i.s 
 worthy of his effor^. 
 
AMERICA'S LEADERSHIP: MULTIFORM STANDARDIZATION 
 
 slopes that offer facilities for irrigation. The richest coal beds 
 at present known are on the western slopes of the Alleghanies, 
 and the richest iron mines are near Lake Superior. The ma- 
 terials needed by the ironmaster can be assembled at nearly 
 equal cost over a great part of the States which lie between 
 the Alleghanies and the Rockies: and these States are among 
 the strongest ahke in agriculture, in the production of steel and 
 in general manufacture. 
 
 In fact as soon as the slight obstacles which the Alleghanies 
 ofiered to intercourse between the Atlantic Coast and the 
 Mississippi Valley had been overcome, the United States pos- 
 sessed an unbroken continuity of large and various resources, to 
 which no rival has yet been developed; and to which no rival 
 seems probable in the near future. 
 
 3. The various races oftvhich the population is composed 
 are liomogeneous in matters of consumption ; hut they are 
 diverse and mutually supplementary in industrial aptitudes. 
 The homogeneity of demand creates an unrivalled market 
 for standardized products : while the diversity of aptitude 
 leads some to invent and others contentedly to use semi-auto- 
 matic machinery for making them. 
 
 "The American has a constantly expanding home demand, 
 urging him to extensions and justifying costly improvements 
 and the adoption of new processes. He has also a Continent 
 imder one Government. . . . The best places are selected for 
 assembling materials, raw, or partially prepared, for their 
 final forms. In short, it is free, unrestricted trade in everything 
 under the same conditions, same laws, same flag, and free 
 markets everywhere^," This perfect fluidity has made many 
 •branches of American production marvellously efficient. But, 
 at the same time, it has tended to separate the producer 
 widely from the consumer, and to suppress those methods of 
 production which depend for their strength largely upon the 
 adaptation of products to the special requirements or tastes 
 of the purchaser. 
 
 An even stronger force in . the same direction is being 
 exerted by the homogeneity of the American demand for 
 1 Carnegie, Rectorial Address at St Andrew's, 1902, pp. 31 — 2. 
 
HOMOGENEOUS CONSUMPTION: STANDARDIZED PRODUCTION 14 
 
 manufactured goods. Even those race differences, wiiicli have I, vm, 
 become ahnost a dominant factor in American life, lessen this 
 homogeneity but very little. Widely as the Scandinavians 
 are separated from the Italians, and the native Americans 
 from the Poles, in sentiment, in modes of life, and even in 
 occupations, they are yet purchasers of nearly the same goods. 
 Allowance being of course made for differences of climate, they 
 buy similar clothes, furniture, and implements. Some negroes 
 and a few others may cling to old habits and methods, and 
 prefer implements to which they are accustomed to those which 
 are the most effective and economical. But speaking generally 
 all the various races in the country, widely as they differ from 
 one another in character and aptitude, are yet alike in yielding 
 to the dominant spirit of the strong mixed race among whom 
 they have settled. Only in a few cases, chiefly in large cities, 
 are the new comers in sufficient numbers to make a market for 
 goods of kinds peculiar to their old homes. Lastly, they are 
 more quick than any but the most alert inhabitants of the Old 
 World in taking to every improved implement or material which 
 comes to their notice. 
 
 Even the farmer is quick in this matter. Much of his 
 clothing and furniture comes to him ready made; and a good deal 
 of his food is prepared for him and put into tins a thousand 
 or more miles away. His implements must be of almost the 
 newest pattern: they can seldom be made in a neighbouring 
 town, and he often buys them direct from a distant factory. 
 In case of accident to any part of a machine, he writes or tele- 
 graphs for a numbered facsimile of the broken part. And, 
 when once it is clear that goods must be ordered by post and 
 sent by rail, the extra cost and loss of time involved in sending ^ 
 them a hundred miles instead of twenty is often very small; so 
 that producers and store-keepers in large centres, who can offer 
 a great variety of shape and pattern with low prices, are driving 
 others out of the field. 
 
 Next it is to be considered that the population, while 
 homogeneous in demand, supply a unique combination of the 
 faculties and aptitudes needed, on the one hand for inventing 
 the machinery suitable for standardized production; and on the 
 
AMERICA'S LEADERSHIP: MULTIFORM STANDARDIZATION 
 
 other for working that machinery with adequate intelligence in 
 return for relatively low wages. Those English, Scotch, and 
 German immigrants, who did not become farmers, generally did 
 somewhat skilled work in the towns or in the mines. From 
 their ranks have come the greater part of the foremen in most 
 trades that require a long training: the full-blooded American, 
 when found in factories at all, is apt to be either in the higher 
 ranks of management; or else engaged in tending machines 
 which called for exceptional alertness rather than slowly ac- 
 quired manual skiU. 
 
 In spite of the ever increasing fineness and delicacy of 
 American manufacture, the demand for high manual skill, and 
 especially for men who have served long apprenticeships to a 
 craft, has increased but slowly. It has even diminished in some 
 trades, while in others it has been partially met by men bom 
 of European parents in America; and on the whole the induce- 
 ments offered to the European artisan with a narrow range of 
 high manual skill to emigrate to America are less than formerly. 
 For these and other reasons emigration from England, Scotland, 
 and Germany to America has very much slackened. And that 
 from Ireland, though still considerable, has slackened also; 
 partly indeed because her population is no longer too large for 
 her resources, and her land system is more generous than it 
 was. 
 
 Meanwhile the newly awakened though still very poor popu- 
 lations of Italy and of the central east of Europe have learnt to 
 look for a refuge in America; and the facihties for emigration 
 ofiered to them have been greatly increased. The same economic 
 progress which is keeping English and Germans at home is sending 
 ever increasing numbers of relatively poor and backward peoples 
 across the ocean. Some of them are of high quality: for instance, 
 the rapid progress of California in the art of growing fine fruit 
 is largely due to the inherited skill of Italian immigrants. But 
 more of them take to hard manual work in building, in railway 
 construction, in mining, in heavy steelworks, etc. Some of these 
 indeed rise: for instance, particular departments of some steel- 
 works are so fully manned by Slavs, that they are beginning 
 efficiently to take the places of Irish and others who have 
 hitherto acted as foremen: while very large numbers of them 
 
HOMOGENEOUS CONSUMPTION: STANDARDIZED PRODUCTION 149 
 
 are to be found in relatively light, but monotonous work in large i, vm, 3. 
 cities. They may lack the resolute will and self-control which 
 put many British, German, and Scandinavian immigrants on 
 terms of equality with native Americans. But they are quick 
 withal, versatile; and, as a rule, easily moulded; they take 
 readUy to the use of machinery; and they have no traditions 
 that could prevent them from doing their best in using semi- 
 automatic machines, which are simple of handhng, while doing 
 complex work. Thus America has suddenly obtained a plenti- 
 ful supply of people who are able and willing to do the routine 
 work of a large factory for relatively low wages, and whose 
 aptitudes supplement those of the stronger races that constitute 
 the great bulk of the white populations- 
 Even in the Old World progressive industrial districts gain 
 much from the immigration of workers to whom all methods of 
 manufacture are new; and who readily betake themselves to the 
 newest processes, and work these to the best of their power. 
 But none rivals, none but Germany approaches near to the 
 power which America derives from this advantage, in combi- 
 nation with an almost unlimited supply of alert workers in the 
 higher grades: for it aSords her an unprecedented scope for 
 Babbage's great principle of economical production, according to 
 which every worker is set to the most difficult and important 
 tasks of which he is capable, and only to those. 
 
 The position is indeed not without its difficulties and 
 dangers, some of which are jjcrtinent to our present subject. 
 To begin with, all migration tends to foster isolated action and 
 individualistic aims: separated from old associates, each one is 
 
 ' In the years between 1900 and 1910 America received 8-5 million immi- 
 grants. 0£ these, 6-1 million came from southern and eastern Europe, and 
 only 1-8 from north-western: whereas three-fourths of all the immigrants in 
 the years between 1830 and 1870 came from the United Kingdom and Germany. 
 Statistics of immigration into America appear to be vitiated, though less than 
 those of emigration from Europe, by evasions of the laws prescribing imiversal 
 military service. There is therefore some interest attaching to the following 
 figures showing the percentages of the total foreign born population, in 1860 
 and 1910 respectively, which were recorded as born in the following countries: 
 England, 10-4 (for 1860); 6-5 (for 1910): Ireland, 38-5; 15-6: Scotland, 2-6; 10: 
 Germany, 30-5; 18-5: Italy, 0-3; 9-9: Austria, 0-6; 8-7: Russia, 01; 6-2. See 
 Abstract of Thirteenth Census, pp. 190 — 1. The occupations of immigrants from 
 different countries are analysed in vol. xi of the Twelfth Census Report. See 
 also Report of the Industrial Commission, vol. xv. 
 
AMERICA'S LEADERSHIP: MULTIFORM STANDARDIZATION 
 
 apt to care mainly for liis own interests, and those of any friends 
 and relatives who may be with him. And this tendency has 
 been iacreased by the variety of races and languages among 
 the recent immigrants. It fosters the eager, absorbing pursuit 
 of material success, partly for its own sake; but perhaps even 
 more as an indication of power and as a trophy of satisfied 
 ambition. It contributes to that alertness, that restless energy, 
 that impatience of any occupation which does not enable a man 
 to take out his whole day's income of strength in his day's 
 work, which are characteristic of the United States now. In 
 these respects, agaiu, American conditions resemble those of the 
 industrial districts of England a century ago; when they were 
 crowded with immigrants from agricultural districts, to whom 
 the new methods of manuiacture ofiered wages far above those 
 which their fathers had eamed^- 
 
 4. The drift of America's industries towards massive 
 multiform standardization is furtlver associated, both as 
 cause and as effect, with their widespread geographical dis- 
 tribution, and also tvith the special features of her great 
 railway service. 
 
 It is a general rule that specialized branches of production 
 are apt to rise in places which offer suitable raw material 
 (including ia some cases pure water, and in others water power 
 or coal); which have a favourable climate and access to good 
 markets for the sale of the products. But these conditions 
 being satisfied, the development of a specialized industry in 
 any place was until recently nearly always a gradual process. 
 Sometimes it was fostered by a far-seeing ruler, but it was in- 
 capable of sudden creation even by him. 
 
 In America the growth of localized industries has always been 
 rather rapid, partly because many of her artisans have been 
 immigrants: a smaller inducement is generally needed to incline 
 a man, who is already on the move, towards a rising centre of 
 industry, than is needed to attract him there from his home; 
 and therefore immigrants with specialized skill drift easUy to 
 places where that skill will be highly valued. This cause of 
 
 ^ The subject of thia Section 13 studied more closely in the chapters on "Some 
 technical influences on the size of the business unit," below, II, m and IV. 
 
RAILWAY CONDITIONS FAVOUR CONCENTRATED BUSINESS 151 
 
 localization was indeed much weakened as soon as automatic i, vm, 4. 
 machines and other expensive plant, together with high organiz- 
 ing faculty, became a more important factor than manual skill 
 in production. But the advantages offered by large towns with 
 good and cheap railway connections have acted as a continual 
 inducement to the capitalist undertaker and to the working- 
 man to keep to the towns and the thickly peopled districts of 
 the Eastern and Middle States^ - 
 
 Nearly aU large cities have competitive raUway services: 
 and this is, even now, more likely to result in favourable 
 terms for their traffic in America than elsewhere. They offer to 
 the immigrant, who does not speak English, a good chance of 
 finding work imder foremen and with comrades who speak his 
 own language, and of being able to follow the religious worship 
 of his fathers. These advantages, together with those which 
 large centres of industry always offer to manufactures, have tmtil 
 recently tended to collect immigrants increasingly in very large 
 cities. But in the last two decades the lower charges, at which 
 dweUings and sites for factories can be obtained in cities of a 
 middle size, have turned the drift towards them in America, as in 
 England: and some factories, sufficiently powerful to be able to 
 buy and seU in large quantities on favourable terms, and to 
 make special arrangements with the railways, have gone into 
 the country and practically founded cities of their own. All 
 these cities offer nearly as high attractions to most classes of 
 immigrants as the giant cities do: and the medium sized cities 
 can market a larger part of their products at moderate distances 
 than a giant city can. Consequently, although the increases of 
 population of very large cities are due in great measure to 
 extensions of boundaries, as they are in England; yet the rate 
 of increase of those with more than haK a mUhon inhabitants 
 is less than that of all urban districts, and considerably less 
 than that of medium cities having between fifty thousand and 
 a quarter of a million^- 
 
 1 In a masterly study of the causes of localization given in vol. vn of the 
 Twelfth Census Report it is pointed out (p. ccxiii), that six of the fifteen industries 
 which were mostly highly localized in 1900, had made scarcely any use of 
 machinery till after 1870. 
 
 ' And yet New York city has a greater net manufacturing output than any 
 State except its own and Pennsylvania, and there are twenty other cities each 
 
AMERICA'S LEADERSHIP: MULTIFORM STANDARDIZATION 
 
 The Rocky Mountains, the Pacific Coast and some smaller 
 districts are not very densely peopled. But, subject to this 
 exception, it may be said that the population of more than a 
 hundred million has been distributed by constant migrations of 
 industries fairly evenly over her total area of about three million 
 square miles. The transport of agricultural produce to the 
 Atlantic and the Mexican Gulf on the way to Europe accoimted 
 for much of the railway traffic in past times : but now by far the 
 greater part even of the large consignments, that are carried 
 long distances, consists of internal commerce. 
 
 This vast goods traffic is in some measure a cause, and in 
 some measure a result, of the direction which has been taken 
 by America's industrial leadership. Because her railways were 
 chiefly concerned with carrying large consignments long dis- 
 tances, therefore they developed that traffic with special energy : 
 because their charges for long distance large consignments were 
 very low relatively to their charges for traffic of the kind that 
 (except in regard to coal) predominates iu Britain; therefore 
 giant businesses, which sent large consignments to distant 
 middlemen, obtained nearly the full advantage of their special 
 economies of massive standardized production in many varieties. 
 
 We are not concerned at present to inquire how far the 
 multiplication of semi-automatic machines, in the control of 
 which a man is not required to use any high faculty, is a real 
 benefit to the world. It undoubtedly increases material com- 
 forts; and any harm, that it may tend to do to man's nature, 
 is not conspicuous in America in her present phase, because 
 those who are chiefly afiected by it came mostly from narrow 
 
 of which has a greater net manufacturing output than any of the sixteen States 
 which stand lowest on the list. (Net output is reckoned after deduction of out- 
 lay for material, etc., but not for depreciation, etc.) 
 
 In 1910 the largest percentage of urban population was found in New 
 Eng'and: but the largest percentage of population in cities with more than 
 100,000 inhabitants was found in the "Middle Atlantic States" (i.e. New York 
 and Pennsylvania) : and next in the Pacific States, where population flocks to 
 the great harbour cities, as it does in Australia. Urban districts account for 
 nearly 80 per cent, of the total foreign born population; but for less than 
 40 per cent, of that in the States between the Mississippi and the Pacific water- 
 shed. (The data for the above statements are to be found in Tables 19 — 27 of 
 Ch. 1, Table 12 of Ch. 5, and Tables 5 — 7 of Ch. 15 of the Abstract of the Thirteenth 
 Ceneua.) 
 
RAILWAY CONDITIONS FAVOUR CONCENTRATED BUSINESS 153 
 
 surroundings : their outlook is larger than it would have been, I, vm, 5. 
 if they had stayed at home^. 
 
 5. America's movable capital has grovm very fast in 
 recent years. Its ownership is widely distributed; but natural 
 selection of singular efficiency has brought to the front a 
 relatively small number of men with high business genius, 
 and has given them control of a great part of it. 
 
 That massive organization of manufacture, in which a few 
 alert minds direct, while the greater part of the work is done by 
 semi-automatic machinery, requires not only large armies of 
 workers with mutually supplementary aptitudes; but also a 
 concentration of a large volume of movable capital in the hands 
 of powerful and enterprising owners. 
 
 The material resources of the United States increased rapidly 
 from the time when railways began to bring the Mississippi 
 Valley into close union with the Atlantic border and with the 
 markets of the Old World. But the making of railways, roads, 
 etc. in the new region, the building of farm-houses and develop- 
 ment of the farms, absorbed most of her surplus of income over 
 expenditure, large as that was. Even in 1860, the value of farms 
 and farm property was nearly half the whole wealth of the 
 country; and the railways accounted for a good deal more, 
 though it is true that they were largely built with capital 
 borrowed from Europe. There was a vast destruction of capital 
 in the war: rapidly increasing opportunities for investment in 
 land and railways followed it; and these conditions, combined 
 with the supersession of wood as the material of ships, tended 
 to make her withdraw her resources from work in which she 
 would have to compete on equal terms with rich countries, 
 whose opportunities for the investment of capital at home were 
 narrower than hers. But about 1875 a new era set in. The 
 preceding inflation of credit and prices had been checked by a 
 collapse of credit: work was resumed with energy; and the 
 excess of income over expenditure commenced to grow rapidly^. 
 
 1 Some further results of these conditions are noted below, II, vn, 5. 
 
 * The money value of farm property kept about even pace with the growth 
 of population between 1860 and 1900; but it has increased much faster since 
 that time; mainly because many people here suddenly awakened to the fact 
 
AMERICA'S LEADERSHIP: MULTIFORM STANDARDIZATION 
 
 Most of the new wealth has been distributed among a large 
 
 part of the population, as holders of real property, or of shares 
 
 or bonds of those railway and other companies which have long 
 
 had a solid position. But investments in risky undertakings — 
 
 such as those connected with the development of petroleum, 
 
 copper, and other mineral properties — often yield nearly as 
 
 much loss as gain to the ordinary investor: and yet they may 
 
 be handled by people with large capital, and exceptional means 
 
 of information and organiziag faculty, so as to yield them large 
 
 gains. This cause is one among many, which, as wiU be seen 
 
 more clearly at a later stage, are increasing the wealth of those 
 
 who are already rich: it acts in America even more strongly 
 
 than in other countries. Another cause is that such businesses 
 
 as mechanical engineering, grain dealing and milling, cattle 
 
 that the soarcity-eloment, which has long been present in the value of land in 
 old coiintries, is beginning to appear in America. Probably the statistics of 
 farm values in the following table are not liable to the very large errors that are 
 to be feared in those relating to total wealth and to capital in manufactures. It 
 is to be remembered that the figures for 1870 are reckoned in paper currency, 
 which was worth about four-fiiths of its gold value; while gold prices were then 
 exceptionally high in world markets. The Census Returns show: — 
 
 
 Population 
 
 Millions of dollars 
 
 Census Year 
 
 
 
 
 
 
 Total 
 
 Value o£ term 
 
 Capital in 
 
 
 
 wealth 
 
 property 
 
 manufactures 
 
 1850 
 
 23,191,000 
 
 7,136 
 
 3,967 
 
 533 
 
 I860 
 
 31,443,000 
 
 16,160 
 
 7,980 
 
 1,009 
 
 1870 
 
 38,558,000 
 
 30,068 
 
 8,945 
 
 2,118 
 
 1880 
 
 50,155,000 
 
 42,642 
 
 12,180 
 
 2,790 
 
 1890 
 
 62,622,000 
 
 65,037 
 
 16,082 
 
 6,525 
 
 1900 
 
 77,256,000 
 
 94,300 
 
 20,440 
 
 9,874 
 
 1910 
 
 93,401,000 
 
 
 40,991 
 
 18,490 
 
 The revised figures for total wealth, given in the Statistical Abstract 1917, 
 are (in millions of dollars) 107,104 for 1904; and 187,739 for 1912. A part of 
 this enormous increase in recent years is due to a rise in the value of agricultural 
 land caused by the absorption of unoccupied land, and an increase in the home- 
 consumption of agricultural produce so great as to obviate the necessity of 
 selling it at very low prices for exportation. 
 
 For some purposes it is better to study rates of growth of wealth per head, 
 than those of aggregate wealth. But the growth of wealth per head would give 
 a very inadequate measure of the economic progress of a country whose popula- 
 tion is growing at an exceptional rate. For the additions to the population, 
 whether native born or immigrant, do not bring their share of wealth with them. 
 
 The increase in the size of businesses is considered below. III, vn and vin, 
 and Appendix N. 
 
STRONG RICH MEN STAY IN BUSINESS AND CONTROL IT 155 
 
 dealing and meat canning, and even retail dealing, have ofEered I, vm, 5. 
 larger scope tlian anywhere else. Thus strong and persistent 
 men accumulate into their own hands the profits of agglomer- 
 ated business, which not long ago were distributed among many 
 smaller undertakings. And all such causes work upon the basis 
 of an exceptionally large aggregate of new income in the hands 
 of the commercial classes. 
 
 For profits in ordinary business are very high in America, 
 because the growth of capital, rapid as it has been, has not 
 sufficed to fill up nearly all the openings which Nature is still 
 lavishly ofEeriag to those who have the faculty to read her hiats 
 and to act on them : and therefore a man who obtaias profits at 
 a rate that is normal in America, on a very large business over 
 many years, will accumulate a vast fortime. Both the oppor- 
 tunities and the special energies, by which they are turned to 
 account, are as unrivalled as were those of England, when she 
 brought a large use of coal and iron into her service a genera- 
 tion ahead of the rest of the world. 
 
 The American problems of the present age are on a vastly 
 larger scale than were the British problems of the earlier age: 
 but the means available for handling them have developed in 
 at least equal proportion. For, while such things as the telegraph 
 and telephone, and facilities for rapid travel under restful con- 
 ditions, are accessible to all; powerful capitalists are able to set 
 select staffs of shrewd and skilled assistants at high salaries, on 
 the detailed study of one problem after another in constructive 
 business, in speculation, or in the two combined. 
 
 Education has always been taken seriously in America; but 
 it has never been regarded as reaching far, by itself, towards 
 making men efficient in business. It has never given the same 
 prestige as can be obtained by the evidence of keen mother wit, 
 which is afiorded by a new contrivance, or a new scheme of 
 organization which is efiective for its purpose. Thus it has 
 come about that the American genius for inventing, organizing, 
 and arranging is the finest in the world. To concede this is 
 not to attribute to Americans more than their fair share of 
 natural abiUty. It is but to note that the able young American 
 is almost as sure to become an inventor or an organizer or both, 
 as the able barbarian was to become a leader in battle, or as 
 
156 AMERICA'S LEADERSHIP: MULTIFORM STANDARDIZATION 
 
 I, Tin, 5. the able Florentine in the Middle ages was to seek distinction 
 in art or politics. For young ambition naturally flows to what- 
 ever vocation oSers the most prominent difficulties to be 
 overcome and the highest distinction for overcoming them. A 
 powerful process of natural selection has thus called out the 
 leaders of American industry from the many millions of lads 
 who were born to the last generation from alert parents of many 
 races; and who entered on life with the resolve that they would 
 prove themselves to be abler and greater than their fellows by 
 becoming rich: and of this efiectiveness the money test is on the 
 whole a safer test than any other which the common man can 
 applyi- 
 
 There are in America a great number of men who have become 
 very rich while still in the prime of Hfe and full of enterprise. 
 Some of them have little inclination towards social amusements 
 or culture: they are conscious of being but second-rate powers in 
 the lighter affairs of life; and are happiest when at their places 
 of business, engaged in yet enlarging the fortunes, which they 
 value chiefly as evidence of their organizing genius. As arts 
 and sciences flourish best where their followers work for the 
 approval of brethren of the craft, and not for the sake of money: 
 so business flourishes most where the aim of the business 
 man is not to shine in elegant society, but to be held in respect 
 by those who are the best judges of his special form of strength. 
 This exclusive devotion to one pursuit involves some loss to 
 the life of the individual; but the constructive economic force 
 which it gives to America at this phase of her development is 
 unique. 
 
 Meanwhile the thoroughness and alert sense of proportion, 
 which have been developed in business, run over into congenial 
 studies. American work in applied economics has already taken 
 
 1 See a representative discussion in Carnegie's Empire of Business, pp. 
 106 — 113. He gives a list of many of the "best known industrial establishments 
 in each department.. ..Every one of these works was founded by mechanics.... 
 If we were to include those which were founded by men who entered life as office 
 boys or clerks we should embrace almost every famous manufacturing concern 
 in the country " : Wanamaker, Claflin, Jordan, Lord, Field, Barr, Phelps, Dodge; 
 the Stanfords, Rockefellers, Goulds, Sages, Fields, Dillons, Seligmans, Wilsons, 
 Huntingtons; and most of the chief bankers have been clerks, or have come from 
 a stiU lower grade in the ranks. More is said on this matter below, on. 358—9. 
 
STRONG RICH MEN STAY IN BUSINESS AND CONTROL IT 157 
 
 the first place in the world: and in such studies as those which i, vm, 5 
 relate to the respective provinces of competition, cooperation and 
 monopoly, and to the functions of the State in regard to them, 
 American studies appear to be the most real, thorough and 
 penetrating; as will be suggested in Book III of this work. 
 
 Looking back on these exceptional conditions of the present 
 industrial leadership of the United States we see that many of 
 them are in a transitional stage. 
 
 Her agriculture is rapidly leaving the extensive methods, 
 which are distinctive of the New World; and passing to iaten- 
 sive methods, in which an ever increasing element of Old World 
 practice is embodied. But they will never be simply Old World 
 methods : they will always be in part descended from the typical 
 American agriculture, in which nothing was done by heavy 
 manual labour, if ingenuity could contrive either to do it by 
 machinery, or to evade doing it altogether. 
 
 The changes in the character of America's manufactures, 
 
 combined with the exhaustion of her supply of land stocked by 
 
 Nature with food for ten or twenty years successive crops, have 
 
 given to her policy in regard to international trade a character 
 
 very difEerent from, and in some respects the opposite to, that 
 
 which prevailed when Protection to nascent manufactures first 
 
 came under discussion. The keynote then was that she suffered 
 
 from a lack of the inherited industrial skiU of the Old World: 
 
 a little later the keynote was that the large capitals, which 
 
 European and especially British manufacturers commanded, 
 
 enabled them to make use of appHances beyond the reach of 
 
 the poorer American; and also to ruin him by selliag goods at 
 
 less than cost price (in modem phrase "dumping" them), when 
 
 he was already in financial straits. But now those American 
 
 industries, which can exercise the greatest influence on the 
 
 Legislature and are in general most favoured by it, are among 
 
 those in which the power of aggregated American capital is 
 
 greater than that of any other country. This change gives much 
 
 room for thought : but the questions raised by it are beyond our 
 
 reach at present^. 
 
 ' Something ia said as to the relations between early phases of American 
 industry and fiscal policy in Appendix G. 
 
158 AMERICA'S LEADERSHIP: MULTIFORM STANDARDIZATION 
 
 I, VIII, 5. The time is not yet in sight when any other country is likely 
 
 to outstrip her in opportunities and incitements to large enter- 
 prises; and therefore her share in industrial leadership is likely 
 long to remain of an exceptionally large mould. In fact no 
 leadership quite like hers is to be expected from any country, 
 which cannot rival both the largeness of her national resources, 
 and the alertness of her vast population. 
 
 The world contains undeveloped resources many times as 
 large as hers: and, though her success owes less to her resources 
 than to the exceptional force of character of the people who 
 have come to her shores, and to the stimulus which those energies 
 derived from exceptional opportunities for bold and rich enter- 
 prise; yet it is to be noted that the best strains of her population 
 are not growing in numbers very fast. On the other hand the 
 practical, applications of social science to the betterment of 
 human life are being developed by her with great ability and 
 zeal. The new strains of her population may probably have 
 not yet shown their strongest sides: and they may contribute 
 important elements which, on the whole, will raise rather than 
 lower the wealth of character that was brought to her shores in 
 earlier years by the forcible but perhaps somewhat too individual- 
 istic immigrants from Northern Europe. 
 
 To conclude: — the life of North America was for several 
 centuries in the main a continuation of the lives of several 
 coimtries of Western Europe. But Holland, Spain and France 
 gradually yielded place to England: and from 1760 to about 
 1850 the life of North America was dominantly British. After 
 that, immigrants from Germany and Scandinavia became promi- 
 nent; to be followed later on by Italy and by countries of Eastern 
 Europe. Now, nearly the whole of Europe Kves again in North 
 America, Britain holding the lead. 
 
 And Britain leads elsewhere. Australia and New Zealand 
 are British colonies in the fullest sense of the word; South 
 Africa is predominantly British, but largely also Dutch and 
 partly cosmopolitan. This cosmopolitan element in South 
 Africa seems to foreshadow, more distinctly even than the cos- 
 mopolitan element in the United States, the beginning of a new 
 era; in which the influences exerted by relatively old countries 
 on those whose resources are not yet developed, will depend less 
 
SPECULATIONS AS TO THE FUTURE OP LEADERSHIP 159 
 
 on consanguinity and racial inheritance, than on similarities of i, vm, 6 
 opportunity and of need: or, to use a more general term, "of 
 circumstance." In so far as this view holds ground, it may be 
 expected that the United States will be in some sense the parent 
 of all others of whatever races they may be peopled, which 
 begin to develop large physical resources with new born energy 
 and alertness. 
 
 6. Some slight speculations as to future homes of in- 
 dustrial leadership. 
 
 Those ideas which make for industrial progress have not been 
 the exclusive property of powerful industrial countries. Many 
 of them have come from the smaller countries of Europe: Italy 
 and Scandinavia have been important contributors. But, so long 
 as the main conditions of economic development remain nearly 
 as they are now, the chief initiative seems likely to He with 
 countries whose great size, rich natural resources, and accimiu- 
 lated capital enable them to concentrate large and highly organ- 
 ized mental and material appliances on the translation into 
 practice of the architectonic ideas of the scientific student and 
 the inventor. The difficulty of forecasting the future in this 
 matter is increased by the growth of these ideas, more than it 
 is diminished by the accumulation of exact knowledge as to the 
 resources of the world, and as to the people who inhabit it. 
 
 For instance, the growth of mechanical technique, especially 
 on the American model, increases generally the advantage which 
 a large, but unified and compact, country has in massive produc- 
 tion. But AusfcraUa and Canada, though well-endowed with 
 natural riches and inhabited by alert populations, suffer from 
 lack of compactness; and their prospects of leadership may be 
 materially afiected by inventions that lessen the hindrance aris- 
 ing from this defect. Not long ago communications through the 
 air by telegraphic instrument, telephone and aircraft were not in 
 sight; but even the last is now regarded as a possible aid to 
 ordinary intercourse. If each decade of the next two hundred 
 years should be merely as prolific of inventions as each of the last 
 two decades has. been — and that is a low estimate — the conditions 
 which now in some measure limit the scope of industrial leader- 
 ship to compact countries may. have passed away. But though 
 
SOME GENERAL SPECULATIONS AS TO THE FUTURE 
 
 we cannot look forward far, we may look a little way, and venture 
 on guesses, wMcIi may at all events suggest some reflections as 
 to the present: though their value as prediction is of the slightest. 
 
 Canada is to some extent a partner with the States in leader- 
 ship. There is a constant interchange of methods between the 
 two: "American" discussions relating to railways, monopolistic 
 combinations and similar matters, cross the frontier into Canada 
 with little sense of change of atmosphere, such as is palpable 
 when they range to any other coimtry. Her main route from 
 Montreal to her Far-west lay not long ago to the south of the 
 Lakes, through Chicago: but railways are at last penetrating 
 the poor land to the north of the Lakes; and the unification of 
 her East with her West is hkely to move the faster, the further 
 it goes. This is indeed partly because the stock of free good 
 land in the States has been exhausted: and it has been found 
 that the rigours of the long winter in the Canadian North-West 
 are less hostile to wheat farming and even to mixed farming 
 than had been supposed. Thus the tide has turned back, and 
 Canada is receiving again her own with increase: for the farmers, 
 who throng into her new wheat lands from the States are men 
 of many races, but are alike in having trained faculties and 
 aptitudes for their work, and in being abeady supplied with 
 adequate capital. The severity of her climate, which hindered 
 her progress at first, is now selecting for her benefit those in- 
 dividuals who are most able and willing to encounter physical 
 difficulties and hardships; and a vigorous future seems to he 
 before her. 
 
 South Africa has shown great energy under difficulties. Her 
 gold and diamond mines bring wealth, though they do not 
 greatly develop industrial leadership of a western type: but the 
 BoHd strength of the British and Dutch population, now happily 
 united, may pioneer new and more successful methods of inti- 
 mate cooperation between white and black races. Her distances 
 are great, and her means of communication still slender: but 
 her resources are vast: Ex Africa semper aliquid novi. 
 
 Australia is leading the way bravely in the great endeavour 
 to bring the labouring population as a whole up to a high level 
 of culture and physical enjoyment. It appears indeed that her 
 
OF INDUSTRIAL LEADERSHIP 161 
 
 procedure involves certain forms of restriction which might prove i, vm, 6. 
 fatal to a country whose natural resources are on less generous 
 a scale than hers; and the rate of increase of her population is 
 somewhat slow. This retardation, partly due to the predomi- 
 nance of urban conditions, has been caused in great measure by 
 her geographical pecuHarities. 
 
 For there is a large almost vacant space in her centre: some 
 of the land in it seems indeed to be of good quality: but its 
 rainfall is small and uncertain, and it has not attracted a solid 
 agricTiltural population. In the neighbourhood of the sea, much 
 of the land was allowed to fall into the hands of large capitalist 
 sheep-farmers and bore but a slender population. This evil is 
 being remedied: but the preferential advantages possessed by 
 Melbourne, Sydney, and other great harbours have attracted to 
 them the greater part of the strength of the people. Most of 
 her communications have been by sea: but a considerable net- 
 work of railways is growing up in the neighbourhoods of Sydney 
 and Melbourne: and the splendid energies of her people may be 
 trusted to develop the natural resources of their great country 
 in spite of difficulties. New Zealand is on a smaller scale: but 
 her racial and physical conditions are highly favourable for the 
 evolution of the best British tendencies. 
 
 Passing away from European races, we find in Japan a bold 
 claimant for leadership of the East on lines that are mainly 
 Western. Her insular position, contiguous to a great Continent, 
 is almost as well adapted for the development of industry and 
 trade as that of Britain. She has learnt so much during the 
 last thirty years, that she can hardly fail to become a teacher 
 ere long. It seems indeed that str.onger food than they now 
 have will be required to enable her people to sustain continuous, 
 severe, physical strain : but the singular power of self-abnegation, 
 which they combine with high enterprise, may enable them to 
 attain great ends by shorter and simpler routes than those, which 
 are pursued where many superfluous comforts and luxuries have 
 long been regarded as conventionally necessary. Their quick 
 rise to power supports the suggestion, made by the history of 
 past times, that some touch of idealism, rehgious, patriotic, or 
 artistic, can generally be detected at the root of any great out- 
 burst of practical energy. 
 
162 SOME SPECULATIONS AS TO THE FUTURE 
 
 J,vin,6. India, thougli less agile, is developing renewed vigour and 
 
 independence in industry as in thought. She is the home of 
 some of the greaitest thoughts that have ever come to the 
 world; and the originator of many of the subtlest and most 
 artistic manual industries. She has suffered in the past from 
 lack of \mity, and a scarcity of power for manufactures and 
 transport. But she may yet be foimd to have considerable 
 stores of coal: and some of her regions may be enriched by 
 electrical energy derived from water power. The rapid recent 
 rise of her larger industries is a source of just pride to her, and 
 of gladness to Britain. 
 
 Great futures may also await Russia and China. Each is 
 large, continuous and self-contained: each has enormous re- 
 sources, which could not be developed so long as good access 
 to ocean highways was a necessary condition for great achieve- 
 ment. Their populations differ in temperament; the persistence 
 of the Chinese being complementary to the quick sensibility of 
 the Russian: each has inherited great powers of endurance from 
 many generations of ancestors who have suffered much. But 
 recent events obscure the outlook. 
 
 Up to the present time a tropical cUmate has been fatal to 
 the best energies of races, however vigorous. It has not indeed 
 extinguished either the subtlety of their thinkers or the physical 
 strength which their workers can exert for short periods; but 
 it has been hostile to the power of undergoing severe continuous 
 strain of mind and body. The tropics contain however much 
 rich land and mineral resources. These are indeed of little avail 
 except where a good supply of water can be obtained. It is 
 needed, not only for domestic uses, but also (in default of any 
 other means) to enable the energy contained in the sun's heat 
 to be converted by aid of various cooling processes into mechani- 
 cal power. This is another direction in which the progress of 
 technique may possibly alter the conditions of industrial leader- 
 ship. But for the present it may be concluded that there is no 
 sure ground for thinking that industrial leadership wiU remain 
 always with the same races, or in the same climates, as in recent 
 times; nor even that its general character will remain unaltered. 
 
CHAPTER IX 
 
 TRANSITION TO PRESENT PROBLEMS OP INDUSTRY 
 AND TRADE 
 
 1. The foundations of modern business in general con- i, ix, i. 
 fdence and credit. 
 
 The present chapter is designed to afiord a link between 
 Book I and Book II by applying some indications, furnished by 
 observation of past phases of industry and trade, as part of the 
 basis for a study of business under present conditions. 
 
 A chief feature of economic evolution has been the gradual 
 emergence of the notion of a "business point of view" in regard 
 to the affairs of life. That phrase could not have been under- 
 stood in a primitive society: and there is a sense in which it 
 may be argued that business operations are merely one drift of 
 a tendency to adapt means to ends, which is universal through- 
 out all forms of life. Biology is indeed discovering numerous 
 ways in which inheritance and natural selection — supplemented 
 by the imitation of the successful actions of parents and other 
 older individuals, and by other post-natal influences — have 
 enabled even low grade animals so to adjust their structure 
 and their operations to their environment, that they may be 
 able to utilize it for their own benefit with ever increasing ease, 
 ef&ciency and certainty^. 
 
 ^ This remark does not assume that acquired faculties are inherited from 
 parents by children at their birth : it is sufficient for the argument that children 
 automatically imitate the actions of those by whom they are surrounded, and 
 are especially sensitive to suggestions from the examples of mother and father : 
 while acquired skill and faculty in small matters, as well as in large, pass from 
 parents to children by definite instruction. But a protest may be permissible 
 against the pretensions of some exponents of MendeUan doctrine that arith- 
 metical averages of observation of inheritance by mice and vegetables afford 
 
164 TRANSITION TO PRESENT INDUSTRIAL PROBLEMS 
 
 I, II, 1. Most of these adjustments are in regard to the functions of 
 
 individual members of a species separately: but one large part 
 of them has to do with the military organization of the various 
 members of a group, and another and yet larger part with their 
 business organization. It is probable that anthills and beehives 
 have been highly organized business concerns during very many 
 more centuries, than those which have seen human business 
 organizations of equal complexity and efficiency: but, so far as 
 we know, the organization of ants and bees has been automatic 
 and unconscious, without direction by foresight and deliberate 
 contrivance. On the other hand there has been some element 
 of conscious adaptation of means to ends in nearly every organi- 
 zation of human business. And, though the automatic elements 
 preponderated greatly over the conscious and deliberate elements 
 in early phases of economic growth, yet changing conditions 
 were gradually met by quiet adjustments. Elementary, partial 
 division of labour grew up between individual members of the 
 same family, between families, and between neighbouring villages, 
 or clans. Here were the origins of business trust and confidence, 
 which were indeed enforced within each group by the social 
 penalty of ostracism: an ofiender against his neighbours became 
 an outcast, often without refuge. 
 
 As small communities merged and increased in size, an 
 oSender could more easily move from the scene of his trans- 
 gression. The extension of neighbourliness lowered its intensity; 
 and in consequence the trust between neighbours became less 
 habitual and instinctive. In other words life became in some 
 degree "business-like"; and ere long the transactions between 
 neighbours began to be governed by arithmetical comparisons 
 
 conclusive proof that the characters which children bring into the world with 
 them, are incapable o£ being affected by the past mode of life of their parents. 
 Mendelians do not claim to know what causes originate differences between 
 elementary germs : it seems to be certain that changes in the mental and moral 
 habits of a human being are reflected in his face: and Mendelian arithmetic 
 has little direct bearing on the question whether the nutrition supphed to 
 germs in the body of a. person excessively addicted to drink or other sensual 
 indulgences may not result in the birth of a child with less firm character than 
 it would have had, if the parent had lived soberly and chastely. Some Mendelians 
 concede that it does: and the gradual development of trustworthy statistics 
 of inherited mental and moral characters may ultimately lead to further ad- 
 missions in the same direction. 
 
BASIS OF BUSINESS IN CONFIDENCE AND CEEDIT 165 
 
 between the value of tliat whicli was given, and that which was i, ix, i. 
 received in exchange. 
 
 The traders who bought goods in one locality and sold them 
 in another were distinctively business men. But the greater 
 number even of them seldom needed to look long ahead or 
 very far afield: partly because they were in personal touch with 
 those from whom they bought, and to whom they sold; and 
 were thus directly cognisant of nearly all changes (except those 
 arising out of war, famine and plague) which were likely to 
 upset their calculations in the short time over which each such 
 transaction generally ran. On the other hand a broad confidence 
 in the steadfastness and efficiency of large and various markets 
 is a necessary condition of the highly complex modern division 
 of labour among producers, and between producers and middle- 
 men: for indeed almost every considerable operation of business 
 involves some speculation based on well-informed confidence. 
 The whole mechanism of society rests on confidence: it per- 
 meates all life, like the air we breathe : and its services are apt to 
 be taken for granted and ignored, like those of fresh air, until 
 attention is forcibly attracted by their failure. When confidence 
 is shaken by a rumour of war or of civil commotion, or of dis- 
 turbing financial legislation, or of extensive frauds or rash trading 
 by important firms, then business life is stifled; and men yearn 
 for the wholesome atmosphere that is associated with the general 
 re-establishment of confidence^. 
 
 This trust contains a personal element: but it contains 
 much more. For most of those on whose actions anyone 
 relies are personally unknown to him. It is sometimes called 
 "commercial credit." But that term seems not to cover the 
 whole of it: we may call it "social credit." It is analogous to 
 personal credit. But it is also, and for the larger part, trust in 
 
 ' The methods of business in the remoter districts of New England a cen- 
 tury ago throw much light on those of Mediaeval England: the hght is all the 
 brighter, because high iutelligence and cultured thought were being brought to 
 bear on crude material conditions. Professor Sherwood {Quarterly Journal 
 of Economics, vni. p. 157) tells how his grandfather used to dress flax for the 
 ropes and grain bags needed on his farm, and to make his own shoes ; but slowly 
 gave up the habit, as the growth of markets around him gave him a double 
 confidence that he could advantageously dispose of his grain to one set of people, 
 and obtain his ropes and shoes from another. 
 
166 TRANSITION TO PRESENT INDUSTRIAL PROBLEMS 
 
 I, IX, 1. the character of, society; in the stability of public order, in 
 freedom from disturbance at home and from foreign attack; in 
 the gradual and harmonious development of economic condi- 
 tions; in the probity and reasonableness of people generally, 
 and especially business men and legislators; and — to lay special 
 stress on one important detail — in the solidity and good working 
 of that currency which acts as a medium of exchange and a 
 standard measure for gauging economic obligations and trans- 
 actions of all kinds. The breadth, persistency, and fluidity 
 of modem markets enable the producer to make things on 
 the "speculative" chance of selling them, with a reasonable 
 confidence that he knows beforehand approximately the price 
 at which he wUl be able to sell them; whether they be finished 
 or half-finished commodities, or raw materials, or implements 
 that have no value except to people engaged in other industries 
 — people whom he has perhaps never seen, but with whom the 
 wide ramifications of business keep him in constant, if un- 
 conscious contact. 
 
 The modem producer throws all his energies into one 
 particular group of operations, trusting that the same market 
 organization, which secures for him in advance approximately 
 known prices for his sales, will enable him to buy at approxi- 
 mately known prices such things as he may want; whether they 
 be small supplies of personal necessaries and luxuries drawn 
 from distant regions of the earth, or relatively large supplies of 
 just those highly specialized kinds of raw material and imple- 
 ments which are used in his work. 
 
 The merchant, the broker, and the financier are those who 
 are most directly concerned with the machinery of modem 
 marketing, and with the stability of the social credit; just as 
 fire insurance companies are most directly concemed in pro- 
 vision against fire. But a general reduction in the risks of fire, 
 which would be an unmixed gain to the general public, would 
 bring loss as well as profit to the insurance companies: and 
 those who have profited most in the aggregate by the growing 
 efficiency and stability of social credit, and market organization 
 are the producing class rather than the trading class; and the 
 general public has gained most of all. 
 
GROWING SELF-SUFFICIENCY OF GIANT BUSINESSES 167 
 
 2. A preliminary review of changes, which sometimes 1. 1^. 2. 
 render a very large manufacturing or mining business in a 
 measure independent of other industries in its neighbour- 
 hood. A note on the meaning of the word "productive." 
 
 Economic progress lias at last undermined some of the 
 foundations of Petty's great rule that "Each country fiourisheth 
 in the manufacture of its own native commodities." But yet 
 most of them remain, though changed in form; and they are 
 now, as formerly, intermingled with, and sometimes confused 
 with, the advantages which an industry derives from a large 
 home market. In Petty's time, and very much later, people 
 worked of course much for themselves in their own houses on 
 whatever materials Nature suppUed liberally to their hands: 
 and, when a specialized industry began to take the work over, it 
 found a large home demand ready to encourage its development. 
 Abundant raw material, and a large market for the finished 
 products, developed ever more highly specialized skUl in the 
 maia industry, and ever stronger subsidiary industries to supply 
 its incidental requirements, and to work up its waste products. 
 Each single business was on a small scale; and though it had 
 access to many of the economies of production on a large scale, 
 these were external to it, and common to the whole district. 
 
 For long ages industrial leadership depended maiuly on the 
 number and extent of centres of specialized skill in which these 
 external economies abounded: a relatively small importance 
 attached to those internal economies which any single busiaess 
 could attain by the elaboration of its own plant, and to the 
 subtle division of labour between its own employees. But with 
 the growth of capital, the development of machinery, and the 
 improvement of the means of communication, the importance 
 of internal economies has increased steadily and fast; while 
 some of the old external economies have declined in importance; 
 and many of those which have risen in their place are national, 
 or even cosmopolitan, rather than local. 
 
 Associated with this change there has been some shifting 
 in the relative importance of dificrent orders of industrial 
 capacity relatively to one another and to capital. The supply 
 of skilled labour has increased: but, partly under American 
 
168 TRANSITION TO PRESENT INDUSTRIAL PROBLEMS 
 
 I, IX, 2. influence, machinery has covered so large a range of work that 
 a comparatively short training enables a youth, who is naturally 
 alert, to control a manufacturing process that not long ago would 
 have required the work of a great number of artisans. 
 
 Skilled labour is indeed better remunerated than ever 
 before. But while the earlier stages of machine production 
 tended to raise the wages of skilled labour even faster than 
 those of unskilled; the later stages have tended to diminish, 
 relatively at least, the volume of the demand for that sort of 
 highly developed manual skill, which requires special training 
 from boyhood upwards. There are a few industries in which 
 a considerable supply of skill of this kind is as imperatively 
 necessary as ever: and an attempt to start such an industry 
 in a new home has great difficulties and risks. But the chief 
 need of the large majority of modem industries is for alert 
 intelligence, good judgment, promptness and trustworthiness 
 in conduct on the part of the more responsible employees. 
 Where this need has been met, resolute and capable men 
 and women can generally be found who will quickly acquire 
 adequate familiarity with the materials, the plant, and the 
 operations of the industry. Such an industry can be started 
 by a powerful firm; if it imports a considerable stafi of leading 
 men into a district, the population of which is energetic 
 and has a fair share of alert intelligence. Modem faciUties 
 of communication by railway, and motor traffic; by post, tele- 
 graph and telephone facilitate this independence of local aid: 
 and a powerful firm can sometimes set up a railway siding of 
 its own. 
 
 Another disruptive influence, which helps a strong business 
 in able hands to be independent of its surroundings, is the 
 certainty with which business success attracts capital. It is 
 often more difficult for a small business to borrow a thousand 
 pounds than for one, which is ten times as large, to borrow fifty 
 thousand: and there is practically no limit to the amount of 
 capital that the public is ready to place at the command of a 
 joint-stock company, which has already done great things, and 
 is believed to be in strong hands. For indeed the stock of capital 
 has grown so much faster even than the scope for its use in 
 
GROWING SELF-SUFFICIENCY OP GIANT BUSINESSES 169 
 
 industry, that capital is always at tlie command of those who have i, ix, 2. 
 both the mental faculty and the moral character needed for 
 turning it to good account. 
 
 The keynote of this change was struck by the American 
 Francis Walker, who said as early as 1876 that the man who has 
 the faculties required "to shape and direct production, and to 
 organize and control the industrial machinery. . .rises to be 
 master of the situation. It is no longer true that a man becomes 
 an employer because he is a capitalist. Men command capital 
 because they have the qualifications to profitably employ labour. 
 To these captains of industry . . . capital and labour resort for 
 opportunity to perform their several functions^," 
 
 The drift of capital and labour to the control of the best 
 business faculty within a country is gaining force, and is being 
 accompanied by a similar drift from one country to another. 
 The great business energy of Germany attracts to her industrial 
 districts labour from countries in Europe equally well endowed 
 by Nature. The great business energy of the. United States 
 has caused her population to increase very rapidly, even after 
 her best natural resources have passed into private ownership, 
 and the new comer might be able to obtain elsewhere better 
 opportunities of becoming the owner of rich land with but little 
 outlay. It is true that these countries have not recently borrowed 
 very much external capital for public and private investment to 
 match the increase of this population; but the reason is that 
 indigenous capital has been growing very fast in Germany, and 
 at a stupendous rate in the United States. 
 
 And again a new keynote is struck: — "A few managing 
 Britons or Americans can now readily be obtained to establish 
 manufactures in any part of the world, and educate nations to 
 
 become satisfactory workers The seat of manufacturing is 
 
 now, and will continue to be more and more, simply a question 
 where the requisite materials are found imder suitable conditions. 
 Capital and labour have lost the power they once had to attract 
 raw materials; these now attract labour and capital^." This 
 keynote may perhaps have been struck a little too sharply. 
 But it is certainly true that manufactures on a large scale can 
 
 ' The Wages Question, ch. iiv. 
 
 ' Carnegie, Rectorial Address at 81 Andrew's, 1902, pp 7. 8. 
 
 6-5 
 
170 TRANSITION TO PRESENT INDUSTRIAL PROBLEMS 
 
 I, IX, 2. be created, wherever tlie resources of nature are favourable, 
 much, more quickly than was possible before the recent develop- 
 ments of mechanical processes of production. It is no longer 
 necessary that several generations of workers should successively 
 be trained to a gradually higher pitch of specialized skill. And, 
 what is in many cases almost as important, a new industry 
 is not as dependent as formerly on the parallel development 
 of subsidiary industries in its neighbourhood, which may supply 
 its minor wants and turn its by-products to account. Machinery 
 and other implements can now be brought from almost any 
 distance in standardized shapes; and the other services, many 
 of which used to be rendered by subsidiary industries, can now 
 be performed in subsidiary workshops, erected for the purpose 
 by a single vast factory. 
 
 The great business, which is set up far from cognate indus- 
 tries, has to trust very much to its own resources not only on its 
 "productive" side, but also in regard to marketing; that is in re- 
 gard to buying what it needs and selling what it produces. This 
 points to the facts, which will receive much attention later on, 
 that an increasing part of the activity of a manufacturing firm 
 is now given to marketing; and that indeed the line of division 
 between production and marketing is increasingly blurred. 
 
 According to popular usage agriculture, fishing, mining and 
 manufacture are productive, because they produce new goods 
 into the field of business : while transport and commerce merely 
 change the positions and the ownership of goods which are 
 already in that field. But man does not make coal, he merely 
 transports it from its bed to the surface; and thus makes it 
 potentially useful; its usefulness is nearly complete when 
 delivered by carrier and merchant into a private cellar; and is 
 quite complete when delivered by a domestic servant to the 
 fireplace. Thus the common distinction between "productive" 
 industries and others rests on no scientific basis. But it corre- 
 sponds to a division, which plays a considerable part in economic 
 studies; the objections to coining a new term to take its place 
 are very great; and for the present at least we must be content 
 to use it^- 
 
 '■ The student of science whose discoveries promote the advance of manu- 
 
THE EVER-RISING PRESTIGE OF MANUFACTURE 
 
 3. General causes which have given to the leaders of 
 productive industry much of ilie prominence and responsi- 
 bility, that formerly belonged almost exclusively to great 
 merchants. 
 
 The chief beginnings of bold capitalistic speculation were 
 in the long distance trade, and especially in that between difEerent 
 countries. As has already been noted, it was relatively small 
 in volume, being confined mainly to a few fine and costly manu- 
 factures; and to things, which could be obtained only by special 
 favour of Nature in particular places: but, slight as it was, this 
 trade was the chief training ground for those faculties which 
 distinguish the master minds in business at the present day. 
 In it alone was there large scope for economic initiative and far- 
 reaching foresight; for the power of controlling great numbers 
 of subordinates of all ranks, from the unskilled porter to the 
 highly responsible officer who was often at once captain of a 
 ship and chief administrator of a large moving storehouse of 
 valuable goods. During long ages the land and the authority of 
 Government were indeed the chief sources of great accumula- 
 tions of wealth: but gradually even powerful rulers began to 
 lean for financial support on the shoulders of those who had 
 reaped the harvests of large mercantile business^. 
 
 faoture has as good a right in the abstract to be called productive, as the com- 
 manding officer has to be called a soldier, though he may not handle any 
 weapon. 
 
 ^ Of course every great empire of early as weU as of recent times has af- 
 forded a training ground for the faculties of organization and administration 
 in regard to the affairs of Government in peace and war; and, in the hands of 
 a man possessing business genius and aptitude, the work sometimes reached a 
 high standard of technical excellence. But the proceedings were based on 
 force rather than on free bargaining: arbitrary decisions governed incomings 
 and outgoings alike; and those who amassed large fortunes from handling the 
 public revenues, from selling privileges, and even from the ownership of large 
 tracts of land, were not always endowed with high constructive faculty. The 
 resemblance of the fortunes of Richelieu, Mazarin and Fouquet to those of 
 predatory Roman Proconsuls has been made familiar by Dumas. The large 
 share of the fortunes of eminent merchants, which was derived from the neces- 
 sities of King and State on the Continent generally, is indicated by Ehrenberg, 
 Das Zeitalter der Fugger. M. d'Avenel (in ies riches depuis sept cent ans; and the 
 suggestive chapter "De quoi se composaient les anoiennea fortunes," of his 
 D&ouveries d'histoire aociale) discusses the importance of ransoms as a source 
 of wealth; and observes (p. 260) that a prisoner served as a sort of negotiable 
 bUl of exchange, according to bis ransom, with which a debt might be paid. 
 
 I, iz, 3. 
 
172 TRANSITION TO PRESENT INDUSTRIAL PROBLEMS 
 
 I, iz, 3. Merchants were the "Venturers" or "Adventurers" from 
 
 whom modern enterprise descended. They had a large part in 
 the coordination and the finance of localized manufacture, as 
 soon as it began to outgrow the capacity of the small master 
 working with two or three assistants. The clothiers and other 
 merchants, who let out wool to be spun and woven to their 
 orders on the Yorkshire streams at the end of the eighteenth 
 century, were men of a larger scope than the "manufacturers": 
 and Liverpool Merchants looked down upon the Manchester 
 cotton spinners, even after a hundred years of mechanical 
 inventions had raised the capitalist manufacturer up to the 
 level of leading merchants in regard to the magnitude of his 
 operations, and had entrusted to him a greater responsibility 
 than theirs as a leader of men. It may possibly be true that 
 no industrial leader of recent times has excelled Watt and 
 Stephenson in creative faculty, or Boulton in administrative: 
 for they were forced to rely mainly on their own strength; 
 whereas only a small percentage of those ideas, which are turned 
 to account in any existing business, were created in that business. 
 But yet the work of some great manufacturing and other pro- 
 ductive businesses in the present age has demanded a combina- 
 tion of faculties almost as rare as those of Watt and Boulton; 
 together with other acquirements and resources which were not 
 in demand, and were not forthcoming, in the earlier age. 
 
 This development is the result of many causes: most of 
 which are connected with the magnitude and complexity of 
 modern industrial operations, and their intricate relations to 
 and dependence on one another. The stage has been passed 
 at which a great idea is almost self-sufficing: it has to be 
 elaborated in connection with others already in possession of 
 the same or neighbouring parts of the industrial field; and 
 its application is therefore not an act, but a long process, 
 needing patience and large resources of mind and perhaps of 
 capital. For instance, when a new mechanical idea has been 
 created, its translation into a smoothly-working business 
 machine generally involves a long series of experimental stages: 
 the constant increase in the size and complexity of the machine- 
 unit often causes such an experimental stage to need the 
 consideration of many more side issues than formerly; and 
 
THE EVEK-RISING PRESTIGE OP MANUFACTURE 17J 
 
 perhaps to cost hundreds or thousands of pounds, where tens i, ix, 3. 
 or hundreds would have sufficed for the simpler and smaller 
 appliances of a few generations ago. There is therefore a large 
 class of improvements, of which prominent examples may bo 
 found in the heavy steel industry and again in the manufacture 
 of monster printing presses or other machines, which are beyond 
 the range of anyone who does not unite the command of a great 
 business concern, with the possession of high faculty for appre- 
 ciating new inventions, if not for creating them. Again, most 
 of the so-called "chemical" industries, together with others in 
 some of those connected with metals, glass, oil, explosives and 
 other things, which are not commonly regarded as chemical, 
 ofier exceptional opportunities for those great business men 
 in Germany and elsewhere, whose genius is partly scientific, and 
 who have founded laboratories within their own works. So 
 far as these considerations are concerned, the growth of largo 
 industrial capitals tends to promote technical progress: the 
 incUnation of the great manufacturer to take a direct interest 
 in engineering chemical and other studies works wholly for good 
 in raising the prestige of industry. 
 
 Again, a progressive business must sometimes rouse an 
 interest in its improved and new-fashioned products: and if they 
 are very expensive, as for instance electrical power plants are, the 
 marketing side of the business must be very strong and enter- 
 prising and courageous: he who can discharge these functions 
 adequately must include among his qualities and aptitudes those 
 of a great merchant. 
 
 Lastly the administrative head of a giant business must hold 
 
 together several thousands of employees of various grades in 
 
 an order which, while harmonious and disciplined, yet elicits 
 
 their individual and spontaneous enterprise: and for this he 
 
 must have some of the chief qualities that are required of the 
 
 commander of an army. He is not a "captain" of industry; 
 
 i he is a "general" in control of several regiments. 
 
 ; Thus it appears that the term a "large business" has become 
 
 . ambiguous. Not very long ago a business was almost always 
 
 ; concentrated in one place: it might have agencies and branch 
 
 offices elsewhere; but they were under the control of the central 
 
 I bureau. Now, however, a single company frequently owns 
 
174 TRANSITION TO PRESENT INDUSTRIAL PROBLEMS 
 
 I, IX, 4. several large establisliments engaged in the same or allied 
 branches of a great industry; each of them being self-contained 
 as regards plant, material and executive, though all are under 
 the same supreme financial control. So far as technical efficiency 
 is concerned, each of these establishments is a separate business. 
 But the central control can bring the experience of each part to 
 bear in guiding the whole: and can defray the costs of large 
 experiments, the benefit of which will be available to the whole. 
 Again, each may have some advantage in being secure either of 
 a good market for its products, or of a good supply of its own 
 requirements in half-finished products, from some of its sister 
 establishments acting under orders from the directors of the one 
 financial business that includes them all. Further the technique 
 of each estabHshment may be indirectly strengthened by the 
 opportunity afforded to it of keeping expensive specialized 
 plant in nearly continuous activity on a relatively small range 
 of work; while other parts of orders, coming to the central 
 bureau, are told ofi to different establishments, which also work 
 intensively within a narrow range. In so far as this can be done 
 the technical efficiency of the business as a whole appears to 
 correspond rather to its aggregate capital than to that which is 
 invested in any one of its establishments. 
 
 In fact, however, the question is much more complex than 
 this. "No one is so wise as all the world"; and no single 
 business is as powerful as the whole industry to which it belongs. 
 A large open market effects an automatic distribution of tasks 
 to those establishments which are severally best fitted for them. 
 The domination of a few large businesses may impair the efficiency 
 of the open market; and the aggregate technical efficiency of the 
 country may be less than if each large establishment had been 
 less independent^. 
 
 4. Some observations on the assumption that social and 
 economic tendencies, which are general and seem natural, are 
 to be accepted as inevitable and beneficial. 
 
 Increasingly throughout our coming study we shall be con- 
 cerned to inquire how far industrial progress is dependent on 
 
 • The subjects of this Section are considered more fully in Book II; and 
 reference is made to some of them in the last chapter of the volume. 
 
GENERAL TENDENCIES ARE NOT ALWAYS BENEFICIAL 17i 
 
 individual and how far on collective action: how far it depends 1,12, 4 
 on ceaseless initiative; and how far on broad ideas and know- 
 ledge, which when once acquired pass speedily into common 
 ownership; and become part of the collective wealth, in the first 
 instance of the countries to which the industries specially 
 afiected belong, and ultimately of the whole world. We must 
 consider how the embodiment of a new knowledge or a new idea 
 in a new or improved industrial implement or method is likely 
 to require the control of a large capital. We must examine 
 the limitation which this condition imposes on the utilization 
 of the world's stores of creative faculty in the development of 
 the material sources of well-being. We must inquire how far the 
 gains, which accrue to a giant business as the apparent results 
 of its fine initiative and its prudent courage in taking financial ■ 
 risks, are really its own; how far such gains are increasing the 
 dominance of large capitals; and lastly how far the tendencies 
 thus resulting are desirable, and how far they are inevitable. 
 
 Even thoughtful men are stiU often in some measure under 
 the dominion of the old notions that those changes, which are 
 general, are probably irresistible; and that to resist them is 
 flying in the face of nature. But subordination to natural 
 tendencies, when pushed to its extreme logical issue, is blind 
 fatalism. It is true that capitalistic aggregations, approximating 
 to the mechanical routine of a sociahstic bureaucracy, have so 
 far been most prominent where economic progress has been most 
 rapid; but so also have the pallid faces caused by a scarcity of 
 fresh air and sunlight. Sources of individual or social decay are 
 sometimes most dangerous, when they are associated with great 
 achievements, and rich benefits. 
 
 Darwin's "law of the survival of the fittest" is often mis- 
 understood; Nature being supposed to secure, through com- 
 petition, that those shall survive who are fittest to benefit the 
 world. But the law really is that those races are most likely 
 to survive, who are best fitted to thrive in their environment: 
 that is, to turn to their own account those opportunities which 
 the world oSers to them. A race of wolves that has well organized 
 plans for hunting in packs is likely to survive and spread; 
 because those plans enable it to catch its prey, not because they 
 confer a benefit on the world. 
 
176 TRANSITION TO PRESENT INDUSTRIAL PROBLEMS 
 
 I, IX, 4. The common opinion is, however, not as wholly false in 
 substance as it is in form. For almost every increase in power, 
 which any race of men has acquired, can be traced to some social 
 qualities which have enabled that race to overcome the difficul- 
 ties that lie in the way of obtaining the necessaries and comforts 
 of life; or to overcome its human enemies, or both. Success in 
 war may indeed be partly due to ferocity of character. But, 
 though it could perhaps not have been predicted a 'priori, the 
 social qualities, habits and institutions of a conquering race 
 have in the past generally been of a stronger fibre than those 
 of the conquered. The temper which enables wolves to maintain 
 the discipline of the pack, has in it something that is noble; and 
 the world has in fact gained a good deal from those qualities 
 which have enabled the dog, a domesticated wolf, to take a high 
 rank among living creatures. But man is not bound to follow 
 the slow steps by which the race of wolves has passed through 
 disciplined ferocity to higher things. 
 
 Again, by aid of "natural selection" certain insects, and 
 flowers from which they gather honey, mutually modify one 
 another, till the insects ensure themselves an abundance of 
 food by the untiring efficiency with which they fertilize the 
 flowers. And in like manner, while it is true that those in- 
 stitutions tend to survive which have the greatest faculty for 
 utihzing the environment in developing their own strength; 
 it is also true that, in so far as they in return benefit the en- 
 vironment, they strengthen the foundations of their own strength, 
 and thereby increase their chance of surviving and prospering. 
 On this account then we may admit that the mere existence of 
 broad tendencies towards the dominance of the joint-stock form 
 of administration and towards combinations of semi-monopo- 
 listic scope, affords some reason for thinking that these tendencies 
 make for the pubUc good. But it is only a 'prima facie reason, 
 and not a very strong one. 
 
 The earlier socialists, neglecting the teachings of history, 
 constructed ideal societies, which probably would have been un- 
 stable even in a world consisting solely of people, whose unselfish 
 love of humanity was as eager and unalloyed as their own. 
 Marx and his followers resolved to be practical, and argued that 
 history showed a steadily hastening growth of large businesses 
 
GENERAL TENDENCIES ARE NOT ALWAYS BENEFICIAL 177 
 
 and of mechanical administration by vast joint-stock companies: i, ix, i. 
 and they deduced the fatalistic conclusion that this tendency is 
 irresistible; and must fulfil its destiny by making the whole 
 State into one large joint-stock company, in which everyone 
 would be a shareholder. But no one would have much scope 
 for independent initiative, and a ghb tongue would be likely to 
 give a man more prominence and influence than could often be 
 attained by originahty and energy: while those, who just escaped 
 discipline as sluggards, might often have an unduly easy exist- 
 ence. 
 
BOOK II 
 
 DOMINANT TENDENCIES OF BUSINESS 
 ORGANIZATION 
 
 CHAPTER I 
 
 THE ADJUSTMENT OF PRODUCTION TO DEMAND 
 IN AN OPEN MARKET 
 
 11,1,1. 1. Some introductory observations. 
 
 The general relations of Books II and III to Book I have 
 already been indicated: the growth of massive production, and 
 the ever increasing size of the representative business unit m 
 almost every branch of industry and trade, which have moved 
 with ever increasing speed during recent centuries, are now to 
 be studied in their present forms, and with some regard to 
 their probable future tendencies. It remains to add a few words 
 here as to the relations between the methods of business in open 
 markets, with which alone Book II is concerned; and those in 
 markets in some degree under monopolistic control, which are 
 the subject of Book III. 
 
 The line of division between the two. classes is indeed in- 
 distinct: they shade into one another by imperceptible degrees. 
 And, further, "competition" and "monopoly" do not cover the 
 whole field of industry and trade. Some good work is done 
 and more might with great advantage be done by associations 
 which aim at the joint performance of special tasks. Some of 
 this "cooperative work," in the original use of the term, has 
 long been done by several Institutes of Engineers and others, 
 
INTRODUCTORY OBSERVATIONS 179 
 
 whose interests are partly of a professional and partly of a ii, i, i. 
 business character. 
 
 In this respect British business men may profit by a study 
 of the constructive part of the work of German cartels: for that 
 can be separated from their control of marketing, and in some 
 cases of production, in the pursuance of monopolistic ends. 
 Such associated efforts need not encroach on the freedom of 
 each business to manage its own afEairs in its own way: they 
 are entirely in accordance with the frank and generous character 
 of the British race; and they have been developed rapidly in 
 several directions, with the patriotic purpose of facilitating the 
 provision of munitions and other requirements of the country 
 during the World-war. 
 
 No doubt such cooperation is not in harmony with that of 
 aggressive competition, which was frequently to be observed 
 among the crude, though energetic men, who mastered English 
 industry in the first half of last century. They were, no doubt, 
 often inclined to regard business as a species of warfare, in 
 which every man's hand must be against his neighbour: and 
 they sometimes found more pleasure in the empty defeat of 
 competitors than in an increase of solid prosperity, which was 
 shared by all. And some prominent writers have disparaged the 
 spirit of economic freedom by the assumption that it involves 
 that old bitter contentiousness. But in fact there is no neces- 
 sary connection between the two. The representative British 
 business man of the present century has a broader mitid and a 
 more generous character than such an argument assumes: his 
 progress in mind and character towards higher things during 
 recent generations is one of the most notable changes on record. 
 
 It is however true that the complacency, which was generated 
 by too easy success in the third quarter of last century, has not 
 yet wholly disappeared from all branches of British industry^. 
 Many opportimities and occasions for cooperative effort, especi- 
 ally in relation to the scientific problems of industry, have been 
 neglected; and the World- war found so much to be desired in 
 this respect, that the active intervention of Government became 
 more urgent than might otherwise have been the case. But 
 so hearty has been the response in nearly every industry to the 
 
 ' See I, V, I. 2. 
 
180 SUPPLY AND DEMAND IN OPEN MARKET 
 
 ir, 1, 1. suggestions of the Committee of the Privy Council on Scientific 
 and Industrial Research; so numerous and energetic have been 
 the leaders in science and industry who have freely given their 
 aid in the work; that cooperative Research Associations are 
 springing into activity in nearly every considerable industry, 
 which offers an opening for such study. It is however true 
 that there are a few subjects, such as that of Fuel Research, 
 which are of direct value to so many industries, that the simplest 
 form of cooperation for their study is that of the nation as a 
 whole: and public opinion has concurred in national expenditure 
 on their account. 
 
 In Books II and III, open and controlled markets are studied 
 from the economic and not the ethical point of view. Human 
 nature is assumed to be much the same in both: and an at- 
 tempt is made to discover how far each method of organization 
 tends to promote general well-being on that assumption. Ob- 
 viously there are several industries in which monopoly must 
 predominate: it is indeed the only practicable method in such 
 a case as the supply of water to a town from a distant source. 
 On the other hand the most malignant features of unscrupulous 
 competition, which recent research has brought to light, have 
 been seen in the pursuit and maintenance of monopolistic con- 
 trol in industries which might retain an open market. The 
 main cause of this is not to be found in any exceptional ferocity 
 of those who are striving to obtain or maintain a monopoly: 
 for such men's minds are generally of too large a mould to be 
 inclined to do evU without adequate motive. The main cause 
 is that they stand to gain large profits from the destruction of a 
 competitor; together with high prestige for business ability, 
 which they may perhaps value even more: while in a really 
 open market no one has very much to gain by destroying any 
 one of his rivals. 
 
 The present chapter is a compressed account of the relations 
 among production, consumption, and value; or — to use an alter- 
 native phrase — among supply, demand, and price. It contains 
 nothing of importance that is not well understood by experi- 
 enced men of affairs; while its form is on lines familiar to economic 
 students. But it is of course arranged with a view to the purposes 
 
INTRODUCTORY OBSERVATIONS 18 
 
 immediately at hand; and a few considerations are therefore ii, i, i. 
 extended rather far. Some readers will probably elect to omit it: 
 and partly, in order to aid decision on this point, a few of the 
 chief matters discussed in it are indicated by the following 
 statements: — 
 
 Production and marketing are parts of the single process of 
 adjustment of supply to demand. The division between them is 
 on lines which are seldom sharply defined: the lines vary from 
 one class of business to another, and each is liable to modification 
 by any large change in the resources of production, transport, 
 or the communication of intelligence. 
 
 The term "cost of production," as used in business and in 
 economic literature, generally includes tacitly some portion of 
 the costs of marketing, the extent of which is to be inferred 
 from the context. It can seldom be definitely interpreted with- 
 out reference (1) to the market for which the production is 
 undertaken; and (2) to a "representative" producing business. 
 
 The responsiveness of demand to changes in price (which 
 is sometimes called its "elasticity") is a gradual process: and, 
 partly for this reason, the diminution in the costs of manu- 
 facture, which corresponds to an enlarged scale of operations, is 
 a gradual, and sometimes an uncertain process. 
 
 The cost of producing a single thing can seldom be isolated: 
 for its production is nearly alw^ays part of a process, which is 
 concerned with many other things of the same class. 
 
 The cost of production of almost every class as a whole is 
 associated with (though it is not strictly speaking a "joint" 
 cost with) that of producing other classes. The "prime," or 
 immediate, costs of producing a thing can often be isolated. 
 But its proper share of the "general" expenses of the business 
 by which it is made, cannot be determined according to any 
 fixed rules. 
 
 Thus the tendency of market prices towards cost of pro- 
 duction (including normal profits) by a representative firm is 
 much obscured, though not annulled, by the almost ceaseless 
 operation of various disturbing causes. 
 
182 SUPPLY AND DEMAND IN OPEN MARKET 
 
 11,1,2. 2. Ambiguities of the terms Market, and Cost of pro- 
 
 duction. 
 
 The term market is used in many different connections; 
 and in scarcely any two has it exactly the same significance. 
 This difficulty has its origin in the ordinary discourse of life; 
 where the context, or a special explanation, indicates the 
 particular use of the term intended: and economists are com- 
 pelled to conform, in this as in many similar cases, to general 
 usage. But a short account of the chief groups of these various 
 uses will be proper to our present purpose^. 
 
 In all its various significations, a "market" refers to a 
 group or groups of people, some of whom desire to obtain cer- 
 tain things, and some of whom are in a position to supply what 
 the others want. A market may consist of all the inhabitants 
 of a town, or of the whole country: or it may consist in effect 
 only of those of them who have a special interest in something, 
 as for instance zinc or leather. In some cases, dealings over 
 the whole Western World may be worked out in such constant 
 unison as to justify the phrase "world-market." Everyone 
 buys, and nearly every producer sells, to some extent in a 
 "general" market, in which he is on about the same footing 
 with others around him. But nearly everyone has also some 
 "particular" markets; that is, some people or groups of people 
 with whom he is in somewhat close touch: mutual knowledge 
 and trust lead him to approach them, and them to approach 
 him, in preference to strangers. A producer, a wholesale dealer, 
 or a shopkeeper, who has built up a strong connection among 
 purchasers of his goods, has a valuable property. He does not 
 generally expect to get better prices from his clients than from 
 others. But he expects to seU easily to them because they know 
 and trust him; and he does not sell at low prices in order to 
 call attention to his business, as he often does in a market where 
 he is little known. 
 
 The demand and the supply of a modern market are not 
 definite stocks on hand at any time, but streams flowing at 
 various rates during a year or some other appropriate period. 
 There are a few exceptions. For instance, in a market for fish 
 
 ' See the concluding remHrks of Appendix A 
 
USE OF THE TERMS MARKET, COST OP PRODUCTION 183 
 
 on a hot day, with no access to cool storage, the supply is merely ii, i, 2. 
 the stock in hand; and the demand is a short sharp movement 
 on the part of a compact group of people. But as a rule supply 
 is a gradual process, liable to be influenced at every stage by 
 varying facilities for production, and varying expectations of the 
 terms on which the product can be marketed. 
 
 The term cost of production is commonly used in two very 
 drSerent senses. Where the affairs of a particular business are 
 under discussion, it always means money cost; that is, the 
 aggregate of the outlays in money, that are incurred directly or 
 indirectly in the production of a certain thing. Among these 
 are commonly included a reasonable rate of profit, together 
 with insurance against risks: remimeration of the work of the 
 owner of the business does not appear as a separate item in 
 the accounts; but goes with interest on capital under the head 
 of profits. 
 
 But in the discussion of social problems, it is often neces- 
 sary to inquire whether certain businesses, which may or may 
 not be adequately remunerative to the persons concerned, are 
 worth what they cost to the coimtry or the world: and in this 
 connection the term cost of production refers to real cost. The 
 real cost of froduction of a thing is the aggregate of efforts and 
 sacrifices which are incurred in its production. Thus the work 
 of very young children in factories, even though paid for in money 
 at the full market rate, is seldom worth its real cost: the satis- 
 factions, which are derived from its contributions to production, 
 are not worth the social cost of child life spent in grievous and 
 depressing toil, and without an adequate education to prepare 
 for the duties of after life^. 
 
 A little care in wording wiU avoid all confusion between real 
 and money costs of production. But there is another difficulty 
 about the term "cost of production for a market" which is apt 
 to be overlooked, and caUs for careful attention. The manu- 
 facturer, or other producer, adjusts his production to his market 
 so as to obtain for himself the greatest net excess of receipts over 
 
 ' The degree of correspondence between the price paid for any particular 
 industrial work and its real cost, though a matter of vital importance from the 
 social point of view, is not very closely connected with the subject of this Book 
 The relations of risks to costs are considered in II, vr. 
 
184 SUPPLY AND DEMAND IN OPEN MARKET 
 
 11,1,2. his "expenses" or "money cost" of production; with due allow- 
 ance for his own trouble and risk, and for the use of his capital. 
 Until goods are marketed their production is seldom of 
 much avail in the modern world: and there is no uniformity of 
 practice on the part of manufacturers and other producers as to 
 the extent to which they themselves incur labour and expense 
 on behaK of the marketing of their goods. A manufacturer 
 may seU to wholesale dealers who, after inspecting his goods on 
 his premises, take their own measures for bringing them, to- 
 gether with other goods, to the notice of retailers: but even he 
 must incur trouble and expense in attracting the attention of 
 the merchants: and remuneration for this has to be included in 
 the price received by him; for otherwise he would not earn 
 profits adequate to his outlay. Heavier costs for marketing are 
 incurred by a manufacturer, if he sends round incessant streams 
 of expensively equipped travellers to dealers of various sorts: 
 and much heavier still, if he also advertises largely in order 
 that the general public may demand goods bearing his name 
 or trade-mark from the dealers. 
 
 Considerations of this kind will be found to underlie the 
 general reasonings of economists as to the relations between 
 demand, supply, and value; but perhaps they have not been 
 made sufficiently prominent. The rule is simple. When 
 considering -the operations of demand and supply in governing 
 price in any general market, we must aggregate the expenses 
 up to one and the same point in regard to every transaction.; 
 and take the demand price at that point. The customs of each 
 particular branch of industry and trade indicate the most 
 convenient point for this purpose: it is generally the point of 
 delivery to a wholesale dealer, and less frequently to the retailer. 
 In a few cases, such as that of bread, it is commonly the point 
 of delivery to the ultimate consumer, either at his own house or 
 when fetched by him — a diSerence in detail of some practical 
 importance^. 
 
 ^ A manufacturer sometimes sells in his own shops to the ultimate con- 
 sumer goods such as are generally sold to a middleman; and then his point of 
 delivery may be reduced back close to the customary (manufacturer's) point by 
 deducting the expenses, direct and indirect, of his shops together with allow- 
 ance for his own trouble and risk in regard to them, from the total expenses of 
 his business; and at the same time deducting the gross profits of the middle- 
 
THE ELEMENT OP TIME DOMINATES PROBLEMS OF VALUE 18 
 
 3. Increased sivpply, demand being constant, lowers ii, i, 3. 
 price hath immediately and ultimately; thoiigh in various 
 degrees/or different things. Increased demand for a manu- 
 factured product generally sets up forces tending to lower 
 cost, and therefore price, except when increased supplies of 
 raw material ca/n he obtained only at greater cost : but its 
 immediate effect is always to raise price. 
 
 So far little account has been taken of the time required for 
 the development of the full results of changed conditions, 
 whether on the side of demand or supply. Economic doctriaes, 
 when expressed in short and handy form, generally neglect this 
 element of time: they imply that certain results will foUow 
 on certain causes, leaving the common sense of the reader to 
 supply the qualification — "provided no great change, working 
 in a different direction, set in before the effects of these causes 
 have time for full development." This qualification being ig- 
 nored, the doctrines are taken to be imconditional; and thus 
 trouble arises: for, though the causes perhaps begin to produce 
 the effects assigned to them, they have not gone far before their 
 influence is modified or even overborne by other causes with 
 different tendencies. This shows that economic doctrines can- 
 not be stated correctly in a few words. 
 
 The growth of demand is in fact gradual. People take some 
 time to leam the uses of a thing which they had regarded as 
 beyond their means. When the price comes within their reach, 
 the more alert may begin to use it, and others in their own 
 class may gradually follow. But there may be hindrances in the 
 way: the thing itself may be of little service without subsidiary 
 appUances that are not yet provided for general use. Thus a 
 fall in the price of gas cannot produce its full effects on consump- 
 tion till people have had time to experiment with gas-engines 
 
 men, through whose hands similar goods generally pass, from the price which 
 he receives. The results thus reached will correspond to those suggested by an 
 observation of the relations between wholesale demand, supply, and price. 
 They may be faulty in particular instances : but if the profits of manufacturers 
 who retail their own goods were habitually much greater than is indicated on 
 this plan, the practice of the market would change: middlemen would be 
 eliminated; and the point of delivery at which expenses and price would alike 
 be reckoned, would be the ultimate consumer. All this, however, must be taken 
 broadly; and subject to the reflection which will shortly be developed that the 
 production of goods and the marketing of goods are not acts, but processes. 
 
186 SUPPLY AND DEMAND IN OPEN MARKET 
 
 II, 1, 3. and gas-cooking stoves for unaccustomed uses ; and perhaps not 
 even till a gradually increasing demand has improved and 
 standardized, and thus cheapened the gas-engines and stoves: 
 and this growing familiarity may of course be checked by a 
 further development of, say, electrical appliances. Again, a fall 
 in the fares charged on a tram line or suburban railway wiE not 
 have exhausted its efEect on increasing the traffic, till new houses 
 have been built near one end to accommodate people whose 
 work lies near the other end. 
 
 In this connection it will be well to introduce an academic 
 term, that will be much needed later on. If a given fall in the 
 price at which a thing is ofiered causes a great increase in the 
 amount demanded, the elasticity or responsiveness of demand is 
 said to be great; and, if it causes only a small increase, the 
 elasticity is said to be smaU^. 
 
 It is a general rule that a lowering of the price, at which a 
 thing is offered, increases demand. The increase will be great 
 or small according as the demand is elastic or inelastic: and 
 either a long or short time may be required for developing the 
 extended uses of the commodity, which are rendered possible by 
 the fall in price. But (at all events if exceptional cases, in which 
 a thing is driven out of fashion by a fall in its price, be neglected) 
 the influence of price on demand is similar in character for all 
 commodities. And, further, those demands which show high 
 elasticity in the long run, generally show a high elasticity almost 
 at once: so that it is reasonable to speak of the demand for a 
 commodity as being of high or low elasticity without specifying 
 how far we are looking ahead. 
 
 But while the response of demand to increased supply acts 
 on price always in one direction, though with varying degrees of 
 intensity; the response of supply to increased demand acts on 
 costs, and therefore on price, in different directions according 
 to circumstances. Its immediate tendency is to raise price: its 
 later effect, in the case of manufactured and some other goods, 
 is gradually to lower costs and therefore price. 
 
 It is, of course, true that an increase in the scale of produc- 
 
 ' If the increase in amount for each small fall of price is proportionately 
 equal to the fall, the elasticity is said to be one; if twice as great, it is said to be 
 two; if only three-quarters as great, it is said to be three-quarters; and so on. 
 
THE ELEMENT OF TIME DOMINATES PROBLEMS OP VALUE 18 
 
 tion of each manufacturing (or other "Increasing Ketum") ii, i, 3. 
 industry opens out to it almost invariably opportunities for a 
 gradual increase of the internal economies to be derived from 
 fit coordination of more extensive varieties of specialized ability, 
 skill and plant; as well as for the standardization of products, 
 and for dealing in the most favourable markets. Again an in- 
 crease in the scale of production of the industry as a whole, or 
 even in that of the industries which supply its needs, tends to 
 open to each business in the industry, whether large or small, 
 access to improved plant, improved methods, and a variety of 
 other "external" economies. But all these tendencies are 
 gradual: some move fast; others require several years, and others 
 again several decades for their full development. 
 
 Even stronger cases can be found of the importance of the 
 element of time in regard to the economies of manufacture on a 
 large scale. A large, standing, order for rifles or cartridges of 
 a particular pattern can be filled more cheaply than a small 
 one; because the large order wiU enable the cost of adapting 
 plant specially to that pattern to be spread very thin over a 
 large surface. In fact, this position is somewhat similar to that 
 of the printing trade, which wiU take an order for fifty thousand 
 copies of a book at a much lower rate than for five thousand, and 
 at a very much lower rate than for five hundred; because the 
 same expense of setting up type has to be incurred in all three 
 cases. And yet a sudden and unexpected order for a million 
 rifles, to be delivered promptly, could not be filled at as low a rate 
 as one for a hundred thousand. For the larger order would 
 require more plant: and much labour skilled and unskilled, 
 not specially adapted to the work, might need to be forced into 
 it. Thus, the tendency to a rise of the price at which increased 
 quantities of anything can be obtained (or their "supply-price") 
 dominates as a rule all industries in regard to short periods. It 
 is therefore even more necessary to make explicit reference to 
 the period of time which is allowed for the adjustment of supply- 
 price to changed conditions of demand, than it is to make refer- 
 ence to the period required for the adjustment of demand-price 
 (that is the price at which any given amount will find purchasers) 
 to changed conditions of supply^. 
 
 ' With regard to short periods, and especially to the transactions of a 
 
188 SUPPLY AND DEMAND IN OPEN MARKET 
 
 II, 1, 3. It is to be further observed that the efiects of a steady in- 
 
 crease in demand for a commodity on the economies at the 
 command of the industry, which makes it, cannot be properly 
 studied without some reference to the conditions of industries, 
 which supply it with plant and other things. If its increased 
 demand for their products enables it to fill its requirements 
 at lower costs than before, then an increase in the demand for 
 its products will enable it to lower their price more than would 
 have been possible otherwise: and therefore yet further to 
 increase its sales, and therefore to obtaia yet further economies 
 of production on a large scale and so on. That is to say, the 
 economies of production on a large scale can seldom be allocated 
 exactly to any one industry: they are in great measure at- 
 tached to groups, often large groups, of correlated industries. 
 
 It is not necessary to pursue this matter further here, 
 because so long as competition works freely throughout the 
 industries concerned, the share which each industry in such a 
 group obtains of the aggregate economies and gains resulting, 
 from the increased demand, is governed by broad causes; a 
 comparatively small place being left for commercial strategy. 
 But if any of the industries in the group are imder some degree 
 of monopolistic control, the matter becomes important, as wiU 
 be seen in Book III. 
 
 So far no account has been taken of the dependence of 
 manufacture on supplies of raw material coming from the two 
 "extractive" industries, agriculture and mining. They are 
 commonly classed as "Dimiaishing Return industries," because 
 in them Nature's resistance to a greatly increased demand 
 generally overbears in the long run the force derived from those 
 resources which man provides: but in fact the constraints which 
 she exerts in the two cases differ fundamentally. 
 
 dealer's market there is au " elasticity of supply " which corresponds closely to 
 elasticity of demand: that is, a given rise in price will cause a great or a small 
 increase in the offers which sellers accept, according as they have large or small 
 reserves in the background, and as they have formed low or high estimates of 
 the level of prices at the next market. But in the more fundamental problems 
 of supply our primary concern ia with the costs at which a given amount of the 
 commodity can be produced on good notice; and therefore amount cannot here 
 conveniently be regarded aa a function of price. 
 
THE ELEMENT OP TIME DOMINATES PROBLEMS OF VALUE 18i 
 
 Good cultivation will enable a field to yield tte same ii, i, 3. 
 amount of produce decade after decade in return for the same 
 amount of labour as before: but, no improvement in the arts 
 of cultivation being assumed, it wiU not, as a rule, enable an 
 increased produce to be raised without the application of labour 
 and capital increased more than in proportion. In other words, 
 what is called "Diminishing Return" in regard to agriculture 
 relates to the difficulty of increasing the annual flow of produce, 
 not of maintaining that flow. But what is often called by the 
 same name in regard to mining relates to the difficulty of getting 
 more produce out of a mine, when its accessible and rich supplies 
 of ore have been lessened by a given aggregate amount, with but 
 little reference to the period of time over which the operations 
 have extended. 
 
 In agriculture improved knowledge and methods are always 
 contending against Nature's resistance to the demands made on 
 her by an increasing population. And no guess can be made 
 as to whether the ratio, which the agriculturist's produce bears 
 to his efEorts, direct or indirect, will increase or diminish; until 
 it is known whether the rate of improvement of his methods 
 and appliances is greater or less than the rate of increase of the 
 demands which he makes on his land^. 
 
 Of course this tendency to Diminishing Return in agriculture 
 is of little practical importance in a sparsely peopled country; 
 but it may press heavily on a country, which has a dense and 
 rapidly growing population, unless large supplies of agricultural 
 produce can be obtained on favourable terms from abroad. The 
 pressure may be relieved a little, but only a little, by better 
 adjustments, as for instance better forms of land tenure, or better 
 education of the farmer". 
 
 ^ In regard to the action of an individual farmer, this tendency may be 
 expressed in terms of money: but in regard to broad problems it must be 
 expressed in terms of amounts of appliances and of products, in spite of the 
 inconvenience caused by varieties of labour, of farming plant, and of crops. For 
 the price of staple foods tends to rise more than in proportion to any increase 
 of demand relatively to supply: so that the necessity for a greatly increased 
 production from the land is likely to increase the aggregate money receipts of 
 cultivators more than their aggregate outlays. This difficulty is often overlooked. 
 
 " It is therefore on a -wholly difierent footing from those tendencies to 
 diminishing return which arise when any producer distributes his resources 
 inappropriately; as when a farmer takes either more land or less land than is 
 appropriate to his capital: or when the number of planing machines in a 
 
190 SUPPLY AND DEMAND IN OPEN MARKET 
 
 II, 1, 4. 4. The cost of production which controls valve relates to 
 
 tvhole processes of production rather than to any partictdar 
 
 parcel of products. 
 
 ^ The cost of any one thing — a bale of cloth, a lawn-mower, or 
 
 an engraving — cannot be definitely isolated from that of similar 
 
 things made La the same process with it; that is, of things made 
 
 by the aid, in whole or part, of the same business abihty and 
 
 organization, the same labour, and the same machinery and 
 
 other plant. In other words, the cost of production, which 
 
 exercises a dominant influence on value, is the cost of a whole 
 
 process. This elementary but important principle (or chief 
 
 head) of the doctrine of value has already been to some extent 
 
 implied in the statement that the immediate influence exerted 
 
 on cost, and therefore on price, by a great increase in the demand 
 
 for a manufactured product is generally in the opposite direction 
 
 to its ultimate effect. 
 
 We must go far from the facts of life to get a case, in which 
 
 the cost of production of a single thing can be exactly deduced 
 
 from the total cost of the business in which it is made: we must 
 
 imagine a steady demand without fluctuations for the products 
 
 of a business, all of which are of the same kind and made under 
 
 the same conditions. If a hundred things are made by it annually, 
 
 locomotive factory is either so large that several of them are habitually idle, or 
 BO small that work is frequently held up to wait for the planing machine. Such 
 troubles are not very frequent: they are transitional: they do not enter as a 
 primary factor into the conditions of human progress : and some little confusion 
 seems to have been caused by speaking of the permanent tendency to Diminishing 
 Return as though It were merely a particular instance of numerous passing 
 incidents. For they do not, as it does, materially affect the rise and dechne of 
 nations; or threaten to offer, ere many centuries have passed, a stem oppo- 
 sition to a further considerable increase of the population of the world. 
 
 This is not of great importance in relation to the structure of business; 
 which is the chief matter now in hand. For indeed the reasonings, by which 
 a farmer decides whether his capital will reach out to the profitable cultivation 
 of an additional piece of land that happens to be available for hire, are of the 
 same character as those by which he decides whether it will be better to buy his 
 own steam cultivator, or to hire one on occasion. And again the reasons by 
 which a manufacturer decides whether to put an additional floor on one of his 
 buildings or to take a new piece of land and put a low building on it are similar 
 to those by which he decides whether to instal an electric supply of his own or 
 not. But, from the social point of view, land in an old country is in a class by 
 itself: for however it changes hands from one owner to another, the country's 
 stock of it is fixed: and this is a matter of the first importance m regard to the 
 incidence of taxation and other large issues. 
 
GENERAL COSTS RELATE TO PROCESSES OF PRODUCTION 191 
 
 then the cost of each is a hundredth part of the total annual ii, i, 4. 
 cost of the business: or, in other words, it is the special cost 
 of that thing together with a hundredth part of the general 
 costs of the business for a year. This imaginary case is commonly 
 taken as the starting-point in discussions of value. But it is not 
 representative; and its suggestions are misleading. It is true that ^ 
 the prime cost of a particular thing can frequently be isolated: 
 but its full cost cannot. We must here go a little into detail as 
 to this familiar distinction. Its prime cost, in the narrow use 
 of the term that is common in many industries, consists of those 
 direct expenses for wages, coal, material, wear and tear of plant, 
 etc., which are incurred by making it, and which would have 
 been avoided if the process of production had stopped short of 
 making it. But its full cost includes an appropriate share of the 
 general charges of the business. 
 
 Thus the taking of an additional order is likely to involve > 
 an increase of the wages bill to nearly the full amount of the ' 
 wages paid to the artisans and labourers who work on it: but "^^ 
 foremen and other trusted artisans are seldom dismissed even 
 in slack times; and therefore parts at least of their wages are 
 not prime costs in the strictest use of the term. Again, it is 
 customary not to include any part of the office charges in prime 
 costs; because the salaries paid at any time are but httle 
 affected by the amoimt of work that happens to be in hand at 
 the time. But there are exceptions to this general rule also; for, 
 when work is slack a vacancy in the office may be left unfilled 
 for the time; or occasion may be taken to dismiss someone 
 whose services are no longer desired. 
 
 The general charges include interest on capital employed; 
 depreciation of buildings, machinery, etc., otherwise than by 
 actual wear and tear; salaries of officials and others who cannot 
 conveniently be discharged at short notice; and the whole cost 
 of building up the organization of the business both internally 
 and in relation to its customers. And, over all, allowance must 
 be made for the earnings (i.e. excess of profits over interest on 
 capital, and insurance) of the heads of the business. 
 
 The distinction between special (or prime) and general costs 
 has always the same character: but it differs in detail according 
 to circumstances. In particular a great part of those costs 
 
192 SUPPLY AND DEMAND IN OPEN MARKET 
 
 11,1,5. wMcli are properly regarded as "general" when a passing 
 transaction is in view, must be regarded as "special" when 
 reference is made to one which extends over a long period. This 
 consideration is very important in connection with the division 
 of costs between two classes of things, in the production or 
 marketing of which some use is made of the same plant, or the 
 same business organization. If the period in view is short, it 
 will often be impossible to assign approximately to each its 
 proper share of the costs which are common to both; though 
 ,^ such an assigimient can be made fairly well with reference to 
 a long period of time. The full significance of this contrast 
 between short and long period results is apt to be overlooked: 
 and it will appear to hold the key to many difficulties which 
 we shall encounter later on; especially in connection with 
 problems of marketing in the present Book, and the next. See 
 also Appendix J. 
 
 5. The distribution of the general costs of a business 
 between tJie various products, to which its resources are 
 devoted: whether they are "joint" in the sense of being 
 practically inseparable, or are produced " in common " for 
 any other reason. 
 
 This class of consideration is reinforced if we look at cases 
 of a group of "joint products" in that narrow sense of the term 
 in which it is not practicable, or at all events not convenient, to 
 produce any one member of the group without at the same time 
 producing the others. Instances of such groups are the meat, 
 skin, and wool of a sheep; or again wheat and its straw. If the 
 relative proportions of each of these were fixed absolutely by 
 Nature, the cost of each group would need to be set as a single 
 thing against the aggregate of the prices which could be got in 
 - the market for the several members of the groups. Cost of pro- 
 : duction would have no part in determining their relative prices: 
 that would lie wholly in the hands of demand. 
 
 In practice, however, there are few, if any, cases of joint 
 products the cost of production of both of which together is 
 exactly the same as that of them alone. So long as any product 
 of a business has a market value, it is almost sure to have 
 devoted to it some special care and expense. If straw were 
 
DISTRIBUTION OF GENERAL COSTS AMONG DIVERSE PRODUCTS 193 
 
 valueless, farmers would exert themselves more than they do to ii, i, 5. 
 make the ear bear as large a proportion as possible to the stalk. 
 Again, the importation of foreign wool has caused English sheep 
 to be adapted by judicious crossing and selection so as to 
 develop heavy weights of good meat at an early age, even at 
 the expense of some deterioration of their wool. It is only 
 when one of two things produced by the same process is value- 
 less, unsaleable, and yet does not involve any expense for its 
 removal, that there is no inducement to attempt to alter its 
 amount. And it is only in these exceptional cases that we 
 have no means of assigning the separate supply price of each 
 of the joint products. When it is possible to modify the pro- "^ 
 portions of these products, we can ascertain what part of the 
 whole expense of the process of production would be saved, by so 
 modifying these proportions as slightly to diminish the amoimt 
 of one of them, without affecting the amounts of the others: and 
 the expense of production of that part of this particular product 
 which would not have been produced, if there had been a lower 
 expectation of demand for it, may in some sense be taken as 
 indicating its cost of production. At all events, it may be said 
 that there is some tendency so to adjust the proportions of the 
 several members of a group even of "joint products" in the 
 narrow use of the term, that the excess of receipts over outlay 
 on the whole group shall be greater than it would have been if 
 Nature had been left to adjust those proportions in her own 
 way. To that limited extent there is some correlation between 
 cost and value even in regard to such products. 
 
 When two things, say locomotives and stationary engines, ^ 
 are made ia the same works, and in a great measure by the 
 same labour and plant, it is often said that their costs are 
 "joint"; but, this term has a special historical association with 
 groups of things, such as wheat and straw, which cannot be 
 produced separately; and it seems better to speak of such groups ) 
 as having "common" or "allied" costs. 
 
 In cases of such common or allied production, each thing is 
 charged with a share of those expenses which are incurred on 
 accoimt of the general work of the business; it is next charged 
 with a considerably larger share of those expenses for plant, for 
 superintendence, for advertising, etc., which more specially 
 
194 SUPPLY AND DEMAND IN OPEN MARKET 
 
 n, i, 6. belonged to the particular department by which it is made, in 
 addition to the prime costs incurred directly and specially for 
 it. Simple arithmetic in this case needs to be supplemented by 
 careful analysis and thoughtful study of each problem as a 
 whole: and, as we shall see later on, much systematic and 
 organized efiort has been given by accountants and others to the 
 task. 
 
 Let us push this a little further. Suppose a manufacturer 
 to be doubting whether to set up some expensive plant, or some 
 addition to the office staff, or some new selling agency, which 
 could not pay its way by the work it did for any one class of 
 his products, but would save a little on each of three classes. 
 If he decided that the aggregate of these savings would make 
 the proposed outlay remunerative, he would adopt it, and regard 
 its cost as part of the costs of those three classes. There would 
 be no direct means of dividing out the cost among them: but 
 he might divide it out roughly in proportion to the savings he 
 made on them. This distribution would have no strict logical 
 basis. But it woxild be nearly that which competition would 
 have compelled; if each of the three classes had had to meet 
 similar products made by manufacturers, who speciaUzed on 
 them, and foimd full employment for a machine, or other ap- 
 pliance similar to that which he was contemplating. 
 
 6. General conclusions as to limitations of the tendency 
 towards such an adjustment of supply to demand, as would 
 cause market price to cover expenses of production with 
 normal profits. 
 
 This accoxmt of the adjustment of supply to demand has 
 aimed only at indicating broad tendencies, which conduce 
 towards the attainment of an equihbrium position; though 
 incessant changes in the conditions, which must be satisfied 
 by a position of equilibrium, prevent them from reacHng it. 
 To revert to a familiar illustration, the gravitation, which efiects 
 a smooth surface on a pond when the air is still, is making 
 always for an equally restful result on the surface of the ocean: 
 but there the winds build up mighty waves; while tides 
 alternately raise and lower the general surface by amounts, 
 which vary with the positions of the moon and sun: and the 
 
SUMMARY OF RELATIONS OF VALUE TO COST 195 
 
 explanation of these movements, and their partial prediction are ii, i, 6. 
 based on a study of elementary physical laws. In like manner 
 business enterprise tends to increase the supply of anything, 
 when the price at which it can be marketed will return its ex- 
 penses of production with fairly good profits: and this tendency 
 is working at any moment towards an imaginary position of 
 equilibrimn, which would be promptly reached if the general 
 conditions then prevailing were rigidly fixed. But- in fact it 
 is not reached; any more than is that imaginary position of 
 equilibrium of the sea, which would be reached if the relative 
 positions of the earth, sun and moon were fixed, and the winds 
 were stilled. 
 
 Almost every one of the expenses of maintaining any process 
 of production is liable to incessant change. At one time addi- 
 tional machines may have to be bought when the market for 
 them is exceptionally favourable to the seller: while another 
 set may be bought at a time when machine makers were willing 
 to accept a price, which did not go very far beyond covering the 
 mere prime cost of production. The same shop under one 
 manager will turn out more and better work at the same 
 expense than under another. The same manufacturer, using 
 his best energies without stint, wUl at one time put out a 
 commodity which the market absorbs quickly at a price much 
 beyond its full expenses of production; but at another he will 
 have missed his aim, and be compelled to force his product on 
 the market at a heavy loss. In these and innumerable other 
 ways the return to a whole process of production may be kept 
 for a considerable time a good deal above, or below, the level 
 which might return its whole expenses with normal profits. But 
 yet the tendency to keep expenses and price in close relation to 
 one another is strong and persistent in an open market in regard 
 to whole processes of production; the deviations from normal 
 equilibrium, though ceaseless, are seldom very wide. Thus far- 
 reaching are the various uncertainties of demand on the one side 
 and of supply on the other. 
 
 But indeed a perfect adjustment is inconceivable. Perhaps 
 even it is undesirable. For after all man is the end of pro- 
 duction; and perfectly stable business would be likely to produce 
 men who were little better than machines. 
 
196 SUPPLY AND DEMAND IN OPEN MARKET 
 
 II, 1, 6. The general position is, then: — Every manufacturer, or other 
 
 business man, has a plant, an organization, and a business 
 connection, which put him in a position of advantage for his 
 special work. He has no sort of permanent monopoly, because 
 others can easily equip themselves in like manner. But for the 
 time being he and other owners of factories of his class are in 
 possession of a partial monopoly. The prices of the stock, which 
 they put on the market, will be governed by the demand of that 
 market relatively to that stock, nearly in the same way as if 
 they had a true monopoly. Nearly in the same, but not quite: 
 for in the case of a permanent monopoly consumers will seldom 
 gain much by waiting for lower prices; whereas, if prices rise 
 above cost of production in an open trade, those consumers, who 
 can do so conveniently, will wait for the effect of competition in 
 bringing down prices. Combinations for regulating prices aim 
 at consolidating provisionally this partial monopoly, and at 
 putting it in good working order: and this fact goes far towards 
 explaining their gradual, and in some cases almost unconscious, 
 drift towards monopoly in the full sense of the term. So im- 
 portant indeed are these considerations, that the greater part of 
 Book III will be occupied with the complex issues which are 
 raised, on the one hand by monopolistic tendencies in markets, 
 that are in the main open; and on the other by competitive 
 influences on monopolistic policy. 
 
CHAPTER II 
 
 DEBTS OF INDUSTRIAL TECHNIQUE TO SYSTEMATIC 
 RECORD AND TO STANDARDIZATION 
 
 1. In early times the cumidative progress of industrial ii, n, i. 
 technique was in the main dependent on the informal 
 records of customary usage: and this primitive method 
 was until quite recently the chief resource of agriculture 
 in sparsely peopled districts. 
 
 If custom had been absolutely rigid, it would have been 
 an almost unmixed evil. But the resistance which it offered 
 to the bold reformer resembled that presented by a glacier to 
 anyone who might try to change its shape: custom and the 
 glacier are plastic, but both refuse to be hurried in their adjust- 
 ments. Custom has discouraged any attempt at improvement 
 which involved a sudden breach with tradition: but, except in 
 some ceremonial matters, it has been tolerant of modifications 
 in substance, form and method which did not obtrude themselves. 
 On the one hand, stagnant social conditions do not crush out of 
 everyone the desire to humour his own fancy, or his love of 
 novelty, or his inclination to save trouble by a rather better 
 adjustment of implements to the work done: and, on the other 
 hand, the solidity of custom has rendered the supreme service of 
 perpetuating any such change as found general approval. 
 
 Had each put his individual fancies into practice without 
 restraint, few would have followed his erratic movements: there 
 would have been no corpus, or body of general thought, in 
 which they could have been merged; and, in the absence of 
 written record, they might probably have perished without 
 leaving direct successors. But custom supplied a permanent 
 body of general design, on which each fresh mind might try to 
 make some variation for the sake of economy of effort, of in- 
 
198 ADVANCEMENTS OF INDUSTEIAL TECHNIQUE 
 
 11,11,1. creased utility, or more pleasing effect. And custom under 
 favourable conditions was able to make utility, economy and 
 artistic delicacy work harmoniously together in improving the 
 standard commodity of common life. 
 
 Modern conditions have given some solid foundation for the 
 common statement that utility and beauty are hostile to one 
 another. For when a thing is marked out for description as 
 useful, it is almost sure to be a device for attairdng some 
 utility, old or new, by a new method; that is to say, it has not 
 had time to be gently moulded by innumerable light touches of 
 successive makers, who have tried to bring it more into harmony 
 with their sense of fitness. But in the ages of patient custom 
 time was abundant. Perhaps not one in twenty of the tenta- 
 tive mouldings was well conceived: but those which were bad, 
 passed away; whUe those which the people approved, were 
 almost unconsciously iacorporated in hallowed usage; and they 
 became material for further moulding by the delicate breathings 
 of the spirit of the race. Thus it comes that the carpet, the 
 axe, and above all the sword, have been gradually standardized 
 in different places, and often on quite different lines; but always 
 so gently as to combine grace with efficiency in high degrees. 
 So far as we can tell, men had then generally less quick, subtle, 
 and fine instincts than now; and if each generation had moulded 
 its own implements with little guidance from the past, the 
 effects might probably have been crude; but, working on the 
 plastic standard received from the past, each made its own step 
 towards the IdeaU. 
 
 • In like manner melodies and ballads, which have been standardized 
 by unwritten tradition, have offered opportunity and incentive to every bard 
 in each successive generation, to make slight variations in his recital. Some 
 would not please even himself; and few would meet with enduring favour. 
 But whenever a man of genius arose, he would leave ballads or melodies a 
 little altered for the good: and thus the finest ballads, especially those which 
 have come down to us with the name of Homer, and the most delicate traditional 
 music have some charms that are beyond the reach of individual poets or 
 musicians. 
 
 It is not indeed to be denied that a few ceremonial costumes which have 
 come down from early times are ugly as well as inconvenient; and indeed 
 some of them seem to have been developed as a means of proclaiming a superi- 
 ority to manual work. The surviving vestiges of ancient costumes in the Aljjs 
 include some, which are not admirable from any point of view; but they are 
 cherished as indications of hereditary rank and of loyalty to the village or valley. 
 
CUSTOM ENSHRINED EARLY PROGRESS OF TECHNIQUE 19 
 
 Even in a primitive civilization, changes in appliances, in ii,n, i. 
 methods, and in the purposes for which they are to be used, are 
 mutually dependent on one another: and this cause alone would 
 greatly limit the practical influence of isolated new ideas. Here 
 ■ however the institution of slavery sometimes came to the aid of 
 progress, by forcibly breaking down prescriptions of custom: 
 for it enabled a new idea, which had taken hold of a few strong 
 men, to be realized in practice more quickly than if the manual 
 workers had been free, but comatose and uninteUigent. It has 
 often been observed that progress has owed much to the sub- 
 ordination of the masses of the population to the will of a dominant 
 race, whose minds have not been occupied with petty cares. 
 But mankind wiU not have achieved their destiny till the masses 
 can pioneer for themselves. 
 
 Even where custom opposes no great resistance to change, 
 progress cannot be very fast unless a man's best thoughts are 
 recorded in some way, so that others may profit by them. For 
 large inventions and other advancements are seldom completed 
 by a single man; and not always by a single generation. In 
 fact, they are often named after those who have planted the 
 flags of conquest on the crests of the battlements; while those 
 who led the way, but did not live to partake in the ultimate 
 victory, are forgotten. For the highest constructive instincts 
 are apt to die with him who has developed them: their offspring 
 may live in those, whom he has influenced personally; but 
 otherwise they bear little fruit except in so far as he has embodied 
 them in a form which is generally accessible. 
 
 During the greater part of the life of the world most of the 
 people have spent nearly the whole of their time in the fields: 
 compact centres of life and thought were rare: and, before the 
 days of printing, a scattered population had little opportunity 
 for the stimulus and suggestion, which one man can derive from 
 the thoughts and experiences of another. Tradition ruled; and 
 particular experiences seldom developed into successive steps of 
 cumulative progress. These facts go far to account for the 
 
 whose flag they in effect are : and this loyalty may have tended to some accen- 
 tuation of local peculiarities. It seems that with comparatively few exceptions 
 those parts of the local costume, which are worn in every-day life, are con- 
 venient and in good taste. 
 
200 ADVANCEMENTS OF INDUSTRIAL TECHNIQUE 
 
 11,11,1. slow progress of technique till recent times. It may be true 
 that the native brain power of the individual has not greatly 
 increased with the ages; and it is certainly true that emergency 
 and opportunity have frequently proved agricultural populations 
 to be strong in resource as well as in resolution. But yet the' 
 conditions of agricultural life have not been such as to bring to 
 the front those men, who had the faculty requisite for makmg 
 great occasions for themselves: one reason for this being that 
 the ownership of land has come by inheritance in a somewhat 
 greater degree than the ownership of considerable industrial 
 resources. Further, every agricultural problem has peculiari- 
 ties of its own : and some sides of it can be mastered by shrewd, 
 experienced, alert, instinctive judgment, better than by syste- 
 matic reasoning based on ordered knowledge. Therefore the 
 agriculturist has never been apt to search for the general in 
 the particular, and the particular in the general. His instinct 
 and insight have for the greater part died with him. The progress 
 of his art remained for the greater part empirical, imtil men 
 trained in industry, or commerce, or in scientific schools came 
 to his aid^. 
 
 ' Even now we read that in Britain, though many of the big farms are 
 excellently managed, "all depends on man's instinct and memory." It is true 
 that agricultural methods are being improved in some places by agriculturists 
 themselves; but this progress is for the greater part confined to districts in 
 which agriculturists have learnt the importance of a good education, by which 
 is meant "not so much further knowledge of a technical sort, as the more 
 flexible habit of mind that comes with reading, the susceptibility of ideas, that 
 is acquired from acquaintance with a different atmosphere than the one in 
 which a man ordinarily lives." The work of a tenant farmer on a holding 
 of 150 to 500 acres is often of high quality, both technically and in regard 
 to business methods. But men mostly "learn by example, by looking over 
 the hedge"; and the bad farming one sees so often in England alongside the 
 best, is not due to any lack of knowledge, but to the low mental calibre of many 
 of the men occupying the land. (The above statements are reproduced from 
 the concluding article of a notable record of "A Pilgrimage of British Farming," 
 The Times, 6 Jan. 1913.) 
 
 Mr R. E. Prothero {English Farming, Past and Present) shows that the 
 work of agricultural pioneering did not begin to combine "science with prac- 
 tice," and proceed steadily by one firm stepping-stone of recorded advance 
 to another, till about 1812. The great work of Townshend, BakeweU, Coke 
 and other early guides was mainly based by empirical methods on practical 
 experience. Attention has already been called to the use which some monas- 
 teries made, even before the "Revival of Learning," of Latin literature on 
 behalf of the agricultural arts. 
 
DEBTS OF MODERN TECHNIQUE TO RECORD AND STANDARDS 201 
 
 2. Various uses of the term Standard. Influences on ii, n, 2. 
 technique exerted by clear and exact registration of the results 
 of progressive experiments, such that each can be used as 
 a stepping-stone to later endeavour. 
 
 Custom standardizes unconsciously and cradely processes 
 and products alike. The modem science of industrial teclmique 
 deliberately standardizes some products and many processes; 
 and deliberately leaves many products and some processes open 
 to varying tastes and humours, to fluctuating needs, and to the 
 caprices of fashion. But deUberate standardization is used as 
 a means to the attainment of some definite aim: and it is in 
 turn deliberately modified, or even set aside, as soon as that 
 aim either loses importance, or is found to be accessible by 
 a better route which requires different standards. A standard 
 may be Particular to an individual producer, or it may be General 
 to the greater part of an industry or even the whole western 
 world^. 
 
 General standardization for industrial purposes is sometimes 
 set up at a stroke by authority of Government, or of a con- 
 vention of leaders in the industries most directly concerned. 
 Thus, for instance, the present electrical standards, Watt, Ohm, 
 Ampere, etc. were fixed by an international convention: and 
 every Government appoints, and changes from time to time, 
 the exact measurements and other specifications of rifle cart- 
 ridges, whether made in its own or in private workshops. No one 
 would assert that the general adoption of standards, differing by 
 a little from any of these, would be much less useful: but there 
 is a vast advantage in the existence of definite standards, 
 adhesion to which within less than a thousandth part may be 
 required in certain cases. This kind of standardization, as well 
 as the Particular standardization of the individual parts of a 
 typewriter, or a reaping and binding machine, etc. by an individual 
 maker, will be considered shortly. But just now we are concerned 
 rather with that General standardization which is evolved 
 gradually and embodies the progressive evolution of improved 
 technique. 
 
 ' Mediaeval regulations as to standardization provided a, somewhat futile 
 occupation to the Aulnager; and they flourished in a form, partly mediaeval 
 {md partly modem, under Colbert. 
 
 7—5 
 
202 ADVANCEMENTS OF INDUSTRIAL TECHNIQUE 
 
 II, II, 2. For instance, every decade has seen the standard shape and 
 proportions of racing yachts moulded by the thought and 
 experience of numerous capable experts in several coimtries. 
 Each designer is ever striking out some more or less important 
 deviation from ordinary practice: if his venture seems to him 
 good, he embodies it in his own practice, and it becomes part 
 of his Particular standardization. If it meets with approval by 
 others, it is soon embodied (with perhaps some modification) 
 in the General standard shape as has been the case with racing 
 yachts. But the best shape for a racing yacht depends a good 
 deal on the conditions under which it is to be sailed, and a little 
 also on the personality of its captain; and similar personal 
 considerations afEect, in various degrees, the choice of business 
 methods. When the athlete strikes out a particularly successful 
 way of taking hurdles, his Particular standardization is not at 
 all sure to become General, until experience has shown to what 
 extent his success with it is due to his idiosjTicrasy. 
 
 A similar cause retards even more the general adoption of 
 a modification in the method of conducting a certain class 
 of business operations which has proved successful in a par- 
 ticular case. But technique is less dependent on personal 
 peculiarities; and an experiment bearing on the technique of 
 an industry may be trusted, as a rule, to give the same results 
 in the hands of any two competent investigators. Specialized 
 students generally have access to exact printed records of the 
 course of every set of experiments; which form the basis of 
 the prevailing standard method of attaining any end in which 
 they are interested; and a comparatively short description of 
 anyone's work generally enables others to know what he has tried, 
 where he has failed, and where he has succeeded. If therefore 
 the suggestions embodied in his work are accepted, and become 
 the basis of the General standard method, others are able to start 
 for further investigations from the point which he has reached, 
 and with nearly the same advantage as if they had made the 
 original experiments themselves. Let us then pass to consider 
 the methods of work of the modern inventor, who turns to 
 accoimt the best results of scientific research that bear on his 
 purpose; and adds to them. 
 
SCOPE IN RESEARCH FOR MEN OF VARIOUS FACULTIES :203 
 
 3. Distribution of the studies, that make for progress, ii, u, 3. 
 among men of various lands and degrees of ability. 
 
 We now revert to subjects touched in Book I: they will 
 occupy us a good deaP. 
 
 An improvement in business method is generally initiated 
 by a man of affairs, who sets himself to attain a particular 
 practical end by the best route. The same is generally true of 
 advances in industrial technique, in so far as they are made in 
 the course of business: but the greater part of the work, which 
 hes at the bases of those advances, is made by other men with 
 different motives and different methods. It is made by mere 
 students: that is, by men who labour, not with reference to the 
 attainment of any particular practical end, but in search of 
 knowledge for its own sake. They group together for investiga- 
 tion phenomena which are fundamentally akin, so that the 
 study of many particular relations between them may set 
 thought on the track of general rules or "laws" of causation, 
 tendency, or coexistence: imagination creates movement; cau- 
 tion checks reason by working out parallel but independent 
 trains of thought: and, wherever possible, each general rule is 
 tested by application to particular instances, in which it may 
 be confirmed or discredited by experiments or observations 
 of specific facts. Some of these architectonic workers, but not 
 many, have the power and the will to embody their ideas in 
 specific practical inventions of commercial value: and occasion- 
 ally a man will be found, who combines the faculties and apti- 
 tudes required for high scientific research with those of a great 
 business administrator^. 
 
 The pursuit of knowledge by the pure student for its own 
 sake is generally a richer source of new knowledge, than is the 
 
 1 See especiilly pp. 99—103; and 132—134. 
 
 ' This interdependence of the work of the professional student and the 
 man of practical ways and means is being worked out in several ways. Thus 
 the electric ;iucandescent lamp must not contain more air than would fill a 
 millionth part of its volume at ordinary pressure: and the way for this per- 
 fection "wds prepared by an army of men, whose main object was the ad- 
 vancement of knowledge; and who could scarcely have imagined that the 
 processes, which they had elaborated, would soon be in use on a commercial 
 scale, and entrusted to the hands of ordinary workmen.... The requirements of 
 practice TOact in the most healthy way upon scientific electricity " (Lord 
 Rayleigh, quoted in lies. Inventors at Work, ch. six.) 
 
204 ADVANCEMENTS OF INDUSTRIAL TECHNIQUE 
 
 II, II, 3. pursuit by the business man of that particular knowledge which 
 bears directly on a specified practical aim: for an idea, which 
 generates new ideas, will be pursued to its consequences by the 
 student; while the practical man will be inclined to drop even 
 the most fertile idea as soon as he has extracted from it the 
 help, if any, which it can give him in attaining his practical 
 purpose. But nevertheless the methods of the two, if both are 
 able investigators, will have much in common. Each of them 
 concentrates his attention for a time on some particular subject, 
 learns nearly all that is already known about it; analyses it; 
 selects for his maia study, or at least his first study, some part 
 of it; extends his observation in regard to that part; exerts his 
 constructive imagination; devises developments which offer some 
 promise of leadiag to new knowledge or to improvements in 
 technique; makes systematic experiment in regard to those 
 developments; makes provisional record of their results, and 
 studies those results. Perhaps he makes further observations, 
 further analyses, further imaginations, and further experiments; 
 until at last he has attained a result which he beUeves to be of 
 value. He will estimate its value with reference chiefly to the 
 services it may render to the world, or to the prestige or the 
 reward which he wiU reap from it, according to the bent of his 
 character and mind. 
 
 Whether he communicates his results to a learned society, 
 and leaves others to earn money by them, or applies them ia 
 practice himself (with or without the protection of a patent), 
 they become in effect the property of the world almost at once, 
 Even if he uses them in a "secret process," enough information 
 about them often leaks out to set others soon on a track near 
 to his own. 
 
 Sometimes an investigator is dealing with irregular pheno- 
 mena, the causes of which are not likely even to be conjectured 
 till much further progress has been made in the high borderland 
 of molecular physics and chemistry; and then his only plan is 
 to make vast numbers of experiments on material chosi^n almost 
 at random, with a watchful eye for any that tend in the desired 
 direction. He must examine the more palpable qualities of the 
 materials that please him, and seek out others that havti any of 
 these qualities in a higher degree; thus reaching his end by 
 
SCOPE IN RESEARCH FOR MEN OF VARIOUS FACULTIES 20i 
 
 sedulous, disciplined imagination, even though he has no access ii, n, 3. 
 to fundamental laws of causation. Investigations of this kind 
 often need more time than is at the command of any one: they 
 must be done by a "team" of workers under the direction 
 of a master mind. But, when he has before him a particular 
 mechanical aim (as for instance in connection with the phono- 
 graph, the telephone, the cinematograph, etc.), his imagination 
 can work straight on along definite processes of reasoning in 
 subordination to general fimdamental principles. In both cases 
 he makes use of methods and reasoning, which had been brought 
 up to high standards by the collective efforts of innumerable 
 workers at various times and in various lands: and in return 
 almost every stage of his original methods, in so far as published, 
 contributes to the world's wealth of knowledge'^- 
 
 Team work, if somewhat mechanical and lacking in romantic 
 interest, is of very great power in chemistry and some other 
 sciences, as well as in business technique. Its steady expansion 
 is partly cause and partly result of growing tendencies on the 
 part of scientific students and leaders of industry to develop 
 common interests, and work together as allies for the invasion 
 of the borderland between science and technique. In numerous 
 directions the chief leaders of industry are makiag assiduous use 
 of organized and provisionally standardized general principles: 
 and, aided in very various degrees by the Governments of 
 difierent countries, they are working for extensions of knowledge 
 which shall be at once technical and general; at once serviceable 
 in their own particular operations, and fertile sources of larger 
 and more exact science in time to come^. 
 
 • See Dyer and Martin, The life of Edison, ch. xxiv. Edison's laborious 
 research for rare earths that might serve as material for incandescent lamps has 
 lost some of its interest in consequence of the new methods by which wire, a 
 thousandth of an inch in diameter, can be drawn from tungsten and other 
 suitable metals. 
 
 " Some of the work is done by young men, of rather narrow mental vision. 
 Each of them is contented to plod under instructions at a minute part of a small 
 question; he studies whatever has been printed about it in various scientifio 
 memoirs; and works on that material till he has made some advance that 
 can be combined by a stronger mind, with other results obtained by similar 
 plodding. Thus overlapping work is cut down: students of varying aptitudes 
 and abilities are occupied, each with work that is just within his range. The 
 strength even of weak men is turned to account for high work; and that of strong 
 men is given almost wholly to work that is worthy of it: while every step gained 
 
206 ADVANCEMENTS OF INDUSTRIAL TECHNIQUE 
 
 II, n, 4. 4. Influences on industrial technique exerted by the 
 cumulative power of carefully made machines to create otliers, 
 that are capable of work even more exactly standardized 
 than their own. 
 
 So far we have considered tlie influence of recorded and 
 standardized knowledge in regard to method and powers; each 
 new knowledge being the offspring of others that went before, 
 and the parent of many that follow. A simple form of such 
 knowledge, which has contributed greatly to the progress of 
 technique, is embodied in improved constructions of material 
 objects — house, furniture, clothing, implements, etc. But early 
 in last century some ideas, which had been for some time in the 
 make, developed into the great architectonic principle that a well 
 driven machine tool could become the parent of new machine 
 work more exact than itself, which could become in its turn 
 the parent of yet more exact machines; and so on. This idea 
 has so developed, that at last each successive generation, and 
 even each successive decade, has seen results accomplished, 
 which appeared almost impossible till lately. The work has 
 been done chiefly by engineers, who have often loved their work- 
 shops, as academic students have loved their laboratories. 
 Chemistry is becoming the mistress of a rapidly increasing num- 
 ber of workers: but engineering has special claims to be regarded 
 as the leading representative of modern industries, at all events 
 from the point of view of an inquiry into the general course of 
 economic progress. For all other large industries are dependent 
 on it for most of their appliances; which are growing rapidly in 
 exactness and efficiency, while falling rapidly in cost. The 
 technique of some of the textile and other industrial groups 
 owes as much to the invention and initiative of mechanical 
 engineers as to their own: and the economist is under 
 exceptional obligations to the semi-technical literature of 
 engineerings- 
 is registered, under discriminating judgment, for tlie benefit of the world. 
 This method seems likely to dominate many branches of study: but of course 
 it can seldom lead directly to epoch-making discovery. 
 
 * A prominent place must here be given to the Engineering Supplement of 
 the Times and to articles in the Manchester Guardian and other newspapers, as 
 well as to the Engineering Magazine and similar periodicals. 
 
ACCURACY OF MACHINE-MADE MACHINES 207 
 
 The attention of tlie progressive engineer is concentrated ii, u, 4. 
 on some branch of production, which has been neglected, 
 or of which the methods appear to be needlessly cumbrous. 
 It is analysed into its component parts. Each part is again 
 analysed, with the aim of subdividing it into elementary 
 tasks; each of which can be effected by a single procedure, 
 mechanical, chemical or other. Apparatus is devised or adapted 
 for each elementary task. It is tried and amended and tried 
 again. By successive steps larger and more dehcate work is 
 thrown upon the apparatus: and it is required, firstly, to adapt 
 itself to ever subtler varieties and nuances of human require- 
 ments; secondly, to perform one process after another, that is 
 needed for the ultimate end, with little or no assistance from 
 the hand of man. Thus at last it becomes an "automatic" 
 machine; and it has this much of right to be called a thinking 
 machine, that it changes its mode of action at the right time, 
 acting on hints given from within, which would require the 
 thoughtful care of an attendant, if given from without. Thus 
 complexity of result is attained. But the means need to be 
 simplified: and indeed the subtlest conceptions of the inventor 
 are often given to laboriously simpUfying his apparatus, till only 
 the expert can detect the subtlety of his labour. 
 
 When all is in order, the machine is nearly delf-sufficing. 
 It needs only an alert watcher to attend to any complaint it may 
 utter: but, because it is simple, it seldom complains; and its 
 complaints can sometimes be made to take the form of standing 
 still, tiU the watcher can attend to it. 
 
 The lead in this direction came from the simple strong 
 Boulton. Watt found that much of his steam ran to waste, 
 because Boulton's cylinders and pistons were not true; though 
 they were the best that had been made so far. For indeed the 
 manufacture of machines had not up to that time reached an 
 exactness much more advanced than that to which the Dutch 
 had brought their wooden ship-building many centuries before. 
 So Boulton set himself seriously to improve the common appli- 
 ances for making machines: and thus struck out the first cardinal 
 idea^. 
 
 ' Hia plan, he said, was to "engage and instruct some excellent workmen 
 who (with more excellent tools than it would be worth any man's while to 
 
208 ADVANCEMENTS OF INDUSTRIAL TECHNIQUE 
 
 11,11,4. Later on attention was more given to the fact that the 
 lathe, "the mother of exact work," was miable to turn her 
 latent power to full use, so long as the movements of its cutting 
 tool had to be governed by the untrustworthy hand of man. 
 Many worked at the difficulty: and at last it was overcome 
 by a simple great man, a fit successor of Boulton and Watt. 
 Maudslay found that every bolt and nut was "a speciality in 
 itself. . .all bolts and their corresponding nuts had to be specially 
 marked as belonging to one another"; which was specially 
 troublesome "when parts of complex machines had to be 
 taken to pieces for repairs." Accordingly he devised a simple 
 "generating machine," which made fairly accurate screws: and 
 he set one of these to act as Guide screw for the cutting tool; 
 which no longer was moved along according to the judgment 
 of the machine, but automatically moved at a steady rate duly 
 proportioned to the rate of rotation of the material. His "self- 
 acting lathe," governed by fine screws, enabled him to make 
 a machine that would measure easily up to a thousandth part 
 of an inch. He put his best work into appliances with which 
 he made still better work: and thus he went far towards the 
 modern age; in which the most accurate standardization is 
 applied to the master machines, that are responsible for making 
 the most important of those machines, that are responsible for 
 the every-day work of an ordinary engineering shop. But the 
 finest modem engineering work requires gauges true to a ten- 
 thousandth of an inch, which must be read on occasion by a 
 micrometer reading up to a hundred-thousandth part; i.e. to a 
 two-himdredth part of the diameter of the human hair. (For 
 some scientific work even greater accuracy is needed; but that 
 is effected by optical instruments making use of difiraction 
 fringes^^.) 
 
 procure for one single engine) could execute the invention... with as great 
 a difference of accuracy as there is between the blacksmith and the mathe- 
 matical instrument maker." 
 
 ' Maudslay devised a measuring machine, "the Lord Chancellor," in which 
 he used his best screws, and also two planes made by an improved method; and 
 originated the saying "Measure up to hundredths of an inch and feel up to 
 thousandths"; that is, press the planes together till their friction offers some 
 resistance to an attempt to shift the bar between them; and then read with a 
 micrometer divisions as finely as you can. 
 
ACCURACY OF MACHINE-MADE MACHINES 209 
 
 Meanwhile Wiitworth, following in Maudslay's steps, had ii, n, 4. 
 studied the question of the best shapes for screws for various 
 purposes. His Particular standardization of them was approved: 
 and made the basis of an organized General standardization 
 for Britain. In such matters progress is ever eating up her own 
 best results: perhaps it is best that several systems should be 
 tried in various countries; but the movement towards a plastic 
 international standardization, though temporarily checked, may 
 ultimately prevail. 
 
 The lathe has pioneered not only in exact work, but in 
 complex automatic work. In one of its chief forms sets of 
 tools are placed in "turrets" etc., and these are made to do their 
 work much as did the figures in the great cathedral clocks. 
 The lathe feeds itself; each tool is brought into play in its 
 proper order, and with an appropriate traversing motion. It 
 can make the hub of a cycle wheel, for instance, straight from 
 the bar of steel and without any human interference; and one 
 competent man can be responsible for twelve lathes. Here is a 
 strong case of the rule that "the tendency of aU speciahzed 
 machines is to take the responsibility off the operator and put 
 it on the foreman and his staff of tool makers." This tendency 
 of course diminishes the demand for the skilled artisan, whose 
 eye and hand are in thorough coordination, in those particular 
 works in which such machines are used. But, by their pro- 
 ductiveness, they make new openings for him elsewhere: and 
 Sir Benjamin Browne, referring to this social danger, said "many 
 of us remember the great economy which came in when we 
 took to stamping all sorts of small smith work under the steam 
 hammer. Some people thought the days of blacksmiths were 
 numbered; but they have not become fewer, nor are their 
 wages lowered." And yet it seems possible that the continued 
 expansion of the dominion of automatic machines may at last 
 diminish the area of old work in which manual skill is of high 
 account, faster than it opens up new ground in which the hand 
 is again supreme^. 
 
 ' Exact standardization of particular parts by aid of standardized machinery 
 has enabled cheap watches to be made which will keep good time; and watch 
 screws weighing nine thousand to the ounce, which are seen to be perfect 
 under a microscope, are turned out at a vast rate. Again, in the service of the 
 textile industries, standardization has enabled large sheets of cotton cloth for 
 
210 ADVANCEMENTS OF INDUSTRIAL TECHNIQUE 
 
 II, n, 4. It has already been noted that America is now extending 
 their dominion at a rate far exceeding what seemed probable 
 a few years ago. And the experiences of Britain and other 
 countries during the world-war in manufacturing munitions of 
 war by many millions have made strongly in the same direction. 
 
 The changes, of which these instances are representative, 
 have come so gradually that their vast dimensions have only 
 recently been recognized. They all rest in part on the fact 
 that, while the easiest motions of the hand are backwards and 
 forwards, the easiest motions of a machine are rotary. The 
 rate of movement of the hand is limited; and therefore if it is 
 to do much work, it must exert a considerable part of its small 
 strength at each stroke. But, by the aid of gearing and other 
 devices, a machine tool can be made to rotate at any speed, 
 however great, provided it does not generate too much jar or too 
 much heat. These two limitations retarded progress for a long 
 while: but they have now been for the greater part overcome 
 by mechanical and chemical invention; and large turbines now 
 maintain easily 140 revolutions a second, the outside of the 
 wheels running about 900 miles an hour. 
 
 Invention enables numerous clear photographs for the cine- 
 matograph to be taken in a second; and a single machine to 
 make a quarter of a million matches in an hour. It enables 
 six hours to suffice for casting separately and arranging in line 
 spaced out automatically by wedges the type for 24 large news- 
 paper pages; and for taking a number of stereotypes from them; 
 from each of which long rolls of very wide paper are printed ofi 
 without hitch at the rate of 20 mUes an hour^. 
 
 the envelopes of airships to be made of thickness uniform to within ••■ two 
 hundred and fiftieth part of an inch : and it has so far attracted the interest of 
 working artisans that makers of micrometers reading to a ten-thousandth part 
 of an inch, find it worth while to advertise them largely in the Journal of the 
 Amalgamated Society of Engineers. Some other aspects of Particular standar- 
 dization will be considered later on, see pp. 221 — 3. 
 
 * Again, «. new steel alloy, which will stand a temperature up to 700° C. 
 without hurt, is able to cut ordinary steel as quickly as ordinary steel can cut 
 wood; but perhaps its most interesting applications are in the substitution of 
 quick movements, each of which treats the material tenderly, for slower move- 
 ments that must be comparatively rough and harsh. Thus slotting machines 
 are being displaced by drills, which will penetrate a thick steel plate by rapid 
 but comparatively gentle pressure, which leaves no harsh edges. Milling 
 
ACCURACY OF MACHINE-MADE MACHINES 211 
 
 Thus great are the debts which industrial exactitude owes 11,11,4. 
 to machine-made machines, made almost regardless of cost, to 
 be the parents of yet more exact machines; and destined to 
 dominate the massive production of every sort of implement, 
 from the firing apparatus of a monster gun to the motor of an 
 aeroplane. But lest the marvels of such work should get even 
 more gratitude than their due, it may be well to take another 
 instance of fine work in which massive production has no part : — 
 the chemist's balance. 
 
 The first accurate standardizations of quality were made 
 by the alchemists: each of them worked chiefly for himself; and 
 his standardization was Particular to his own secret pursuits of 
 gold or subtle poisons. Now the standardization of elementary 
 drugs in regard to quahty has been authoritatively made 
 General; so that a prescription written out by any physician 
 can be made up accurately by any qualified apothecary. He 
 buys wholesale elementary drugs already standardized, and he 
 compoimds them by aid of the chemist's balance, an instrument 
 which remained long without a rival for extreme delicacy and 
 certainty of work. From it have been evolved precision balances 
 which win detect an error of one part in 250,000,000 of a 500 
 gramme weight. Of course the heat of an observer's body if he 
 were near at hand would disturb the equilibrium: so he stays 
 at a little distance, moves very smaU weights from one scale to 
 another by mechanical appliance, and watches the balance with 
 a telescope. 
 
 Almost as fascinating is the recent suggestion that the 
 elasticity and tenderness of the hand can be rivalled by 
 methods quite different from those of human muscles, which 
 almost alone had been previously imitated. The transmission 
 of pressure by rope and rod, and even by water and electricity, 
 is too uncompromising for much subtle work: but its trans- 
 mission by air has no such limitations; and it can be arranged 
 cheaply even on a small scale. It is handy and flexible; and 
 
 machines p.re greatly increasing their speed and turning out clean work that 
 needs scarcely any hand finishing. And lastly even fine tools are giving place 
 for delicate work to rapidly rotating emery grinding wheels. For " from being 
 a non-precision method, grinding has become the most perfect device for 
 producing accurate results, measured precisely within thousandths of an inch." 
 {Encyclopaedia Brilannica, s.v. Tool.) 
 
212 ADVANCEMENTS OF INDUSTRIAL TECHNIQaE 
 
 11,11,5. it has great advantages for work in mines, for signalling on 
 railways, for riveting in ship-building and in cramped comers 
 in all branches of engineering. The familiar operations of player- 
 pianos by air represent a simple extension of the action of the 
 pneumatic hammer; and a yet higher stage is reached in the 
 marvellous mechanism of the monotype printing machine^. 
 
 5. The good and evil of machines that supplant fine 
 sldlled handiworlc. 
 
 Let us return to that increasing tendency of machinery to 
 supplant the skilled hand; which is greatly increasing man's 
 power over nature, and his material wealth, though it is not an 
 unmixed benefit from the social point of view. In fact, if all 
 the world were a single people, with one purpose and that the 
 highest, it might be well to put some check on this rapid super- 
 session of human skUl; even at the expense of delaying the 
 increase of material comforts and luxuries. But Britain can 
 exist only by obtaining her necessary supplies of food and raw 
 products in return for the exportation of manufactures: and her 
 hold on external markets can be maintained only by her use of 
 the most effective processes known. 
 
 Some mead of sympathy is indeed to be extended to the 
 owners of manufacturing plant, which has been superseded by 
 
 • Bat perhaps the subtlest application of the power of air pressure is that 
 which enables it to reproduce the infinitely delicate variations in the pressure 
 exerted by the highly trained hand of the skilled artisan. A shutter is placed 
 over the orifice, through which the compressed air cornea to its work, with 
 a slit cut in it of varying width. The shutter moves under the control of the 
 main machine in such a manner that a broad part of the slot is opposite the 
 orifice when the work is at a stage at which much force is wanted; and, when 
 less force is desired, the force is lowered by the opposition of a narrower part 
 of the slot. Such a machine seems perhaps to think for itself more distinctly 
 than almost any other: but its method owes nothing to suggestions by the 
 human hand. 
 
 It is interesting to look back from these marvellous achievements to the 
 beginnings of modern machinery, where success in copying the elasticity of the 
 hand was a goal to which inventors aspired, and which the sceptical thought 
 they would never attain. Such was for instance the tardy triumph of machine 
 combing, which originated in Heilmann's observation of his daughter's method of 
 combing out her long hair; and again the success of the power-loom, achieved 
 by making it imitate the small pushes by which the hand-loom weaver packed 
 his work tightly together. Perhaps the first great break with the notion that 
 the movements of the hands should be copied was that of the inventors of the 
 sewing machine; when it occurred to them that a machine can work two 
 needles and threads, though the bands cannot. 
 
SOME SOCIAL ASPECTS OE MECHANICAL PROGRESS 213 
 
 recent inventions: but their business ability remains witli them; ii, u, 5. 
 and, if imited to brave enterprise, it will enable them soon to 
 be doing well with improved plant, which their good credit will 
 generally enable them to obtain. 
 
 The case is more difficult, when the specialized manual 
 dexterity of a skilled artisan is struck by a machiue that out- 
 does it: for if he is no longer young, he can seldom hope to 
 earn high wages by any other kind of purely manual work. 
 His chief defence comes from the facts that improved machinery 
 is likely to increase greatly the volume of the production, for 
 which it is designed: and that his general experience, judgment, 
 and high character may enable him to obtain a position, in 
 which he may direct the imskiUed workers who handle the 
 machines that "almost think." This trouble is not easUy seen 
 from a distance: but it looms large before the eyes of many 
 skilled workers: and a fair judgment must take accoimt of it, 
 when attention is directed to the cold welcome, which they 
 sometimes give to such machines. 
 
 Nevertheless, the stem fact must be boldly faced that the 
 spirit, which induced many hand-loom weavers a century ago 
 to pine in poverty rather than touch the hated power-loom, 
 has not entirely passed away. In so far as it operates it is a 
 grievous handicap to an old industry, when faced by the 
 competition of young industries far away; and during the last 
 few decades it has been a considerable, though an ever diminish- 
 ing, hindrance to the maintenance of industrial leadership by 
 Britain^. 
 
 ' Obstacles to the introduction of machinery may be more complex than is 
 here suggested; as can be seen in the following instance. Scissors and blades 
 of knives, forged by hand, have long been among Britain's best products. But 
 latterly German products made of steel shapes, pressed into moulds by powerful 
 machines, have yielded almost as satisfactory results as her hand-forged pro- i 
 
 ducts; and of course their coat has been low. Sheffield was unwilling to adopt 
 the new method: but having once been fully convinced of its efficiency, is 
 adopting it; and she is striving vigorously to regain the ground lost by her delay. 
 The moulds and machinery for making the pressed blades are too expensive for 
 the independent artisan cutler; and, though he may buy the moulded blocks 
 and finish them himself, his chief vantage ground is lost: thus the industry is 
 passing into the handa of large businesses. They are of course in a better 
 position for developing, and even for imitating, improved technical methods, 
 than the small makers were : but complaints are still heard that, in such matters 
 as the tardy adoption of stainless steel for household cutlery, there is seen 
 something of the preference of old age for things long familiar. 
 
CHAPTER III 
 
 SOME TECHNICAL INPLUENCES ON THE SIZE OF 
 THE REPRESENTATIVE BUSINESS UNIT 
 
 II, ni, 1. 1. Some introductory observations. Different methods 
 of the expansion of the business unit. 
 
 It has already been indicated that many various causes are 
 tending to increase the size of the representative business unit. 
 Our attention will shortly be directed to developments of 
 marketing, of finance, and of the methods of business adminis- 
 tration: but this chapter and the next are concerned exclu- 
 sively with causes, that are closely connected with the progress 
 of industrial technique. Reference will be made only to such 
 industries as are much under the influence of that progress: 
 they show some technical developments, which make towards 
 an expansion of the business unit in all the industries afiected 
 by them; together with others, which tend imder some circum- 
 stances to aid the large business in overpowering the small; 
 and under yet others to strengthen the small business at least 
 as much as, and sometimes even more than the large. 
 
 Unfortunately the use of terms connected with business 
 is not always consistent. A limited store of words is compelled 
 to accommodate itself to the ever-changing needs of the market- 
 place: the context, or verbal explanation suppUes the clue to 
 the precise meaning in view at the moment: and, as has been 
 repeatedly observed, the economist must accommodate himseK 
 to the practice of the market-place. 
 
 Two contiguous factories of the like kind and in the same 
 ownership, but with separate balance sheets, are sometimes 
 classed as separate businesses: while for other purposes dis- 
 
METHODS OF BUSINESS EXPANSION 215 
 
 similar factories in distant places, with separate management ii, m, i- 
 and balance sheets, are classed as a single business, merely 
 because they are in the same ownership. This divergence 
 presents almost insuperable difficulties to officials engaged in a 
 census of manufactures: but it does not greatly incommode 
 the present study, which is concerned with general tendencies 
 rather than specific figures. 
 
 On the other hand it is necessary for our purposes to make 
 a clear distinction between two chief forms of business expan- 
 sion; the vertical and the horizontal. The manufacture of any 
 commodity starts from the basis of the provision of its raw 
 material. This is regarded as a sort of ground floor. The 
 first stage of operations on it constitute, as it were, a "higher" 
 first floor: that is followed by a second, still higher; and that 
 perhaps by a third, and so on; until the finished product is 
 reached. 
 
 The product still needs to be marketed: and the producer, 
 unless he is working to order, must be responsible for starting 
 it on its way to "consumers"; that is, those who buy it for 
 use whether in business or in the household. The producing 
 firm may sell at once to wholesale dealers or other middle- 
 men; or it may include the "higher" stages of marketiug, and 
 deal direct with consumers: the line of division between making 
 and marketing is, as has already been observed, vague and 
 varying. 
 
 Whenever a business expands into a stage higher or lower 
 than that with which it was originally occupied, its expansion is 
 vertical. Instances are, when a printing business acquires mills 
 to make its own paper; or, moving in the opposite direction, 
 sets up a binding and a pubhshing department to enable it to 
 dispose of its products in the finished state: or again, when 
 rolling miUs set up blast furnaces, and open iron or coal mines; 
 or, moving in the opposite direction, undertake the manu- 
 facture of steel bridges or steel frames for buildings. Works 
 which undertake many diSerent stages are sometimes called 
 mixed. 
 
 The upper stages of mixed works have little anxiety about 
 their supply of material, for it consists mainly of half-finished 
 products from the lower stages of the same works: and the 
 
216 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, III, 1. lower stages are generally secure of a vent for their products in 
 the upper stages. But a firm with limited capital can seldom 
 undertake considerable vertical expansions with success; for 
 such expansions are not easily made by gradual steps. 
 
 On the other hand, a business may proceed gradually and 
 tentatively when extending its operations horizontally in the 
 same stage; as for instance when a book printer increases the 
 size of his plant, without altering its character. Again a manu- 
 facturer of locomotives may increase his output, by producing 
 more locomotives of the same type with more intensively 
 specialized plant; or by producing locomotives suitable for 
 greater varieties of traffic at home or abroad; or by adding 
 branches for the production of stationary steam and gas engines. 
 Almost every kind of horizontal extension tends to increase the 
 (internal) economies of production on a large scale which are at 
 his command: but, as a rule, an increase in the variety of his 
 output lessens his gain in this direction; while increasing his 
 facilities for meeting the various wants of customers and for 
 marketing generally. All these general statements will however 
 be found liable to some exceptions. 
 
 A large business aggregation may result from the growth of 
 a single unit under exceptionally able and fortunate manage- 
 ment; existing departments are enlarged and new departments 
 are added till vast Krupp or Carnegie Steel Works, or 
 Wanamaker stores have grown up from a single root. Or it 
 may result from the "fusion" (or as is sometimes said the 
 "amalgamation") of several businesses in one. The fusion 
 may be vertical; that is it may unite a number of businesses 
 in successive stages of the same large process. Or it may 
 be horizontal; that is it may unite a number of similar busi- 
 nesses. 
 
 Horizontal fusions often pass through an intermediate stage 
 of Eegulative Federation or Association, or Cartel; the functions 
 of which are to control the prices, the amounts produced, and 
 the methods of marketing of its various members; and in some 
 cases to conduct their marketing for them. 
 
 Economies in administration and in production are not 
 easily obtained by a mere federation; they need unified owner- 
 ship and administration. A halfway house was indeed found 
 
METHODS OF BUSINESS EXPANSION 217 
 
 in American "Trusts" in the original sense of the word; when ii, m, i. 
 a number of businesses in the same industry agreed to assign 
 the control of their general policy to the same body of trustees, 
 who administered the whole in trust for all concerned. But, 
 chiefly on account of legal difficulties, this form of organization 
 has disappeared from America; though some European cartels 
 seem to be drifting towards it. 
 
 The name Trust is now given commonly to a manufacturing 
 or trading company if its capital and power are sufficient to 
 give it a dominating influence, extending over some branch of 
 industry or trade throughout the whole or a large part of the 
 coimtry to which it belongs^. This dominating influence is 
 frequently believed to be monopolistic in character: to involve 
 some menace to public interests; and to call for inquiry, whether 
 the Trust should be subjected to public regulations, in some 
 respects more stringent than those which apply to an ordinary 
 joint-stock company; just as that is subject to some rules which 
 do not apply to a private business. 
 
 A trust may be a joint-stock company which owns the 
 whole of the businesses controlled by it. But in many cases it 
 leaves some or aU of the businesses, which it controls, nominally 
 in the hands of independent companies with their own directors; 
 and merely secures a majority of the shares of these subordinate 
 companies. Thus it can elect their directors; and, though it 
 must leave them legal freedom to act as they choose during the 
 coming year, yet they well understand that their reelection will 
 depend upon their conforming to the general poUcy marked out 
 for them: so that there is thorough unity of administration. 
 Local freedom of initiative is indeed commonly encouraged; 
 but it does not go very much further than that which, as already 
 observed, a huge company sometimes concedes to the managers 
 of its branches. 
 
 One of the most impressive achievements of modern 
 
 ' Some would confine the name "Trusts" to those large companies which 
 have obtained their dominating position by the fusion of several independent 
 businesses; and not by the expansion of single businesses. The two classes 
 differ in some important respects. But in relation to the most fundamental 
 problems, the practice of the market-place in drawing no distinction between 
 them seems to be right. 
 
218 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, III, 2. technique is its power to handle masses too great for any force 
 which was at man's command until recently. But, as often 
 happens, that which is most wonderful, is not that which has 
 exercised the greatest influence on the course of evolution. 
 Those industries which need to handle very large single masses 
 must necessarily be concentrated in the hands of a relatively 
 small number of large businesses; but they are not numerous. 
 And a greater influence on the structure of business in general 
 is being exercised by the economies of continuous production, 
 especially in regard to things which can conveniently be made 
 in vast quantities, though they are not bandied in large single 
 masses. 
 
 Some account of those industries in which the work of trans- 
 porting materials, or transmitting force plays the chief r6le; 
 and require large continuous rights of way, whether in public 
 or private ownership, is transferred to Appendix H; because, 
 though very important, they are governed by exceptional con- 
 ditions, and are not representative of the general trends of 
 industrial development. Better illustrations for our present 
 purposes are found in the steel and the textile industries. The 
 steel industries dominate many others; and changes in their 
 organization have exercised widespread influences on the organi- 
 zation of industry in general in America and Germany. The 
 textile industries on the other hand offer the best instances 
 of the coexistence of numerous establishments, repeating one 
 another; because the full technical economies of large scale 
 production, though not always of marketing, can be obtained 
 by an establishment of moderate size. The two groups cover 
 nearly the whole ground of industrial organization fairly well: 
 but they do not touch the adaptation of mechanical processes 
 to the varying requirements of particular individuals: and 
 therefore a little is added as to the boot and shoe industry, 
 
 2. Many causes make for the expansion of the, btisiness 
 unit in the steel industry, especially in its heavy branches. 
 
 The central task of the heavy steel industries is the handling 
 of great volumes of homogeneous fluid steel, ready to be worked 
 up into an infinite variety of products large and small. There 
 is no other group of industries, in which the forces making for 
 
THE CASE OF THE STEEL INDUSTRIES 219 
 
 the increase of the business unit are promoted in like degree ii, m,2. 
 by the magnitude of the aggregate volume of the homogeneous 
 fluid material which has to be produced, and by the magnitude 
 of the individual masses to be handled. 
 
 Further, there is no other group of industries in which the 
 higher and lower stages work for one another so steadily and on 
 so large a scale; and therefore there is no other group in which 
 large lateral extensions and amalgamations are so likely to be 
 accompanied by large vertical extensions and amalgamations. 
 Iron and coal mines at the "lowest" stage are large users of the 
 rails and the machinery which come from the higher stages: 
 the smelting furnaces receive from the mines at the lowest 
 stage; and pass on their products to the heavy mills: which 
 like aU the rest are large consumers of high-class machinery. 
 There is nothing at all analogous to this in any other group of 
 industries: the steel iudustries are in a class by themselves, 
 just as are railways and water-supply equipments, though for 
 entirely different reasons. Let us consider the operations of the 
 furnaces and the heavy mills. 
 
 The size of the most economical furnace is rapidly increasing: 
 and Open-hearth furnace baths already have a capacity of 
 several thousand tons. But a furnace is not amenable to dis- 
 cipline. It will not work economically except at nearly full 
 pressure: it must be laid by for repairs occasionally; and, there- 
 fore, complete efficiency is to be obtained only by the presence 
 in a single establishment of a good many blast furnaces that are 
 individually of the modem pattern, in order that a business 
 may be able to adjust total output to varying activities of 
 demand. 
 
 In furnaces and in roUing miUs alike the individual masses 
 to be handled have mostly become so bulky that every opera- 
 tion must be performed by mechanical force: and thus a new 
 economy arises from increase of size. For it requires no more 
 effort and not much more discretion, to turn a handle that will 
 set in motion a big electric or hydrauHc crane than a small one. 
 Supplemented by internal railways, these travelling cranes 
 enable a massive piece of metal to be removed easily, safely 
 and quickly from one department to another of large works, 
 spread over many acres: at each department it finds just those 
 
220 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, III, 2. appliances and just that specialized skill which are needed for 
 the particular work to be done. 
 
 An economy, characteristic of the present age, is inducing 
 owners of blast furnaces to set up rolling mills; and owners 
 of rolling mills to set up blast furnaces, or to amalgamate 
 with existing furnaces. It is that of the heat often to be 
 gained, by passing the molten iron straight from the blast 
 furnace to the converter, and carrying ofi the blooms from 
 the converter straight to the mills that are to roU them into 
 rails or plates or structural shapes. Again "mixed works" 
 that own mines, furnaces, mills and engine shops can keep 
 each of the four branches at work during many slack times by 
 enlarging and repairing the rails, hoists, machinery, etc. which 
 all the four need in various degrees. Again the waste gases 
 of the furnaces, after heating and pumping air for their own 
 use, have a large surplus energy: this can be turned to account, 
 either directly or through the medium of electricity, in working 
 other branches; and it thus becomes a powerful aid to "mixed" 
 steel businesses in competition with "pure" blast furnaces and 
 with "pure" rolling miUs. The influence thus exerted on the 
 structure of the German steel industry will occupy our attention 
 in Book Ill\ 
 
 No doubt several of these economies have already exercised 
 nearly their full influence on the size of the business unit: 
 because their economic force is now so great that no concern 
 that lacks them can hold its own against well-equipped com- 
 petitors with equal access to its markets. The United States 
 Steel Corporation has already several sets of mixed works, each 
 of which is possessed of practically every technical economy 
 which size can give. But the cooperation of these various sets 
 of works under a single control is said to give it certain advan- 
 
 ' It should however be added that the importance of this advantage will be 
 diminished if the production of electricity is organized, on a vast scale, as now 
 seems probable. In that case the economy of by-products at the central elec- 
 trical works will be so great, that a small business may be able to buy its power 
 at less cost than that at which it is obtained now by very large businesses, 
 excepting only those which smelt iron-ores. They will doubtless continue to 
 use the energy contained in their waste gases; though perhaps they will apply 
 a larger part of it in its original form of heat to various uses. As to the services 
 of electricity to the small business generally see Appendix H, 2. 
 
THE CASE OF THE STEEL INDUSTKIES 221 
 
 tages in marketing, in obtaining progressive expert guidance, ii, ni,3. 
 and in economy of transport. It can send each order to be 
 filled up by that set of its works which can handle it best, account 
 being taken of its geographical position ; of the quantity of work 
 that it already has on hand; and of any special fitness of its 
 plant for that particular task. Thus, for instance, it can be 
 arranged that each group of works shall keep its sets of roUs 
 almost constantly in operation without being changed; whereas 
 an isolated rolling mill must frequently change its rolls. But 
 this economy can in great measure be obtained by other means: 
 as we are about to see. 
 
 3. Tendencies of Particular standardization to become 
 General. 
 
 The influences exerted by the progress of technique on the 
 structure of business, which have been so far noticed, tend 
 almost without exception to increase the size of the business 
 unit. But the influences exerted by good standardization are 
 not entirely in that direction: and, for this and other reasons, 
 they call for rather close attention. 
 
 It was from the first obvious that each railway must have 
 a uniform gauge for the main traffic. But for a long while 
 even the main lines of railways in an advanced country were of 
 various breadths, so that the wagons of one could not run on 
 the lines of another. The inconveniences thus caused compelled 
 General sttodardization of gauge for all main lines throughout 
 each country; and, with a few exceptions, throughout each 
 Continent. 
 
 Meanwhile considerations of its own convenience had caused 
 each railway to seek for Particular standard patterns of rails suit- 
 able for the chief varieties of frequent heavy traffic: and after a 
 while it became clear that, if General standards could be agreed 
 on, rolling mills would be able to produce much more freely for 
 stock; and therefore to give more continuous employment to 
 their plant and their staff; and therefore to produce more 
 cheaply. This course, which has been largely adopted, pre- 
 sented no great difficulty: and it was followed by the more 
 difficult and interesting development of standardized shapes for 
 structural steel. The use of iron as the mainstay of building is 
 
222 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, ni, 3. due to the initiative of many men, among wKom a chief place 
 must be assigned to Sir Joseph Paxton; steel at a moderate price 
 was not to be had when he planned the exhibition of 1851, and 
 he had to be content with iron. But the subsequent use of 
 structural steel is largely due to a characteristic burst of Ameri- 
 can initiative. 
 
 Mr Carnegie observed that the wooden tressel bridges which 
 were in general use on American railroads, had no longer a 
 raison d'etre. The English practice of using iron for bridges 
 had been little followed; because iron had been relatively dear, 
 and wood had been cheap. But wood was becoming scarce, and 
 steel was becoming cheap: and the rapidly increasing traf&c 
 was worried by wood's constant need of repairs. So he pictured 
 the future ia his mind and set himself to prepare for it on 
 American lines. He gradually trained a staff of engineers to 
 plan steel bridges, test them, improve them, and at last reduce 
 them provisionally to standard patterns. Meanwhile he adapted 
 his plant to producing their component parts on a large scale; 
 and prepared to put through a complete bridge much more 
 quickly and cheaply than anyone else. Next, he applied the 
 same notion to steel frames for high buildings, which were 
 just coming iato vogue, and which are indeed little more in 
 principle than vast congeries of small bridges. 
 
 But there was a difficulty. Though bridges of similar dimen- 
 sions and designed for similar traffic could well be made of similar 
 pattern, almost every building required individual treatment: 
 and architects, accustomed to other materials, were not always 
 able and willing to make their plans fit in with the technical 
 idiosyncrasies of the manufacture of steel. So the Carnegie 
 . Company developed a specialized staff of engineer-architects: 
 
 and they undertook to design and erect a building which should 
 meet nearly all requirements; and yet be made almost ex- 
 clusively of units that were already standardized; and therefore 
 far cheaper, than if they had been made to order. The power 
 which the Carnegie Company obtained, partly by this means, 
 enabled it to set the tone of the whole American industry, so 
 far as structural steel was concerned. But the very victory of 
 its method destroyed much of the semi-monopolistic power 
 which it had obtained. And though the average size of the 
 
RELATIONS OF PARTICULAR AND GENERAL STANDARDS 223 
 
 business unit in the heavy steel industry has increased, and is ti, m, 4. 
 likely to increase; yet, the further standardization goes, and 
 the more care that is given by architects to the choice of 
 standard shapes in their specification, the better wiU be the 
 outlook of roUing mills of moderate size in regard to structural 
 steel. 
 
 The General standardization of raUs enables a man to buy a 
 certain quantity of rails of a given kind for delivery at a future 
 time. If an organized market price for such rails is estabhshed 
 from time to time, he may make such a purchase without any 
 intention of accepting dehvery; and may expect to receive the 
 excess (or to pay the deficiency) of the market price at the 
 time as compared with his contract price: that is, the way is 
 open for general speculation. This development is indeed 
 exceptional. It probably works for good on the whole: but a 
 considerable share of the total price paid by railroads for their 
 rails is intercepted by speculative dealers. The general tendency 
 of their operations is to render prices more steady; and in so 
 far as they do this, their gains are well earned: but there have 
 been occasions on which it has appeared that they have artifi- 
 cially stimulated fluctuations; and in such cases their action 
 has been harmful to consumers and producers, whether they 
 themselves have gained or lost on the balance. 
 
 4. A partial specialization of particular establishments 
 in certain branches of the steel industry has long been in 
 progress, partly under the influence of mutual under- 
 standings: and it has received a great impetus from the 
 experiences of the industry under State control during the 
 world-war. 
 
 A spirit of order has long been spreading over British steel 
 rolling nulls. Soon it will be true that "the producer can cheapen 
 the cost of production, because he can roll considerable quan- 
 tities of any given section at one time, and place in stock any 
 surplus with a reasonable prospect of its being required. The 
 buyer can feel sure of obtaining the section that he requires from 
 one firm or another with the least amount of delay and at the 
 least cost^." 
 
 From Mr Hawkins' Presidential Address to the British Institute of CSvil 
 
224 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, m, 4. Such specialization is not quite as easy in all branches of 
 the steel industry as in that of roUiag. But it is even more 
 urgently needed in some branches; and it was making consider- 
 able progress, even before the exigencies of the world-war had 
 called for an output of certain classes of munitions in greater 
 volume, and at higher speed than had been reached in any 
 similar case before. The Minister of Munitions became in efEect 
 autocratic controller of every business that could take part in 
 the work; and many large estabUshments were set up for the 
 occasion, chiefly in places where there was abundance both of 
 room, and of the unskilled labour of men, women and children 
 who could perform elementary tasks hour after hour under 
 expert supervision. The method is properly regarded as 
 American, because America has developed it in numerous in- 
 dustries further than any other country has done: and from 
 another point of view it might properly be called British; 
 because it is based on Babbage's famous observation (a.d. 1832) 
 that in a large factory "the manufacturer by dividing the work 
 to be executed into different processes, each requiring different 
 degrees of skill and force, can purchase exactly that precise 
 quantity of both that is necessary for each process." But it has 
 been carried out so thoroughly in the war-munitions industries 
 as to arrest public attention, and give a powerful impetus to a 
 movement which had already made much progress. It will 
 greatly affect the further advance of technique, and the extended 
 organization of business; we may therefore stay a Uttle to con- 
 sider its peculiarities. 
 
 The influence of patriotic sentiment has enabled the em- 
 ployer — in this case ultimately the nation — to carry Babbage's 
 
 Engineers, 1901. He continued: — "Our trade and interests being more far- 
 reaching and world-wide than those of any other country, makes the question 
 of standardization more important, but at the same time more difiScult for us." 
 The American Society of Civil Engineers had led the way, Germany had fol- 
 lowed, and later the four British Societies chiefly concerned agreed to appoint 
 joint committees to take evidence and recommend standard sections for 
 (1) Bridges and general construction, (2) Railway rolling stock underframes, 
 (3) Rails, (4) Ships. He noted that Germany had 67 standard sections and 
 America had 49, whereas Britain used no fewer than 170 different sections. 
 But in the early years of this century great progress had been made in this and 
 similar directions by efforts of the industries themselves; and by those of the 
 National Physical Laboratory, somewhat on the lines of the Physikalisoh- 
 technische-Reichsanstalt at Charlotteuburg; and by other institutions. 
 
PROGRESSIVE STANDARDIZATION IN STEEL INDUSTRIES 225 
 
 hint further than it has ever been carried before; especially in ii, m, 4. 
 an old country, where (as was observed at the end of the last 
 chapter) those who have acquired special manual skill are in- 
 evitably somewhat jealous of technical improvements that tend 
 to narrow the sphere of their special usefulness. There are in 
 fact very few occupations, in which every operation performed 
 by skilled workers makes demands on their special skill. Some- 
 times indeed the skilled artisan has an assistant, who learns to 
 move things into their proper places and do like small tasks, 
 without distracting the attention of his chief. But such ar- 
 rangements are profitable, only when the total aid given by the 
 assistant saves a considerable part of the artisan's time: Bab- 
 bage's principle is not operative in other cases. When however 
 highly finished and accurate products are required in vast 
 quantities, it may be practicable to pass a great number of them 
 over to an unskilled worker who gives his or her whole time to 
 performing some single operation on each. Under the emer- 
 gency of war, skilled artisans have concurred in such arrange- 
 ments, even though contrary to custom. 
 
 For instance, the manufacture of shells during the world-war 
 has required millions of wedges to be made, so finely tapered 
 that the wider end of each is only about a thousandth part of 
 an inch broader than the narrower end. But an accurate ring 
 having been made such that the narrower end of a properly 
 made wedge can enter it, while the broader end cannot pass 
 through, the task of testing the wedges, instead of being one of 
 supreme difficulty, is brought within the competence of a careful 
 child. A child might be careless: but the task is well executed 
 by imskilled adults; and similar arrangements for the economy 
 of skilled labour might be extended, wherever the aggregate 
 volume of each such simple task to be performed in any one 
 estabhshment is sufficient to justify the setting up of special 
 provision for it. That may be effected in the future much more 
 largely than in the past, as a result of the allied tendencies to 
 exact, though plastic, standardization; and to the specialization 
 of considerable establishments on particular tasks in a single 
 large process. Thus a steady demand for vast mmibers of 
 similar products has moulded the work of the human hand, 
 somewhat in the same manner as it has that of machines. It 
 
 M. I. T. 8 
 
226 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, III, 4. enables numerous machines, each relatively simple, though semi- 
 automatic, to be set up each adapted to one special task, and 
 each working steadUy with but little need for supervision^. 
 
 The centralized control of the munitions' industries has been 
 aided by so much unselfish energy, that it seems to have been 
 but little afEected by that comatose slackness which frequently 
 hinders Governmental industries from reaping the fuU fruits of 
 their advantages of position. And it has focussed increased 
 attention on the economies that may be attained by such co- 
 operative understandings among businesses in the same branch 
 of industry, as would enable each of them to adjust its plant and 
 its arrangements to a single task; or, at least, to a single small 
 group of tasks. 
 
 For instance, though ships of any particular character are 
 not needed even by the thousand, the British Government has 
 found it worth while to indicate a few classes of standardized 
 ships, which are suitable to present conditions. This measure 
 is specially adapted to the urgent need for large output in tune 
 
 • The following observations are taken from The Times Engineering Supple- 
 ment, April, 1917: "No shop manager, though possessed of an original and 
 inventive genius, backed up by experience, could have anticipated the profound 
 changes which the demand for munitions has brought about in the designs of 
 machine tools. Less than three years ago nearly all the machine tools in use 
 required experienced men in charge. Yet they were ill-suited for many of the 
 new duties imposed upon them, comprising aa they did elements fitting them for 
 purposes of general utility without providing for highly repetitive production.... 
 Some manufacturers have been able to supply very simple single-purpose 
 machines in batches of several hundreds for a single shop. In consequence not 
 only have new works been built, but old firms hitherto engaged in other in- 
 dustries scarcely related to this class of work, in the metal trades, for example, 
 have taken over some sectional portions of munitions from the controlled shops 
 imtil such time as they could obtain the tools necessary to enable them to carry 
 out more extended tasks. In some instances these firms, by availing themselves 
 of instructions supplied by the builders of the machine tools, were thus enabled 
 to get together a stafi of girls or lads, with a few skilled supervisors, soon capable 
 of producing an enormous output of accurately gauged parts. Machinists never 
 realized before how many ways there are of attaining identical results." 
 
 For instance, "Machines for producing 18-pounder high explosive shells ex- 
 clusively have been evolved from the multi-spindle design of automatics. One 
 design deals with the exterior work only, the other with the interior. A pair of 
 machines, each requiring only one attendant, turns out a shell complete in six 
 minutes. The one which deals with the internal operations has eight spindles 
 for holding shells, and a sufficient number of tool spindles in opposition for 
 performing 19 separate functions, comprising drilling, facing, reaming, and 
 threading. The machine which deals with the exterior work has six spindles." 
 
PROGRESSIVE STANDARDIZATION IN STEEL INDUSTRIES 227 
 
 of war: and there is now some general agreement that even in ii, m, 4. 
 time of peace each shipyard might advantageously concentrate 
 its energies on a limited number of classes of ships; each of 
 which should be standardized as far as was possible, consistently 
 with quick readjustments to meet changes in technique and in 
 the conditions of maritime traffic. 
 
 But in fact the standardization of component parts is at once 
 more productive of economy and less hostile to progress than 
 that of complex structures. The same standard girders are used 
 with advantage in thousands of different sorts of buildings, and 
 appliances for use on land and sea: while the same standard 
 screws are used for hundreds of thousands of different purposes: 
 and this contrast is of special significance in regard to the con- 
 test between giant businesses and those of moderate size. For 
 even the largest business has but a small output as compared 
 with that of an industrial country: and therefore the small 
 producers can often buy particular components, that have been 
 made for open market by aid of larger economies of massive 
 production than are at the command of any single business^. 
 
 Standardization is likely to attain the highest perfection in 
 the case of a product which has been long in use; and of which 
 both the component parts and the general design have been 
 subjected to long and varied trial : for in such a case the experi- 
 ence of the multitude overtops the finest imagination of con- 
 structive genius. But, on rare occasions, there may be an 
 imperative need for sudden massive production, which allows 
 no time for protracted experience. An instructive instance of 
 this kind occurred when America had unexpected occasion to 
 provide a large supply of aeroplanes, on models, which the ex- 
 periences of the war had brought to the front. 
 
 Several eminent American engineers "pooled" their faculties 
 in order to devise a general plan for the economical and rapid 
 construction of aeroplane engines by methods specially appro- 
 priate to the American genius. They proposed to build the 
 
 ' The North-East Coast Institution of Engineers and Shipbuilders have 
 agreed on a scheme for the standardization of reciprocating triple expansion 
 engines, the principles of which may probably be extended to other types of 
 engines and to many auxiliaries employed on shipboard. It is intended that the 
 specification shall be subject to a revision each year by an expert committee. 
 (Times Engineering Supplement, February, 1917.) 
 
228 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, III, 5. engines in various models, each using the same standard cylin- 
 ders, pistons, valves, cam shafts, and so on. Thus the parts of 
 wrecked eight-cylinder or twelve-cylinder engines are to be 
 interchangeable, and a new engine could be assembled from the 
 parts of wrecked machines^. 
 
 6, Recent developments of the means of commwnication 
 have facilitated the escape of a large business in a heavy 
 industry from the constraint imposed by lack of space for 
 expansion. 
 
 We now pass to a side issue, which has recently become of 
 some importance. It turns on the difference between businesses 
 which, by building high, can employ a large number of operatives 
 on a site of moderate dimensions, and those which caimot expand 
 so as to avail themselves of the full resources of modem technique 
 without access to large space. 
 
 The lighter sort of maniifactures can generally accommodate 
 a great number of operatives, together with machinery, in high 
 buildings on a relatively smaU area : and in case of need, sufficient 
 
 ' European aerial engineers assisted in forming the plan : but it was decided 
 not to adopt any European model: because British and French machines, as a 
 rule, are not adapted to American manufacturing methods. They are highly 
 specialized machines, requiring much hand work from mechanics, who are almost 
 artists. Such men are relatively scarce in America: and therefore exact me- 
 chanical standardization was applied in American fashion to do as much of the 
 fine work as was possible. But it was found that some finishing work had to be 
 done by the hand at the last in almost every case. 
 
 Since however cylinders, pistons, and every other part of the motor had been 
 standardized, they could be produced rapidly and economically by a great many 
 factories operating under Government contracts. They could be as rapidly 
 assembled, either by these plants or at a central assembly plant. 
 
 Rapid procedure was indeed rendered possible by previous studies in Britain, 
 France and Italy, as well as in America: for the war-demand for aircraft has 
 been too sudden and intense to be left to private enterprise. For instance, a 
 group of the ablest British experts have served as "The Advisory Committee for 
 Aeronautics," under the presidency of Lord Rayleigh, to study, by aid of experi- 
 ments at the National Physical Laboratory and the Royal Aircraft Factory, 
 matters relating to aerodynamics, to engines, to materials, to strength of con- 
 struction and design, etc. Their Report of 1917 speaks of experiments with 
 powerful appliances as to longitudinal and lateral stability in flight; as to various 
 types of magnetic compasses and other instruments; as to the durability of 
 fabrics under various conditions; as to aluminium alloys; as to the looatioa of 
 distant thunderstorms and their progress, etc. 
 
MIGEATION OF HEAVY INDUSTRIES TO OPEN COUNTRY 229 
 
 space for extensions can generally be acquired close at hand at n, in, 6. 
 a price which is not prohibitive. But heavy industries must do 
 nearly all their work on the ground: their machines are bulky, 
 and most of their movements are effected by small railways, 
 together with overhead gear. Therefore, even when a consider- 
 able space for expansions has been provided at starting, a suc- 
 cessful heavy business is likely ere long to need more space than 
 is to be had on reasonable terms in a crowded district. 
 
 But some classes of operatives used to spend high wages 
 somewhat crudely; and they were not easily attracted into the 
 country: for this and other reasons even heavy industries were 
 slow to move away from densely peopled districts, until pressed 
 by the recent expansion of the business unit, and aided by the 
 telephone and other modem means of communication among 
 busLuesses at a distance. Meanwhile the working classes have 
 become better educated, less addicted to the coarser enjoyments, 
 and more appreciative of the quiet of a many-roomed house with 
 a garden: also the advantages of working only on a single floor, 
 have extended from the first stages of heavy industries to others 
 for which a firm basis on the earth is not absolutely necessary. 
 It has become increasingly convenient to cover the whole area 
 of work with overhead gear capable of moving along and at right 
 angles to the main line of each building; so that it can take up 
 materials from any part and set them down in any other^. 
 
 6. Illustrations, drawn from textile and hoot industries, 
 of diverse influences which partial standardization and 
 specialization exert on the size of the business unit. 
 
 We have seen how the application of water power to 
 spinning collected that branch of the industry into factories, 
 
 • A few details may be added. In some oases each building of the works is 
 in addition surrounded by railway lines of normal gauge, and perhaps permeated 
 by narrow gauge lines for special uses : each department of work can have its 
 own province; often so located as to be in contact on one side with that from 
 which it Is to receive material, and on the other with that to which it is to 
 deliver. Ample space can be taken for the works at starting; and almost un- 
 Umited expansions can be arranged by enlarging the original simple building 
 either longitudinally or laterally or both. Walls are needed only at the outside 
 of a building, which may cover an acre ; for the roof, aa well as overhead and 
 other gear, can be supported on steel pillars. 
 
230 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, in, 6. while hand- weaving remained in the cottages: but the power- 
 loom needed factories. At first it was a rough and untrustworthy 
 instrument, likely to deal harshly with the yarn; and the only 
 people who had the technical knowledge and other facilities for 
 the management of textile factories were master spinners. So 
 the growth of machinery seemed at once to crush out the small 
 man, and to bring under one roof the successive processes of a 
 great industry. 
 
 But all the while machinery was preparing the way for 
 undoing this vertical consolidation : for improvements in spinning 
 gradually enabled yarn to be made with such absolute certainty 
 and precision to any standard requirement, that the weaver 
 could buy it in open market, or even contract for it in advance, 
 with confidence that he could get what he needed; and the 
 loom became both more powerful and gentler. These improve- 
 ments have continued by innumerable small stages down to 
 the present day, and now the element of routine preponderates 
 in cotton spinning mills, and in weaving sheds for staple cloths. 
 The size of such factories is not much infiuenced, at all events 
 directly, by the progress of technique: for that is not increasing 
 materially the expensiveness of the plant required for the best 
 work. But the growing efiiciency of the plant is increasing the 
 floor space, the engine power, and the quantity of machinery 
 required to give employment to a given number of workers: 
 and there are larger calls for organizing faculty, and for some 
 ready initiative in throwing out machinery which has been left 
 behind by recent improvements. These branches of the cotton 
 industry are excellently managed by strong, but simple men; 
 and again by joint-stock companies, some of which are largely 
 in the hands of working-men and have something of the character 
 of cooperative societies. 
 
 On the other hand, the manufacturer of finished cotton goods 
 of other than the standard patterns must ever be watchful, 
 supple, and quick: for variations in demand for different classes 
 of things in his trade would prevent the work of each one 
 of his departments from being fitted in exactly with that of 
 the others, however steady his aggregate output might be. 
 And, even more than organizing strength, he needs the faculty 
 of reading coming events in a relatively narrow thoroughfare 
 
SPECIAL CONDITIONS OF TEXTILE AND BOOT INDUSTRIES 231 
 
 of the world's business, and turning to the best account the ii, m, 6. 
 flying opportunities which are ofiered by his changeful relations 
 to men and things^- 
 
 The woollen and worsted industries deal with materials 
 which are very variable in character: and nearly all their pro- 
 ducts, except such things as blankets, are made for consumers 
 who are under the influence of western fluctuations of fashion. 
 Merinos and other short fibred wools, which are used in "wool- 
 len" stuffs in the narrower sense of the term, are often mixed up 
 with shoddy and even wound around cotton yarns: and no 
 manufacturer {i.e. maker of stuffs) can be sure of getting exactly 
 the description of such yam as he wants, except by making it 
 himself. As a rule aU the various stages of woollen cloth making 
 (exclusive of dyeing and finishing), are carried on together in 
 rather small factories: for they yield no very great economies of 
 production on a large scale, and individual care and judgment 
 as to details are incessantly required. 
 
 The worsted industries, which deal with long staple wools, 
 are organized generally on similar principles to the "woollen" 
 (in the narrower use of the term), except in one important 
 matter. The imravelling and smoothing out of long yams 
 require an elaborate process; which is, as a rule, that of 
 "combing": the short fibres mingled with the long are taken 
 out and the long are combed out into "tops," for worsted 
 making. This process requires expensive machinery, which was 
 for the greater part invented in England. It is worked by very 
 powerful firms, and the tops are marketed at home and abroad; 
 England thus returning some of the obligations, which she has 
 
 * There is much of interest on this subject in Chapman's The Lancashire 
 Cotton Industry. He observes that the complete command which Lancashire 
 offers to the manufacturer of any sort of yam that he may need gives scope to 
 even very small men in manufacturing specialities. They "rent buildings and 
 'turning.' and produce successfully in a small way. Sometimes several firms 
 may be found in one building" (p. 163). Sohulze-Gavemitz, Cotton trade in 
 England and on the Continent, presented a vivid picture of the advantage which 
 the high organization of his markets gave to the English textile manufacturer 
 over his Continental rivals in 1895: but the organization of their markets has 
 made progress since then; see Landauer, Handel und Produktion in der Baum- 
 woUinduslrie, 1912. Bulletin 74 of the Bureau of the Census of the United 
 States 1905 speaks of the hindrances to trade, which arise from the lack of 
 adequate specialization in the American cotton industry. 
 
232 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, in, 6. incurred, as a consequence of her own inertia, and of Germany's 
 systematic application of chemical science to industry^. 
 
 The arts of dyeing and finishing all kinds of textile materials 
 began to make rapid progress about the time when the power- 
 loom was coming into general use; and, indeed, partly in con- 
 sequence of the great increase in the volume of the textile 
 industries that resulted from it. It soon became clear that the 
 resources of a cloth factory could not offer nearly as great a 
 variety of refined finish, as could be got by large firms, each of 
 which gave its whole energies to a particular form of finishing. 
 Every such firm, or rather company, is equipped with vast and 
 various special apparatus, and with high technical skill. It can 
 thus bring the appropriate part of extensive technical forcea 
 to bear on each task, which it undertakes: the same highly 
 specialized task often needs to be performed at about the same 
 time on a great variety of goods, coming from many customers 
 and designed for many purposes; and thus it is able to obtain 
 many of the advantages of contiuuous process, even in regard to 
 small transactions*. 
 
 Modem textile industries are in the main the products of 
 British thought and method: the new boot and shoe industries 
 are distinctively American. They have developed with marvel- 
 lous thoroughness the notion that standardization, adapted to 
 the many various wants of consumers, is an economic force corre- 
 sponding within its own sphere to the standardization of parts 
 of machinery to meet the varying requirements of particular 
 machines. Not many years ago every well fitting boot or shoe 
 was adjusted in each detail by individual care to the shape of a 
 single foot: but now the call for individual judgment in the 
 industry is almost confined to the economical arrangement of 
 shapes for various portions of boots or shoes of difEerent sorts 
 
 ^ The tops are to some extent standardized: but the needs of some manu- 
 facturers cannot be met by any judgment less subtle and careful than that of 
 expert buyers in their own employment, who handle and test before accepting. 
 A little more is said on these subjects in Appendix I, 2. 
 
 ' Clapham's Woollen and worsted induslriea is a model study. See also 
 Weld, "Specialization in the woollen and worsted industry," in the Harvard 
 Journal of Economics, Nov. 1912. Landauer I.e. is specially instruotiye as to 
 the German finishing industry. 
 
SPECIAL CONDITIONS OF TEXTILE AND BOOT INDUSTRIES 233 
 
 and sizes. So a multitude of steel plates, each corresponding to ii, m, 6. 
 some part of a boot or shoe of some one of the many sizes and 
 shapes in vogue, are laid on a hide or skin; and adjusted to its 
 irregular shape in such a manner that they cover nearly the 
 whole of it: and the hide or skin is cut up along the boundaries 
 of the plates. Then machines enter the field, and require from 
 their human associates little more than careful feeding. 
 
 A passenger in the Mayflower founded a boot and shoe 
 industry at Lynn, which spread over Eastern Massachusetts^. 
 In 1845 the industry was highly organized, with much stand- 
 ardization and division of labour, but mainly on primitive 
 lines. Then came a long series of brilliant mechanical inven- 
 tions, which reduced the direct labour cost of a boot to less than 
 a tenth of what it had been; and hand labour practically ceased 
 from the industry. But people's feet vary much, and in order 
 to enable a machine-made boot or shoe to compete with one 
 made to order by hand, the standardization needed to go on the 
 opposite route to that, which it may best follow in making 
 agricultural implements or watches, or other things in which 
 human needs have little variety. In America, though not else- 
 where, each factory makes, as a rule, only a single class of boot or 
 shoe, — it may be a high-class boot for girls, or a stout boot for 
 working women — : but, whatever the class is, it makes each 
 quality and pattern in "sizes" and half sizes, and in six or a 
 dozen different widths. The result is that while the work of 
 each operative is very simple, the total output is so subtly 
 organized that the needs and taste of each individual consumer 
 are, save in a few exceptional cases, met almost as delicately 
 and thoroughly as they could be by the careful thought of a 
 skilled artisan. 
 
 The machines required for each stage of the manufacture 
 are very numerous and expensive. Many of them are patented, 
 and either sold at very high prices, or hired out at charges 
 apportioned to the number of times they have been used, as 
 indicated by automatic registers. Its high capital charge would 
 prohibit the use by a small manufacturer of a machine, which 
 performs only one short operation, but can do it for a great 
 
 ' See a suggestive study of the boot and shoe industry in Report of Twelfth 
 Cenaua of the U.S.A. 1900, vol. vn. p. 754. 
 
 8-5 
 
234 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, in, 6. number of boots: the practice of paying in proportion to the 
 work done, puts him on a level in this respect with a more power- 
 ful rival. Thus the technical efficiency of the boot machinery 
 organization is of the highest order: but the power, thus ob- 
 tained, has been turned to harsh uses, by "tying clauses." As 
 we shall see presently, these resemble Deferred Shipping Ee- 
 bates, in binding a customer who makes any use of the aid of a 
 particular busiaess, to abstain from obtaining aid from any rival 
 business : such action tends to create a harsh monopoly. 
 
 The number of businesses that manufacture on a small scale, 
 or devote themselves to subsidiary processes, is diminishing 
 generally. But the purchase of ready cut soles, and of some 
 completely manufactured parts is on the increase: by this ar- 
 rangement, manufacturers "get the grade and weight they want, 
 save one operation, and do not have on their hands sole leather 
 that they do not want^." 
 
 A large manufacturer has however considerable advantage 
 in retailing. He can open many shops in the same city, in each 
 of which a customer's taste and fit can be ascertained; and if he 
 selects a style in which exactly the right fit is not on hand, 
 it can be ordered by telephone and sent to him from a common 
 store in the course of an hour. Thus he procures custom more 
 easily, and at less cost for marketing, than if he kept a full 
 supply of everything likely to be needed in each of two or three 
 giant shops. It is however true that this full standardization 
 enables any retailer, with a considerable stock and near to a 
 large wholesale stock, to market efficiently and cheaply on 
 similar lines^. 
 
 1 Report of U.S.A. Census of 1905, Bulletin 72, p. 12. 
 
 ' Similar remarks apply to other kinds of goods; see Appendix J, 2 and 4. 
 The general trend of this Section is continued in chapters vi and vn of this 
 Book. 
 
CHAPTER IV 
 
 FUETHER TECHNICAL INFLUENCES ON THE SIZE 
 OF THE BUSINESS UNIT 
 
 1. The expansion of the business unit in industries which ii, iv. l 
 handle continuous streams of homogeneous materials is being 
 promoted by new economies appertaining to uniform cmd 
 continuous process. 
 
 We now pass to a group of industries which handle no large 
 single mass: they have little kinship to the higher stages of the 
 steel industries, but they closely resemble the lower. They 
 turn their material promptly into powder or liquid form, and 
 keep it on the flow through many consecutive processes. During 
 all this time there is very little for the hand to do, except to 
 turn certain handles, etc., at the right time; and not very much 
 for the head to do, except in the organic planning and masterly 
 management of the whole. 
 
 Thus paper-miUs and flour-mills deal with raw materials 
 already in shapes easily handled. They turn the logs of wood, 
 or the grain, into a homogeneous fluid or powder, by a series 
 of processes, which are automatic; and require little more effort 
 of thought, and not much more effort of hand, to make them 
 available for a vast output than for a small one. A small paper- 
 miU may thrive in such a place as the Black Forest, where a 
 stream of water grinds down logs from the adjacent woods into 
 pulp; mixes it with gluten, etc.; spreads it over rollers; and 
 at last delivers it as made paper, without being touched by a 
 human hand. There is here no waste of labour: but the same 
 wood could have been turned into a better paper, with little 
 further outlay, in a highly organized mill. And the growth of 
 large mills at the expense of small is steady and rapid. 
 
236 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 ii.iT, 1. Similarly with regard to flour-mills. The farmers in the 
 wheat districts of America, send grain for local consmnption to 
 be ground into coarse flour in old-fashioned miUs, each of which 
 is commonly worked by its owner unaided. But all over the 
 western world the economy of the large mill in grinding for the 
 market is irresistible. 
 
 Modern flour milling is Hungarian in its origin; its later 
 development was characteristic of American resource. But 
 some mills in British sea-ports have overtaken American 
 practice; while they have an advantage in mixing their grains 
 and make the virtues of the various kinds supplement one 
 another. A big ship holding many thousand tons is floated 
 against the walls of a mill; the wheat is made to flow in an 
 endless stream from the ship to the upper floor of the mill. 
 No hand touches it. But after a time all its various impurities, 
 each taken out by a separate process, are delivered to their proper 
 compartments; and flour from any desired mixture of wheats, 
 by a selection of any desired parts of each grain, is deUvered 
 at the end after having gone through a score of separate pro- 
 cesses^. 
 
 As a imiform powder or liquid can be passed from one 
 
 ' Many other household commodities, suoh as cocoa, mustard, and soap, arc 
 similarly made in vast homogeneous quantities: but the influences which the 
 technique of their production exerts on the size of the business unit is supple- 
 mented by, and perhaps even subordinate to, economies of advertising on a 
 large scale. 
 
 Cement belongs in part to the same class. But local firms often have special 
 advantages in supplying particular markets with so bulky a product. Moreover 
 its raw materials vary locally: the demand for it is even more irregular than 
 for most other building materials; and the sustained series of perplexing epi- 
 sodes of its history in England, America, and above all in Germany, obstruct 
 any attempt to use it as a basis of generalization. 
 
 Another class of difficulties hinders deductions from the histories of the two 
 great groups of chemical industries based on salt and on tar; of the marvellous 
 new developments of the glass industry; and again of the industries connected 
 with high explosives : for they are all to be regarded in some respects as branches 
 of advanced chemical research rather than of mere business. Again geographical 
 causes affect the structure of the industries based on salt. A factory of high 
 explosives requires a certain seclusion, which may be inconvenient to a firm 
 too small to rely mainly on its own resources : an effective guarantee as to the 
 purity and correct admixture of the materials used cannot easily be given 
 except by a, large firm: and many diverse advantages are united in suoh an 
 undertaking as that which Sir Andrew Nobel spread over a large area of waste 
 sandy land in Scotland. 
 
MASSIVE HANDLING OF POWDERED AND LIQUID MATERIALS 237 
 
 automatic apparatus to another without the aid of the human ii, it, i. 
 hand, and emerge at the end of a long course transformed and 
 adapted and transformed again in a score of difierent opera- 
 tions; so also pieces of steel, set into an automatic complex of 
 machinery, can emerge automatically transformed into a cycle 
 wheel hub, or other complex thing. Here might seem to lie the 
 limit of consecutive automatic machine work. 
 
 But the economy of consecutive highly specialized opera- 
 tions can be carried much further, if a series of operations is 
 substituted for a series of machines, and the product to be 
 worked upon passes automatically from one to another in a con- 
 • tinuous series. This idea was embodied in the organization of 
 the Chicago meat-packing firms. No two animals are exactly 
 alike: but yet when an ox or a hog, suspended from a rail, 
 passes from one operator to another, each performs one definite 
 operation on the same part of the carcase, with a quickness, a 
 certainty and an efficiency which rivals that of the automatic 
 machine. A minute element of judgment is demanded from 
 the operator; but in the main he is, in his working hours, a most 
 excellent and economical machine, and not much more. This 
 idea has passed over into other industries. 
 
 A step, which may prove ultimately to exert a profound 
 influence on the structure of business in some engineering and 
 other industries, was taken when this method of the meat packer 
 was adapted to the needs of setting up the component parts of 
 an intricate mechanism. A striking instance of this is that of 
 the Ford motor works. A standard form and size of chassis 
 having been adopted, all its component parts are made to 
 standard shape by automatic machinery. These appendages, etc. 
 are stored, each in a separate compartment, connected by a 
 slide running down to an appropriate place in a central room. 
 Here is an endless conveyer, which completes a round in about 
 an hour. A frame is put on this: as it reaches each slide, the 
 appropriate part is fixed on it, by men who act as automatically, 
 promptly and easily, as those in meat-packing works: at the 
 end of its round the frame is a complete chassis. 
 
 It is claimed that this method enables high-class products 
 to be made at low costs by very highly paid, though not excep- 
 tionally skilled workers, moving steadily without strain or 
 
238 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, IT, 2. hurry: should the claim stand the test of time, the method 
 is likely to put a large part of the industries that are most 
 characteristic of the modern age, almost exclusively under the 
 control of giant businesses. It is however relevant to note that 
 Mr Ford himself began business on a small scale. 
 
 FinaUyj note may. be made of a matter of secondary import- 
 ance. A business which deals with a large homogeneous product 
 is likely to buy large quantities of some things, which are sub- 
 sidiary to its processes of manufacture or of marketing; and it 
 often sees its way to making them more cheaply or more con- 
 veniently than it can buy them. For instance many food and 
 other products can most conveniently be packed for retail sale 
 in small wooden boxes. Some time ago automatic machines 
 were invented for nailing these boxes together: but their full 
 influence on the price charged by box makers was not exerted 
 quickly: and in consequence some very large users of boxes, 
 did a good stroke of business by setting up subsidiary depart- 
 ments equipped with the new machinery, and making boxes for 
 themselves. But this tendency is of doubtful pubhc advantage: 
 for such departments are not, except by accident, under the 
 control of men specially adapted for the work; and they are 
 much less likely to contribute further inventions and improve- 
 ments to that work than might be expected from independent 
 producers giving their whole faculties to it, 
 
 2. The handling of large masses of homogeneous material 
 is often associated with the utilization of by-products, which 
 further strengthens the tendency to any increase in the size of 
 the business unit. 
 
 There is an intimate connection between the massive manu- 
 facture of homogeneous products and the utilization of by- 
 products. For the processes of standardization of the main 
 products tend to segregate by-products: and if any particular ' 
 element of the original material is cast out by a special process 
 — and this often happens — then a long step has already been 
 made towards the standardization of any by-product, of which 
 that element is the basis. By-product industries are however 
 liable to great vicissitudes. Something which was apparently 
 almost valueless is suddenly made the foundation of an im- 
 
MASSIVE TREATMENT OF BY-PRODUCTS 239 
 
 portant product, either through a new technical discovery or ii.iv, 2. 
 through the rise of a new demand. For instance, the confident 
 expectations, current not long ago, that electric light would 
 speedily displace gas, took insufficient account of the great rise 
 Lq the price of coke, which would follow any check to the output 
 of gas: nor did they anticipate the vast field for the consump- 
 tion of tar, which seems likely to be opened out by its new 
 applications to road surface making. 
 
 The advantage of continuity of process is one of several 
 causes that incline large producers to work up their by-products. 
 In old times, when the head of a business was also the master 
 workman, economy and efficiency alike required that the subtle 
 treatment of each by-product should be in the hands of a master 
 of that work; and consequently by-products were generally 
 handed over to subsidiary industries. But in modern times, a 
 great organizer, with abundant capital, can employ experts to 
 travel for him and study the best methods of treatment known 
 at home or abroad, and can set them to put up a large and 
 expensive plant. He has a double set of gains to expect from 
 experiments that tend both to increase the demand for his by- 
 product, and to improve the quality of the goods made out of 
 it: so he will risk larger outlay and be less discouraged by some 
 initial loss than almost anyone else^. 
 
 Some of the by-products of petroleum are subtle and costly 
 chemical compounds, for pharmaceutical and other uses; and 
 they demand the thought and care of highly trained professional 
 analysts. The same is true in regard to several by-products of 
 the "heavy" chemical industries, in which Britain holds a 
 leading place: for she is favoured by her own supplies of coal 
 and salt, and by easy access to sulphur and other necessary 
 materials. In all such industries, new products are frequently 
 
 ' The utilization of horns, a3 by-produota of the slaughter-house, is vividly 
 described by Babbage (Economy of Manufactures, a.d. 1832, § 270). So when the 
 Chicago meat-packing firms found a sudden opening for a vast industry with 
 high profits they threw all their force into their main work; and subsidiary 
 industries grew up around them to handle their by-products. But later on some 
 of them applied their overflowing capital and energy to setting this work on a 
 higher plane: and, partly by aid of European methods, they got so much profit 
 from it as to be able to sell their main products at a low price relatively to the 
 cost of the animals. See Report of the Commiaaion of Corporations on the Beef 
 Industry, Washington, 1905. 
 
240 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 ir, IV, 2. coming to the front; and a business, which has abundant capital 
 and is controlled by men with scientific interests and large 
 faculty for high enterprise, may constantly introduce into the 
 world not only new methods, but also new things. 
 
 But yet the main occupation of these industries is with 
 familiar bulky products: and a great firm may long hold a 
 prominent place in them, if it is managed with discretion and 
 energy, and has an alert apprehension of any improvements 
 in method or product 'that are on their way. Such industries 
 give scope for bold and wise faculty, ready to sink large capital 
 in organizing scientific studies and experiments: for, though 
 they must in great part be barren of result, they yield splendid 
 rewards on the relatively few routes which lead to success. They 
 may be compared and contrasted with the light chemical indus- 
 tries, which have already been noted as specially characteristic 
 of the German aptitude for organized team work in scientific 
 exploration under capable guidance. 
 
 The main basis of those industries is coal tar, which Germany 
 at first procured largely from British gasworks, but afterwards 
 from the coke ovens of steel works, themselves a characteristic 
 product of scientific method. Persistent study has shown that 
 dyes, capable of resisting the effects of strong light, and offering 
 a large variety of pleasant colour effects, can be made, by 
 working on this basis on innumerable routes. Many of the 
 products evolved on the way to the discovery of a new dye, are 
 found to be useful in other combinations for other purposes. 
 Nothing is hastily dropped; every intermediate product and 
 every by-product is tried in various combinations, with the 
 hope of getting some new result of value in some industrial 
 process, or of getting at an old result by a shorter or more 
 economical method. Such work as this can be effectively done 
 only by a business that can afford to work long and patiently 
 at each of a vast number of problems: and anyone who, without 
 adequate scientific apparatus, specialized on the manufacture of 
 a few of the products in most repute, might possibly find him- 
 self left stranded, the tide of discovery having swept by him. 
 In fact the complex interactions of new products and by-pro- 
 ducts show signs of exerting on the light chemical industries an 
 influence different in its nature, but similar in its results, to 
 
MASSIVE TREATMENT OF BY-PRODUCTS 241 
 
 that which has been exerted on massive mechanical and chemical ii, it, 2. 
 industries by the ever increasing variety and expensiveness of 
 the plant required by them. An army of high-class experts, 
 such as won the success of the chemical works at Ludwigshafen, 
 or those at Elberfeld, is as much beyond the reach of a man of 
 moderate means as is the plant needed for making armour 
 plates^. 
 
 This case gives much matter for thought: but no general 
 inference can safely be drawn from it. 'It shows that when an 
 industry is in process of iacessant transformation by the creation 
 of new things as well as by the invention of new methods, there 
 is little chance that a general supply of a particular class of by- 
 products will be available, on which a man of moderate means 
 can specialize. But nothing quite similar has ever occurred 
 before : and it is perhaps probable that, when the products, 
 which have been evolved by the colour industries, have been 
 further developed, they will again be handled in some cases 
 
 ^ An "economic appreciation of the colour industry," by Dr Kapff, which 
 is at once technical and instructive to the lay reader, will be found in the Hand- 
 buck der Wirlschajiskunde Deutschlands, 1904, vol. iii. ch. 24. He stated that 
 the Ludwigshafen works employed 148 chemists, besides 75 technical, and 
 305 commercial officials : but that they paid less than four marks a day for their 
 6300 workpeople, all adults, on the average. See also below, p. 570. 
 
 The industry affords an excellent illustration of the intercommunication of 
 various processes: — "A, B, and C, which are intermediate products for making 
 dyes, are also intermediate products for making photographic chemicals. 
 Further treatment of A leads to the production of D, which is a finished photo- 
 graphic chemical and also a. very important intermediate body in the manu- 
 facture of an important group of dyes. The same treatment of A which produces 
 D also produces E, which is another important halfway house to fresh dyes. 
 The chemical reaction between a and 6, which produces A, also produces B, 
 from which very important photographic chemicals are produced, during the 
 manufacture of which residues are left from which the valuable drug K can be 
 made. It is obvious to anyone that it will only be possible to make A and B 
 economically from a plus b, if there is an outlet both for the intermediate dye 
 products and for the photographic chemicals.. ..The German manufacturers 
 do not publish manufacturing details of any value in their innumerable text- 
 books. When a process is described with working details one can rest assured 
 that it is because much better processes have rendered it obsolete. Reactions 
 which at the commencement gave yields of 20 to 25 per cent, have been coaxed 
 to give 80 and 90 per cent. : but the achievement of this end has taken, in many 
 cases, years of research in the laboratory and in the works; and the German 
 manufacturer is sufficiently awake to arrange matters so that very few of the 
 staff indeed have a sufficiently intimate knowledge of a wide range of products 
 to be able to give away much that would be valuable to the outsider." {Man- 
 chester Ouardian, 4 Jan. 1915.) 
 
242 TECHNICAL INFLUENCES ON INDUSTRIAL AGGEEGATION 
 
 II, IV, 3. most effectively by businesses each of which devotes to one 
 class of work a considerable capital and high ability specialized 
 wholly on it. 
 
 3. The increased dependence of those, who pioneer pro- 
 gress in broad fields of industrial technique, on the aid of 
 large capital. 
 
 The considerations submitted in this and the two preceding 
 chapters seem to poinlf to two conclusions. The first is that 
 future advances of technique on broad lines are likely to need 
 the aid of capital on an ever increasing scale. The second is 
 that much may still be done with moderate means by a resolute 
 man, who is content to concentrate his strength on a narrow 
 field of work so long as his means are but scanty. 
 
 The area of science has indeed no boundaries: there is no 
 reason for fearing that new discoveries in it will dwindle into 
 relative insignificance; as those of the explorers of the earth's 
 surface have gradually done, since two new worlds were opened 
 up by the voyages of Columbus and Vasco da Gama. On the 
 contrary, it seems probable that, the further man goes into the 
 unexplored regions of science, the larger will be the scope for 
 new discoveries, which will effect revolutions in the practical 
 arts of industry as in the meditations of the speculative 
 student. 
 
 And yet it may be feared that the rapid increase in the 
 power and scope of the arts of production is perhaps preparing 
 the way for a partial retrogression of the social dignity and 
 weight of the productive industries in some directions. The 
 very strength which they derive from science may be a source 
 of lassitude. For, though the creation of new knowledge evokes 
 the highest intellectual energy, yet men's faculties may be 
 somewhat burdened by carrying a great bulk of merely useful 
 scientific knowledge, and turning it to account in business 
 routine. The fact that Aristotle, Newton and Cuvier would 
 have. much to learn, if they should meet a mediocre student 
 of modern science on his arrival in Hades, does not tell entirely 
 on the side of the present age. For creative faculties are 
 developed by exercise; and many who might have been fas- 
 cinated by opportunities of relatively easy creation fifty years 
 
GENERAL NEED OF LARGE OUTLAY FOR TECHNICAL ADVANCE 243 
 
 ago, now find tliat very little of the original work, which remains ii, in, 3. 
 to be done, and yet has the fascination that belongs to bright 
 new ideas, is within the scope of their limited power. This 
 depressing influence, which is already felt in some realms of 
 science, may possibly spread in the realm of business. For 
 the widening range of standardized methods tends generally to 
 increase the dependence of the creative mind on large capitalistic 
 aid in obtaining scope for its activities. 
 
 Further, almost every extension of this grasp increases the 
 opportunities and thus raises the prestige of any capitalist; 
 who, though without high creative faculty, is yet shrewd and 
 steadfast, and can organize and adapt to his particular uses the 
 best plant and methods that so far have been devised. The 
 advantage held by the pioneer of improved methods is of 
 course most prominent in new industries; and in those which, 
 though old, are in transitional stages: but it dwindles rapidly 
 when pioneers have overcome the chief difficulties, and their 
 methods are open to all. For instance, when bicycles first came 
 into vogue, every year brought some striking change in their 
 construction and their methods of manufacture: and the pro- 
 ducts of a fijm, which had no initiative, were obsolete almost as 
 soon as they were made. But now a cycle firm with adequate 
 capital, administrative capacity and assiduity, can manufacture 
 at a comparatively low cost for general consumption an ordinary 
 cycle, that is immeasurably superior to those made by the first 
 leaders of the industry; and is but very little inferior to the 
 best that can be made to-day. Thus improvement in the methods 
 and products of a partially standardized industry goes together 
 with a certain decline in the place held in that industry by the 
 high faculties of initiative: they are apt to be overshadowed 
 by the more commonplace faculties of orderly administration 
 and commercial skill; combined with large resources held perhaps 
 in joint-stock ownership. 
 
 Again, the aid, thus given to a new industry, increases both 
 the social importance and the monetary value of an invention, 
 which overcomes any difficulty that may be met in regard to 
 the secondary requirements of the industry: for instance the 
 excellence of the aviator-motor engine increases the premium 
 which is ofEered for textile materials that are, other things 
 
244 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, IT, 4. being equal, lighter or stronger or more enduring or even cheaper 
 than those yet known. It is indeed true that when a sound 
 new idea is explained to his brother experts by a man, whose 
 only wealth lies in his brains, it will receive due recognition; the 
 rumours of which will in exceptional cases reach the public ear: 
 in this opportunity will be found a chief mitigation of the injury 
 which the increasing dominion of joint-stock companies inflicts 
 upon the spirit of initiative and enterprise; and such matters 
 will occupy us a good deal later on. But yet every expansion in 
 the general scale of an industry is likely to increase in some 
 directions the advantage which an inventor, who is also a capi- 
 talist, has over one whose means are narrow^. 
 
 4. Opportunities of a strong man with moderate means, 
 who concentrates his energies on a speciality. 
 
 It is not to be denied that the increasing economies of 
 specialized machinery and skill are on the side of the powerful 
 capitalist in competition with a weaker rival so long as the 
 tasks on which they are engaged are similar in scope: for large 
 works are at an advantage over small in being able to assign to 
 almost every task a specialized machine, which is perhaps more 
 efGicient and certainly cheaper in proportion to its efficiency 
 
 ^ Experiments on a laboratory scale or with small mechanical models have 
 as a rule but little commercial value, until they have been fortified by practical 
 proof of their efficiency on a working scale. The sums, needed to be expended 
 on large scale experiments before final success is achieved, sometimes amount to 
 hundreds of thousands of pounds: and there are many industries in which a 
 thousand pounds go no further in this direction than a hundred pounds did a 
 few decades ago. An invention, which cannot be patented, is seldom of much 
 value to anyone who does not already own a considerable business in which it 
 can be used. 
 
 It is true that, when an invention is complete, and a patent has been ob- 
 tained for it, it may be sold, or taken up on some sharing plan, by a capitalist. 
 But he is generally in a position to get the best of such a bargain; for a com- 
 mercial critic of an invention is seldom inclined to regard its possibilities as very 
 high, relatively to the chance that continued working will bring out latent de- 
 fects; or perhaps suggest to someone else a superior plan, that is not technically 
 covered by the existing patent. It is to be remembered also that large sums of 
 money are often expended by wealthy inventors on developing and patenting 
 plans that run parallel to their chief plan, in order to delay the advent of rivals 
 on those parallel lines: and, though this practice has been somewhat checked 
 by recent legislation tending to weaken patents which are lying dormant, yet 
 it still tells on the side of the strong capitalist in competition with men of smaller 
 means. 
 
NEW OPENINGS FOR STRONG MEN WITH SLENDER MEANS 245 
 
 than the general or "omnibus" machines applicable to many ir, iv, 4. 
 uses, on which small works of the old type largely rely^ 
 
 And even if there is little' scope for highly specialized plant, 
 the large business will subdivide the work among so many men; 
 and specialize each of them so closely to a particular task, that 
 by constant practice he will be able to perform it better and 
 very much quicker than a skilled artisan, of much higher faculty, 
 who is equally expert at many other tasks. This matter is 
 indeed of somewhat less importance in Britain than in America: 
 as has already been noted, new strains of immigrants have 
 generally but little industrial training, and yet congregate in 
 the towns. This gives an impetus to the desire of the small 
 manufacturer to confine his production to a class of goods so 
 limited that he may be able to specialize his employees as well 
 as his machinery almost as thoroughly and minutely as can 
 be done even in the largest works. A man with moderate means 
 who knows how to turn the economies of partial standardization 
 and complete specialization to his account is not in a bad 
 position. 
 
 The task of pioneering the general standardization of struc- 
 tural shapes was indeed heroic in its dimensions; and tasks on 
 a like scale caimot be frequently achieved by a single effort. 
 But smaller and more gradual movements in similar directions 
 are becoming increasingly frequent, and are doing much to 
 bring particular parts of large processes of massive production 
 within the range of a strong man with comparatively small 
 capital. 
 
 Such a man may indeed find that the markets in which he 
 looks to buy his material or to sell his products, are controlled 
 to his prejudice by a monopolistic combination in stages of 
 production below his, or above his, as we shall see. But, if the 
 markets are free, standardization reheves him of many troubles 
 of marketing which might weigh him down, and it enables 
 him to give his energies to that work which is specially his. 
 
 ■ Kor some parts of auoh a machine are almost sure to be idle in each of the 
 many tasks to which it is applied, and their presence is always a source of extra 
 cost, and often of extra work to the machine. Again, each part of it must be 
 made heavy and strong enough to bear the maximum strain imposed in any of 
 its uses; whereas in a specialized machine, every part is kept light except those 
 which will be subject to heavy strain in ths constant repetition of its single task. 
 
246 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, IV, 4. He looks to selling his standardized product without inordinate 
 expenses on advertising, or in building up business connections 
 with individual firms. And, what' is often more important, he 
 can enter into any process in which the standardized products are 
 used, with a fair certainty that he will be able to buy them, as 
 he needs them, at a low cost. 
 
 This is noticeable in production, the earlier stages of which 
 give large scope for machinery, and require much capital, but 
 not much labour or individual treatment; while the later stages 
 need mainly to be done by hand, and call for the kind of care 
 that is best given by an artisan wotkiug on his own account or 
 by a small employer. Thus large steel firms have always 
 supplied small cutlers with their material. Machine-made 
 standardized component parts are buUt up into good bicycles in 
 many a small workshop. The small milliner, dressmaker, and 
 shoemaker buy many more materials already partly worked up 
 by machinery than is commonly supposed. And the small 
 builder and picture frame maker buy ready made doors, and 
 window frames, or picture frame material from large producers 
 with elaborate plant; while they themselves give their main 
 attention to local needs, to the tastes of particular customers, 
 and to superintending hand work aided by but very little plant. 
 Thus the large business, itself increasingly given to semi-auto- 
 matic work on standardized products, is often indirectly aiding 
 businesses in which routine has but a secondary place; and in 
 some directions it promotes new openings through which a man 
 of small means but large energy may work his way up to become 
 a leader in industry. 
 
 In every industrial country there is a sufficient market for 
 specialities, which can be advantageously produced by a man 
 of moderate means; and he can often turn alert and energetic 
 faculty to the best account by concentrating all his strength on 
 making some one thing, perhaps only of a single size. For then 
 he can aSord to provide a machine for every subdivision of his 
 work : and, as it need never be set to more than one task, it can 
 be simple and therefore firm and yet cheap. 
 
 The thing at which he works may be a piece of electric 
 apparatus, a portable power-driven hammer or riveter, a new 
 pump or windmill: it may be a complex registering machine, 
 
NEW OPENINGS FOB STRONG MEN WITH SLENDER MEANS 247 
 
 which needs to be revolutionized and agaia revolutionized; and ii, iv, 4. 
 at last made largely by aid of machines invented for the purpose, 
 before it is ready to take its place as an almost human participant 
 in the clerical work of many kinds of business. In any case he 
 will resolve to have the best plant and the best methods existing 
 for that particular task which he has taken in hand; and he 
 collects around him a stafi of men ideally fit for his purpose. 
 They must be alert, and must have every faculty that he needs. 
 But he will not pay for faculties for which he has no great use; 
 and he will not allow skilled men to spend much time on tasks, 
 for which cheaper labour would suffice. When his works are so 
 well equipped, and so highly organized that there seems no 
 great room for further improvement in them, he may probably 
 turn his newly acquired strength to larger fields. Then he will have 
 joined the ranks of the large producers: and is likely to be uncon- 
 sciously opening avenues through which new small men may 
 work their way up^. 
 
 Thus it comes that, though the small producer is constantly 
 threatened with extinction; though he has in fact been driven 
 from some branches of many industries, and is in process of being 
 driven from others; yet he survives. He is saved by the fact 
 that although machinery may have been applied to what used 
 to be the greater part of a process of production ; yet the remainder 
 
 * A hero of See's characteristically American, and profoundly suggestive, 
 Chordal's Letters (1880), illustrates a drift of character which did more than 
 anything else to promote England's leadership, and which is still a chief source 
 of her strength. Saokett, a rising engineer, tells (p. 41) how he looked out a likely, 
 intrusive, troublesome boy. "I set him at work on a three years' apprenticeship. 
 I first set him to chipping castings, and told him he could drop such work for- 
 ever the moment he could do it well. He seemed to understand my plan and 
 passed through the ordeal quickly. Then I put him on a bolt cutter with the 
 same understanding. He soon graduated, took a rough lathe, then a better 
 lathe, then a vice, then a floor. He always did the most valuable work of which 
 he was capable. This was my regular plan in the shop, and secured for every man 
 his proper sphere of action." And this boy later on became a foreman ; went to 
 help another employer out of his difficulties; found men spiritless because they 
 had not just the work fit for them; put them to work that brought out what 
 was good in them: and soon his employer "was paying higher wages and getting 
 cheaper work than any one else in his Une." 
 
 The success of small Jewish masters in the East End of London seems to 
 be partly due to the care with which they select for each man work suited to 
 hia latent aptitudes. See "The Jewish Immigrant," by J. A. Uyohe, in the 
 Contemporary Beview, vol. lxxv. 
 
248 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 II, IT, 4. is still done in tte old way. The money-value of the part done 
 by machinery is likely to shrivel up, and the aggregate demand 
 for labour in it is likely to diminish, though the vent of the 
 product may have been much increased by the fall of its price. 
 But meanwhile the demand for labour in those parts of the work, 
 that still require individual attention, will have grown with the 
 increased output: and the scope for the elasticity, for the initia- 
 tive, and for the watchful care about details, in which the small 
 producer excels, may have been enlarged in one direction as much 
 as it has contracted in another^. 
 
 Moreover improved mechanical processes are taking over 
 many tasks which each household used to perform for itself. 
 Such industries as dressmaking, baking and washing, once 
 largely domestic, are ever adding to the ranks of small businesses, 
 and creating new steps by which enterprise and initiative can 
 begin their climb upwards. 
 
 No doubt some of the forces that are working against the 
 small producer are growing cumulatively. We must presently 
 consider how the very inertness of joint-stock companies tempts 
 them to apply some of their large capital in branches of manu- 
 facture for which they have no special aptitude, but in which 
 they can turn to account their facilities for borrowing capital at 
 low interest. Meanwhile it may be said, with reference to the 
 present century, that though machinery has ever been extending 
 its domain; yet each conquest has increased the relative im- 
 portance, from the point of view of the operative, of that ground 
 which it has left open to hand work. It has opened up new 
 ground for general markets: and, there is no cause for wonder 
 at the fact that the number of small businesses is constantly 
 growing; since their products are ever finding new vents in these 
 markets, as well as in the supply of special materials and machines 
 to large businesses. 
 
 ' For instance, if machinery takes over what used to be regarded as three- 
 fourths of a process of manufacture, and after a time performs it at a tenth 
 of the original cost; then, though the real importance of that part remains as 
 great as ever to the consumer, its importance in the statistics of both industry 
 and trade will fall to less than a third of thataprhich used to be three times 
 as important as it. Perhaps the fall in price will have increased the sale of the 
 product five-fold, and, in that case, the employment of labour afforded by what 
 used to be but a fourth of the industry will now give more employment than used 
 to be given by the whole industry. 
 
NEW OPENINGS FOR STRONG MEN WITH SLENDER MEANS 249 
 
 Thus, so far as the "productive" side of business is con- ii, iv, 4. 
 cemed, it may be concluded that — though the volume of out- 
 put required for maximum efficiency in proportion to capital is 
 increasing in almost every industry — yet, at any given time and 
 in any given condition of industrial technique, there is likely 
 to be a point, beyond which any further increase in size gives 
 Uttle further increase in economy and efficiency. And this is 
 well; for small businesses are on the whole the best educators ^ 
 
 of the initiative and versatility, which are the chief sources of 
 
 industrial progress. 
 
 But this conclusion does not extend to the "marketing" side 
 
 of business: for we shall find that, on that side, the advantages 
 
 of large capitals in competition with capitals of smaller size are 
 
 constantly increasing almost everywhere. 
 
CHAPTER V 
 
 CONSTRUCTIVE SPECULATION. ORGANIZED 
 PRODUCE MARKETS 
 
 II, T. 1. 1. Introductory observations. 
 
 A good deal has already been said incidentally as to the 
 ever increasing complexity of marketing, and as to the aids 
 which its operations derive from modern facilities for transport 
 and for the transmission of intelligence. The purpose of the 
 group of three chapters, of which this is the first, is to consider 
 the influences, which these changes are exerting on the costs and 
 methods of marketing in various classes of industries, and on 
 the structure of business in them. 
 
 It will appear that the influences, exerted by developments 
 of the means of communication, operate much as do those 
 exerted by changes in the technique of production: on the whole 
 they strengthen the strong producer and dealer relatively to his 
 weaker competitor; but in some directions their aid is of greater 
 service to the weak than to the strong. 
 
 Good marketing has always provided or helped in providing; 
 (a) a supply, both steady and elastic, of everything for which 
 there is a considerable demand (measured in terms of purchasing 
 power) in any place; and (6) a fairly steady supply of employ- 
 ment for the labour, skill, plant and managing faculty required 
 for turning them to effective account. Most of these tasks have 
 been comparatively simple where people have been satisfied with 
 a few products, mostly of local origin; and where, as has often 
 happened, the handicraftsman has been also an agriculturalist, 
 and divided his time between his two occupations so as to meet 
 fairly weU the more pressing demands of nature and man: but 
 many of them have gradually become very complex. 
 
INTBODUCTORT OBSERVATIONS 251 
 
 The advance of knowledge and wealth has brought so great ii, v, i. 
 and ever-changing a variety of goods into ordinary consumption, 
 that if the resources, on which the local dealer could draw, had 
 remained without great change, the stocks needed to meet the 
 impatient demand of the modem western consumer would have 
 been larger in proportion to population than the whole movable 
 wealth of, say, the sixteenth century. And, on the same sup- 
 position, the employment found in any place for the highly 
 specialized skill and plant of modem industry would have been 
 so fitful and irregular, that modem knowledge and wealth would 
 scarcely have sufficed to make modem industry commercially 
 possible. But the same causes, that have brought new diffi- 
 culties, have brought also new methods of overcoming them. 
 
 Nearly all western markets are now united by so many 
 various connections, that a need for any common product 
 almost anywhere can be filled in a couple of days, if not in a 
 few hours, from a large reservoir; which can be replenished 
 quickly from stiU larger reservoirs near or far. In return for 
 these services, which central reservoirs render to local consump- 
 tion, linked-up local demand provides a fairly steady market in 
 time of peace for nearly all commodities, however highly 
 specialized, the consumption of which is not greatly varied by 
 such widespread influences as changes in the season or in 
 fashion^. 
 
 Thus technical improvements in transport and marketing are 
 ever overcoming old difficulties; but they are also ever stimu- 
 lating further developments, which open out new difficulties. 
 One of the most prominent of these, the increase in the distances 
 over which food and other goods travel before arriving at their 
 final resting place, has perhaps nearly reached its full force 
 already. For, as backward countries and districts gain on those 
 which had an earlier start in the industrial race, the average 
 distance travelled by ordinary manufactures will diminish. Long 
 distance transport will be increasingly concerned with fine indus- 
 
 ^ On thia side of its work good marketing may be compared to a fly-wheel, 
 rather than to a reseryoir. The engine which drives a single machine, liable to 
 short sudden increase of strain, must have a fairly massive fly-wheel. If it drives 
 a score of such machines it needs a mass perhaps only siz times as great : and ii 
 it drives five hundred of them, the wheel may be perhaps less than a thirtieth 
 part as massive in proportion to the work done, as ii it drove only one. 
 
252 CONSTRUCTIVE SPECULATION: ORGANIZED PRODUCE MARKETS 
 
 II, V, 2. trial specialities; and with such crude agricultural and mineral 
 products, as Nature yields in greater relative abundance, or on 
 easier terms, in some parts of the world than in others. 
 
 2. Modern organization tends so to distribute the risks 
 inherent in making and marketing that they /all increasingly 
 on the shoulders best fitted to bear them,. 
 
 The intensest risks of early times and of some backward 
 countries even now, have been "consumers' risks" connected 
 with harvest failures. But cheap and speedy transport by land 
 and sea, aided by the telegraph and the specialized activities of 
 dealers in harvest products, have very greatly diminished such 
 risks in the Western World: and there is some tendency to thinJj 
 of "speculation" as a thing, with which no one need be con- 
 cerned who does not set out to seek it. But in fact the great 
 risks of business have much in common with the many small 
 risks which must be faced by every responsible citizen. 
 
 For when a traveller is in doubt which of two roads to take, 
 he speculates. He must ultimately take one risk or the other: 
 he has no choice but to speculate as to their relative advantages 
 and act according to his speculative judgment: and, in the more 
 weighty afEairs of ordinary life, everyone is frequently at a cross- 
 ing of roads. If a man is in a hired house which he much likes, 
 but is not sure how long he will stay in the neighbourhood, he 
 takes a risk, whether he accepts or Refuses a long lease of it: and 
 similarly when a man decides for what occupation to prepare his 
 son, and to what school to send him, he must take some of many 
 risks. But the looJcing into the future, which such risks involve, 
 is seldom recognized as speculation: and even business transac- 
 tions which foUow the ordinary routine are not commonly re- 
 garded as " speculative " : that term being almost confined to deal- 
 ings in things the future prices of which are eminently uncertain. 
 
 The speculative taking of high risks has many varieties. 
 Some are in effect mere reckless gambling. Others are shrewd 
 business ventures, aimed at gains, that must be balanced by 
 losses to traders who are concerned in the same affairs. Others 
 tend to improve the general application of efforts to the attain- 
 ment of desirable ends: these last alone are entitled to be called 
 "constructive" in the full sense of the term. 
 
DEALINGS IN RISKS MAY BE OF PUBLIC SERVICE 253 
 
 Aristotle's doctrine, that neither party to trade can gain ii, t, 2. 
 except at the expense of the other, is true only of that particular 
 form of trade which is classed as gambling, a class to which 
 many varieties of trade speculation belong. But genuine trade 
 commonly benefits both parties to it: because, though each 
 receives only what the other gives up, what he receives is more 
 desired by him than that which he gives up. In gambling, 
 when conducted fairly and on equal terms, every transaction is 
 an exchange of equal risks^. 
 
 When a man, having superior knowledge as to horses, lays a 
 wager about them on advantageous terms to himself, he efEects 
 an immediate increase of his property; but without advantage 
 to the world. On the other hand, when a man has superior 
 knowledge that the supply of anything is likely to run short in 
 any particular country or in the world generally; and buys it 
 either outright or for future delivery; then, on the assumption 
 that his judgment is right, his action is to be regarded as con- 
 structive speculation. Such work adds to the world's wealth, 
 just as diverting a stream to work a watermill does, for it tends 
 to increase the supply of things where and when they are likely 
 to be most wanted, and to check the supply of things where and 
 when they are likely to be in less urgent demand. This is its 
 most conspicuous service. 
 
 But it also renders another service; which, though less con- 
 spicuous, is not much less important : for it often enables a man 
 whose whole energies are needed for the iatemal work of his 
 business, to insure himself against the risk that the materials 
 which he will need in his business will not need to be purchased 
 at an enhanced price. The risk is governed by broad causes 
 over which he has scarcely any control, and the study of which 
 requires knowledge and faculties other than his own. 
 
 ' This statement is not inconsistent with the fact that if a man stakes half 
 of his fortune of £10,000 on an equal risk, his prospects of material well-being 
 are lowered. For the increase of well-being derived from an addition of say £10 
 to property or income, is in accordance with fundamental laws of human nature, 
 generally the less, the greater the amount already possessed: and therefore 
 his welfare stands to be diminished by his exchanging a certainty of £10,000 
 for two equal chances of £15,000 and £5,000. But almost every general rule 
 has its exceptions: and if he could with £15,000 get something that would make 
 him permanently happy, while a loss of halt his £10,000 would do him no special 
 injury, the bargain might be wise. 
 
254 CONSTRUCTIVE SPECXJLATION: ORGANIZED PRODUCE MARKETS 
 
 II, V, 2. As a rule the manufacturer who has not contracted to deliver, 
 
 but works for the general market, desires to be insured against 
 a fall and not against a rise in the price of his material: he 
 stands to lose by such a fall; since purchasers, unless specially 
 pressed for time, will decline to buy his finished product at a 
 price much above that which corresponds to the current price 
 of the material. There is no simple means of insuring against 
 this risk, which corresponds to a contract for delivery of material 
 at a fixed price; but the two sets of risks are in opposite directions, 
 and it is obvious that much economy might be efiected by 
 setting these to neutralize one another. In spite of the abuses 
 connected with them, organized markets for dealing in standard- 
 ized produce, render many services to business men and to the 
 world at large; and perhaps the chief, though not the most 
 prominent of these is their indirect efiect in so concentrating 
 risks, that those of them which, like those just considered, are 
 in opposite directions, will tend to extinguish each other. 
 
 But, before entering on this matter, it is worth while to note 
 that insurance against a risk may be so important a benefit to 
 anyone whose capital is not large relatively to the risk, that it 
 may be worth his while to pay far more than the actuarial value 
 of it. For instance, suppose that the chance that a building of 
 a certain class worth £10,000 will be destroyed by fire in the 
 course of a year, is one in ten thousand: then the actuarial 
 value of that risk will be £1. And yet, if the destruction of the 
 building would ruin its owner, and the chance that he would be 
 ruined in that way would materially increase the difficulty of his 
 borrowing additional capital, it may be worth his while to pay 
 £10 (or even more if it were not to be had at a lower rate), for 
 a secure insurance against that risk. But an insurance company, 
 with an income from insurance premiums of £1,000,000, would 
 scarcely feel such a loss; and it is therefore able to reckon the 
 risk at its actuarial value. Of course allowance must be made 
 for the company's heavy expenses of administration, for risks of 
 fraud, etc. : but even so it might make good profits by charging 
 only £2 against the risk^. 
 
 * The actuarial calculations are of the same kind, but much more intricate 
 in practice: for partial losses by fire, which are very much more frequent than 
 total losses, are commonly included. In consequence much higher rates than 
 
DEALINGS IN RISKS MAY BE OF PUBLIC SERVICE 255 
 
 This illustration shows how a bank or any other powerful ii, v, 2. 
 business might benefit capitalists of smaller means, if a method 
 could be devised by which it could bear their risks, supposed to 
 run all in the same direction : for it would be to their advantage 
 to insure at more than the actuarial value of their risks. But 
 a characteristic of those risks of a business which are governed 
 by causes external to it, is that they turn on price movements 
 which throw about equal risks in the opposite direction on other 
 businesses. If an insurance company could contrive that the 
 risks which it undertook in regard to a particular price move- 
 ment in the two directions up and down were equal and opposite, 
 the aggregate burden of its risk would be nothing at all: it 
 would need compensation only for its expenses of administra- 
 tion. 
 
 A balance of this kind is seldom attempted imder the name 
 of insurance. But miscellaneous risks are shared out in various 
 ways, some of which are commonly described as insurance; 
 while many others, not so described, amount in effect to indirect 
 insurance. For instance, bad weather on the day set for a 
 Coronation procession is a risk against which an insurance rate 
 is definitely quoted at Lloyds; and it is of great benefit to 
 caterers for public entertainment whose risks are exceptionally 
 large. Insurance against the danger of fine weather is not of 
 frequent occurrence: but it is notorious that fine weather on a 
 Bank holiday causes indoor entertainments to be deserted for 
 outdoor entertainments and excursions. Now, if it were possible 
 to insure simultaneously indoor entertainments against fine 
 weather and outdoor entertainments (together with railways, 
 etc.) against bad weather, for the same day and to equivalent 
 amounts, the insurers might take many grievous risks off the 
 shoulders of others: they might reap a goodly profit for them- 
 selves, and yet bear little net risk themselves: for opposite risks 
 would have partly extinguished one another. We are now to 
 see how a chief function of organized markets is to accomplish 
 what is in effect a double insurance of this kind, though its 
 manner is rather that of wagering than of insurance. 
 
 that suggested above are charged: but the general principle by which they are 
 governed is not affected by this. 
 
256 CONSTRUCTIVE SPECULATION: ORGANIZED PRODUCE MARKETS 
 
 II, T, 3. 3. Characteristics of organized markets. 
 
 "An organized market" is one the proceedings of which are 
 formally regulated. As a rule those who deal on it are in effect 
 a corporation: they elect new members and also the executive 
 of their body and appoint the committee by which their own 
 regulations are enforced. In some countries their status is 
 fixed and their actions are superintended by Government. Their 
 regulations generally provide, implicitly or explicitly, for the 
 completion of a contract to buy or sell a quantity of a definite 
 commodity at a certain price, by the utterance of a few words 
 on the one side, and by a brief response, sometimes a mere nod, 
 on the other. They generally prescribe a rather large unit as 
 that to which the contract refers, at all events in the absence of 
 any specific statement to the contrary. 
 
 The most highly organized exchanges are the Stock Ex- 
 changes of the chief industrial countries. But they can pro- 
 fitably be considered only in connection with the Money Markets 
 to which they belong: and their special problems have but httle 
 direct connection with those of the present group of chapters. 
 They may therefore be left on one side for the present. 
 
 The chief conditions needed for rendering any class of pro- 
 ducts suitable to be handled in an organized market are, (1) that 
 it be not quickly perishable; (2) that the quantity of each thing 
 can be expressed by number, weight or measure; (3) that its 
 quality can be determined by tests that yield almost identical 
 results when applied by different officials, assumed to be expert 
 and honest; and (4) that the class is important enough to occupy 
 large bodies of buyers and sellers. 
 
 These conditions are sufficient to render organized marketing 
 practicable. But a fifth condition is required to make it attrac- 
 tive: it is that the class of things dealt in should be generally 
 liable to considerable fluctuations in price. For otherwise the 
 dealings would be confined almost exclusively to producers, 
 consumers, and merchants: there would be little scope for those 
 professional dealers who make a hving by speculative purchases 
 and sales; and who, as we shall presently see, in some cases 
 render great public services by carrying risks that would other- 
 wise need to be borne by people whose special aptitudes he in 
 
CHARACTERISTICS OF ORGANIZED MARKETS 257 
 
 other directions. It is true that this beneficent work is often ii, v, 3. 
 marred, and sometimes over-borne, by evil practices which 
 intensify fluctuations and mislead honest dealers: but, for the 
 present at least, that evil has to be taken with the good. An 
 organized market generally gives scope for purchases and sales 
 for immediate delivery; and for dealings in "futures," that is 
 in goods to be dehvered at specified future times^- 
 
 This fifth condition implies that the things ia question are 
 not of such a nature, that their supply can be varied by rapid and 
 extensive changes in the rate of production; so that their price 
 is prevented from fluctuating rapidly, and remains always close 
 to normal cost of production. There are few material things 
 which satisfy all these conditions in very high degree: the chief 
 among them are various grains, especially wheat; and raw 
 cotton. The authorities of each organized produce market 
 define the standard, or standards, in which dealings may be 
 made; and all produce, which comes for delivery in these dealings, 
 is inspected and certified as being truly up to the standard 
 which it claims. 
 
 Comparatively few transactions in futures lead to the actual 
 dehvery of the produce. In most cases the buyer pays to the 
 seller any amoimt, by which the official price of the quantity 
 sold may have fallen below that at which the sale was made; or 
 receives from bim any amount, by which it may have risen. 
 Either side may insist on completion: but that is generally 
 eSected through the organization of the exchange, by bringing 
 together those who wish actually to deliver with those who wish 
 actually to receive; the rest being "rung out." The practical 
 effect of this is that anyone can as a rule buy a future, without 
 being called upon to pay its price either at the time of maldng 
 the contract, or afterwards. Each party is required to put in 
 a "margin," which wiU cover a small movement of the price 
 
 ' A contract in relation to a future often takes the form of an "Option" by 
 which the payment of a certain sum secures the right to demand certain things 
 (or to sell them) within a given period at a specified price: these two options 
 may be combined, an option to buy at a stated price being coupled with one to 
 Bell at a stated higher price. There are a few cases in which dealings in options 
 are part of legitimate trade. But there appears to be more force in the argu- 
 ments for prohibiting them by law, than for prohibiting a simple buying or 
 selling of futures; for they are relatively more serviceable to the gambler and 
 the manipulator than to the straightforward dealer. 
 
258 CONSTRUCTIVE SPECULATION: ORGANIZED PRODUCE MARKETS 
 
 II, V, 4. against Mm: and, as soon as the price moves considerably against 
 him, he is likely to be required to make a corresponding addition 
 to his margin. 
 
 Thus by far the greater part of the transactions are in 
 substance merely wagers to the efie'ct that the price of produce 
 will rise or fall. Of these wagers some are, as we have seen, 
 careful, deliberate business operations, sometimes classed as 
 "legitimate" speculation: others are the almost random guesses 
 of foolish gamblers; and others again are parts of large manipu- 
 lative policy, which is in the main evil economically and 
 morally. 
 
 4. The services rendered by constritctive specvlation on 
 a Wlieat Exchange, illustrated by its efficacy in lighteniiug 
 the burden of risks borne by grain merchants and millers. 
 
 In early times the population bore economic risks, arising 
 out of the uncertainties of the harvests, incomparably more 
 grievous than any that fall on any large class of persons in the 
 present age: and the machinery of modem grain markets 
 cannot be adequately judged without some recognition of the 
 evils. from which mankind has been delivered by the gradual 
 development of organized trading in grain: a little is therefore 
 said about them in Appendix I, 1. Milling is now a subtle 
 industry, requiring a highly technical knowledge of machinery 
 and of the many variations of grain. Flour is not now made of 
 any grain that comes first to hand: it is worked to definite 
 standards, for particular districts and classes of consumers, by 
 appropriate blendings of different sorts of wheat; and the miller 
 therefore has more work to do outside of speculation than 
 before. On the other hand, prices in his local market are now 
 so closely bound to those of the world markets, that to form a 
 good opinion about them requires the undivided energy of an 
 able man. The miller is therefore often glad to insure himself 
 against those risks of his business, which arise, not out of the 
 local conditions of which he has special knowledge, but out of 
 world movements. 
 
 A produce exchange can best undertake such risks as these, 
 because many minds of first rate ability and many large 
 capitals are occupied there in dealing with just these risks: and 
 
FUNCTIONS OF LEGITIMATE DEALINGS ON AN EXCHANGE 259 
 
 because many of the risks are in opposite directions and cancel ii, v, 4. 
 one another. The broad shoulders of an exchange can carry 
 without effort the intense risk, relatively to his financial strength, 
 which the chance of a rise in price has imposed on one man; and 
 can generally neutralize it by carrying the equal risk, which the 
 chance of a fall in price has imposed on another. 
 
 It is of course impossible to recognize officially contracts in 
 every sort of wheat. But a standard sort and quality is set 
 for official dealing: and when actual delivery is being arranged, 
 sorts difiering in some specified small degrees are allowed to 
 be substituted for the standard grade, under special adjust- 
 ments as to price, which are ordered by the officials after 
 inspection^. 
 
 A British miller may bring shiploads of wheat of various 
 descriptions alongside his own elevator, and mix them by auto- 
 matic flow in various proportions to make different sorts of flour. 
 He often buys direct from far-off farmers or local elevators, 
 through agents on the spot, who know his requicements exactly: 
 but he can, if need be, send special instructions in return to 
 telegraphic reports; basing himself on the last records that have 
 been received in Liverpool, or other centre of the wheat trade, 
 of the prices of standard grades in all the chief markets. 
 
 Having ordered the purchase of a certain quantity of what 
 he needs, he "hedges," by selling at once in a central market an 
 equal quantity of standard wheat for delivery at about the time 
 at which he expects that the wheat, which he has just bought, 
 
 ' Grading by Amerioan elevator companies, of grain sent to them by 
 farmers, is not always without reproach: though in the main it seems to be 
 fairly correct. Official grading is generally careful though it varies a little 
 from one place to another. A long rodj with a row of small boxes along its 
 whole length, is pushed to the bottom of the truck or other receptacle in which 
 the grain is. The boxes are then opened and filled by a single movement; and 
 old fraudulent methods of making the grain appear better than it is, by con- 
 centrating good qualities in those parts of the receptacle from which a sample 
 was most likely to be drawn, are stopped by grading the whole as of the lowest 
 quality shown in any box, where there is any difierence. The grading is based 
 chiefly on weight per bushel, colour, condition and cleanliness: the last three 
 elements being decided by individual judgment, which appears to be liable to 
 perceptible though small variations : and it takes little or no direct account of 
 strength in gluten, starch or other matters which are important to the miller. 
 See the Report of the Industrial Commission, vol. iv. p. 432. That Commission, 
 appointed in 1898, issued its nineteenth volume in 1902; and is the authority 
 for many statements as to American conditions made in the present work. 
 
260 CONSTRUCTIVE SPECULATION: ORGANIZED PRODUCE MARKETS 
 
 II, T, 4. will be in his elevator ready to be made quickly into flour. If 
 wheat falls in the interval, his flour has to compete with that 
 made from cheaper wheat; but, what he loses through that fall, 
 is returned to him almost exactly by his gain on the "future" 
 which he has sold. Conversely, if wheat rises in the interval, 
 he has to pay on the sale of his "future" about as much as he 
 gains from the corresponding upward movement of his flour. 
 By hnjing a future he does not speculate; he throws on the 
 shoulders of the general market the risks and the chances of 
 gain that would otherwise have come to him through general 
 movements external to his own business. The elements of risk, 
 that stay with him, are only the chances of some divergence 
 between the price movement of the standard grade which he 
 has imdertaken to sell, and that of flour of the sort which he ia 
 preparing to make: and experience shows that that divergence 
 is seldom large. He does not speculate: he insures^. 
 
 Meanwhile many millers have made contracts to dehver 
 flour to bakers and others in specified quantities and at specified 
 times and places: and prefer to buy their grain as they need 
 it. These millers run opposite risks to those of the set just 
 considered: for a rise in the price of wheat might cause them 
 heavy losses. So they insure themselves by buying futures on 
 the Exchange. In so far as the sales of futures by the first set, 
 and the purchases by the second, are for equal amounts and like 
 times, the resulting risks cancel one another: whatever excess 
 of risk there is on the one side or the other remains to be borne 
 by the dealers on the Exchange: and their shoulders are very 
 strong for the work. Of course the miUer who buys a future, 
 can demand delivery only in a standard grade: and if he is 
 producing fine qualities he sells his right to that grade, and buys 
 direct those sorts which he wants^. 
 
 ' Exception must indeed be made for the improbable case in which his 
 sale of a certain grade for future delivery comes at a time, when the price of 
 that grade is being forced up by a campaign on the Exchange to "comer" those 
 who have sold futures. 
 
 ' The general position is set out clearly by Prof. Emery in his work on 
 Sloch and Produce Exchanges, 1896, and in his paper read to the American 
 Economic Association in 1899. It may be noted that the miller who contracts 
 in advance to deliver flour of a specially fine quality is put in a better position 
 by buying a future on the Exchange than he would probably be by contracting 
 with individual dealers for the delivery to him of the sorts that he expects to 
 
PtTNCtlONS OF LEGITIMATE DEALINGS ON AN EXCHANGE 261 
 
 All great wheat Exchanges are in close touch with one ii, t, 4. 
 another; their movements are now reported at short intervals to 
 the local markets of the districts which they severally dominate; 
 and though passing fluctuations are ignored, a great change 
 from one month to another tends to influence the breadth of 
 sowing and the assiduity of weeding, etc., of any who may be 
 thoughtfully inclined. It is to be remembered that there is no 
 month in the year in which there are not many cultivators in some 
 part of the Northern or Southern Hemisphere, who are making 
 preparation for, or actually sowing, winter or spring wheat. 
 
 Long ago English farmers complained that corn-factors 
 arranged to keep down the price of wheat just after harvest 
 when the farmers "had their payments to make," and were 
 compelled to sell; and to raise the price against the public 
 later on^. The modem version of that complaint in America is 
 that futures are sold down on the Exchanges immediately after 
 harvest, in order to lower the prices of wheat for immediate 
 deUvery; and that the prices are raised afterwards so that the 
 consumer does not gain what the producer loses. And, while 
 farmers' organizations complain that speculation in futures 
 lowers prices, miUers' organizations complain that they have 
 the opposite effect: but analysis and statistics seem to show con- 
 clusively that neither contention can be sustained^. 
 
 need. Such a contract would be difficult to make, and it would be liable to un- 
 certainty and friction in the execution. While buying a future on the Exchange 
 he puts himself in command of funds apportioned to the prices of the time at 
 which he needs them; he then buys after inspection, and possibly readjusts his 
 combinations of various sorts according to their several conditions and current 
 prices. The British miller, especially on the Mersey, the Clyde, or other chief 
 waterway, has a choice of wheat from a great number of soils and climates in 
 all parts of the world, and has generally at command several alternative com- 
 binations of diverse qualities by which he can reach any desired result. 
 
 ' See e.g., evidence of a Sussex farmer before H. of L. Committee on Agri- 
 culture, 1836, Q. 34, 25, 6. 
 
 ' The Industrial Commission after a f uU hearing of the arguments of farmers 
 and others in the opposite direction, concluded {Report, vol. vi. p. 223) that 
 "prices prevailing at the time when producers dispose of the greater part of 
 their products are greater in comparison to the rest of the year than they were 
 before the advent of modern speculation." 
 
 In regard to German expprience, see a chart leading to a similar conclusion 
 in Conrad's Grundriss der Pol. Oeh. i. p. 220. And Table VII, in Mr Hooker's 
 paper on "the suspension of the Berlin Produce Exchange," Statistical Journal, 
 1900, indicates that the German prices fell below the American exceptionaUy 
 just after harvest, as a result of the suspension. 
 
262 CONSTRUCTIVE SPECULATION: ORGANIZED PRODUCE MARKETS 
 
 II, V, 5. On the whole it seems safe to conclude that, since those, who 
 
 buy because their investigations lead them to think that the 
 supply is likely to run short, or sell because they are convinced 
 it has been underrated, wUl gain if they are right and lose if 
 they are wrong; therefore they are in their own interest con- 
 tributing to the public the best judgment of minds that are 
 generally alert, well-informed and capable. Their influence 
 certainly tends to lessen the amphtude of price variations from 
 place to place and from year to year. But let us turn to look at 
 the evil side of such speculations. 
 
 5. Dealings in organized markets are liable to abuse by 
 unscrupulous men, aided as they often are by the folly of ill- 
 informed speculators : but the power of selling the future 
 commoAid of a thing not yet in possession has important 
 uses. 
 
 Manipulative speculation has many forms and many degrees. 
 Its chief method is to create false opinions as to the general 
 conditions of demand and supply. A clique will lead the 
 market generally to believe that they are working for a fall, 
 when really they are buying quietly and by indirect means 
 much more largely than they are selling; and conversely they 
 will buy openly, when they are really speculating for a fall. To 
 pubUsh definite false news is an extreme measure, bringing so 
 prompt a punishment, that it is generally avoided by shrewd 
 manipulators. But false suggestion is a chief weapon: and it 
 has so many shades, some of which seem trivial, that men of 
 fairly upright character are apt to be drawn on insensibly to 
 condoning and even practising it^. 
 
 When a large command over wheat (or other produce) has 
 been quietly obtained, a clique will sometimes go on buying, 
 till aU that can be made available before the time of settlement 
 
 ' A rise in price at (say) Chicago, is often started by ordering the purchase of 
 some millions of bushels in Liverpool on a certain morning; so as to suggest to 
 the Chicago market, when it opens a few hours later, that information in pos- 
 eession of the English wheat trade points to some scarcity in supply relatively 
 to demand. Again, when a powerful speculator wishes to buy, he often makes 
 large sales openly in his own market; and a little later causes to be bought by 
 agents, acting secretly on his account, much larger amounts, partly in distant 
 markets, to which the news of his sales has of course been telegraphed. 
 
GOOD AND EVIL OF ORGANIZED MARKETS 263 
 
 is already sold; and then go on buying, till the price has been ii, v, 5, 
 forced up to an exorbitant level. This process is of course 
 facilitated by the practice, that prevails on American Exchanges, 
 of buying and selling in a sort of auction open to the whole 
 market. The clique, if successful, finally let out every one who 
 has over-sold, at prices varying with his means : for it is against 
 their interest to make people bankrupt. Some of the corners 
 thus made have a considerable place in history. But the very 
 forces of the modem Money-market and modem means of 
 communication, which strengthen the attack, strengthen also 
 and in a greater degree the defence offered by the community. 
 The clique may plot in secret: but their dealings, however 
 disguised, are soon interpreted by operators about as shrewd as 
 themselves. And the larger the plot, the more surely will energy 
 and ability be directed to the inquiry, whether the movement 
 which is on foot is really justified by the general relations of 
 demand and supply in world markets. If that appears not to 
 be the case, a hostile clique well financed will enter the field: 
 and it will be secure of victory, if its calculations are right. 
 For if two teams of nearly equal strength are pulling in opposite 
 du:ections, that one which is pulling with the slope of the hill 
 must surely prevail^. 
 
 In all such cases a powerful clique reckons on obtaining 
 great, though unwilling assistance, at all events in the earlier 
 stages of its campaign, from the folly of amateur speculators. 
 For such men do not understand that the aSairs of a great 
 
 ' Thu3 Mr Partridge in 1891 — 2 sold vagt quantities of wheat at Chicago, in 
 the belief that the market's estimates of the crop were too low and that the 
 current high price was too high. He was right, so he was able to buy back the 
 wheat at a lower price than he paid for it. The market is not often thus wrong, 
 but it was wrong again in 1897 when Mr Leiter thought that the current esti- 
 mates of the crop were too high, and the price too low. Having large funds 
 at his back, and aided by others, he bought great quantities, adopting subtle 
 devices for preventing wheat that was not under his control from reaching 
 Chicago; and was thus able to make many of those, who had sold to him, pay 
 very high prices for default of deHvery when the time for settlement came. 
 But having won one battle, he attempted another: and, partly because he had 
 ranged strong enmities against him, he failed grievously. Hia second venture 
 indeed illustrated the general rule that sensational success in great speculation 
 tends to strengthen the nervous, confident temper in which it originated. It 
 engenders rashness in venturing, and an even more dangerous inabUity to 
 recognize defeat. In fact a great speculator has scarcely ever rested on his 
 victory: he has nearly always persisted till overtaken by disaster. 
 
264 CONSTRUCTIVE SPECULATION: ORGANIZED PRODUCE MARKETS 
 
 II, V, 5. spectilation require thorough equipment with knowledge that 
 is beyond the reach of the general public: they do not speculate 
 altogether at random; but they act more mischievously and 
 disastrously to themselves than if they did. For when a man 
 decides, without any bias whatever, on which side of an uncertain 
 event he will wager, he will of course lose any charges that 
 may be levied on his wagering, and these will accrue to the 
 members of the Exchange: but he will, as a rule, not lose any 
 more; for, if he acts absolutely at random, he is about as Ukely 
 to go in the right direction as in the wrong. The fees which he 
 pays help to finance constructive speculation and trade, and 
 contribute a little also towards the expenses of malign strategy. 
 But ill-informed speculators generally suppose themselves 
 to be basing their action on the most recent news. Now, the 
 latest information accessible to outsiders has nearly always been 
 acted on by well-informed persons, and has exerted the full 
 influence, belonging to it, before it reaches the public. They 
 are therefore likely to buy, when a fall is more probable than a 
 rise, and vice versa, ; and in the long run they would make losses 
 by which better informed dealers would profit, even if all the 
 news, which comes in their way, were designed to lead them 
 aright. But in fact many of the statements and suggestions, 
 by which they are guided, have been specially prepared with 
 the purpose either of inducing the unwary to buy, because an 
 unscrupulous speculator or clique wishes to unload; or of in- 
 ducing them to sell for the opposite reason. In other words 
 they are, to their own great loss, a powerful force on the side 
 of evil manipulations of the market^. 
 
 Thus the power of selling the future command of a thing, 
 not yet in possession, is liable to abuse. But, when used by 
 able and honest men, it is beneficial: as is shown by the havoc, 
 caused by epidemics of unorganized speculation in the value 
 of land, such as are not infrequent in new countries. Speculation 
 for a rise in the value of land is always easy: anyone, who has 
 considerable means and believes that the land is being sold 
 
 ' A full explanation of the folly of such men, written many years ago by 
 Crump, The Theory of Stock Exchange Speculation, is in the main applicable 
 to present conditions. 
 
GOOD AND EVIL OF ORGANIZED MARKETS 265 
 
 under its true value, or turned to uses below those of which it is ii, v, s. 
 capable, can move its price upwards by buying, and using his 
 purchases as security for loans with which he buys again. But 
 no one can speculate for a fall ia the value of lan(J, except to 
 the extent of selling any that he happens to hold. Those who 
 have knowledge, but no land to sell, are unable to turn it to 
 effect in checking an excessive rise, in the same way as they 
 could if it referred to a thing for which there is an organized 
 market. Of course in all such matters opinion is under influence 
 from a public press, in which wise and honest counsels have the 
 upper hand in ordinary times: but this influence is apt to fail at 
 critical times. 
 
 For instance, the land boom of 1887 — 1890 in Melbourne 
 began in a shrewd anticipation by able men that the business 
 of the city would require a great extension of the areas used for 
 wholesale trade, domestic and foreign; and for general purposes. 
 They bought, and were able to sell at higher prices; for their 
 success hastened a general appreciation of the great possibilities 
 of Melbourne: and they were joined by others, not all of whom 
 were capable business men like themselves. A little later, a 
 large part of the population had bought land to the full extent 
 of their own capital, if not beyond. No effective note was 
 sounded, or could well be sounded, to warn them that the rise 
 in price had far outrun all reasonable expectations; and that 
 when the bubble was pricked, business would be so crippled that 
 the value of land would fall fast and far. Consequently Melbourne 
 passed through a period of grievous distress^. 
 
 1 While the boom waa yet far from its climax, a Melbourne business man told 
 me the price of land in a part which was indeed well suited for commerce and 
 industry, but was adjoined by much neglected land with almost equal natural 
 advantages. The price was in fact higher than in any part of London, except 
 two or three acres near the Royal Exchange. He said that prudent men knew 
 that a terrible catastrophe was near: but having already sold all the laud which 
 they controlled, they had no direct means of influencing prices ; and their opinions 
 were unheeded. If a great quantity of futures could have been sold by such men, 
 as soon as prices had gone a little beyond their reasonable level, the sellers would 
 have enriched themselves, and conferred on Melbourne as a whole a benefit 
 many times as large aa their own gains. 
 
 A little ia said in Appendix I, 2, about cotton exchanges and trade in soma 
 partially standardized crude products. 
 
 9—5 
 
266 CONSTRUCTIVE SPECULATION: ORGANIZED PRODUCE MARKETS 
 
 II, T, 6, 6. Some marTceting risks relating to " ordinary " pro- 
 ducts can be transferred by forward contracts : but the 
 majority can be delegated only as incidents of the delegation 
 of corresponding functions. 
 
 The metliods of transferring risk from the shoulders of one 
 set of men to those of others, more fitted to bear it, which have 
 now been considered, are not appHcable to ordinary products, 
 that is those for which no highly organized market is available. 
 But something can be done in that direction by other methods; 
 and the increasing complexity of business often inclines the pro- 
 ducer to delegate aU such responsibilities as he safely can. 
 
 When two men are in partnership on equal terms, it is 
 frequently arranged that one gives nearly his whole energies to 
 making, and the other to marketing. Again a very large busi- 
 ness, whether in joint stock or not, commonly entrusts to each 
 of several heads of departments responsibility for a group of 
 details, some of which are considerable, relating to the whole 
 affairs of a small business: each of them discharges a share of 
 the fimctions of the business; but, as a rule, he bears httle or 
 no share of its risks. Function can indeed be delegated easily 
 without associated risks: but the class of risks which can be 
 delegated without any corresponding function is narrow. The 
 risks, which can be transferred without function, relate almost 
 exclusively to definite particular transactions; and the chief 
 instance of these has just been considered. The associated 
 functions and risks with which the next chapter is chiefly con- 
 cerned are incidental to some stage in the journey of various 
 products on the way from manufacturers, or other producers, to 
 ultimate consumers. 
 
 We have seen how an organized market enables a producer 
 to secure in advance an adequate supply of certain materials: 
 and how it also enables him to insure against a loss, that might 
 result to him indirectly from a fall in the market value of his 
 material while he is working it up. So far as future supphes 
 of material go, the same security can be had in many classes of 
 work by a contract for future delivery: though it cannot be 
 undone or modified to suit altered circumstances by a com- 
 pensatory sale, as easily as it could if an organized market 
 
RISKS INSEPARABLE FROM CORRESPONDING FUNCTIONS 267 
 
 offered facilities for a sale of futures. For instance, shipbuilders ii, v, 6. 
 and other users of half-finished steel products commonly buy 
 their materials in advance as far as possible, when building 
 under contract; in which course they are aided indirectly at 
 least by partially organized markets for some products. Coal, 
 a chief material for many industries, is too various in character 
 to be handled in a highly organized market: otherwise the 
 dealings in such a market might at times surpass all others in 
 volume and excitement^. 
 
 Thus by private contract or otherwise it is sometimes prac- 
 ticable to insure a business against loss by definite changes in 
 recognized prices, as thoroughly as against losses by fire or 
 other specific accident. But it is not possible, it is scarcely 
 even conceivable, that insurance should be effected against the 
 results of slackness in action or errors of judgment. Such risks 
 must rem^ with those who control the business and appoint 
 its officers. They may delegate some of their functions, and 
 yet bear these risks either in whole or in part: but it is generally 
 impracticable to transfer such risks without transferring the 
 functions to which they are related. A producer can indeed 
 transfer to middlemen some of the risks of marketing, which he 
 must otherwise bear himself: but he can do so only because that 
 transference is incidental to a transference of some functions to 
 them^- 
 
 To this fact and another which is closely allied to it may 
 be traced many of the chief characteristics of modern marketing. 
 
 ^ There are many local coal markets in Britain, each having trade terms 
 and usages peculiar to itself: and, though the broad dealings of the London 
 Coal Exchange in almost every variety have introduced some uniformity In the 
 movements of prices, no approach to a satisfactory reduction of all varieties to 
 their equivalents in several standard sorts is yet in sight. Comparatively few 
 consumers make their contracts in advance with mineowners: but the middle- 
 men's dealings in such contracts are so vast as to bear some comparison with 
 those of an organized market. They even occasionally bear the market, in 
 order to obtain favourable terms from coalowners for large contracts for the 
 coming season: but for this purpose they do not sell futures; they merely 
 withhold their customary purchases for a time. (See the account of " the market- 
 ing of coal" by Prof. H. Stanley Jevons and llr David Evans in Practical Coal 
 Mining.) 
 
 " Some "profit and loss sharing" schemes may seem to point in another 
 direction: but the general trend of such schemes does not. The ordinary share- 
 holders of a large joint-stock company bear its chief risks, but delegate nearly 
 the whole of the control. 
 
268 CONSTRUCTIVE SPECULATION: ORGANIZED PRODUCE MARKETS 
 
 II, V, 6. The second fact is that though each bargain on an open market, 
 whether an organized cotton market, a cattle market, or a fish 
 market, stands very much by itself; the dealings of a mercantile 
 house with its customers cannot generally be isolated, either as 
 regards their costs or as regards their rewards, as to which more 
 will be said in the next chapter. 
 
CHAPTER VI 
 
 SOME BROAD PROBLEMS OP GENERAL MARKETING 
 
 1. The costs and risJcs of marketing attach to whole n, vi, i. 
 processes rather than to particular transactions: many of 
 them are common to a great part, and some even to the 
 whole, of the affairs of a business. 
 
 Let us revert to the notion ttat "the cost of production, 
 which controls value, relates to whole processes of production, 
 rather than to any particular parcel of products^" Let us 
 follow it out on the commercial side of the business of a builder 
 who works only on contract under precise specifications, and 
 contracts in advance for his chief supplies at fixed prices. He 
 has indeed msured himself against all the most prominent risks 
 of marketing; but more risks remain behind than appears at 
 first sight. 
 
 Suppose that he has insured against a rise in the standard 
 rate of wages of each chief class of his employees. That will go 
 but a little way, if he does not get hold of at least a fair pro- 
 portion of able, alert and loyal men, and manage them with tact 
 and firmness: nor is his success likely to be permanent, if he 
 fails to detect and attach to his business those who wiU in the 
 course of time be fit for promotion to leading places. He 
 cannot insure against the results of errors of judgment in such 
 matters unless by sub-letting contracts; that is, by handing 
 over to middlemen certain functions, with the risks attached 
 to them. Again, as his business increases, he must decide 
 whether an extension of his plant is likely to be turned to 
 sufficient account in future undertakings to be remunerative. 
 He may be doubting whether to enlarge his carpenters' shed, or 
 * See above, p. 190. 
 
270 SOME BROAD PROBLEMS OF MARKETING 
 
 II, VI, 1. to buy a steam mortar-grmding machine; or, if he is in a large 
 way of trade, a great derrick gantry. Whichever way he decides 
 any one of these questions, he must run a risk of having cause 
 to regret his decision. Constructive speculation, as was argued 
 at the beginning of the last chapter, is inherent in nearly every 
 business decision: there is generally a choice of risks, but seldom 
 any choice as to whether to take a risk inherent to a function, 
 save by transferring function and risk together. 
 
 Now it may appear that, though the productive side of 
 a business involves large decisions as to investments in plant, 
 etc., which will bear fruit slowly and only by means of their 
 services in many various undertakings; yet there is no similar 
 obstacle to the assignment of its particular costs and rewards 
 to each several marketing transaction. But that is not the 
 case. On the contrary there are many marketing problems in 
 which the most advantageous course may be found to lie in 
 making a loss on particular transactions. A great American 
 trader gave instructions that, when a customer, who did not 
 know her own mind, brought back a recent purchase somewhat 
 the worse for its journey, it was to be taken back, and the 
 full money returned, unless there was reason to suppose that 
 she had not acted in good faith: he reckoned that where he 
 thus lost half a dollar in money, he would gain a dollar's worth of 
 good will. The success of his method points to the fundamental 
 principle that the marketing side of the work of a business is 
 an integral process, and not a series of independent transactions. 
 
 The marketing reputation and connection of a business may 
 be a larger property (or "capital") in proportion to its earnings, 
 than is the fixed plant of a manufacturer in some industries. 
 Reputation for fairness and generosity in dealing, is a property 
 seldom acquired without special efiort and sacrifice, and is a 
 powerful factor of success in all the undertakings of a business. 
 The reputation acquired by large general advertising is easy of 
 attainment, though expensive. It is indeed seldom of much 
 value, imless accompanied by capable and honourable dealing: 
 but, when attained, it extends in varying degrees to all products 
 made or handled by the business: a name or a trade mark 
 which has gained good fame in regard to one product is a 
 great aid to the marketing of others. Again the expenses of 
 
PARTICXJLAR MARKETING COSTS CANNOT BE ISOLATED 271 
 
 advertising by means of a firm's commercial travellers, and the ii, vi, 2. 
 resiilting sales, are common to a great part of its business. A 
 single prominent position in a great thoroughfare promotes the 
 sale of many various things: the knowledge that a trader obtains 
 of the character and solvency of his customers, and the opinion, 
 which they form of the soundness of his advice as to the qualities 
 of different sorts of his goods, extend from one part of his business 
 to another. 
 
 Some of these considerations wiU be developed later on. 
 But enough has perhaps been said to support the conclusion 
 that, with a few exceptions, the costs and risks of marketing 
 any one commodity cannot be separated from those of others, 
 which are handled in the same businesses. Each of the trades 
 of the fishmonger, the greengrocer, the grocer, the milliner, etc., 
 has a more or less clearly defined set of costs and risks. But 
 there is seldom a clear line of division between those which 
 belong to particular branches of the same trade. When several 
 trades are combined ia the hands of the same Universal Pro- 
 vider, the costs and risks of any one department cannot be 
 stated separately, and only a vague guess can be made as to 
 the part which it has played in making or marring the success 
 of others. 
 
 2. The organization of trade is in the long run as vital 
 to consumers as to producers and traders: hut the ever 
 increasing energy, with which sellers push their goods on the 
 notice of buyers, is an inevitable result of modern develop- 
 ments. 
 
 In all this it has been assumed that the necessary arrange- 
 ments for marketing are, as a rule, the business of the seller; 
 while the buyer remains relatively inactive. Before going further 
 it will be well to consider the causes which make this assumption 
 reasonable and even necessary in the modem world; though it 
 would not always have been reasonable. 
 
 Under a system of barter, neither party to a bargain could 
 be called a seller. But as soon as money came into general use, 
 it became obvious that a person who had money and a free 
 range of the market in which to spend it, was in a stronger 
 position than one, who had a stock of goods which he could not 
 
272 SOME BROAD PROBLEMS OF MARKETING 
 
 II, VI, 2. turn to account easily except by first exchanging them for 
 money. This superior strength in the position of the buyer 
 was felt strongly in foreign trade; and it contributed much to 
 the Mediaeval and Mercantile preferences against the exportation 
 of the precious metals, and in favour of their importation. As 
 time went on, the cruder arguments in support of these prefer- 
 ences fell into disrepute among thoughtful people: but the 
 fundamental notion that the buyer confers a greater benefit on 
 the seller than he receives in return, governs the policy of many 
 countries at the present time. 
 
 Of course the peasant in a backward country, whose supply 
 of food has run short, often has access to only one man from 
 whom he can buy grain, or borrow the means of purchasing: 
 if there are several grain dealers and lenders (for the two 
 functions are commonly combined), they are likely to be acting 
 in combination. The harsh exactions therefore of monopohstio 
 sellers take a much larger place in Mediaeval history, and in 
 the modern history of such countries as India and Eussia, than 
 do those of monopoUstic buyers. And as we shall presently see, 
 special circumstances in America, and still more in Germany, 
 have put great power into the hands of monopolistic sellers or 
 combinations of sellers. But buyers in England seldom sufier 
 more than a trifling inconvenience from the refusal of a seDer 
 to supply them at a fair cost price : for the sources of supply are 
 generally numerous, and they are very rarely combined under 
 one control. 
 
 The opinion that buyers have the upper hand has indeed 
 been promoted by the common habit of looking at immediate 
 and transitory rather than ultimate and enduring results; in- 
 sufficient attention being paid to the distinction between the 
 gain which a seller makes on a particular sale, when the existence 
 of his plant and his business organization is taken for granted; 
 and that which he makes on his sales as a whole, when the cost 
 of setting them up has to be reckoned in. 
 
 The advantage of obtaining a broad market is often much 
 exaggerated. It is argued that if a manufacturer is ready 
 to supply a thousand bales of cloth or a thousand mowing 
 machines a week, he may be losing money on an output of five 
 hundred weekly, though they are sold at a price that would give 
 
EQUAL INTERESTS OF BUYERS AND SELLERS IN MARKETDIG 273 
 
 him fair profits on an output of seven hundred, and high profits ii, vi, 2. 
 on an output of a thousand: and it may be suggested that these 
 figures indicate the economies to be gained by production on a 
 large scale. But they do nothing of the sort. They indicate 
 the economy to be gained by adjusting plant and business 
 organization to the demands that will be made on them in normal 
 times, and by preventiag as far as may be fluctuations from one 
 season to another. If two cloth manufacturers sell on even 
 terms in the same markets, and have the same percentages of 
 unemployed plant at various times of the year, the fact that one 
 of them can produce ten thousand, and the other only one thou- 
 sand bales a week, wiU occasion no great difierence in their rates 
 of profit. For the technical economies open to the two wUl be 
 very nearly the same, and each wUl have some advantage over 
 the other m administration. And, if the smaller producer has a 
 steadier market, or is in better touch with it, so that he can 
 keep ninety per cent, of his plant at work on the average, while 
 the larger can keep only eighty per cent., then the smaller will 
 make the higher rate of profits. 
 
 Thus the statement that the buyer confers a great benefit 
 on the seller assumes that, for some reason or other, the seller's 
 market has fallen short of his power of production, and that 
 the buyer helps to bring it up to that power. A sudden increase 
 in the number of buyers will of course move prices strongly in 
 favour of sellers. But if it lasts only long enough to cause a 
 great deal of new plant to be erected, then it wUl be a great 
 iajury to sellers. For the high profits which they make during 
 the short time of boom, will be much less than the losses of the 
 probably much longer time, that elapses before normal demand 
 has risen so high as to enable them to ke^p this larger stock of 
 plant running as steadily as before, without selling a large part 
 of the produce at forced prices. This then is the second point 
 to be made clear in interpreting the statement that the buyer 
 stands to gain less from a particular transaction than the seller 
 does: the first point made was that the statement assumes the 
 buyer to have good access to sources of supply other than the 
 seller in question. 
 
 To conclude: — in many cases, the buyers would suffer from 
 being permanently deprived of part of their needed supply, much 
 
274 SOME BROAD PROBLEMS OF MARKETING 
 
 II VI, 3. more than the producers would by being driven to another occu- 
 pation for their capital and enterprise; and, in the long run, 
 consumers generally stand to lose more from a deficiency of the 
 plant needed to supply their wants, than producers do from a 
 faU of prices which disinclines them to make additions to their 
 plant, and to keep the old plant in a state of thorough efficiency. 
 But we must get to quite a diiferent point of view to observe 
 the short run. For a buyer in the modem world can nearly 
 always get what he wants from other sellers and on about the 
 same terms, if his negotiations with a particular seller fall 
 through. The seller on the other hand looks to a sale, as not 
 only covering the direct, or " prime " costs incurred in producing 
 the thing; but also as contributing something to his remunera- 
 tion for outlay on plant and other "general" costs of his business: 
 when he has sold a thing on normal terms, he is more than 
 remunerated for the direct or prime costs involved in handling 
 that thing. He has less certainty of selling at current prices 
 whenever he wants to do so, than the buyer has of buying at 
 those prices^. 
 
 3. The distribution of the general costs of marketing, 
 and especially those connected with the holding of stoclcsfor 
 sale. 
 
 It has already been noticed that producers nearly always 
 bear some considerable costs on account of the marketing of 
 their goods. Those, which the customs and general conditions 
 of any place and time habitually assign to producers, are 
 commonly classed among "costs of production." But if a 
 producer undertakes burdens and tasks which are generally 
 transferred to traders, then it is convenient to regard his costs 
 of production without reference to them: he bears costs of pro- 
 duction and some part of the costs of marketing^. 
 
 Formerly most people were content to be supplied with 
 
 ' When a privileged visitor passes through the main door, which separates 
 the buying department of a great linen drapery business from the retailing, he 
 will leave an atmosphere, in which able travellers for manufacturers and whole- 
 sale merchants show an assiduous and persuasive courtesy to the employees of 
 the business; and he may enter one, in which employees of similar rank are 
 carefully polite to working women, bent on making their small purchases. 
 
 ' See above, p. 184. 
 
SHARES OF PRODUCERS AND TRADERS IN COSTS OF STOCKS 275 
 
 such things as could be conveniently produced near at hand; ii, vi, 3. 
 and, in regard to seasonal products, at such times as Nature 
 afEorded them of her own free will. Even the weU-to-do were 
 forced to eat but sparingly of fresh meat in winter; and, until 
 quite recently, fresh sea fish was not to be had far from salt 
 water. Fruit seldom travelled far: as a rule every place had 
 to shift with those kinds for which it was suited; and, if the 
 blossoms of one of them were struck by a sharp local frost, the 
 people went almost without it during the coming year. Even 
 the fairly well-to-do had no great variety of clothes or domestic 
 utensils: the great majority of the people had scarcely any 
 imperious demand save for the common necessaries of life, and 
 perhaps a few spices and other sHght things. 
 
 But aU this is changed. In the modem world the neces- 
 saries of life absorb an ever diminishing share of the family 
 income. The great body of the people are in a position to pay 
 for a regular and unconditional daUy supply of many various 
 Mnds of food, aU the year round; and the village grocer's and 
 draper's shops contain many scores of difierent goods made of 
 material brought from all parts of the world. Again, whereas 
 local supplies of wood used to suffice for nearly all purposes; 
 now the most appropriate wood for each purpose of domestic 
 economy is generally suppUed, even though it be a product of 
 distant lands. 
 
 This imperiousness of demand varies from one kind of goods 
 to another; and, in regard to the same class of goods, from one 
 stratum of society to another. Its efEects on marketing costs, 
 and therefore on prices, are most marked in things, which 
 Nature supphes only at particular seasons; and those for which 
 the demand is most uncertain and irregular. If the purchasers 
 of a thing are rich; if its direct cost of production is small; and 
 if several causes combiue to iucrease the difficulty of adjusting 
 supply to demand; then the costs of marketing often double 
 or treble the price received by the producers, before the thing 
 reaches the consumers. 
 
 We pass to corresponding changes in the characters and 
 quantities of the stocks needed to be held by producer and 
 trader. The aggregate stocks of grain and other annual products 
 
276 SOME BROAD PROBLEMS OP MARKETING 
 
 II, VI, 3. have always borne nearly the same fixed relation to the annual 
 consumption of the people. 
 
 The amount, that stands over at harvest time from earlier 
 years, has of course varied with the weather. In spite of the 
 growth of wealth and providence, it has been diminished by 
 the security which cheap and quick transport afiords against 
 merely local failures of the crops; and by the arrival of grain 
 from the Southern Hemisphere to eke out Northern stocks, 
 when they dwindle before the next harvest. It is however 
 still true that farmer (or other cultivator), trader, and consumer 
 have to hold among them nearly a whole year's consumption 
 just after harvest, and nearly half a year's consumption on the 
 average. The cheapest housing of the grain has generally 
 been on the land, where it was grown: but, when most of 
 the grain had to be moved to great mUls and thence to the 
 consumer, large elevators and other stores grew up; and the 
 trader, who had long "financed" the poorer cultivators by 
 buying their grain shortly after harvest, became responsible for 
 housing it also. Taking the history of the world as a whole, 
 there are no producers' or traders' stocks to compare in im- 
 portance with those of grain : and the course of their distribution 
 has been followed in great measure by the stocks of other 
 things. 
 
 We saw above (I, m, 5) how "homely" producers of 
 woollen and other goods at first used their own wool, or that 
 of their neighbours: how later on they became increasingly 
 dependent on traders for the supply of wool from a distance; 
 and in various degrees were financed and even controlled by 
 them: and how, in the earlier phases of English manufacture 
 by "power" (whether that of falling water or steam), the new 
 men, who rose to the occasion, were dependent for finances on 
 capital which had been accumulated by merchants and others, 
 and was made accessible by banks that then grew up. During 
 that phase the manufacturer kept as little stock as possible; 
 his goods were housed and "carried" financially by merchants 
 and middlemen till they reached the consumer. But gradually 
 many manufacturing firms, and especially manufacturing com- 
 panies, have come into control of large capital: which has been 
 in some cases mainly inherited from several generations of sue- 
 
SHARES OF PRODUCERS AND TRADERS IN COSTS OF STOCKS 277 
 
 cessful work; in others obtained mainly from the general public ii, vi, 3. 
 through the Stock Exchange. 
 
 A powerful modem manufacturing business frequently carries 
 a considerable part of its stocks itself, at aU events as far as the 
 retailer. But the extent to which this new tendency reaches, 
 varies greatly from one industry to another. It goes furthest, 
 other things being equal, in industries, the ultimate consumer 
 of whose products is a business firm which has an intimate 
 technical acquaintance with their characters, and each of whose 
 purchases is likely to be of sufficient amount to be considered 
 carefully. Some engineering firms, for instance, generally keep 
 most of their own stocks, and bear most of the responsibiUty for 
 meeting an effective demand. 
 
 But meanwhile there are very many manufacturers, whose 
 capital does not reach much beyond what is required for main- 
 taining and enlarging their plant, and for other purposes of 
 their work. It is therefore still true that traders benefit pro- 
 ductive industries and the country generally by taking a con- 
 siderable part in the carrying of stocks. Such a distribution of 
 burden is all the more reasonable because they can turn over 
 most of their stocks more quickly than formerly. Their turnover 
 increases relatively to the capital needed for it: while, on the 
 other hand, the manufacturer's plant increases in costliness 
 relatively to his net output — that is, to the excess value of his 
 product over that of his material. 
 
 Thus in a broad view it may be concluded that, so great has 
 been the increase in the variety of the goods demanded by the 
 people at large, that the aggregate of stocks held by producer 
 and trader would have increased much faster than population, 
 and faster even than aggregate wealth, if very powerful causes 
 had not been acting in the opposite direction. The disad- 
 vantages of keeping large stocks are increased, in the case of 
 some kinds of engineering and other plant, by the likelihood 
 that they will be speedily depreciated by new inventions and 
 by changes in technique; while a large stock of goods for 
 consumption may be depreciated even more quickly by changes 
 in fashion and custom. On the other side the advantages to 
 be gained by keeping a large stock are lessened by the rapidity, 
 with which modem methods of production enable a manu- 
 
278 SOME BROAD PROBLEMS OP MARKETING 
 
 II, VI, 4, faoturer to replenisli quickly his stock of anything, for which 
 he has appropriate plant: while the post, the telegraph, the 
 telephone, and the almost omnipresent quick railway service 
 of a compact western country, supplemented by motor traffic, 
 enable every dealer, whether wholesale or retail, to get almost 
 anything that he wants within twenty -four hours, or even less; 
 the way for his easy purchases having been already prepared 
 by trade circulars, catalogues, etc. 
 
 For these reasons the stocks held by producers and traders 
 in the western world are an ever diminishing percentage of 
 their turnovers: and thus, although the variety of production 
 and the imperiousness of demand are multiplying rapidly the 
 number of products for which each industry and trade is 
 responsible, there is a general (not universal) fall in that per- 
 centage of the retail prices of commodities, which is attributable 
 to the costs of keeping stocks of them. 
 
 4. Functions of middlemen as links between producer 
 and consumer. 
 
 The chief functions of middlemen generally are however 
 those of studying the wants of consumers, and the resources of 
 producers; and bringing the two into connection: these functions 
 are important even in regard to the minor requisites of business. 
 But they are almost indispensable in regard to household goods, 
 clothing, etc. For such things must commonly be seen before 
 purchase: and they must be delivered in small quantities to 
 innumerable consumers, often on credit. 
 
 The ultimate consumer must be reached through a retailer, 
 save in some relatively rare cases. But the retailers in such a 
 country as England are almost as numerous as the whole people 
 of a very small coimtry: and to reach them is a task not hghtly 
 to be undertaken by producers, whose main energies must be 
 given to other work. That task falls generally to wholesale 
 dealers, who lay themselves out to study the retail trade. They 
 keep a sufficient variety of goods, coming from many sources, to 
 be able to fiU up nearly every order from a retailer promptly 
 from their own stocks. Some of these wholesale traders get 
 their supplies chiefly from a higher stratum of traders; each of 
 whom specializes on a narrow range of goods, but keeps in stock 
 
SERVICES OF WHOLESALE AND RETAIL DEALERS 279 
 
 a large variety witMa that range. In a few cases there is yet ii, vi, 4. 
 a third stratum with stiU more highly specialized skill and 
 stocks. 
 
 A large, strongly capitalized business is often but little 
 dependent on merchants for aid in establishing contact with 
 retailers; for it can organize an effective commercial department 
 of its own. But on the other hand its marketing may extend 
 over a large area; and in that case its commercial department 
 may have enough to do in dealing with merchants and other 
 wholesale traders. Meanwhile the manufacturer of but moderate 
 means often finds his need of aid from wholesale dealers increased 
 by the growing breadth and complexity of trade, about as much 
 as it is lessened by his increased faciUties for obtaining direct 
 information from far and near, and for getting into direct touch 
 with consumers. And it remains true generally that the several 
 strata of trade make more thorough studies of the requirements 
 of consumers and of the varieties and quaUties of producers' goods 
 than could be effected by any means other than extensive sub- 
 division of labour and specialization of knowledge and skOl^- 
 
 It should be added that many goods are commonly supplied 
 on credit by producers to wholesale traders; and by both to 
 
 ' Traders not inirequently aid producers by direct hints as to customers' 
 needs, and even by suggestions as to methods of meeting them: and various 
 arrangements are sometimes made for the division of any gains that may thence 
 arise. Of this more will be said hereafter: but some illustrations may be given 
 at once. 
 
 A manufacturer of textile goods designs a number of patterns for the season; 
 and arranges a loom, or other plant for each. He works off samples in various 
 colours; and occasionally in various materials. The merchant, or his agent, 
 inspects the samples ; or perhaps visits the factory, where some of them at least 
 are to be seen in the piece. Some of the combinations of colours shown in a 
 pattern may meet with no approval, and never be worked in the piece. The 
 retailer, on the initiative of commercial travellers, receives pattern-books or 
 samples; from which he chooses at once some things for stock, and orders 
 others as occasion arises to meet the selections of particular customers. In 
 other cases a merchant devises a pattern and contracts with a manufacturer 
 to make a cloth or other product to it. Sometimes again a dealer makes sug- 
 gestions for improvements in details of patterns submitted to him ; and this leads 
 to some curious results. Thus a large retail dealer recently boasted that hij 
 agents after inspecting patterns of shoes from many makers, select ideas con- 
 tained in several of them ; and he then gives out an order for a considerable make 
 of a pattern in which these ideas are combined. In such a case it is difficult to 
 say to whom the product is properly to be attributed. 
 
280 SOME BROAD PROBLEMS OF MARKETING 
 
 II, VI, 4. retailers: and, in so far as this is done, the real taking of risks 
 does not move downwards as fast as it appears to do. This 
 tendency undoubtedly often makes for an undue extension of 
 the number of traders, and especially of retailers: and there is 
 probably some ground for suggestions that there are more traders 
 in many countries than are needed for their work. Such sugges- 
 tions are strengthened by the observation that advantages of 
 situation or connection sometimes enable a trader, though with- 
 out any special faculty of artistic or other discrimination, to 
 make very high profits on small sales. And complaints are 
 perhaps made that a particular group of traders secures by 
 combination, prices unreasonably in excess of the producers' 
 prices. Such combinations are, as a rule, distinctly antisocial: 
 but they have existed at all times: and they have often been 
 most mischievous when they have been based on mere implicit 
 understandings, without any explicit and formal agreement. 
 
 Thus the relations of traders' policies to public interests are 
 not wholly above question. But yet, in a survey by broad and 
 by long, it appears that traders as a class do not earn much more 
 than adequate remuneration for their work, their capital and 
 their risks. With few exceptions, the field is open; and there 
 is nothing to prevent the influx of new energies where good 
 profits are to be had with abnormal ease. 
 
 It is however true that producers often see the prices, which 
 they receive for their goods, increased beyond reason in the 
 charges made to the consumer; and form associations for in- 
 fluencing, and even completely undertaking, the marketing of 
 their goods, at all events as far as the retailer. This task has 
 been done by many German cartels in regard to many standard- 
 ized goods, especially half-finished products, which serve as 
 materials for further production: we shall see presently that 
 though the direct effects of such action have generally been, 
 beneficial to those who take it; its indirect effects on other 
 branches of industry, and on the public at large, are often evil^. 
 
 * These matters occupy a considerable space in Book III. The beneficial 
 effects of movements by producers and dealers making for the standardization 
 of fruit and other agricultural produce are noted in Appendix J, 4. 
 
DIFFICULTIES OF IRREGULAR SUPPLIES AND DEMANDS 281 
 
 5. Costs of marketing may be increased by difficulties ii, ti, 5. 
 0/ meeting demands for a constant supply of goods of 
 uniform quality, and for supplies varying greatly from one 
 season to another. 
 
 The chief place among goods that can be marketed easily 
 and at little expense, belongs to staple products which are not 
 perishable nor dependent on seasons. A steady demand for a 
 thing of uniform pattern and quality enables expensive plant 
 to be set up for its making; to be kept constantly running on 
 an even routine; and to require little contrivance, when once 
 its technical details have been brought nearly to perfection. 
 Under similar conditions we find relatively low expenses for 
 holding and housing stocks, with little waste through deprecia- 
 tion, and without any great tax on forethought or contrivance. 
 Marketing costs are rather low, in regard to things, for which 
 the demand is large and uniform, even though it is concentrated 
 on particular seasons of the year; such as very heavy or very 
 light curtains or imderclothing, suitable for winter or smnmer 
 respectively: the same stafi, shop front, and store room will 
 generally serve for both sets. 
 
 Manufactured goods of textile materials, leather, metals, 
 wood, etc., not being perishable, can often be maintained in 
 constant supply at no very great cost; especially if they are 
 not bulky; are not in imcertain demand, through changes of 
 fashion or otherwise; and are so far standardized, at all events 
 relatively to the needs of the locality, that the demand for them 
 is not greatly afEected by varieties of individual need or taste. 
 Under this head come the common sorts of food and apparel, 
 staple household utensils, the tools of the artisan, the gardener 
 and the farmer; and many other things, which are judged by 
 most purchasers from nearly the same point of view. One will 
 elect the cheaper and another the dearer : but there is a tolerably 
 general, though not a close, agreement as to which would be 
 the more eligible at equal prices. Nevertheless a considerable 
 variety of each of such things must be held by the wholesale 
 dealer, and even by the retail dealer. The retailer's choice is 
 narrowed by local conditions; and the wholesaler follows his lead. 
 For instance, a wholesale dealer's traveller visiting a working 
 class district, will put forward samples or illustrated catalogues, 
 
282 SOME BROAD PROBLEMS OP MARKETING 
 
 II, Ti, 5. representing things likely to suit the technical work and domes- 
 tic habits of the place: and the shopkeeper, or his assistant, will 
 know in advance or will quickly divine, the particular sub-class 
 of goods which are likely to attract a particular customer. 
 
 On the other hand the highest trade in fine specialities 
 remains, and may long remain, in the hands of men and women 
 who are in a sense artists, and in some cases antiquarians also. 
 Those who supply rare vases and prints to connoisseurs, and the 
 most expensive dresses to the leaders of fashion, must spend 
 much thought over each of their sales; and they seldom care to 
 engage in branches of trade which offer scope for large semi- 
 mechanical organization. A subtler and more dehcate, though 
 perhaps not always a higher, form of organization is needed for 
 almost all branches of trade which cater for individual idio- 
 syncrasies, and not merely for the staple requirements of various 
 classes and sub-classes of customers. In some of its branches 
 an alert knowledge of mankind and command of a moderate 
 capital will suffice; but in others some high faculty is needed. 
 In many directions the dominance of large capitals is on the 
 increase, even in these trades. 
 
 Electricity cannot be stored conveniently; and, partly for 
 that reason, it is supplied more cheaply for uses chiefly in the 
 daytime, than for lighting, the demand for which reaches high 
 peaks on winter afternoons. In similar case is the imperious 
 demand for accommodation at bracing summer resorts during 
 August, when weather and school arrangements make it specially 
 desirable: and no one complains that the charges at hotels 
 and lodging houses are exceptionally high during that month. 
 But it is not generally recognized that the same reasoning 
 affords a partial justification for the practice of some shop- 
 keepers at such places, who sell more cheaply to residents than 
 to visitors^. 
 
 • This practice though equitable is not always expedient. On Swiss railways 
 it would be reasonable, but not expedient, to charge higher fares to those whose 
 demands require specially costly provision for a short summer season. But the 
 difSculty is partially evaded by issuing cheap tickets on various plans, of which 
 advantage can be taken easily by permanent residents, though not by tourists. 
 
 The class of questions opened in this Section is further discussed in Appen- 
 dix J. 
 
MARKETING INFLUENCES ON INDUSTRIAL L0CALIZ4.TI0N 283 
 
 6. Heavy industries seek access to their materials. Light ii, vi, 6. 
 industries, and especially the highest and the lowest of them, 
 seek large cities and their environment. Causes of the en- 
 during hold which an alert centre of industry, handling 
 light products, keeps on its markets. 
 
 See remarked in 1880 that goods of few varieties, which, can 
 be sold by portable samples, should always seek the cheapest 
 locality for production; but that factories for those things 
 which are massive and individual should be easily accessible 
 to a multitude of buyers^. The buyers whom he had in view 
 were partly middlemen; partly ultimate consumers for business 
 purposes, and especially manufacturers in search of plant. It 
 is important to bear in mind that such purchasers will often 
 go far in order to obtain the things best suited for their pur- 
 poses: price is never neglected; but it is seldom the primary 
 consideration in regard to plant, which is a main factor in 
 efficient production. 
 
 Until well on in the eighteenth century, EngHsh iron 
 industries sought the neighbourhood of oak forests, where they 
 used up miscellaneous shallow veins of iron ore:- their total iron 
 product was very small^. Later on they sought to be near to 
 coal, the heaviest of their materials; and to rich veins of ore, 
 even though lying very deep. But quite recently successive 
 economies in the consumption of coal have lowered the im- 
 portance of near access to coal mines, relatively to those of 
 easy access to iron ore and to markets for their products. As 
 a result the heavy British steel industries are moving to the 
 sea-coast, or the lower reaches of deep rivers. For there they 
 obtain easily imported ore; and can put much of their product 
 on board ship for exportation, or even into the frame of the 
 ship itself, which is ever more greedy of steeP. 
 
 ^ OhordaVa Letters, oh. xiv. ' See above, p. 60. 
 
 ' Tlie American demand for steel products grows so fast, that advantageous 
 sites for steel works can be developed easily. The excellent coke of West 
 Pennsylvania holds them on a long rope, and the Atlantic coast has had little 
 attraction for them; so they have tended towards the Great Lakes. Before the 
 world- war the Lakes carried the chief weight of the American shipping; and they 
 give good access to the ores of Lake Superior. The dependence of Britain on 
 foreign supplies of copper has moved her copper industries to the coast of South 
 Walea. 
 
284 SOME BROAD PROfiLEMS OF MARKETING 
 
 II, Ti, 6. This movement towards tlie sea is easened by the largeness 
 of the capitals which are invested in a massive industry; for a 
 giant steel firm can set up subsidiary establishments to supply 
 some of its needs. But an industry which does not use massive 
 material, and needs skill that cannot be quickly acquired, 
 remains as of yore loth to quit a good market for its labour. 
 Sheffield and Solingen have acquired industrial "atmospheres" 
 of their own; which yield gratis to the manufacturers of cutlery 
 great advantages, that are not easUy to be had elsewhere: and 
 an atmosphere cannot be moved^. 
 
 As we have seen, the high value of land in large cities 
 tends to drive away those branches of production which have 
 been taken over by massive machinery, and especially those 
 which must be accommodated in low wide spreading sheds; 
 though large cities retain some hold of work in which each of 
 many floors of a high building can afiord space for a multitude 
 of workers, each tending a machine that does light work. Thus 
 many of them are chief centres of printing, especially for news- 
 papers: and of course they are the chief centres of commerce 
 and finance. 
 
 But their industrial specialities are mainly of two kinds. 
 They do nearly the whole of the finest manual work, and 
 especially such as has an artistic element; while of course they 
 use subtle mechanical appliances, where these are serviceable. 
 They also make goods of all kinds, and especially clothes to 
 orders of rich customers, that are conveyed to the producers 
 through a special class of shopkeepers: who themselves do much 
 constructive work in designing; pay very highly for the work 
 they put out; and at the same time make extraordinarily high 
 profits on the turnover. 
 
 The other industrial speciality of large cities has been in the 
 past, and is still to some extent, the employment of vast numbers 
 of workers who have inherited weakness of body, mind and 
 character from several generations, that have lived unwholesome 
 lives and overstrained their nerves. The large supplies of labour 
 of this class which the conditions of cities have produced 
 together with those which their great facilities for buying the 
 
 * In this oonneotion may be compared two instructive monographs; — Tht 
 cutlery trades, by G. I. H. Lloyd; and The tin-plate industry, by J. H. Jones. 
 
MARKETING INFLUENCES ON INDUSTRIAL LOCALIZATION 285 
 
 materials and selling the products that appertain to such indus- li, vi, 8. 
 tries have attracted, have been a blot on almost every old civili- 
 zation, and not least that of the modem western world. But 
 better knowledge, especially in regard to sanitary matters; a 
 higher sense of social responsibility; and increasing facilities for 
 cheap traffic even over the whole area of such a city as London 
 (which surpasses in population many considerable States) are 
 tending to lighten the dark shade of this blot, if not to remove 
 it altogether. 
 
 In short, personal contact is most needed (1) in trade between 
 allied branches of production, at all events in regard to things 
 which have not yet been brought completely under the dominion 
 of either General or Particular standardization; and (2) in all 
 dealings, especially retail, connected with dress, ornaments and 
 other goods, which need to be adapted to individual requirements 
 and idiosyncrasies. The largest industries, and especially those 
 that need massive plant, are located increasingly in industrial 
 districts; the central cities of which are giving themselves more 
 and more to work directly or indirectly connected with mar- 
 keting. But the advantages to be derived from personal contact 
 between customer, trader and producer have caused capital 
 cities to become the homes of miscellaneous industries of all 
 grades and especially of high grades; and to offer unrivalled 
 opportunities to middlemen, who procure from working artisans 
 and small masters the making of high-class goods to the order 
 of wealthy customers. 
 
 Almost every industrial district has been focussed in one or 
 more large towns. Each such large town, or city, has been at 
 first the leader in the technique of industry, as well as in trade: 
 and the greater part of its inhabitants have been artisans. 
 After a time factories, requiring more space than was easily to 
 be had where ground values were high, tended to the outskirts 
 of the city; and new factories grew up increasingly in sur- 
 rounding rural districts and small towns. Meanwhile the 
 trading functions of the city developed. Warehouses for the 
 products of the district took the place of factories: shops for 
 the accommodation of the district were enlarged; and banks 
 and mercantile houses of all kinds became prominent. Clerka 
 
286 SOME BEOAD PROBLEMS OP MARKETING 
 
 II, VI, 6. and travellers on behalf of manufactuiera and wholesale dealers 
 multiplied; and artisans ceased to completely dominate the town 
 as of yore. 
 
 But later still there has been developed in Lancashire, and 
 to a less extent in other great homes of textile industry, a 
 tendency to take advantage of modem means of locomotion; 
 and to use the central city as the starting point, from which 
 visits can be made to factories suitable for the purposes of a 
 particular buyer, even though they may be somewhat remote 
 from the centre. Thus Manchester is now increasingly sought 
 by representatives of merchants and large dealers of various 
 kinds, who are not content with the conveniences offered even 
 by the great warehouses of the city. They prefer to make 
 rounds over an area of some two hundred square miles, visiting 
 many factories, where they can see displayed in "the piece" 
 varieties of some particular classes of fabric in which they have 
 a special interest; and where they cati discuss with the manu- 
 facturer himself any suggestions which may occur to them for 
 modifications in detail, to suit their individual judgments, or to 
 meet the special tastes or requirements of localities with which 
 they are connected. Appointments can be made by telephone; 
 and a great distance can be covered in a day by motor car, or 
 even by the almost ubiquitous tramways and railways^. 
 
 We are thus brought back to the suggestion made above 
 that heavy steel industries move readily from one place to 
 
 ' The unrivalled growth of the trade, thus centred in Manchester, owes 
 much to foreign merchants. "The English traveller found it difficult to get 
 in touch with demand; and he could not gauge it as the local merchant could. 
 Consequently, a complete reversal of arrangements took place as regards 
 much of the trade. Foreign houses established offices in Manchester. Every 
 important country, and many unimportant ones, in this way affixed commercial 
 tentacles to the metropoha of the Lancashire cotton industry... and it la now 
 commonly agreed that without the foreign houses in Manchester our foreign 
 trade in cotton textiles could not have grown as it has. The late and uncertain 
 advice received from travellers abroad was infinitely inferior to the instantaneons 
 transmission of foreign demand through Manchester foreign houses with rami- 
 fied connections in the countries to which they related." Of course there is 
 another side to this and "commercial outposts have been thrown out by English 
 houses all the world over." From an account of the Lancashire cotton industry 
 in The Times, 27. 6. 1913. 
 
 A little is said below (Appendix J, 5) on peculiar features of the industrial 
 conditions of some capital cities. 
 
MARKETING INFLUENCES ON INDUSTRIAL LOCALIZATION 287 
 
 another, in order to get better access to their materials; but ii, vi, 6. 
 that an atmosphere is not so lightly to be treated. 
 
 The leadership in a special industry, which a district derives 
 from an industrial atmosphere, such as that of Sheifield or 
 Solingen, has shown more vitahty than might have seemed 
 probable in view of the incessant changes of technique. The 
 explanation is perhaps to be foimd in the fact that an es- 
 tabhshed centre of specialized skill, unless dominated by a gild 
 or trade-union of an exceptionally obstructive character, is 
 generally in a position to turn to account quickly any new 
 departure affecting its work; and if the change comes gradually, 
 there is no particular time at which strong incitement is offered 
 to open up the industry elsewhere. It is to be remembered 
 that a man can generally pass easily from one machine to 
 another; but that the manual handling of a material often 
 requires a fine skill that is not easily acquired in middle age: 
 for that is characteristic of a special industrial atmosphere. 
 Thus, although even a little obstinacy or inertia may ruin an 
 old home of industry whose conditions are changing; and although 
 the opening out of new sources of supply or new markets for 
 sale may quickly overbear the strength which old districts 
 have inherited from past conditions: yet history shows that 
 a strong centre of specialized industry often attracts much new 
 shrewd energy to supplement that of native origin, and is thus 
 able to expand and maintain its lead. Even the changeful 
 conditions of America show a surprising permanence of many 
 localized industries, which have sprung up almost by accident, 
 and have been maintained in this way^- 
 
 ' It has already been noticed (I, vm, i) that in spite of the constant west- 
 ward movement of the population of the United States, the influence of inherited 
 manual skill in sustaining a local industry is shown by the fact that six of the 
 fifteen industries which were highly localized in 1900 were very late in making 
 use of machinery. 
 
 It may be added that accidents, such as the arrival in times far back of 
 energetic artisan immigrants, have founded industries, which have maintained 
 their preeminence till now, mider conditions just described: all these industries 
 handle light and valuable products which will bear carriage easily, and have 
 little occasion for expensive plant. Thus, according to the Census for 1900 
 GloversviUe and its neighbourhood, which produce half the leather gloves of 
 the country, owe their skill to some Scotch glovers who settled there in 1760: 
 Troy had a practical monopoly of detached collars; as the result of the enterprise 
 of a working woman about 1830. Similar, though less extreme oaaes are those 
 
288 SOME BROAD PROBLEMS OF MARKETING 
 
 II, Ti, 6. A certain limitation is however imposed on a narrowly 
 localized industry which sends its products for sale over a large 
 territory. For they must be either such as are in general use and 
 not very changeful in character; or such as can be efficiently 
 represented by illustrated catalogues, or in the large packages 
 sent out to wholesale and retail dealers through travelling agents. 
 This resource is indeed well within the grasp of a powerful firm: 
 for that can advantageously supply for itself many things, 
 which smaller firms buy from subsidiary local industries: but 
 when once an industry has fallen for the greater part into the 
 hands of producers on a very large scale, there is on the balance 
 a tendency to a loosening of the ties that bound it to its old 
 home. 
 
 of hosiery at Cohoes; of cheap jewelry at Attleboro; of fur hats at Danbury 
 end Bethel. 
 
CHAPTER VII 
 
 PEOBLEMS OF GENERAL MARKETING CONTINUED: 
 MASSIVE RETAIL TRADE 
 
 1. Massive retail trade is commonly associated with ii, vu, i 
 eager forms of competition. But some of its methods were 
 pioneered by workmen's cooperative societies, in ivhich the 
 spirit of brotJierhood strengthened the policy of economy. 
 
 Modem massive retailing is in some respects a counterpart 
 to massive production. But it was pioneered by cooperative 
 trading: wMch owes relatively little to massive production; and 
 scarcely anything to the faculties of trained men of business 
 of the new world, or even of the old. It is almost exclusively 
 the work of British working-men: it has perhaps narrower 
 limitations than are recognized by its more ardent adherents; 
 but it will be found to have led the way, in a larger degree 
 than appears at first sight, to much that distinguishes present 
 modes of retail marketing from those that prevailed until quite 
 recently. 
 
 The founder of cooperation was Owen: he was, on the one 
 side, a brilliant practical business genius; and, on the other, a 
 passionate enthusiast for the improvement of human character 
 as an end in itself, and as the means to an increase of well-being. 
 Numerous small cooperative societies were formed under his 
 inspiration; chiefly as experiments that made for communistic 
 production, with common ownership of the land as the pivotal 
 idea: the cooperative congresses of 1831 — 2 were rich in social 
 ideals, though lacking in sense of proportion. 
 
 But a little later some Rochdale weavers realized that the 
 mcst wasteful and iU-managed business of the country was that 
 of marketing goods to the working classes: and that, if those 
 
290 PROBLEMS OF MARKETING: MASSIVE RETAIL TRADE 
 
 II, VII, 1. classes perceived the bearing of social ideals on that particular 
 piece of bad business, they would have the remedy in their own 
 hands: their social faith could hold them together in business, 
 and their business would give material strength to theix faith. 
 Their fundamental notions were to club together small sums — 
 £5 each as a minimum— on which they might begin business: 
 to charge the average retail prices of a working-class district, 
 which were high; and to use the excess of receipts over costs 
 as the basis of further strength. The earher cooperative 
 societies had desired that all funds subscribed should at once 
 become common property: but the Rochdale weavers recognized 
 that human nature was not ready for that; so, after paying 
 interest on capital, and making a Hberal contribution to a 
 social and general education fund, the surplus was used as a 
 Dividend. That is, their surplus was divided among the members 
 in proportion to their purchases. It was a clever contrivance 
 for the reduction of retail prices to reasonably low levels, without 
 running the risk of failure, which might have been brought about 
 if they had started with prices so low as to leave no margin for 
 unfortunate accident. The plan seemed small and even petty 
 from the standpoint of the rich trader: but its combination of 
 ideaUsm and common sense has led the way to large improve- 
 ments in marketing, some of which have indeed been reached 
 by other routes: but it appears as a whole to stand without 
 a rival in the history of trade. 
 
 The Rochdale weavers and their immediate followers 
 gathered men and women into their fold, partly by urging that 
 cooperative stores sold only genuine goods; and sold these at 
 wholesale prices, after deducting (when Dividend was reckoned 
 in) httle more than the actual costs of handling them by simple 
 people, whose time was charged at about an average artisan 
 wage rate. But the great force, which drew the faithful to come 
 past many brilUant shops to a humble store, was the faith that 
 competition should give way to cooperation: and, though much 
 of the rude eloquence, in which this doctrine was set out, would 
 hardly bear the test of exact scientific analysis, it had a solid 
 kernel: for it meant that the movement was one by the weak 
 to help the weak: that a new comer was to be welcomed, 
 because he wanted help; and not, according to the joint stock 
 
PIONEERING BY WORKING-MEN'S COOPERATIVE SOCIETIES 291 
 
 company rule, in proportion to the capital which he contributed, ii, vn, i. 
 By this ethical incitement, even more than by their good busi- 
 ness, cooperators were able to attain at once, though on a very 
 small scale, the chief advantages of the twentieth century 
 Universal Provider: their sales were large relatively to their 
 stocks: their turnovers were rapid, and they had no bad debts. 
 This "Rochdale" method was generally adopted, and has long 
 been regarded as the "British" method of cooperative retailing^- 
 But as time went on their very success brought to light a 
 weak point in their system. They had organized a particular 
 class of retaU trade on the side of selling: but not on the side 
 of buying. So long as their rivals, the shopkeepers, charged the 
 old exorbitant additions to wholesale prices, the stores could 
 make good business without buying well. But a new race of 
 
 ' "The ideala of the earlier Cooperative congresses'' and the rules of the 
 Rochdale Pioneer Society, supplied by representativea of the Cooperative 
 movement to the Labour CommisBion 1894, were printed in the Appendix to 
 the Evidence before the Commission as a Whole. The exceptionally strong inter- 
 national literature of Cooperation is indicated at the end of C. R. Fay's Co- 
 operation at home and abroad; which ia itself a clear and well-balanced account 
 of principles and practice alike. 
 
 A few more details may be added here. As soon as it was practicable, the 
 Stores reduced the contribution necessary for membership to £1 : and some of 
 them now allow a new member to start with a first payment of half-a-orown, 
 making up the remainder out of the Dividend. Though the ordinary procedure 
 of a cooperative store is generally known, it may be well to say that the policy 
 of charging the full current market price and then returning part of it as a 
 share of the profits at the end of the year was adopted, with the piu^ose, which 
 has been aooompliahed, of attaining several ends. The policy moderated, 
 though it did not quench, the opposition of local shopkeepers: it avoided dis- 
 cussion as to the prices which could be safely charged: and it diminished the 
 strain on the simple working-men, who were serving an apprenticeship to 
 a difficult business. It further afforded a small inducement to continue pur- 
 chasing at the store, and persuade others to join it; because everything that 
 quickened the turnover of the store, added to the profits which (after deducting 
 interest on capital subscribed and borrowed) would be available for paying ■ 
 Dividend. And there was yet another and a higher motive : the working classes 
 then, even more than now, were apt to get into the habit of living from hand 
 to mouth; so that they lacked the power to buy outright a solid piece of 
 furniture, or a useful implement. The Dividend has taught hundreds of 
 thousands to know the pleasure of possessing two or three sovereigns, free 
 from any mortgage. This motive operates still; though in this richer age, 
 the Dividend is often applied to defray the expenses direct and indirect of 
 a summer holiday at the sea-side. The Dividend relieves many anxieties 
 cf the sick-room: and nearly £100,000 are spent by the Stores annually on 
 education. 
 
292 PROBLEMS OF MARKETING: MASSIVE RETAIL TRADE 
 
 II, vn, 1. alert shopkeepers came on tlie scene; who watched and copied 
 cooperative methods of selling good things cheaply for cash, 
 thus leaving the improvident customer to those of the old- 
 fashioned shopkeepers who stiU remained. In order to compete 
 with these new rivals, the cooperators had first to learn how 
 much harder a task it was to buy well than they had thought: 
 and then to face the difficulty that the affinities and sympathies 
 of wholesale dealers lay with the "regular" retail trade. So 
 they decided to extend the cooperative principle to wholesale 
 purchases. In the course of time the English and Scottish 
 "Wholesale Cooperative Societies" were set up. They have 
 gradually developed many branches of production. They manu- 
 factured in 1913 about eight million pounds' worth of goods: 
 and their total sales, exclusively to retail cooperative stores, 
 amounted to about forty million; that is, about half the total 
 sales of those stores. These Wholesale Societies are owned by 
 retail cooperative societies, to which they sell at current whole- 
 sale prices; while the greater part of the excess of receipts over 
 costs, after deducting interest on capital, is returned to those 
 societies as a Dividend on purchases. But the Scottish Whole- 
 sale gave till recently a share of the profits on its productive 
 departments to the workers in them'^. 
 
 ' The Society which is now called the English Cooperative Wholesale 
 Society, was founded in 1864, twenty years after the present model of coopera- 
 tive retailing had been set up at Rochdale; when the total sales of the retail 
 stores were under three million pounds. The cooperative movement is strongest, 
 relatively to population, in Scotland. Ireland is notable for the new vigour 
 of cooperation in dairying, to which reference has already been made. There 
 are also many independent cooperative societies for production; which maintain 
 "Copartnership," under which the workers, as workers, have a, share in the 
 control of the work as well as in profits. This high ideal is rejected by the 
 English Cooperative Wholesale, which treats its employees in the same way 
 as a joint-stock company does: the workers in one of its factories have no 
 control over the policy of that factory beyond that which falls to every one 
 of the more than two million members of the retail stores who own the.Whole- 
 sale. There are many who regard this action as out of harmony with the 
 fundamental principle to which the cooperative movement owes its success: 
 they argue that even though there be some immediate commercial gain in 
 it, it yet is akin to the selling of a birthright for a mess of pottage. In 1892, 
 the able and zealous chairman of the English Wholesale, when asked whether 
 the poUoy, if complete, would not result in putting all the industries of the 
 country into the hands of Government oiBcials; so that a worker would have 
 no more control over the conduct of the business, in which he was engaged, 
 than the worker in a Government factory has now, replied : — " To a large extent 
 
STRENGTH AND LIMITATIONS OF COOPERATIVE TRADING 293 
 
 2. Some remarks on the strength and the limitations ii, vn, 2. 
 0/ cooperative trading. 
 
 The managing committees of the cooperative societies on 
 the Rochdale model, and of their Wholesales, are for the greater 
 part working-men: and, though they now pay rather high 
 salaries to a few expert officials, their total expenditure on 
 management is far below the aggregate of the incomes (exclusive 
 of interest on capital and insurance against risks) of the owners 
 and officials of private businesses with an equal aggregate of 
 marketing and production. And yet goods made or imported 
 by cooperative methods, and retailed by the same, are not sold 
 conspicuously cheaper (deduction from full prices being of course 
 made on account of Dividends) than similar goods, made and 
 handled avowedly on commercial principles by those "regular" 
 retailers, who give no credit, and confine themselves — as the 
 cooperative stores mainly do — to goods which are marketed 
 easily with a quick turnover. 
 
 This result falls somewhat below the sanguine expectations 
 of those, who had thought that the profits of wholesale and retail 
 trade, even under the severely competitive conditions of modem 
 times, left a huge margin over costs; and that therefore an 
 organization which controlled the production of one half of the 
 things which it sold, and bought the remainder wholesale from 
 primary sources, could sell without loss at prices which (Dividend 
 being reckoned in) would be very much lower than those of 
 the regular retail trade. But some at least of the causes, which 
 have prevented that result from being achieved, are now well 
 understood. 
 
 To begin with, the giant fortunes, that are made both in 
 production and trade by some men of exceptional genius, im- 
 press the imagination: but yet, when such fortunes are added 
 
 it would tend in that direction, and the sooner the better." {Evidence before 
 Ldbcmr Commission as a Whole, Q. 287 — 290.) In 1913 the work-people employed 
 in the productive departments in the Wholesale numbered less than 16,000: 
 showing an output per head of over £800: this is due to the fact that the work 
 consists largely of flour milling and other work in which very little value is 
 added to the product. Many retail societies have productive branches: but 
 the trades of the butcher and the baker are prominent among them ; and conse- 
 quently they show a large gross output in proportion to work done. See The 
 Story 0/ the Cooperative Society 1863 — 1913, by P. Redfem. 
 
294 PROBLEMS OF MARKETING: MASSIVE RETAIL TRADE 
 
 II, vn, 2. together, they are a very small percentage on the total capitals 
 that have been invested in their several branches of business. 
 The returns on large parts of those capitals have been but 
 moderate, while other large parts have disappeared through 
 losses: but those who fail are lost to sights- 
 Next, an army commanded by a committee, has seldom 
 given a good account of itself. Many decisions in the course of 
 business require prompt action, based in large part on intuition 
 associated with reason: the time and strain, involved in proving 
 to other members of a committee that the best course is not 
 that which appears best at first sight, are very great; and only 
 a man who possesses the rare combination of fine and sensitive 
 insight with a strong and even rugged character, is likely to 
 persist and succeed in his efiorts to bring a committee composed 
 of ordinary men round to his point of view^. 
 
 Lastly, every successive step in the marvellous progress of 
 the cooperative movement has tended to weaken the relative 
 strength in its counsels of those in whose breasts the original 
 cooperative faith is cherished. It is becoming more and more 
 a huge business managed by men, many of whom are of high 
 natural ability, though few of them have had extensive business 
 training. Its problems are approaching to those of ordinary 
 
 ' The average rate of profits of small shopkeepers is to be found by deducting 
 the aggregate of the capitals that have been lost in the trade from the aggregate 
 profits of those who survive; and dividing the remainder by the aggregate 
 capitals which have been brought into the trade by those who survive and those 
 who have failed. The result thus obtained is on a fair basis for comparison 
 with the profits of cooperative stores made out on a similar plan: but in fact 
 the failures among them are almost negligible. 
 
 ' The Committees of cooperative societies have some privileges as to 
 attendance, with expenses paid, at congresses and other meetings: and some- 
 times a, Committee man who has had his share of them, makes room on 
 democratic principle for another: he thus goes out of office, just when he is 
 beginning to get an expert grasp of its work. The standard of duty is probably 
 a good deal higher among active cooperators than among almost any other non- 
 professional body of nearly equal size; but yet those who are responsible for their 
 purchases are offered bribes, sometimes direct and sometimes indirect, by agents 
 of large mercantile houses. No doubt bribes are seldom accepted; but the 
 difficulty of ascertaining whether they are or not causes friction, and prevents 
 the buyers from acting with that full freedom, which is allowed to his buyers by 
 a strong business man: for he knows that they know that any tortuous dcaliogB 
 of theirs are likely to be soon detected. It is true that joint stock companies 
 and Government Departments share some of these diJEoultiea: but that is 
 another story. 
 
STRENGTH AND LIMITATIONS OF COOPERATIVE TRADING 295 
 
 trade in their general character: and though they have taught, ii, vn, 3. 
 and are teaching, some great lessons — especially in relation to 
 the importance of cash payments and a quick turnover — yet 
 many of these lessons are assimilated by alert traders: and thus 
 cooperators find themselves opposed by their own weapons in 
 the hands of keen combatants. There are no doubt exceptions 
 to this rule: but they seem to be of minor importance with one 
 exception. 
 
 That exception is that, although the English Cooperative 
 Wholesale Society has been charged by some cooperators, with 
 a lack of adequate sympathy with independent "Copartnership" 
 productive societies; yet on the whole, cooperative trade 
 spends little on advertisement. On the other hand, some 
 sorts of private retail trade are spending lavishly on com- 
 petitive advertisements, most of which waste much of their 
 force in neutralizing the force of rivals. In America, where 
 they have been developed with more energy and inventive force 
 than anywhere else, it has been said recently by a high authority 
 that it is to the field of cooperative trading on the British plan, 
 which shuns advertising in all its forms, that Americans "may 
 look for very important developments of retail trade within a 
 comparatively few years^," Cooperation has not done the im- 
 possible: but it has rendered, and is rendering, noble service to 
 the British people. 
 
 3. Other developinents of massive retail trading. 
 Grands Magasins, and Department-stores: Multiple-shop 
 Companies, and Chain-stores. 
 
 In 1866, shortly after the foundation of the English 
 Cooperative Wholesale Society, the success of the working- 
 men's cooperative movement prompted some members of the 
 British Civil Service and the British Army and Navy to 
 adopt the name, a considerable part of the method, and a very 
 small part of the principles of the Rochdale stores. The 
 founders were groups of fellow workers, without technical 
 knowledge of retail trade, who cooperated in providing for all 
 willing members of that group a supply for cash of things 
 
 ' Cherington, Advertising as a business force, p. 203. 
 
296 PROBLEMS OF MARKETING: MASSIVE RETAIL TRADE 
 
 II, VII, 3. similar to those handled by the workmen's stores, of good 
 quality, and at a low advance on wholesale prices. Esprit de 
 corps, combined with the commercial benefits offered, brought 
 customers past hundreds of shops suitable for their purposes 
 to an unattractive building in a quiet street. Though free use 
 was made of printed catalogues, etc., nothing was spent on 
 advertisements. Thus in several respects the method was 
 "cooperative." 
 
 But after a time they and other "cooperative" stores 
 founded on similar lines, became in effect "Universal Providers" 
 or "Department-stores," worked by joint stock companies, and 
 deriving a moderate profit on their capital from cheap cash sales 
 to almost anyone who applied for membership. The minute 
 element of the cooperative spirit, with which they had started, 
 had evaporated: but they continued to be an obstacle to any 
 attempts at anti-social combination among retailers. 
 
 Meanwhile the alert and prosperous population of Paris had 
 offered an excellent market for good ordinary commodities, sold 
 cheaply at cash prices, with but little trouble to the purchaser. 
 Probably English cooperative experience had some influence 
 in moving the founders of the "Bon Marche" and the "Louvre" 
 (about 1852) to develop two unpretending businesses into what 
 soon came to be known as "Grands Magasins." There was 
 much genuine philanthropy in their administration; but they 
 were frankly competitive^. 
 
 France is thus the original home of Department-stores, and 
 they have prospered in Britain, Germany and other countries. 
 But their methods and their potentialities are congruous with 
 American character and conditions, both economic and geo- 
 graphical; and their most notable developments belong to the 
 New rather than the Old World. Some American Department- 
 stores have attracted custom by methods not altogether 
 admirable. But the chief of them appear to have recognized 
 the principle that, though a giant store can, and must, use many 
 expensive means for making its claims known, its best resource 
 
 ' It appears that most of the Grands Magasins were originally connected 
 either with linen drapery, etc. or with furniture; and after increasing the 
 number of branches of those trades which they represented, gradually went out 
 into diverse trades. In the English cooperative societies on the other hand 
 groceries have generally taken a chief place, if not the first. 
 
DEPARTMENT-STORES AND BRANCH-SHOP COMPANIES 297 
 
 is in that highest form of advertisement, which comes from the ii, to, 3. 
 recommendations of one customer to another; and from the 
 inducements which dealings with one department ofier to 
 dealings with another^. 
 
 A vast store has many large economies in administration 
 and in buying. It saves especially in groimd-rent: for a single 
 first-rate frontage on a good thoroughfare serves as an intro- 
 duction to many acres of flooring, well lighted from the centre 
 and sides. It does not need to keep a sufficient staff in each 
 department to meet exceptional demands; for some employees 
 are so trained as to be serviceable in each of several departments: 
 each of its motor vans can deliver parcels containing purchases 
 from several departments: and so on. It saves also in buying: 
 for the quickness of its turnover and its genera] strength make 
 its credit good; and it is able to obtain at least as favourable 
 terms as an ordinary wholesale dealer from the producers, 
 whether the goods are made under contract to a special order 
 or not. But, as the head of a Department-store has a specially 
 large range of marketing to handle, he should not, in Mr Wana- 
 maker's opinion, become a manufacturer himself^. 
 
 ' Some of them claim to act up to the rule that no small gain should be 
 sought through action, that tends to cause complaint; and that every doubtful 
 question between a customer and a department, shall be decided in favour 
 of the customer: no one is to be persuaded into an unwilling purchase. And 
 a new principle is being adopted by some stores with the highest ambitions, 
 that as a rule no new department shall be opened, till provision can bo made for 
 as high-class control and stock as those of "the average exclusive stores" of 
 a similar scope. (See Mr Wanamaker's testimony before the Industrial Com- 
 mission in 1899, Report, vol. m. 454.) The testimony of witnesses for and 
 against Department-stores, gave a full view of the situation: its drift is set out 
 clearly in the official Digest (pp. 17 — 27). 
 
 The economies of time and trouble, and the general conveniences which are 
 offered to customers by the largest retail businesses in London, and on still 
 larger scales in some American cities, may appear to be merely trivial: but in 
 fact they are exercising a considerable influence on the structure of business. 
 Commodious lifts and moving staircases enable a customer to visit without 
 effort or loss of time the equivalent of a large number of different shops. 
 
 ' On the other hand, Mr Seifridge, an American who has set up a mighty 
 Department-store in London, gives (Romance oj Commerce, 1917, p. 366) a chart 
 of an ideal dry-goods store, which includes a considerable Production Depart- 
 ment. He says (p. 365) that an American store already has sometimes fifteen 
 storeys, with two milUon square feet of flooring, connected by between one and 
 two hundred Ufts. He remarks (p. 377) that "window displays are designed, 
 constructed and actually dressed in the studios before they are placed in the 
 windows. They often require months of study, and months of execution." 
 
298 PROBLEMS OF MARKETING: MASSIVE RETAIL TRADE 
 
 II, vn, 3. A Department-store may indeed be hampered by the need 
 of numerous checks and counter-checks, which are obstructive 
 in many ways. But a group of men, or even a single man of 
 great energy and insight into character, can dispense with some 
 and make short cuts in regard to others: and so great are its 
 opportunities in the hands of an exceptional genius, that it 
 sometimes rises with meteor-like rapidity and splendour. 
 Experience does not suffice to show how far it may generally 
 be able to obtain adequate successors to those who have created 
 its position and its fame. But, so great is the attractive force 
 of a well-established massive business, that it may continue 
 long to keep most of the ground which it has gained, even in 
 the hands of men of no great initiative; provided they are 
 careful to watch the signs of the times, and to avail themselves 
 promptly and generously of any strong mind with a large 
 imagination, that may be found among their subordinates. 
 While they beat steady time, others will follow in the steps of 
 their own predecessors. New Department-stores, slight variants 
 from the old, will arise: and, unless some new capabilities are 
 shown by the small shopkeeper, the scope for his usefulness 
 seems likely further to dwindle^. 
 
 A Department-store sets itself to concentrate in one place 
 opportunities for the satisfaction of innumerable wants of 
 customers scattered over a wide area: and thus develops by 
 purely commercial force one of the chief purposes which the 
 Rochdale store set itself to attain by a combination of com- 
 mercial and ethical force. Retail stores cooperate with one 
 another in establishing and controlling a wholesale centre, from 
 which they draw their resources: and their lead in this respect 
 may be said to be followed and surpassed in regard to par- 
 ticular branches of retail trade by "Branch-shop Companies" 
 or "Chain-stores" — the second great group of massive organi- 
 zations of retail trade on purely competitive lines. For they 
 
 ' But it is thought that "regular" retailers still hold six-sevenths of the 
 whole of the trade of America (Cherington, I.e. p. 20). Department-stores and 
 other large businesses have developed a large "mail-order" trade, with distant 
 customers; and thus supplemented the ordinary retail trade of a great part of 
 the United States, and in a less degree of other countries. But though the 
 volume of this business would have seemed incredible not long ago, it is small 
 relatively to that of the total retail trade of country districts and small towns. 
 
DEPARTMENT-STORES AND BRANCH-SHOP COMPANIES 299 
 
 aim at bringing near to the doors of vast numbers of customers ii, vn, 3. 
 in different parts of the same town, in small towns, and even 
 sometimes in rural districts, the attractions of a prompt supply 
 of fresh goods delivered from great central reservoirs, with the 
 smallest possible handling by middlemen. 
 
 Such a company buys on the most advantageous terms 
 direct from the producer or importer; it sometimes owns 
 factories or at least makes contracts for the delivery of large 
 quantities of goods; and perhaps it imports directly from 
 abroad, or even owns plantations for tea or other commodities. 
 Decisions as to what things shall be bought, and how they shall 
 be priced are made by the central control, with high-class expert 
 assistance. The accounts of each separate shop, including 
 statements of its stocks of all important things, are at the 
 central office. Comparisons of the accovmts of various shops 
 will show which are efficiently managed; and will afEord an 
 answer to vain excuses; though, of course, allowance must be 
 made for the different facilities for marketing of each individual 
 shop, for the general conditions of its neighbourhood, and 
 especially for any severe competition that it may have to meet, 
 and so on. The activity of the head of each shop, and perhaps 
 of his assistants, is stimulated by the establishment of some sort 
 of connection between their salaries and their sales. Lastly, 
 stock, which does not sell well in one locality, can often be 
 marketed without loss when transferred to another^. 
 
 Appeal is sometimes made by small retailers for sympathy 
 on the ground that the percentage of people who are called 
 on to use their own initiative in one of these great magazines 
 is relatively small ; and that the routine and mechanical checks, 
 which occupy the greater part of the employees, are not as 
 conducive to the formation of a strong and enterprising national 
 character, as are the risks and excitements of a multitude of 
 
 ' See some suggestive facts and analyses by Cherington, I.e. pp. 171 — 198. 
 It appears that in 1914 there were in Philadelphia 1260 grocery stores belonging 
 to nine chain-companies. It may be added that in America and elsewhere some 
 independent retailers have grouped themselves into chain-stores for the purpose 
 of buying Iswrge quantities wholesale on favourable terras; thus moving very 
 much on the lines of the numerous cooperative societies which peasants and 
 small farmers have formed in Central Europe and elsewhere for buying feeding 
 stufEs, manures, and farm stores generally. 
 
300 PROBLEMS OF MARKETING: MASSIVE RETAIL TRADE 
 
 II, VII, 4. independent retailers. Some weight may be conceded to this 
 appeal, in spite of the facts that the occupation of the retailer 
 gives little scope for the highest constructive effort, and does not 
 create cumulative progress in the same way as does the best 
 work of the manufacturer; and that therefore combinations, 
 which sustained the retailer's profit above what would be ade- 
 quate if his time were well occupied, cause social waste^. 
 
 4. Iiifluences on the methods of marketing of goods, 
 "branded" with a mark which conveys a guarantee of quality. 
 
 We are now to inquire whether some considerable changes, 
 economic and social, may not be latent in the apparently 
 insignificant fact that an increasing vogue is being obtained, by 
 goods which are so far standardized, that their character is 
 certified by a trade-mark, or other brand. For it has behind it 
 forces which have taken many branches of manufacture out of 
 the hands of small local producers, and given them over to giant 
 businesses, or to strong centres of localized industry. The direct 
 influence of these brands does not always extend to the ultimate 
 consumer. But the retailer of cutlery or cloth knows that he is 
 safe in selling things that bear certain brands: a trustworthy 
 brand gives the maker a good connection, because it enables the 
 retailer, who uses it, to get a good connection. Few men know 
 the source of the cloth of which their clothes are made: but the 
 tailor knows weU that his reputation runs no risk when he recom- 
 mends a cloth from the pattern book of a particular maker. It 
 is however different in regard to food and medicines: fifty years 
 ago biscuits etc. used to be bought from a neighbouring baker; 
 P.0W they come almost exclusively from giant firms who have 
 established high reputations. And American experience, which 
 pioneers in many matters of this kind, suggests that brands and 
 other trade-marks on things for domestic consumption will ere 
 long become an important factor in the spread of large capital- 
 istic control over industry and life. 
 
 ^ A law, which effectively doubled the present charges for cabs, etc., would not 
 make cab-proprietora or cab-drivers permanently more prosperous : but it would 
 very much increase the number of cabs which loitered idly in hope of a fare. 
 Of course the trade in artistic products, no two of which are alike, involves the 
 exercise of high faculties j and it is to the public interest that those who do this 
 work well should be rewarded: but such cases are not numerous. 
 
MARKETING OF GOODS BEARING SPECIAL BRANDS 301 
 
 Whereas till recently the process of obtaining a high ii, tu, i. 
 public favour for a brand was a slow one, it is often cut short 
 in the modern age. For now a wealthy individual, or an 
 alert joint stock company, sometimes starts at once with the 
 devotion of large resources to setting up the most advanced 
 plant for making a thing which seems likely to meet a general 
 want; together with a vast system of advertising its merits 
 to traders and consumers alike by vigorous, various, and well- 
 planned measures. A little more capital may need to be sunk 
 in selling to dealers at prices which enable the thing to be 
 retailed at a very high rate of profit: but when it has won its 
 way, the dealers can be forced to handle it at a low rate of 
 profit^. 
 
 Branded goods occupied a relatively small place in retail 
 trade in the early days of Cooperation: but they were at once 
 turned to account to attract customers, who might be suspicious 
 of the competency of amateur dealers to make good selections of 
 things which could not be well judged without expert knowledge. 
 So cooperative stores, and some independent retailers who sold 
 a great variety of goods cheaply for cash, were inclined to sell 
 branded goods — as well as sugar, and some other things which 
 many customers commonly supposed themselves able to judge 
 and compare — at prices that barely covered expenses; in order 
 that they might act as "decoys" or "leaders" for other sales. 
 But retailers, who preferred to give credit and charge high 
 prices, were aggrieved. They had little defence against the 
 selling cheaply of those few branded goods, which had already 
 
 ' Another generation may possibly see large extensions of methods, still more 
 or less in an experimental stage, by which slot machines may be made to sell 
 not only standardized goods, but fruit and even the hot dishes of a restaurant, 
 each separate consignment being visible through a, glass door when an appro- 
 priate coin is put in the slot. 
 
 Meanwhile some curious difficulties are rising in regard to the ownership 
 of trade-marks. A merchant sometimes designs a new device, and contracts 
 with a manufacturer to work to it by well-known means; then the product 
 should, as a rule, bear the trade-mark of the merchant. Again a merchant in 
 high repute can sell such things as cutlery, made by unknown men, at higher 
 prices if they bear his name, than if they bear the names of the makers. But 
 sometimes one of these makers develops exceptional ability, and his goods add 
 considerably to the value of the merchant's trade-mark : and he may then wish to 
 claim the merits of his advance: but if he insists on issuing his own name or 
 trade-mark, he will need to begin to build up a connection for himself. 
 
302 PROBLEMS OF MARKETING: MASSIVE RETAIL TRADE 
 
 II, Tii, 4. so strong a hold on the public, that a refusal to handle them 
 would simply drive away customers. In fact the proprietors of 
 such goods sometimes sell them wholesale at relatively high 
 prices, leaving retail prices to take care of themselves. 
 
 But a brand, not yet dominant, might be grievously injured 
 by a general unwillingness on the part of dealers to bring it to 
 the notice of their customers: and the "protection" of branded 
 goods on their way to consumers has been developed by 
 American producers into a fine art. On one side, measures are 
 taken to prevent the goods from being sold in poor condition, 
 and thus bringing the brand into disfavour among consumers: 
 and, on the other, "price maintenance" is enforced on whole- 
 salers and on retailers alike, in order to keep the brand in the 
 favour of traders. Similar policies have been pursued, though 
 perhaps with somewhat less vehemence, in other countries^. 
 
 ^ Anticipating a subject which will hold a large place in Book III, it may be 
 observed that the famous official inquiry into cartels, held early in this century 
 (the KarteUen Enqvile), was occupied for three days with the profits in the 
 booksellers' trade. On the one side it is urged that the skilled bookseller ia 
 something more than a retailer: and that many authors would do better for the 
 world in some other occupation. On the other side stress is laid on the poverty 
 through which many authors have to struggle on their way to work, which 
 cannot in any case bring a considerable monetary reward to either publisher or 
 writer; and which yet is so important to the world that lavish subsidies to it 
 would be well spent, were it not practically impossible to administer them 
 rightly on a large scale, though a little is done in this direction by Universities 
 and Learned Societies. It may perhaps be true that a wise use of tlie retailor's 
 power of combination might have tended to lessen this social discord, if they 
 handled such books at a lower rate than is demanded on popular literature and 
 reprints of books of which the copyright has expired. But in fact the tendency 
 of combination in this case is to discriminate in the opposite direction. No 
 doubt this action follows the path of least resistance; but none the less is it 
 suggestive as to the social influences of trade combinations. 
 
 On the other hand, the publisher often performs important services by 
 taking the high risks of loss on scientific and other high-class books addressed 
 to limited numbers of readers — risks which a young and unlcnown author often 
 could not carry himself : and the few words of advice which the publisher gives 
 to the young author are often of inestimable value. 
 
 The controversy as to the maintenance of a high retailer's profit on branded 
 goods, is closely connected with another as to the expediency of allowing 
 "Grands Magasins" to retail a great variety of goods, which has occupied 
 a good deal of attention in France. See Appendix J, 5 as to some other matters 
 connected with the struggle of small shops for their existence. 
 
AMERICAN RETAIL MARKETING IS EFFICIENT BUT COSTLY 303 
 
 5. The great ability and energy, which have been ii, vn, 5. 
 devoted in America to massive retail trade, tend to lower 
 prices: hut they are still rather high. 
 
 During the last few decades tte prices received by the 
 manufacturers for many goods have fallen in America faster 
 than in the rest of the western world; and they are indeed in 
 some cases the lowest that are known anywhere. But the 
 retail prices of nearly all goods in America (the exceptions are 
 almost confined to a few cases in which there are special local 
 facilities for supply) are higher than in Britain and some other 
 western countries. Important causes of this contrast are to be 
 found in the peculiar physical conditions of the United States 
 and in the racial characteristics of her people. Let us glance 
 back at these. 
 
 In the course of the notice of the industrial leadership of the 
 United States in Book I, stress was laid on the great market 
 which the homogeneous demand of her vast population offers 
 for standardized goods made by the most powerful plant, under 
 the guidance of the strongest of brains, and handled in great 
 part by sturdy immigrants. Almost every chief raw material 
 is supplied by Nature on easy terms in some part of her area: 
 and many causes have contributed to enable her railroads to 
 ofEer low rates per ton-mile for the carriage of massive con- 
 signments over large distances. Thus her giant single businesses 
 have increased even more rapidly than her largest cities. Many 
 of the immigrants who work in her mines, steel works, factories, 
 etc., are rather highly paid in comparison with most other 
 western countries: but some classes of them work so hard and 
 for so long hours, that they enable the employer to make the 
 most out of his plant; and, though they may exhaust most 
 of their strength in a comparatively short time, the arrival of 
 fresh immigrants prevents the supply of labour from becoming 
 scarce. Also larger use is made of mechanical power in America 
 than anywhere else. Massive production therefore is nearly 
 always relatively cheap there; and it is in a few cases absolutely 
 cheapi. 
 
 ' The economies of massive production of men's clothing have been carried 
 much further in America than elsewhere: and it is said that fairiy well fitting 
 men's clothes can bo bought there at a, less advance on the cost of material 
 
304 PROBLEMS OF MARKETING: MASSIVE RETAIL TRADE 
 
 II, VII, 6. We have seen how massive production tends to foster 
 massive methods of wholesale and retail dealing; while the low 
 rates for massive freights on American railroads have helped 
 powerful wholesale dealers, department-stores and chain-stores: 
 but, though the rates for such traffic are low per ton-mile, the 
 total charge per ton is kept high by the very great distances, 
 which separate the producer from the average consimier of his 
 goods. More important are the facts that the ordinary American 
 retailer has seldom an old-established business, well supplied 
 with capital relatively to its requirements; that he cannot 
 always obtain advances on easy terms; that he generally belongs 
 to a race and social order in which a much higher average level 
 of incomes prevails than in Europe; and lastly that the temper 
 of nearly the whole American people, in eluding even those of 
 foreign birth, iaclines to impatience of assiduous care as to small 
 savings on petty purchases. 
 
 Each of these considerations goes some way towards explain- 
 ing the paradox that the nation, which excels all others in 
 the energy and inventive ability devoted to developing the 
 efficiency of retail trade, is also the nation that pays the most 
 dearly for the services of that trade. But there remains a less 
 obvious cause to be considered: it is that much of the modern 
 expenditure on advertising is not constructive, but combative. 
 
 6. Constructive uses of " advertisement " in tliat original 
 broad use of the term, in wJiich it includes all measures 
 designed to draw the attention of people to opportunities 
 for buying or selling, of which they may be ivilling to avail 
 themselves. 
 
 Some of the implements of constructive advertisement are 
 prominent in all large cities. For instance a good frontage on 
 a leading thoroughfare; adequate space for the convenience of 
 
 than in England: for since many well-to-do people are willing to buy ready- 
 made clothea, the trade in them ia of gigantic dimensions, and gives scope 
 for lavish advertising. American "makers and distributors of trade-marked 
 clothing, who spend in some cases upwards of half a million dollars a year on 
 publicity," find their "selling cost per suit less now than before they began 
 advertising. They manufacture and market suits by the hundred thousand"; 
 and they thus even reduce their advertising outlay per sale, as well as costs 
 of "buying, manufacturing, selling, and the handling of reserve stocks'' 
 (A. W. Shaw, An approach to biiainess problems, pp. 204 — 5). 
 
IMPORTANT CASES OF CONSTRUCTIVE ADVERTISEMENT 305 
 
 employees and for customers ; lifts and moving staircases, etc., ii, vn, 6. 
 are aU constructive, so long as they do not exceed the require- 
 ments of the business. That is to say, the assistance, which 
 they afford to customers by enabling them to satisfy their wants 
 without inordinate fatigue or loss of time, would be appropriate, 
 even if the business were not in strong rivalry with others. 
 But eager rivalry often causes them to be carried to an excess, 
 which involves social waste; and ultimately tends to raise the 
 charges which the public have to meet without adequate return. 
 
 Again, printed advertisements regarding particular trans- 
 actions, such as horses for sale, or hire; contracts to be let out; 
 vacancies, etc., have seldom any considerable combative effect. 
 The sending to customers of samples of a special kind of pre- 
 pared food or other common product is an eSective instrument of 
 combat, the use of which is confined to powerful capitalists: but 
 it is of little avail unless the product is approved; and on the 
 whole it is constructive. Similar remarks apply to the sending 
 out by producers or wholesale dealers, of samples in the charge 
 of persuasive travellers. Again, advertisements in trade news- 
 papers; and, especially such as are largely occupied with technical 
 and scientific discussions, are generally terse, explanatory and 
 constructive: though indeed a powerful firm, whose resources and 
 specialities are well known, may sometimes prefer a few words 
 in impressive type, or perhaps a bold illustration, to an explana- 
 tory statement: for that cannot be adequate, and yet confined 
 within narrow limits. 
 
 Exceptionally constructive are aU those measures needed for 
 explaining to people generally the claims of some new thing, 
 which is capable of supplying a great but latent want. If the 
 thing is in small compass, easily handled, and not costly, samples 
 of it can be distributed in various ways. But if it is expensive, 
 and above all if it cannot be adequately handled without con- 
 siderable training, then people can be fully informed of its useful- 
 ness only by seeing it at work. In such a case as that of the 
 typewriter, when first introduced, efficient demonstration is 
 beyond the scope of any but powerful capitalists^. 
 
 ' When the idea of a typewriter was first conceived, very few people were 
 inclined to take seriously the suggestion that it could rival the pen in effioienoy. 
 It could not therefore be sold by mere printed notices: and the retailers of 
 
306 PROBLEMS OP MARKETING: MASSIVE RETAIL TRADE 
 
 II, VII 7. 7. Advertisements which are maiiily combative generally 
 involve social waste. 
 
 On the other hand the combative force of mere capital 
 obtrudes itself in the incessant iteration of the name of a pro- 
 duct, coupled perhaps with a claim that it is of excellent quality. 
 Of course no amount of expenditure on advertising will enable 
 any thing, which the customers can fairly test for themselves 
 by experience (this condition excludes medicines which claim 
 to be appropriate to subtle diseases, etc.), to get a permanent 
 hold on the people, unless it is fairly good relatively to its price. 
 The chief influence of such advertisement is exerted, not through 
 the reason, but through the blind force of habit: people in 
 general are, for good and for evil, inclined to prefer that which 
 is famihar to that which is not. 
 
 The lavish advertiser must deduct his expenses from the 
 gross profits of his additional sales: while the rivals whom he 
 
 writing materials were not inclined to master its manipulation. The only 
 practicable method therefore was to show it working rapidly in the hands of 
 expert agents throughout the land. This involved vast expense : but it led the 
 way to even vaster gains. For the typewriter, though a complex instrument, 
 belongs to a class which can be brought so completely within the range of 
 mechanical production, that it can be made on ii large scale cheaply: and 
 its uses are now eo important that some people would pay £100 for one, if they 
 could not get it for less. Thus lavish expenditure on developing a new want, 
 being based on clear foresight, was well justified by its results to the venturers. 
 And, in a broad view of its social results, there is perhaps no very great cauae for 
 regretting that the proprietors of the chief patents for the machines have been 
 able by agreement among themselves to maintain (subject to some partial 
 exceptions) for a long while at £20, the price of things, which ere long will 
 probably be sold at little more than their direct cost of production ; and that is 
 reported even now not to exceed £5. If a new and perfectly efficient typewriter 
 could have been produced by a moderate outlay, and without infringing the 
 many wide-reaching patents still in force, a great reduction in price might have 
 come long ago: and in this respect the typewriter, though a brilliant, is not a 
 generally representative instance of the commercial success which is to be obtained 
 by creating a new want and meeting it. For the main constructive acts are often 
 confined to discovering the existence of a latent want, and educating the public 
 in regard to it: these being accomplished, a number of independent routes, by 
 which the want may be met, may perhaps bo opened out, all about equally good. 
 Indeed experience of the route followed by the pioneer, may itself furnish 
 quickly hints to fresh minds; and thus lead to the discovery of a new route, 
 which is better than his, and is not covered by his patent, though no one would 
 have been likely to find it unaided. In such a case the pioneer bears the chief 
 burden and others enter into his heritage. There is much suggestion on all 
 these matters in Cherington's Advertising as a business force. 
 
SOCIAL WASTES OF COMBATIVE ADVERTISEMENT 307 
 
 ousts lose their gross profits, and thus there enters one element ii, vn, 7. 
 of social waste. It is true that his additional sales may slightly 
 lower his costs of production per unit: but in fact nearly aU 
 the products, in the advertisement of which iteration has been 
 carried to extravagant excess, offer occupation for many fi.rms 
 each strong enough to command all the chief economies of large 
 scale production. A second element of social waste, caused by 
 bold displayed advertisements, is the relative obscnrity into 
 which they are designed to throw, and do throw, the smaller 
 advertisements of less wealthy men; some of whom may have 
 high constructive faculty^. 
 
 In conclusion it should be noted that academic students 
 and professional advertising agents in America have tmited in 
 applying modem methods of systematic and progressive analysis, 
 observation, experiment, record, and provisional conclusion, in 
 successive cycles to ascertaining the most efiective forms of 
 appeal. Psychology has been pressed into the service: the 
 influence which repetition of an advertisement exerts has been 
 subsumed as a special instance of the educative efiect of 
 repetition^. 
 
 ' Large questiona are opened up by the consideration of the dependence 
 o£ newspapers and magazines on receipts from advertisements. They are 
 thereby enabled to provide a larger amount of reading matter than would 
 otherwise be possible : but this influence does not work wholly for good. In the 
 United States, £50,000,000 a year are estimated to be spent on advertising in 
 newspapers; and £70,000,000 on other kinds of advertising: one periodical 
 received on a long contract £800 for each use of its back outside page. One 
 French house sends out £20,000 worth of patterns of dress materials annually. 
 
 ' The task is more difficult than appears at first sight. It has indeed been 
 shown that test experiments in regard to different modes of advertising a par- 
 ticular product, may be of much service in regard to that product. But the 
 attainment of trustworthy general results seems yet far off. For instance, 
 a number of notices, some on full page* others on half and quarter pages, were 
 set before a group of observers; and the results indicated that the larger 
 notices impressed the eye more strongly in proportion to their size than the 
 smaller ones did. (Munsterberg, Psychology and industrial efficiency, oh. xx.) 
 But the indication seems tp be inconclusive. For instance, if a person is in need 
 of some particular thing, such as an aid to imperfect hearing, or a folding 
 chair suitable for travelling, his eye is likely to be arrested by even a. short 
 notice of it. In such a case small advertisements in many periodicals are likely 
 to give better results relatively to a few displayed advertisements than is sug- 
 gested by such a test. An excellent account of laboratory study in such matters 
 is given in A. W. Shaw's Approach to business problems: and there is much to a 
 similar effect in Cherington, I.e. 
 
CHAPTER VIII 
 
 BUSINESS ORGANIZATION: THE GROWTH AND 
 INFLUENCE OF JOINT STOCK COMPANIES 
 
 II, vm, 1. 1. Some of the modern problems of administration on 
 a large scale were anticipated long ago hy private and corpo- 
 rate owners of great estates: though they did not often need 
 to balance their incomings against their outgoings closely. 
 The fiduciary element in corporate administration. 
 
 Recent chapters have been concerned mainly with the 
 external relations of a business to other businesses, and to 
 consumers of its products or services: we now pass to consider 
 modern developments of the internal relations of a large business, 
 with special reference to its administration, whether under 
 individual or joint stock control. Several suggestions in recent 
 Chapters have pointed towards the growing need for progressive 
 detailed study as a means towards the efficient and economic 
 conduct of business: and the last chapter of this Book will 
 be occupied with applications of such study, to measure the 
 economic efficiency of various methods of working. They can 
 claim at present only a very partial success: and yet they have 
 attained in some directions to a degree of accuracy, which, 
 though far from ideal perfection, is yet much in excess of what 
 appeared practicable in tasks so large and complex even a 
 generation ago. But this tendency of business administration 
 will not come into view in this chapter or the next two: they 
 will be occupied mainly with matters specially relating to joint 
 stock association; to finance; and to the faculties and resources 
 which are required of the head of a large business and its chief 
 officers, in regard both to the general scheme of the business, 
 and to the control of its subordinate employees. 
 
 But before settling down to our main task there may be 
 
PRIVATE AND CORPORATE MANAGEMENT OF LARGE ESTATES 309 
 
 some interest in considering how far the problems of adminis- ii, vm, i. 
 tration of the present age differ in essential character from 
 those of earlier times. Their forms are certainly far apart: 
 but perhaps they differ in substance less than appears at first 
 sight. 
 
 Let us look at the business side of the functions of a great 
 landed proprietor, and especially of one who has no easy access 
 to the assistance of sldlled professional business men equipped 
 with the powerful appliances of modern times. Like a mediaeval 
 baron or abbot, he is called upon to carry responsibilities as 
 a capitalist undertaker and as an employer of labour, which may 
 fairly be compared with those of the heads of very considerable 
 businesses in the modern world. He must indeed look far 
 ahead, estimate chances and balance risks when he decides 
 whether to invest resources in (say) opening out a quarry, or 
 settmg up an additional mill: and, subject perhaps to some 
 partial customary rights over persons on his estate, he will 
 need to select those who are to superintend each new under- 
 taking. If he is able, industrious, and alert, he will see that 
 all men are put on work for which they are fit; and that each 
 instrument of his resources is carried up to that margin or 
 limit, at which any further employment of it would be inappro- 
 priate. On such an estate, everywhere and in all times, there 
 will be found much delegation of authority, and a rough grada- 
 tion of the difficulty and responsibiUty of each man's task: the 
 lower rewards generally going to those whose physical toil 
 is severe; and the higher to those who are called on to exercise 
 discernment, judgment, tact, and a power of bearing responsi- 
 bihty, together perhaps with some modicum of initiative. On 
 the estate, as in the modem business, the extent to which 
 speciahzation, subordination, and the coordination of faculties 
 and of tasks are carried has varied with the general conditions 
 of the undertaking: but the governing principles will be always 
 the same. 
 
 It is indeed true that the organization of a private estate 
 is designed to afford gratification to its owner either directly; 
 or through his friends and others to whose comfort, admira- 
 tion, and perhaps envy, it contributes. If the arrangement 
 of a stable is pleasing, it can be maintained, though the horses 
 
3]0 BUSINESS ORGANIZATION: JOINT STOCK COMPANIES 
 
 II, vm, 1. might be cared for equally well on a less expensive plan: if 
 a tree is beautiful, it may be spared, although its trunk is not 
 straight enough to make good timber: and so on. That is to say, 
 although the organization of the private estabUshment gives 
 scope for that scientific management, which attains a desired end 
 by the least costly means; yet the means themselves are generally 
 a considerable part of the desired end; and the end itself is not 
 expressed in terms of money. It is not therefore imder as rigorous 
 a rule of arithmetical balance sheets, as is a modem business, 
 which is closely run by competitors working for the same market 
 with similar resources: but the differences between the two are 
 not fundamental. 
 
 A somewhat similar freedom from the yoke of an exact 
 balance sheet seems to have been enjoyed by those great 
 merchants of early times, whose financial strength enabled them 
 to gain increasing profits with ever increasing ease, so long as 
 strength lasted and fortune favoured. The power of a Fugger, 
 or even a de la Pole or a Canynge, controlled the fate of monarchs 
 and of nations: and so vast, relatively to the aggregate movable 
 wealth of Europe at the time, were the gains which resulted 
 from their larger transactions, that they had little occasion to 
 spend strength on petty economies. Although there was but 
 little trustworthy information of distant affairs, beyond what 
 could be obtained only at great cost and slow speed from private 
 agents and correspondents, a few of them grasped the main 
 threads of most of the chief business problems of Western 
 Europe. 
 
 Even those features of large modern business, which are 
 chiefly associated with joint stock ownership and control, were 
 in some measure anticipated by the administration of powerful 
 monasteries; and of other bodies in which the individual had 
 no exclusive dominant rights. It will be seen presently that 
 the partial supersession of individual by joint stock enterprise 
 has not changed the problems of business administration very 
 greatly. But it has introduced a distinct new element into 
 those problems, as to which a little must be said. Many corpo- 
 rate bodies of to-day, and especially colleges at Oxford and 
 Cambridge, retain much of the spirit of old religious houses. 
 The ofl[icial Head, if a strong man, has great power; as has the 
 
PRIVATE AND CORPORATE MANAGEMENT OF LARGE ESTATES 311 
 
 Chairman or President of a great joint stock company: and as ii, vm, 2. 
 a rule every member of the Governing Body cares for the future 
 efficiency and prosperity of the deathless corporation with 
 nearly the same zeal as if it were his own property. Much of 
 this traditional uprightness of purpose and fine ambition is 
 found among the directors of joint stock companies: the purity 
 of their motives is seldom much influenced by the extent of 
 the pecuniary interests which they and their heirs have in its 
 well-being; though it is true that their active zeal, and the 
 time .which they devote to its affairs, in preference to their 
 private afEairs, is apt to be influenced by the extent of their 
 interest in the company. 
 
 Here it may be observed that the directors of a company 
 are, strictly speaking, employees of it. Except in so far as they 
 are themselves shareholders, they run no risks from its failure, 
 beyond some loss of prestige; and a possible loss of employment, 
 which they share with other employees. The shareholders bear 
 the risks, but delegate nearly the whole of their fimctions, as 
 owners of the business, to the directors and other employees. 
 But in practice the directors, even though they own but a small 
 part of the shares, are seldom displaced unless they have made 
 grave errors: thus they may be regarded as "the head" of the 
 company, in the sense in which decisions on large issues con- 
 nected with a business belong to its "head"; though he may 
 delegate decisions on minor issues to subordinates. Of course 
 the directors of a company, like the partners in a private 
 business, often share out among themselves the main control 
 of particular groups of these issues, the collective meeting 
 remaining the ultimate authority in large matters. But more 
 of this hereafter. 
 
 2. The growth of the legal freedom and of the inclina- 
 tion to develop businesses in joint stock : their paramount 
 influence on economic structure. 
 
 It is indicated elsewhere that the term "Joint Stock Com- 
 pany" has had many different connotations in different stages 
 of the world's history^. In early times it meant little more 
 than association of a few members of the same family, or a few 
 
 > See above, p. 36: also Appendix C, 3, and Appendix D. 3. 
 
312 BUSINESS ORGANIZATION: JOINT STOCK COMPANIES 
 
 II, vni, 2. neighbours having intimate knowledge of one another, who 
 united their resources, or parts of them, for some venture. As a 
 rule the venture was one which required a larger capital than 
 any one of them possessed; or else it involved risks, the whole 
 burden of which was too great for any one of them. Especially 
 were companies needed for many tasks which in modern times 
 are generally recognized as belonging to Government; though 
 the recent development of Ehodesia has been effected for the 
 greater part by a company, which worked with special privileges 
 reminiscent of those of the great Joint Stock and Regulated 
 companies. 
 
 The founders of those companies were for the greater part 
 merchants, directly cognisant of the nature of the work to be 
 done: and for a long while the supreme control of the business 
 of each company was largely under the supervision of ex- 
 perienced men of affairs, who owned a great part of the capital: 
 even late in the eighteenth century the great East India Company 
 was chiefly owned by about eighty men, many of whom were 
 in close touch with its administration. It might have been 
 expected that joint stock administration would have spread over 
 English business in the eighteenth century: but several causes 
 retarded its progress. 
 
 A chief cause was the misuse of joint stock machinery in the 
 "Bubbles" period (1700—1720). It evoked a law, under which 
 the privilege of trading in joint stock could be obtained only 
 by special charter. So associations aboimded that were called 
 "companies," but had no legal status as such. As each member 
 of such a company was liable for all its debts, a prudent and 
 responsible man was unwilling to take a share in it, even 
 though it afforded reasonable prospects of high gains; unless 
 he knew enough of his fellow members to be sure that he would 
 not have to bear a great part of the burden in case of failure. 
 Under the influence of this law only those businesses, which 
 were sufficiently important to obtain private charters, were open 
 to legal recognition in England as joint stock companies: the 
 rigour of the rule was relaxed in 1825 and again in 1844; but the 
 full privilege of Limited Liability was not made general till 
 18621. 
 
 ^ The law of Scotland was more liberal than that of England. A common 
 
GRADUAL GROWTH OF JOINT STOCK ASSOCIATION 313 
 
 It has been generally agreed that the vehement fury of ir, vm, 2. 
 speculation during most of the eighteenth century in the few 
 stock exchange securities which were accessible, indicates that 
 the time had not arrived at which more gain than loss was 
 likely to arise from opportunities offered to the general public 
 to hand over the control of their capital directly to businesses, 
 of which they had no personal or technical knowledge. No 
 objection was taken to direct mortgages on real property; 
 which long remained a chief, if not the chief, investment of 
 small funds. But, especially when industry was unsettled by 
 the introduction of new methods, and unknown men were rising 
 rapidly to the front, it seemed to be to the general advantage 
 
 partnership could by the law of France obtain many of the advantages of 
 Limited Liability: for the responsibility of a sleeping partner, often a retired 
 member of the firm, who took no share in its application, could be limited, by 
 due announcement, to his share of the capital. Mill strenuously advocated the 
 introduction of this principle of en commandite: and many of his arguments 
 still remain valid. 
 
 The history of early crises has been much advanced in Prof. W. R. Soott'a 
 Joint Stock Companies to 1720. Attention was called by Rogers to the violent 
 fluctuations of the prices of stock in The first nine years of the Bank of England, 
 Adam Smith regarded banking aa eminently suitable for joint stock control: 
 but he had in view the excellent management of local affairs by the joint stock 
 banks of Scotland: and their task was relatively easy, because connection 
 with England enabled them to have nearly all the advantages in regard to 
 foreign trade of an expensive gold basis for their currency; while they turned 
 to the account of themselves and their customers the right of issuing paper money, 
 which a more exacting Government might have claimed for itself. However 
 their splendid work, and the reckless misconduct of many private English banks 
 early in the nineteenth century, forced the door to open for joint stock banks 
 in England: and curiously enough the English banking system has developed 
 on lines, in which routine has a larger place than in that of any other great 
 commercial country. But this runs beyond our present subject. 
 
 It may however be relevant to note at once that the Bank of England has 
 gradually led the way towards a management of financial difficulties, which is a 
 pattern for the world: and that its best strength has been derived from directors, 
 who have not been mere nominees of its own shareholders, but have in effect 
 represented the chief business houses of London. It has been the leader; and 
 there has been a continuous independent movement upwards, in regard to the 
 management of the financial affairs of the country, especially in regard to joint 
 stock company ventures. The joint stock companies mania of 1825 — 6 was far 
 less wild than the South Sea and the Mississippi Bubbles in England and France 
 early in the eighteenth century: and, when an underestimation of the costs of 
 developing the English railway system led to another grievous crisis twenty 
 years later, the credit given was found to have been less intemperate than in 
 1826. Since then, there has been no crisis as intense, and extending to so large 
 a proportion of the business of the country. 
 
314 BUSINESS ORGANIZATION: JOINT STOCK COMPANIES 
 
 II, Tin, 2. that bankers and other professional dealers in command over 
 capital should act as intermediaries. So they lent, mainly at 
 their own risks, the command over capital, deposited with them, 
 to such manufacturers and others as seemed to them able and 
 trusty: the people were shy of investments in businesses beyond 
 their immediate ken. 
 
 The expansion of joint stock companies has resulted in the 
 general democratization of the ownership, as distinguished from 
 the control, of business. England was the only country fully 
 ready for such a democratization on a large scale in the first 
 half of the nineteenth century: and there was gain as well as 
 loss in her being withheld from making the experiment till 
 education and the new means of obtaining information about 
 distant events had rendered the venture comparatively safe. 
 
 The concession of Limited Liability to any seven persons, 
 who chose to pay a small fee and register themselves as a 
 company, was made in a law so crudely worded as to invite the 
 most inexperienced and poverty stricken rogues to use it as a 
 means of plundering the public: and the reports of the Board of 
 Trade on the winding up of companies contain many ludicrous 
 tales of petty misdoing by methods which are not yet wholly 
 estopped. But they never covered much of the business of the 
 country; and they are now rare. 
 
 Next, we may consider some influences on the substance 
 and on the wording of economic doctrine, which arise from the 
 extension of joint stock company control over a great part 
 of the business of all western countries. Let us look back a 
 little. Not very long ago the representative firm in most indus- 
 tries and trades was a private partnership; which in the course 
 of one or two generations had attained a goodly reputation, 
 of a personal and individual character. Its plant had become 
 larger and more various, until it commanded all, or nearly all, 
 those economies of production on a large scale, that were in- 
 herent in the most advanced methods then known for its 
 particular branch of business. Its own (Internal) economies were 
 not great: but it took its part in affording a large market for 
 firms in branches of manufacture, which supplied it witli 
 made or half-made materials: and in developing (External) 
 
GRADUAL GROWTH OF JOINT STOCK ASSOCIATION 315 
 
 economies of general organization, which gradually became ii, vm, 2. 
 common property. Thus each firm, though of moderate size, 
 might reasonably hope to obtain most of the advantages in pro- 
 duction, which would be accessible only to vast businesses, if 
 each had been mainly dependent on its own resources. Under 
 these conditions, a very large capital in the aggregate was dis- 
 tributed over many firms of moderate size, each with its own 
 individual life, its own power of initiative, and its own personal 
 relations with its employees. If any firm became slack in enter- 
 prise, or weak in purpose, if passed away and made room for 
 others, with but little disturbance to the industrial organism; 
 just as a forest tree, which has lost its vigour, passes and leaves 
 an opening, through which some strong young plant may shoot 
 up towards the light. 
 
 But in the new age joint stock control has become uni- 
 versal in regard to raUroads; and it has become general even 
 in regard to manufacturing and other industries, which have an 
 urgent need for alert and versatile administration. In most 
 of these industries a tendency to Increasing Return prevails: 
 that is, an increasing output can generally be produced at a 
 diminishing rate of cost. It is obvious that, under this tendency 
 a firm, which had once obtained the start of its rivals, would be 
 in a position to undersell them progressively, provided its own 
 vigour remained unimpaired, and it could obtain all the capital 
 it needed. In old times there was often much difficulty on this 
 score: but that has diminished greatly during the last three or 
 four generations. It seems therefore that, if there were no 
 other difficulty in the way of the unlimited expansion of a strong 
 manufacturing business, each step that the firm took forwards 
 in supplanting its rivals, would enable it to produce profitably 
 to itself at prices below those which they could reach. That is, 
 each step would make the next step surer, longer and quicker: 
 so that ere long it would have no rivals left, at all events in its 
 own neighbourhood. That condition must of course not be 
 omitted; because the expense of marketing heavy goods at a 
 distance might overbear the economies of large scale production. 
 But for goods, of which the cost of transport is low, and which 
 are under the law of Increasing Return, there might have 
 seemed to be nothing to prevent the concentration in the hands 
 
316 BUSINESS ORGANIZATION: JOINT STOCK COMPANIES 
 
 II, Tin, 3. of a single firm of the whole production of the world, except in 
 so far as it was closed by tarif barriers. The reason why this 
 result did not follow was simply that no firm ever had a 
 sufficiently long life of unabated energy and power of initiative 
 for the purpose. It is not possible to say how far this position 
 is now changed by the expansion of joint stock companies with a 
 potentially perpetual life : but every recent decade has contained 
 some episodes which suggest that it may probably be greatly 
 changed, either in substance, or in the methods by which new 
 life is brought into old bodies. 
 
 A private firm without great vigour is sure to die: a large 
 joint stock company has special advantages, many of which do 
 not materially dwindle with age. Its hindrances arising from 
 its routine methods do not increase as fast as the increase in 
 its business, while each step of that increase is likely to give 
 access to new technical economies. And, even if it be some- 
 what lacking in energy and initiative, it can often utilize (as 
 industrial enterprises under Governmental management habitu- 
 ally do) new ideas and new appliances that have been created 
 by independent tvorkers: and it has special opportunities for 
 the introduction of new blood into its management. It has also 
 this dominating financial advantage, that the salaries, which it 
 pays to its directors and chief managers, are much less in the 
 aggregate than that excess of the profits of a successful private 
 business over the mere interest on its capital, which is required 
 to induce men already wealthy to continue to bear the burden 
 of business. 
 
 3. So wide are the varieties of the arrangements 
 betiveen ownership and control of capital, which are now 
 included under the common name of joint stock association, 
 that almost any class of business can be properly conducted 
 by some one or more of them. 
 
 Every successive decade has brought new developments of 
 the structure of joint stock companies, and their relations 
 with other financial businesses. The chief initiative has come 
 from America. But Germany has contributed much: her 
 legislation in regard to the obligations of the promoters and 
 directors of joint stock companies, if not achieving all that has 
 
ELASTICITY OF JOINT STOCK PLAN OF ASSOCIATION 317 
 
 been claimed for it, has at least indicated a direction in which it, vni, 3. 
 
 other countries are likely to move, and have indeed begun to 
 
 move. "^ 
 
 The varieties of joint stock company organization are nu- / 
 
 merous and plastic: scarcely any business is conceivable which 
 
 could not be efficiently managed by some one or more of them. 
 
 When a private firm is thrown into joint stock form, for the 
 
 convenience of members of the family who are not able and 
 
 willing to take part in its administration, there is often no real 
 
 change in its administration: whatever it did well as a private 
 
 firm, it can continue to do as a company; so long at least as the 
 
 men at its head are of the same stamp as formerly, and other 
 
 members of the family do not interfere with them. Again, 
 
 when a group of wealthy capitalists retain the complete effective 
 
 control of all the affairs of a company in their own hands, they 
 
 can act with as much freedom and vigour as if they remained 
 
 in simple partnership. They may distribute widely among the 
 
 pubUc preferred shares so arranged as to give no votes; and 
 
 debenture bonds which of course give none. They may even 
 
 distribute widely half or two thirds or even more of the ordinary 
 
 shares: for even two-thirds of them, if scattered in small lots 
 
 among the public, cannot be brought to bear in a conflict for 
 
 the control of the company, except by slow preparation: and 
 
 that can generally be countered in time. There is no sort of 
 
 business which the Standard Oil Company could not set up, 
 
 and manage with the freedom of a private firm, if it thought 
 
 the affair worth the necessary trouble. 
 
 The distinctive conditions of joint stock administration 
 come into view only, when the ownership of capital is effectively 
 divorced from its control: so that those, who are in control, 
 have not nearly the same pecuniary interest in its economic 
 and efficient working as they would have, if they owned the 
 business themselves. Its higher officials may watch its lower 
 officials, and its directors may watch its higher officials. But 
 its directors can generally keep their positions by faithful, steady 
 work, without showing special initiative; and they often content 
 themselves with that. 
 
 A man of restless constructive force, who finds himself on 
 such a Board, may urge a reorganization of some parts of the 
 
318 BUSINESS ORGANIZATION: JOINT STOCK COMPANIES 
 
 II, VIII, 4. procedure on more advanced lines, or the scrapping of some 
 plant that is no longer in the front rank: but he is not unlikely 
 to appeal in vain, if the change would cause much trouble, 
 suggest some criticism of past management, and be of such a 
 nature that its ultimate pecimiary advantage cannot be proved 
 with absolute certainty. As a separate business man he would 
 make the venture; and, if he were a member of a private firm, 
 he might probably succeed in carrying his partners with him. 
 But the vis inertiae of a great company is against him: he can 
 seldom argue the case effectively with numerous scattered 
 shareholders, who do not understand the business. He is there- 
 fore inclined to acquiesce, however unwillingly, in the general 
 opinion, that a company, the ownership of whose capital is 
 almost wholly in the hands of the public, must for the greater 
 part adhere rather closely to routine. 
 
 For this evil there is a possible remedy; which has been 
 largely adopted in America. The shareholders may decide 
 to give their votes in favour of those who will support the 
 almost autocratic power of some man, or group of men, whom 
 they know to be able, resolute, and perhaps to have a large 
 pecuniary interest in the company. This plan has answered 
 admirably in many cases: but has failed in others. Its success 
 seems to require rather peculiar conditions: and the time has 
 not yet come for a good estimate of the chance that it may 
 prove a generally effective remedy for the malaise to which 
 joint stock companies are liable in their old age. 
 
 4. The obscurity of the affairs of many small companies: 
 the exceptional case of manvfactiiring companies owned 
 largely by worJdng-men. 
 
 The above considerations tend to show that the ordinary 
 investor can seldom safely buy the shares of a small joint stock 
 business, unless he has personal knowledge of those who control 
 it, or is able to form a sound technical opinion on the manner 
 in which it is being operated. He is therefore, if wise, commonly 
 inclined to seek businesses in which he believes many competent 
 and experienced men hold shares: for then he has some sort 
 of assurance that the manner in which the directors and officials 
 of the company discharge their duties, will be noted by a 
 
SMALL COMPANIES: FACTORIES OWNED BY OPERATIVES 319 
 
 sufficient number of men, capable of forming a fairly good II, vm, i. 
 opinion on it, to give security against grave negligence or 
 malfeasance. 
 
 An inexpert small buyer or seller of commodities generally 
 deals at a disadvantage. But the goods of the Stock Exchange 
 are absolutely standardized, to the extent that each security is 
 of the same value as every other of the same nominal amount 
 and the same issue: and the small inexpert purchaser pays 
 almost exactly the same price as anyone else, who buys at 
 the same time. Of course slight exceptions are to be made 
 for dealers, who transact their own business; for powerful 
 capitalists, who make special terms with chosen dealers; etc. 
 But in the main, a small buyer is on the same footing as any- 
 one else, who has the same knowledge and judgment as to the 
 selection of securities to be bought and the time for buying; 
 and information as to a large company is often accessible 
 through the public press. No doubt the strong financier can 
 often obtain early information, partly confidential, as to causes 
 which are likely to alter the price of any security; and he can 
 on occasion take part in strategic combinations for the purpose 
 of moving the price in a direction that will suit his schemes. 
 But yet it is on the whole true that dealings in the securities 
 of large companies tend in the direction of democratizing the 
 otmership of capital; while the expansion of private businesses, 
 and to a less extent of companies, tends even more strongly to 
 render the control of capital oligarchic. 
 
 Attention has already been called to the ability of joint 
 stock companies to dominate the manufacture of staple goods, 
 of which large quantities, alike in every respect, are steadily 
 consumed; especially if the appropriate plant has already 
 advanced so far towards perfection, as to be almost exempt from 
 organic change. Even working-men often have exceptional 
 opportunities for starting and controlling cooperative, co- 
 partnership, and ordinary joint stock undertakings for work, 
 ' with which they are familiar. Such companies can draw on the 
 specialized knowledge and experience of many operatives, who 
 ' are themselves at work in the most advanced factories engaged 
 ', in the same branch of industry, or in others which sell to that 
 ' branch, or buy from it. And, whereas in a great company, the 
 
320 BUSINESS ORGANIZATION: JOINT STOCK COMPANIES 
 
 II, Tin, 4. shareholders generally pay large salaries to directors^ who are 
 expected to bring high technical knowledge to bear in their 
 judgment of the efficiency of its chief officers; these companies, 
 consisting mainly of smaller men, bring much of the requisite 
 knowledge to bear themselves. Their appearance in the midst 
 of our complex modern industrial organism may perhaps help 
 to explain the success of some companies in early times, which 
 seem to have grappled with tasks, that required considerable 
 technical knowledge, without the aid of any elaborate organi- 
 zation ^ 
 
 It is to be noted that these companies, and many others of 
 recent origin, issue shares of very small amounts: so that an 
 investor of limited means can increase his holdings gradually, as 
 small savings are made; and he can obtain the advantage, 
 formerly beyond his reach, of distributing his risks rather 
 widely. This change is not without its drawbacks from some 
 points of view: but it suggests developments of economic organi- 
 zation, which the new education and wealth of the working 
 classes may possibly effect ere long. 
 
 • The foUowing facts are taken from Professor Chapman's The Lancashire 
 Collon Industry; and a paper contributed by him and Mr Marquis in the 
 Statistical Journal, 1912. Many cotton spinning factories have been originated 
 by joint stock companies; whereas in most other industries, a new company is 
 generally developed out of a private concern. Cotton spinning, in spite of its 
 simplicity, of course requires a rather large capital; larger for instance than is 
 needed for weaving: therefore profits in it are not cut down much by the com- 
 petition of rising small men. Good cotton yarns almost sell themselves, and 
 therefore do not demand exceptionally able, alert and enterprising managers: 
 and the simpler qualities are easily tested. Consequently when cooperative 
 spinning-mills have wished to change their constitutions, they have beocme 
 joint stock companies; whereas cooperative weaving businesses have frequently 
 split up into several distinct private undertakings. 
 
 When a new spinning-mill is projected, a large part of the necessary capital 
 is obtained, in an exceptional manner, by loans. They "are nominally at short 
 notice; but they are seldom withdrawn, when their removal would place a 
 business in jeopardy." The rate of interest is very low "because the money is 
 found on the one hand by people, who are engaged in the industry, and feel 
 that there is a real security in contact with everyday experience; and on the 
 other hand by people who are acquainted with local conditions, and to a large 
 extent lend on t]io basis of personal knowledge," 
 
TEMPTATIONS TO EXCESSIVE ENLARGEMENT OF SCOPE 321 
 
 5. Temptations of joint stock companies to excessive ii, vui, 5. 
 enlargement of scope. 
 
 Meanwhile there has been a constant increase in the number 
 of people of high principle and sound judgment, who are willing 
 to serve as directors; and among these may be found not a few 
 with good business experience. For indeed in many a large 
 private business the charge of details is assigned to responsible 
 subordinates so fuUy, that the head need seldom concern himself 
 directly with any but the broader and more fundamental 
 problems; and he is therefore able to give a few hours a week 
 to the service of a railway or other important company. Further, 
 the number of intelligent investors has increased. There are 
 far more people than formerly engaged in business of their 
 own, who yet have spare capital to invest in Stock Exchange 
 securities. Such men often know what information as to the 
 afiairs of a company should be demanded: and they exercise a 
 wholesome control over the directors; and over the influences, 
 which unwise or designing shareholders may bring to bear on 
 the directors. 
 
 The number of intelligent and upright directors increases. 
 But unfortunately many of them are unable to give the large 
 time and energy needed for obtaining a thorough mastery of 
 the affairs of the companies for which they are responsible: 
 and the chief service, which most of them render to the public, is 
 through their common sense; their power of reading character; 
 and the safeguard which their presence offers against gross 
 fraud or folly on the part of the chief officials, or of a managing 
 director. 
 
 This passive uprightness is an important asset: but it does 
 not always compensate for the indolence and blindness of 
 directors, who are accomplices in wrong-doing in this sense that 
 they receive their fees, and yet plead ignorance of matters which 
 a sense of their duty should have caused them to investigate. 
 The Law courts of England, in spite of great recent improve- 
 ' ments, appear stUl to treat this form of wrong-doing too 
 bdulgently. 
 
 There is one direction in which the extension of its opera- 
 tions by a great company, or by a department of municipal 
 administration, is a source of danger that may be overlooked: 
 
 M. I. T. II 
 
322 BUSINESS ORGANIZATION: JOINT STOCK COMPANIES 
 
 II, vm, 5. it is that routine work by departments of a large business may 
 expand at the expense of small businesses with greater elasticity 
 and power of origiaation. The growth of a sense of moral re- 
 sponsibility among the chief technical employees of large con- 
 cerns may be a partial remedy for this danger: but they cannot 
 always approach a proposal for enlarging an existing depart- 
 ment, or starting a new one, without some bias. 
 
 That bias shows itself in the tendency of some joint stock 
 companies and municipalities to make things, which it would 
 perhaps have been better for themselves and for others that 
 they should have bought. The temptations in this direction 
 are strong. If the officials can get a free hand in the matter, 
 they enter into the new branch of production with a large 
 capital at their backs. They have no difficulty in absorbing 
 most of the best knowledge that is floating about on the subject. 
 The new department is equipped with the most recent appli- 
 ances; with the most efEective, economical, and labour saving 
 machines. It goes along bravely, wind and stream being with 
 it. It can show a saving on the prices at which the company 
 used to buy the goods now made by it, even after allowing 
 good salaries for those concerned in it. Perhaps some managers 
 with special knowledge of its work will be imported: but many 
 of those engaged in it will be drafted in from other departments, 
 at somewhat increased salaries for themselves ; and at the same 
 time making vacancies in their own departments which are 
 filled by juniors. There is a move upwards, and an increase of 
 salaries all along the line, and everyone is pleased. So the move- 
 ment grows; while a true balance of its advantages and dis- 
 advantages is perhaps never made out. 
 
 The difficulties arising from the multifarious enterprises of 
 railway and other large companies are sometimes partially 
 overcome by telling ofi a committee of the directors to be 
 specially responsible for the department; and giving them a free 
 hand in all changes that do not vitally affect the general, and 
 especially the financial, position of the company: and perhaps 
 some of the higher officials may be able to render valuable aid. 
 These are palliatives; but, even with them, divided responsi- 
 bility increases the temptations to laxity which are inherent in 
 joint stock company management. If the ablest directors are 
 
TEMPTATIONS TO EXCESSIVE ENLARGEMENT OF SCOPE 323 
 
 attracted to the subsidiary committee, it may do well: but ii, vni, 6. 
 they might render better service in regard to the main 
 work of the company: for, if they do not do their best in 
 that, the best will not be done: and the work of lateral 
 extensions, such as rolling mills and shops for the erection 
 of locomotives, would presumably be done at least as well 
 by firms that attempted nothing else. It is possible that 
 British locomotives might have nearly the same commanding 
 position in the world as is possessed by her ships and marine 
 engines, if British railway companies adhered more closely 
 to the general practice of British shipowners in buying their 
 ships^. 
 
 6. The mechanical methods of administration, which 
 are inevitable in a joint stock company, are often mitigated 
 by the professional emulation and the esprit de corps of its 
 officials. Good and evil of the progressive supersession of 
 private businesses by joint stock companies'^. 
 
 The wholesale transference of authority and responsibility 
 from the owners of each business to salaried managers and 
 officials would have been impossible had there not been a great 
 improvement in the morality and uprightness of the average 
 man: for even as late as the seventeenth and eighteenth 
 
 1 We are told: — "Railway manufacturing establishments lack the incentive 
 of competition, the output of the works being designed for service on the system 
 of the owning company. The works trade in a closed and fully protected 
 market, and are therefore not in any real sense commercial enterprises. The 
 result is evident to those who have had the opportunity of inspectiag these 
 works, and of comparing their organization and equipment with those of the 
 great joint stock companies of locomotive and rolling stock manufacturers. In 
 the case of new shops the equipment is perhaps equal to that to be found in 
 the shops of the private manufacturer, but there is a tendency, partly owing to 
 the absence of competition, but also arising from the fact that the railway manu- 
 facturing establishments are not run as separate enterprises, but are merged in 
 the general railway undertaking, to allow the equipment to fall behind current 
 practice, and to be, to an extent unsuspected by those responsible to the stock- 
 holders of the company, quite unrepresentative of modem methods of manu- 
 facture. The plant does the work required, and that would often appear to 
 be the sole criterion of efficiency; there is no one whose business it is to count 
 the cost." (Financial Supplement to The Times, 23 August, 1911.) 
 
 ' A considerable part of this Section is reproduced from " The old generation 
 of economists and the new " in the Quarterly Journal of Ecoyiomica for January, 
 1897. 
 
324 BUSINESS ORGANIZATION: JOINT STOCK COMPANIES 
 
 II, VIII, 6. centuries we find the great trading companies breaking down 
 largely in consequence of the corruption and selfishness of their 
 officials. But men, who are above such gross iniquity, as was 
 common then relatively to the few opportunities for it, are yet 
 likely to succumb to subtler temptations; and especially to the 
 temptation to consult their own ease by jogging along qiiietly 
 in accustomed routes, and avoiding the trouble and worry of 
 new initiative. 
 
 The owner of a business, when contemplating any change, is 
 led by his own interest to weigh the whole gain that it would 
 probably bring to the business, against the whole loss. But the 
 private interest of the salaried manager, or official, often draws 
 him in another direction : the path of least resistance, of greatest 
 comfort and least risk to himself, is generally that of not striving 
 very energetically for improvement; and of finding plausible 
 excuses for not trying an improvement suggested by others, 
 until its success is established beyond question. 
 
 Again the single owner, responsible to no one, may trouble 
 little about mechanical checks on the honesty of his employees; 
 for he may trust to his reading of human character, and his 
 power of detecting unfaithfulness by sharp verbal inquiries. 
 But the officials of a joint stock company, being themselves 
 trustees for others, can seldom take such risks: and they have 
 little chance of taking them safely. Their accountant's work for 
 every department must be full and precise; and so arranged 
 as to be part of a system of elaborate checks and counterchecks. 
 Such a system is necessarily wasteful of effort, and hostile to 
 elasticity: and here lies a chief disadvantage under which a 
 joint stock company lies in competition with a private firm. 
 But this disadvantage does not increase materially with an 
 extension of the scope of the company's business. A mechanical 
 system of checks and counterchecks, when once introduced, 
 adapts itself almost automatically to enlargements: it of course 
 becomes more complex, but on the whole its cost is not Ukely 
 to grow faster than the size of the business. 
 
 In so far as a system of checks represses elasticity and 
 initiative, it is an injury to the community as well as to the 
 company: and though this injury to the company may not be 
 intensified by an increase in the scale of its operations, some 
 
MUTUAL STIMULUS OF OFFICIALS OF GREAT COMPANIES 325 
 
 little injury to the community arises from every addition to the ii, vni, 6. 
 number of officials whose character is affected by it. Moreover 
 vis inertiae opposes the removal of any check to which people 
 are accustomed, even though it is no longer of much use. For 
 those who remove it will get little thanks for their pains, if 
 their judgment turns out to be right; and they run the risk 
 of great blame, should perverse chance bring a flagrant misdeed, 
 that might have been arrested by the check which they have 
 removed. 
 
 If this were the whole of the case, then every new advantage, 
 that modern changes confer on large businesses in their contests 
 with small, would be a source of danger to social progress. For 
 the economies of the large business as against the small are 
 mostly a matter of private concern and bear little further fruit: 
 but the improvement of methods spreads from its first home 
 all over the country, all over the world; and the private gain, 
 which results from it to the inventor, is seldom a hundredth 
 part — sometimes not a millionth part — of the social gain. A 
 tendency to ossification of the social organism might therefore 
 be feared as the result of bureaucratic habits of shirkiag trouble- 
 some initiative, the main benefits of which would accrue to those 
 who had not borne the burden. 
 
 From this tendency the world is in some measure saved by 
 the influence of motives other than the desire for pecuniary 
 gain. To begin with, the increase in the size of industries is 
 often accompanied by the substitution of scientific methods for 
 empirical: while a sound basis of scientific technique is largely 
 provided by laboratory work, to which an ever increasing 
 number of elastic and enterprising minds are rising from 
 among the people; being stimulated a little by the hope of 
 gain, and much by intellectual ambition, and the sympathy 
 of other students of science. And, in addition to this general 
 energizing force, a special force somewhat similar to it is coming 
 mto play to preserve from stagnation the more exclusively 
 practical side of business management. For business experts 
 are getting more and more into the habit of writing and reading 
 specialist journals, of holding congresses, and in other ways 
 coming imder the judgment of one another: and thus the thank- 
 less task of attempting an improvement which may after all turn 
 
326 BUSINESS ORGANIZATION: JOINT STOCK COMPANIES 
 
 II, vm, 6. out badly, and to which a man's official superiors and the public 
 at large may be indifierent, assumes a new shape; since it is 
 likely to be judged by a critical and appreciative audience, who 
 know the technical difficulties of the problem. The most 
 important improvements often remain for years just short of 
 yielding financial profit: but such an audience applauds the 
 clever and bold endeavour even though its financial fruit is 
 not ripe; even though the interest of a manufacturer in charge 
 of his own business might not impel him to use it. Thus the 
 modern intercourse of expert officials with one another is 
 bringing into the business world some part of that great 
 progressive force, which pure science has long derived from 
 the approbation awarded to successful research by audiences 
 fit though few. Such approbation is a reward; and like every 
 other reward, present or deferred, it appeals to elements of our 
 nature that are not the very highest of all : but, partly for that 
 reason, it may be trusted to act steadfastly. It is not only a 
 reward: it is also a sympathy; and sympathy is the one solid 
 and strong force which has in it nothing sordid, and permeates 
 the whole of human nature. 
 
 This is more important with regard to joint stock companies 
 than to private businesses. For, when once the ownership of 
 a business has left the hands of an individual, who might attach 
 his chief employees to him by bonds of personal friendship; 
 when once faithfulness to the business has ceased to be enforced 
 by the warm instincts of loyalty, and has been left to the colder 
 support of impersonal duty; from that time forward the moral 
 coherence and strength of the business depend largely on the 
 growth of an esprit de corps, of a spirit of loyalty to the busmess 
 itself. As time goes on, and the name of the business becomes 
 hallowed by traditions of good achievements in the past, the 
 best of its employees find a pleasure and a pride in its success 
 and glory, as they do in that of their country: they love it as 
 a student loves his University, as a soldier loves his Regiment; 
 less heartily perhaps, but yet sincerely. And indeed in many 
 a great joint stock company there arise from time to time 
 managers, who evoke among their subordinates a high regard 
 for themselves; and through themselves for the company: and, 
 when they pass away, an increased tradition of loyalty to the 
 
MUTUAL STIMULUS OP OFnciALS OF GREAT COMPANIES 327 
 
 company remains. In this matter also the great long-lived ii, vm, 6. 
 company may stand at no disadvantage relatively to a new 
 company, which has more of the vigour of young blood, but is 
 held together by little beyond a mere cash nexus. 
 
 This loyalty is being fostered by a multitude of movements, 
 designed to give the employees a direct interest in the pros- 
 perity of the business for which they work: while others aim 
 at developing their intelligence and ability in ways, some of 
 which are likely to promote their efficiency as employees; and 
 some, which are desired only as contributing to their higher 
 well-being, are among the best fruits of the larger sense of social 
 duty which is characteristic of the present age. 
 
 America appeared rather late in this field, but she is 
 abeady a chief leader in it: in particular she has made it clear 
 that when a business takes the form of a joint stock company, 
 it does not thereby lose the freedom to make large expenditure 
 for improving the condition of its employees. This seems to be 
 due partly to a certain generosity of spirit, which has always 
 accompanied the keen pursuit of wealth by her people; partly to 
 the clearness with which her employers recognize the economy 
 of attracting those workers who will get the greatest amount 
 of good work out of the expensive plant which is committed 
 to their charge. They not merely pay high wages, but often 
 also offer opportunities for high grade social gratifications; 
 especially if the work to be done calls for the finer industrial 
 quahties; rather than for that heavy manual work, which 
 Americans prefer to leave to immigrants. Lastly something 
 may be allowed here for the autocratic, or at all events oli- 
 garchic, constitution of American companies. As a rule the 
 President may, and indeed must, exercise an authority such as 
 is rare in British companies, though not very rare in some of 
 the more ambitious of the German : and a full control at meetings 
 of shareholders is generally exercised by a few wealthy and able 
 business men, who do not grasp crudely at small savings, but 
 support a far-seeing policy. 
 
 We may conclude provisionally that recent developments call 
 only for some mitigation, not for a reversal, of the judgment of 
 Enghsh business men that the conversion of a private business 
 into a joint stock company, though occasionally inevitable and 
 
328 BUSINESS ORGANIZATION: JOINT STOCK COMPANIES 
 
 II, vm, 6. very frequently convenient to ttose immediately concerned, 
 sometimes acts adversely to national prosperity and industrial 
 leadership^. 
 
 ' The Statist (14 Jan. 1905) gave strong expression to this opinion: "The 
 general rule is that the private owner is more diligent, more assiduous in atten- 
 tion to business, more intimately acquainted with all its details, and better 
 trained for the position he fills, than are the directors of a joint stock company.... 
 They are paid exceedingly badly. Very often a man with a large business of 
 his own, quite sufficient to occupy all his thoughts and all his time, is invited to 
 take part in the management of another large business, and is offered a few 
 hundreds a year as remuneration. Is it seriously expected that such a man will 
 give the same attention to the business of the company that he gives to his own 
 private affairs 7 Everybody knows that he will not. . . .The successful private firm 
 is eager to have the best advice in ever}' department, and therefore its managers 
 and its secretaries are exceedingly able men, and usually have the full confidence 
 of the employers. But, for all that, the partners are very careful to know all 
 the facts themselves and to watch constantly over the course of business.... Con- 
 sequently, when great firms transfer their businesses to companies, as they have 
 been doing for many years past on a verj' considerable scale, they are taking a 
 step which, from the necessity of the case, renders it certain that the manage- 
 ment will be less competent in the future." 
 
CHAPTER IX 
 
 BUSINESS ORGANIZATION: ITS FINANCIAL BASIS 
 
 1. Functions of the promoter in relation to joint stocJc ii, ix, i. 
 companies. 
 
 The function of the promoter is to organize industrial 
 cooperation on purely business lines. This cooperation is not 
 of so fine a quality as that, to which the name "cooperation" 
 is technically applied: for it does not assume a conscious working 
 by each for the good of all, and a readiness to sacrifice, when 
 occasion calls, something of private gain in pursuit of a common 
 end, and the working out of a common ideal. But the two forms 
 of cooperation are often divided only by thin partitions. 
 
 For instance, a better organization of some branches of dairy 
 farming might greatly increase the net gains of the producer, 
 without involving any injury to the consumer. Cooperation 
 in the technical sense is effecting this in many districts of 
 Europe and in Ireland, though England herself still lags behind. 
 The work might have been done more quickly, if the conditions 
 of dairying had been such as to invite the services of the able 
 business promoter and organizer. But he is seldom able to get 
 a hold of those industries which are chiefly in the hands of 
 small capitalists: they remain undeveloped largely because his 
 help is not forthcoming, and they have not leaders of their own 
 ready for the work. 
 
 There are nearly always some businesses witTi a greater 
 future before them than is generally known: an able promoter 
 may perceive their capabilities, procure the capital they need, 
 bring them into unison, and push them on their way to success 
 faster than they could otherwise have gone. Again, he may 
 find a district, the agricultural or mineral riches of which have 
 
 II— 5 
 
330 BUSINESS ORGANIZATION: ITS FINANCIAL BASIS 
 
 II, IX, 1. lain undeveloped, because the people in possession are neither 
 wealthy nor enterprising: the company which he promotes 
 may bring them a railway, and develop the latent resources by 
 modern methods. Here again the promoter creates a position 
 which is an addition to national wealth: he benefits all con- 
 cerned, while reaping a good harvest himself. 
 
 The services of the promoter are easier, but also less neces- 
 sary in relation to those industries, which are in the hands of 
 men accustomed to deal with large capitals, and familiar with 
 the modern methods of production and marketing. In such 
 industries indeed the owners of the various properties concerned 
 sometimes arrange a fusion without external aid. But often 
 the initiative in starting a new company, or in fusing existing 
 businesses to form a single great concern, comes from a pro- 
 fessional organizer. 
 
 He makes it his business to study ways in which new inven- 
 tions, new methods of production, new developments of demand, 
 or new facilities for transport, offer opportimities for profitable 
 alliances between industries that have had little in common as 
 yet. He watches the wastes of competition between rivals: and, 
 being detached from the details, he is generally able to take a 
 broader view of fundamentals, and to discover their true rela- 
 tions and proportions better, than those whose energies are 
 chiefly occupied with practical work in their several lines. 
 
 If he decides to aim at a fusion of existing businesses, he 
 endeavours to obtain from each of them, in return for a small 
 price paid down, "an option," or right to demand the sale of 
 that busujess to him within a given period; and on specified 
 terms, which commonly include the dehvery of both money and 
 securities of the new company. He reckons the extra money 
 required for bringing up to date any plant which is behind- 
 hand, and capable of improvement: also structural changes, etc. 
 Unless provided with exceptional resources, he then approaches 
 some financiers. A case having been made out for the con- 
 clusion that the company can earn good dividends on a certain 
 capital, the financiers are asked to underwrite a certain part 
 of the securities on that basis. That is to say, they are asked 
 to promise to buy right out a considerable part of the securities 
 of the new company at a price perhaps twenty per cent, lower 
 
THE PROMOTION OF JOINT STOCK COMPANIES 331 
 
 ttan that of issue to the pubhc; thus securing the promoter his ii, ix, i. 
 necessary supply of cash. If the comparison of these two sets 
 of options, the one to demand the sale of properties, the other 
 to demand the purchase of new securities, shows a sufficient 
 margin to himself in cash and new securities combined, he 
 launches his project. The highest demands on his diplomatic 
 finesse are in his interviews with those whose properties he 
 desires to purchase. But his chief expenditure generally goes 
 to preparing the public to accept a high valuation of the new 
 company. There are few who do more to increase the efficiency 
 of labour in creating material wealth than an able and up- 
 right company promoter: he forecasts coming developments, 
 and he aids the public to invest their resources in those 
 fields of industry which will yield the best harvest in coming 
 years. 
 
 In strong contrast with him is the promoter, whose ventures 
 are commonly chosen; because he thinks he can induce others to 
 believe they have a good chance of success, though he himself 
 suspects they have none; and who is careful to clear out from 
 them before they collapse. Speaking generally however the 
 course of progress is hostile to the fraudulent promoter. The 
 ground-plans of most of his devices are one or two centuries 
 old: perhaps he may, with consummate skill, deck them out 
 in a new garb, and add new details; but the detective forces 
 of organized knowledge in the public press and elsewhere grow 
 cumulatively, and the new elements in his guiles are less in 
 each generation -than in the preceding. 
 
 During the last few years, however, there has been a great 
 increase of promotions, the leading feature of which has been 
 the assertion that great economies are to be attained, in 
 marketing as well as in production, by very large businesses; 
 especially where they can practically monopolize a considerable 
 market. This assertion contains much truth: but in many 
 cases it is an overstatement prompted by a strong bias. In 
 America and some other countries, vast gains have often accrued 
 to promoters who have succeeded in inducing the public to 
 accept a high estimate of the economies to be obtained by the 
 fusion of competitive businesses. For instance, it may appear 
 that when several businesses of which the aggregate capital 
 
332 BUSINESS ORGANIZATION: ITS FINANCIAL BASIS 
 
 II, II, 1. value is, say, twenty million dollars, have been amalgamated 
 into one, its net earning power will be so much greater than 
 the aggregate of theirs, that its capital value may fairly be 
 estimated at, say, thirty millions. In this, which is not an 
 extreme case, a few months' work will have put into the hands 
 of the promoter, and those who work with him, a gross sum of 
 ten million dollars: and, in spite of great incidental expenses in 
 securing options, advertising, etc., more than half may be net 
 gain. Such rich rewards have never been reached so quickly 
 as those which have fallen to some dozen or score of promoters 
 of the first rank in America^. 
 
 These gains appeal to the common desire for wealth as a 
 means of mere physical enjoyment; and they appeal, in some 
 cases, even more strongly to the higher and more intense desire 
 for success in great strategical enterprises. They fascinate 
 upright men, who have earned a good reputation by a long 
 career of solid work. And they give unprecedented scope for 
 the use of all those subtle devices for misleading the public 
 which have been developed by successive generations of astute 
 knaves. Meanwhile the contrivances of the law for the defence 
 of the public against them plod with heavy steps some way 
 in the rear; but on the whole gaining ground relatively to the 
 wayward progress of the evil-doers. 
 
 1 See Meade, Trust Finance, p. 196. 
 
 Mr Flint, an experienced promoter, stated that in 1900, a year of high 
 inflation, forty -seven of the chief industrial amalgamations paid an average of 
 13'6 per cent, on the market value of all their securities, including common 
 stock; and 7-44 per cent, on their nominal value: wherea's the figures for 37 
 of the chief railroads were 4-85, on both market and nominal value: and he 
 inferred that the industrials could not be over-capitalized {North American 
 Review, May, 1901, pp. 667, 671). 
 
 But this inference was invalid. The return to investment in industrial 
 securitiea was high because many industrials had entirely disappeared from 
 the list, so that their capitalization was not reckoned in to swell the total; 
 while the investor warned by their fate demanded a high premium for insurance 
 against the risks which may yet await the survivors. What the figures really 
 prove, is that the market so distrusted the capitalization of these securities 
 as to refuse to raise their total price much above half of their nominal value, 
 even in 1900, when tempted by the high immediate return of 13-6 per cent, 
 on investment. He remarked signiScantly that "it is not an easy matter to 
 find a man of sufficient ability and financial responsibility to take up" a nev 
 promotion, and that "there has to be a high inducement offered, because it 
 involves a risk and a very high class of work," Report of Industrial Commimon, 
 xni. p. 92. 
 
DIFFICULTIES OF VALUATION OF A COMPANY'S ASSETS 333 
 
 When a fusion is over-capitalized the promoters and their ii, n, 2. 
 friends gain, at the expense of an ultimate loss which falls on 
 the investors: but this transference of wealth from one set of 
 people to another is mainly a matter of private concern. And 
 investors are learning as they go: in so far as the hopes held 
 out by the promoter of recent amalgamations are unduly high, 
 and are falsified by experience in coming years, the task of his 
 successors will be more difficult. 
 
 2. Some difficulties connected with the valuation of a 
 company, and especially an amalgamation of several com- 
 panies. Opportunities for, and temptations to, excessive 
 valuation. 
 
 If aU the nominal capital of a company represented actual 
 outlay, an approximate estimate of the cost of creating a busi- 
 ness might often be formed on that basis. But, as has been 
 seen, much of the nominal capital is often "water": that is, it 
 is issued without any actual payment of a corresponding sum 
 of money. Even if it were possible to ascertain to what extent 
 this has been done, the result would not necessarily be a good 
 guide. For instance, a railway in a deserted mining district 
 is almost valueless; and, if its nominal capital represents its 
 original cost, nearly the whole of it will be really, though not 
 technically, water: and the same is true of buildings or plant 
 which are obsolete, or otherwise no longer well suited for their 
 work. On the other hand, a concern may have bought cheaply 
 a great deal of land, which has unsuspected supplies of rich ore: 
 its nominal capital may in consequence have been increased 
 five-fold, by the issue of additional stock to the original in- 
 vestors; and thus four-fifths of it may technically be water, and 
 yet not be in excess of the true value of the business. 
 
 Therefore in estimating the value of a property which he 
 proposes to buy for himself, a reasonable man seldom pays 
 his chief attention to its cost. He forms the best opinion he can 
 of its probable net earning power in future years: he discoimts 
 each item with reference to the time that he would have to 
 wait for it. Account being taken of the chance that it may turn 
 out either less or greater than he expected, the aggregate of 
 
334 BUSINESS ORGANIZATION: ITS FINANCIAL BASIS 
 
 II, IX, 2. these items truly reckoned, i.e. the "capitalized future net earn- 
 ings " of the property, is the true value for which he is in search. 
 Estimates of the future earnings of a business must indeed 
 be based largely on a knowledge of the past. The promoter is 
 sure to take a hopeful view in every doubtful case: and he does 
 not always assist the investor to get at all the facts. For instance, 
 most promotions of new companies, and reorganizations of old 
 companies, are made in the years just before an inflation of credit 
 and prices reaches its bursting point. Those years show ex- 
 ceptionally high profits on nearly all manufacturing operations; 
 and investors discount this fact to some extent, though seldom 
 sufficiently. Part of the apparent profit is commonly due to 
 the fact that stocks in trade, that were on hand at the end of each 
 of these prosperous years, were entered in the accounts at higher 
 prices than similar stocks had been entered twelve months 
 before. Few investors allow for such influences, and indeed the 
 necessary facts are seldom before them. 
 
 Again, if a business has been losing ground, a promoter who 
 is reorganizing it, is apt to base his estimates of its success on 
 the average of many years, and to ignore the fact that its recent 
 net income has been small. In the opposite case, he will some- 
 times base himself chiefly on the profits of the last few years, 
 and give hopes of continued increase: but in fact those inter- 
 ested in the sale of the business may have contrived to defer 
 some expenses which properly belong to those years; and, in 
 particular, they may have let the plant run without adequate 
 renewals or even repairs, till it is nearly valueless. They have 
 even been known to pay out of their own pockets some of its 
 legitimate expenses; trusting to get back five thousand pounds 
 from the investor for every thousand that they have gifted to 
 the business. 
 
 The shipping trade aSords a good instance. There is, even 
 in peace time, about one year in ten, in which the net earnings 
 of a ship about equal its total cost; but, for every such year, 
 there are several in which a great many ships earn far less than 
 their costs of working. If therefore a promoter selects for his 
 basis a prosperous year, and one in which very small charges 
 have been made to income on account of depreciation, a capitali- 
 zation at two or three years' purchase may be excessive. 
 
DIFFICULTIES OF VALUATION OF A COMPANY'S ASSETS 335 
 
 In these cases the excessive capitalization is based on an ii, n, 2. 
 overestimate of resources. But perhaps an equally common 
 cause of excess is to be found in the assumption that a business 
 which has been created by a man of exceptional organizing or 
 inventive genius, or by one who has a great faculty for antici- 
 pating coming movements of taste or fashion, will retain its 
 vigour after a reorganization. This assumption is not likely to 
 be justified, if meanwhile he loses effective control, even though 
 retaining some nominal connection with it. 
 
 The natural bias of a promoter to put a high value in his 
 prospectus on the good-will of a constituent company of his pro- 
 posed amalgamation, is very great in the case of a moribund 
 concern, which he has included only because it might weaken his 
 strategical position if it were left outside, and open to purchase 
 by a powerful capitalist: and several promoters, when giving 
 testimony before the American Industrial Commission, made no 
 secret of their having been forced to buy such businesses. 
 
 But in the most notable amalgamations the promoter has 
 occupied himself chiefly with vigorous concerns. He has then 
 maintained that they were capable of paying fair dividends on a 
 nominal capital larger than their present, even if still subject 
 to the wastes of separate administration and mutual compe- 
 tition: and that, if working together under able management, 
 they would yield a large additional surplus. Accordingly he 
 has asked the public to subscribe for "preferred" stock equal in 
 amount to the whole nominal capital of the separate concerns, 
 and has issued also "common" stock to an equal nominal 
 amount. In a few cases the public have been explicitly told 
 that in buying the common stock they were getting nothing 
 but the right to a share in the chance of additional economy 
 and efficiency which the amalgamation would bring. Its owner- 
 ship of course gives a share in the control of the company: but, as 
 that is of less use to the public than to financiers, the common 
 stock has often been retained largely in their hands. In such 
 cases as these, the movement towards amalgamation is pushed 
 forward by the hope of gains which the promoter and his 
 friends may reap after the conversion, in addition to those rising 
 directly out of it. An increase of nominal capital is sometimes 
 favoured by investors, because they think that a high rate of 
 
336 BUSINESS ORGANIZATION; ITS FINANCIAL BASIS 
 
 II, II, 2. profits on a nominally small capital may attract new competition, 
 and invite popular jealousy and hostile legislation. But, when 
 carried far, it is apt to injure the credit of the company in the 
 long run: for in a time of depression the stock may fall far 
 below par. 
 
 In the case of railways, and other partial monopolies, stock- 
 watering must be jealously watched; because it may be, and in 
 fact has been, used to show that concessions demanded from the 
 company in the public interest would depress its dividends 
 below a reasonable return on its capital: it is not always easy 
 to prove that the capital is watered, and therefore has no 
 right to a large dividend^. It may be admitted that every such 
 company charges as a rule the price that will gain it the best 
 net return, whatever its nominal capital may be; and there is 
 no good ground for the common belief that watering capital 
 causes prices generally to be much higher than they otherwise 
 would be. But there are many cases in which it screens a harsh 
 use of monopoly power; and, as President Hadley says, "If the 
 directors so arrange their books as to make it appear that money 
 has been invested, which actually has never passed through 
 their hands, they are tmder a great temptation to make false 
 reports concerning other parts of their business^." 
 
 Finally, a few minor causes may be briefly noted which tend 
 to promote amalgamation. A local concern must often borrow 
 at a high rate of interest: if it is amalgamated with many 
 others, the securities of the whole find a market on the great 
 Stock Exchanges, and it can borrow more easily. And indeed 
 it is a universal rule that a bond which is part of a small issue 
 always has a rather lower price than one of exactly the same 
 rank which belongs to a large issue; because if the owner 
 should want to sell, a buyer will more promptly be found for 
 the large issue than the small. Again, the launch and the 
 subsequent history of a vast company, like those of an excep- 
 tionally large ship, are treated by the newspapers as of general 
 
 ' See below, p. 530 and Appendix M, 5. 
 
 ' Tlie Education of the American Citizen, p. 46. German law prohibits the 
 watering of stocks directly: it is ineffective against the purchase at a high price 
 of a business as a going concern, and is largely evaded; but yet its influence 
 has been shown in the high average prices of, and dividends on, German in- 
 dustrial securities. 
 
EFFICIENCY AND LIMITATIONS OF BRITISH BANKS 337 
 
 interest: and the gratuitous advertisement thus afforded is often il, n, 3. 
 an asset of considerable value. Again, though publicity gene- 
 rally helps honest dealings; and puts difficulties in the way of 
 some crude forms of dishonesty, it is sometimes used to further 
 the ends of astute and powerful financiers: for it broadens the 
 Stock Exchange transactions, in which there is a harvest to be 
 reaped by those who know in advance whether the next informa- 
 tion that is imparted to the public will tend to raise or to lower 
 prices. 
 
 Again it often happens that those who control a company 
 want to shake the public out, and acquire a yet greater control 
 of it. They then charge expensive improvements to income 
 account; and prepare a balance sheet, which will show that 
 little or no dividend can be paid: and meanwhile they make 
 large sales of the stock by concealed routes. When the price of 
 the stock has thus been lowered, they quietly buy all that they 
 have sold, and a great deal more. In the next few years it may 
 probably appear that the charges, which had to be made to 
 income account in order to keep the plant up to date, are not 
 very heavy. The greater the attention the public pays to the 
 aflairs of the company, the more skill is required for such 
 manoeuvres: but also the larger is the volume of amateur and 
 professional speculation, on which toll can be levied by those 
 who can control events, and rumours of events, which control 
 Stock Exchange prices^. 
 
 3. The part j>layed hy banks and other financial agencies 
 in the adaptation of industry and trade to the enlarged 
 financial requirements of the modern age. British banks. 
 
 We have seen how in the joint stock era, the population at 
 large hands over an ever increasing part of its spare resources 
 to be employed in business, without calling in the services of 
 any intermediary. But latterly "banks" (in the broad use of 
 the term in which it includes many classes of financial houses 
 in Germany, and to a less degree in some other countries) have 
 taken a large part, in underwriting and otherwise financing 
 
 ' Much suggestive information on the above and allied aubjeota ia given in 
 Professor Meade's Corporation Finance. 
 
338 BUSINESS ORGANIZATION: ITS FINANCIAL BASIS 
 
 II, IX, 3. great businesses, almost exclusively in joint stock form: and 
 from that they have proceeded to exercise a strong control on 
 the general course of business in various ways, and especially by 
 nominating their own representatives on the boards of direction 
 of leading industrial and trading companies: a matter which 
 win call for much attention in the next Book. 
 
 Many recent changes have contributed to increase the 
 financial element in the directorate and management of in- 
 dustrial concerns; and, in not a few cases, to relegate those, 
 whose faculty is constructive rather than commercial, to sub- 
 ordinate positions. Not only trade secrets, but even trained 
 industrial instincts, often count for less than they used to in 
 comparison with command over capital, and skill in buying and 
 selling. This would be inevitable even if joint stock company 
 finance did not offer a field for great achievements by relatively 
 small efforts *of able and wealthy capitalists. 
 
 Thus the movement towards the consolidation of industry 
 under high financial control is strong in many countries. It will 
 suffice to consider three; Britain, where the movement is opposed 
 by tradition and perhaps by national character, and where it is 
 not very prominent ; Germany, where its development is perhaps 
 most typical and uniform; and the United States, where the 
 movement has been irregular, but has gone very far in several 
 great departments of industry. 
 
 The Scottish banking system a century ago was different 
 from, and in many respects superior to, the English system 
 generally; though it was under greater obligations than it 
 seemed to recognize to the Bank of England, in regard to the 
 maintenance of foreign exchanges: but for the present purpose 
 the Scottish banks may be associated with the English. British 
 banking problems are often discussed mainly in connection with 
 the currency: the present reference to them is concentrated on 
 a single point; and it ignores many matters which would be 
 vital in a broad study^. 
 
 '■ The name "Lombard Street" indicates that England owed much to Italian 
 bankers. Venice seems to have led the way in deposit banking. The Bank of 
 Genoa may perhaps claim to have pioneered giant financial operations for tho 
 development of trade. 
 
EFFICIENCY AND LIMITATIONS OF BRITISH BANKS 339 
 
 As is well known, a representative British bank makes its ii, ix, 3. 
 profits, as a rule, chiefly by lending command over capital, most 
 of which has been placed with it by its regular customers: it 
 pays them little or no interest on their capital: but it renders 
 them gratuitously the great services of receiving payments from, 
 and making payments to, all parts of the country. The com- 
 mand of capital thus placed with it constitutes the basis of 
 its "deposits": but another great part of it consists of mere 
 book entries, each of which indicates that the bank has made a 
 loan (probably covered by the placiQg of some securities in the 
 custody of the bank) to a customer; the loan is not generally 
 taken out at once, but is placed to his credit to be drawn against. 
 Every cheque drawn against any of the bank's "deposits," of 
 whatever sort, must be instantly paid by the banlc; which must 
 therefore have a good stock of cash in hand, or at call; together 
 with a considerable holding of bills etc. which automatically 
 give a speedy command over cash. It cannot safely lock up any 
 considerable part of its resources in loans based, directly or 
 indirectly, on the standing securities of any single business, 
 whether a private fijm or a company; miless indeed that com- 
 pany be a first-class railway or other concern of vast size and 
 high repute, whose securities can be promptly marketed on 
 fairly good terms to almost any extent^. 
 
 The burden of supplying to any ordinary business, the main 
 body of the capital which it needs, otherwise than for temporary 
 uses, must therefore be left in England to the Stock Exchange, 
 and to financial agencies that are not under obhgation to pay 
 on demand cheques drawn against them. The chief of these 
 agencies are "accepting houses" sometimes called "merchant 
 bankers," because some of them first established their position 
 as wealthy merchants; together with several other classes of 
 dealers in credit, who still retain the name of biU-brokers. The 
 currency of each bill is of course short: under favourable con- 
 
 ' The above remarks indicate that a great part, very often the greater part, 
 of the "deposits" of a bank are in effect statements of loans made by itself, 
 or based on loans made by other banks; and therefore these deposits are not 
 to be reckoned in an inventory of the national wealth, in addition to the value 
 of the material properties and business reputations and connections on which 
 they are in some measure based. But yet it would not be correct to take 119 
 account of them in such an inventory. 
 
340 BUSINESS ORGANIZATION: ITS FINANCIAL BASIS 
 
 II, IX, 3. ditions, continued credit can be obtained by a series of bills; 
 and the rate of interest charged is low, partly because the lender 
 can speedily recover command of his capital in time of pressure. 
 But, for that and other reasons, a long-period credit would often 
 be more serviceable to the borrower. 
 
 A cheque paying bank can seldom safely make a large 
 advance on securities that are not eminently marketable: but 
 the term "large" is relative. The general increase in the size 
 of the business unit, whether a private firm or a joint stock 
 company, causes an increase in the size of the advances for which 
 it is likely to have a legitimate occasion: and a bank, which 
 wishes to be active in important affairs, and at the same time 
 prudent, finds in this general expansion of the business unit a 
 subsidiary impulse, prompting it to consider plans of amalgama- 
 tion with other banks^. 
 
 This quiet policy has its drawbacks: but it gives stability 
 to a system which is worked on a very slender basis of gold 
 reserve, and is liable to great foreign drains. And, what is more 
 to our present purpose, it ofiers no inducements to powerful 
 speculators to capture those banks on whose solidity the ordinary 
 business of the country depends: since the resources of such a 
 bank could not be used in financial campaigns. It must be 
 admitted that the banks, while stable themselves, have some- 
 times been rather niggardly in their holdings of the gold basis 
 of the credit on which their cheque system rests : and that they 
 have not always exercised an adequate organized control over 
 speculative tendencies on the Stock Exchange and elsewhere. 
 The burden laid on the Bank of England should perhaps be 
 shared by them in a rather larger degree. But such considera- 
 tions bear only indirectly on the question whether the present 
 organization of British banking suffices for aU the needs of 
 
 • The eoonomiea, which a bank obtains by an increase in the number of its 
 branches in different parts of the country, are in some respects similar to those 
 which a railway derives from an increase in the number of points, at which it 
 can receive and deliver goods. The transport of command over money effected 
 by a bank involves a prodigious amount of routine work, which does little 
 towards the development of the higher faculties; and it does not tend directly, 
 as the open air work of railway men does, to improve the physical vigour of the 
 race. Possibly the demand for the most mechanical parts of it may be con- 
 siderably checked by the further development of automatic tabulating, reckoning 
 and printing machines. 
 
RELATIONS OF GERMAN AND AMERICAN BANKS TO BUSINESS 341 
 
 industry and trade: before coming to that point, it will be well il, ix, *. 
 to look abroad. 
 
 4. Relations of hanhs to industry and trade in Germany 
 and America. 
 
 The French banks have something in common with the 
 quietude of the British. They do not indeed occupy themselves 
 much with transferring payments from one man to another: 
 and the Credit Mobilier, founded in 1852, was one of the chief 
 pioneers of large industrial ventures. But, with a few excep- 
 tions, they have avoided extreme speculative courses: and they 
 have not stretched out their hands towards a concentrated 
 direction or control of trade and manufacture; being perhaps 
 to some extent warned ofE by that spirit of individuality 
 which we have noted as underlying representative French 
 industries. 
 
 In Germany however large capitals and great industrial 
 enterprises are of recent origin and have grown rapidly: the 
 masterly financial genius, and faculty for associated speculative 
 action of the Semitic race count generally for more in the east 
 of Europe than in the west. 
 
 Sixty or seventy years ago Germany was not equipped with 
 any organized credit system: the credit banks which then began 
 their work were obliged, as Professor Riesser tells us, "to occupy 
 in the national economy the place held by the maid of aU-work 
 in the private household, . . . and to take upon themselves all or 
 nearly all the tasks which in England are apportioned as a rule, 
 under a strict division of labour," among numerous financial 
 agencies^. 
 
 i This quotation from p. 220 of the translation, issued by the American 
 National Monetary Commission in 19 1 1 , of Dr Riesser's Die deutschen Orosshankcn 
 und ihre Konzenlralion, is the starting point of a long and weighty argument 
 that the form taken by Germany's organization of banking was first, an in- 
 evitable consequence of her conditions; and, secondly, on the whole superior 
 to the British system, the claims of which had been strongly urged by the 
 late Adolf Wagner and others. Dr Riesser seems to be mistaken in holding that 
 system responsible (pp. 557 and 848) for the great number of failures recorded 
 in the history of British banks. There have been comparatively few failures of 
 considerable joint stock banks in England; and those few were almost without 
 excepUun caused by flagrant violations of the principles of tlia present system. 
 
342 BUSINESS ORGANIZATION: ITS FINANCIAL BASIS 
 
 11,11,4. A ciiief part of their work consisted in granting short-term 
 credits, such as have been given in one form or another to 
 business men by almost every sort of bank: but the credits had 
 to be renewed, and gradually were merged in long-term credits; 
 and these in their turn developed into the issue of shares and 
 bonds. "By such an issue the connection between the banks. . . 
 and industrial production is drawn so tight that they are there- 
 after joined 'for better or worse.' Sooner or later this connection 
 finds further expression in the appointment of members of the 
 bank directorate to the supervisory council of industrial enter- 
 prises This practice is virtually caused by the necessity for 
 
 the banks to maintain the influence, which they have gained 
 
 through the issue, and to retain such permanent control 
 
 Conversely 'captains of industry' are appointed as members of 
 the supervisory councils of banks; where as a rule they have 
 much less influence than the representatives of banks in the 
 management of industrial companies^." 
 
 The German great banks are, as a rule, remarkably well 
 managed. But they are also inclined to ventures which have 
 something of American boldness: and some good judges think 
 that they are inclined to venture beyond their strength; especi- 
 aUy by carrying to excess the locking up of their capital in loans, 
 which cannot be called in under grave emergency. It is however 
 claimed that their intimate association with large industrial 
 movements keeps them alert: that they earn a higher rate 
 of interest on their advances and can pay higher interest 
 to their depositors than they otherwise could; and that they 
 can in some cases undertake the flotation of new securities 
 at lower charges than would be required by English financial 
 houses^. 
 
 No doubt there were very many disgraceful failures of private English banks, 
 when the Bank of England's monopoly of a joint stock constitution waa still iu 
 force : for that monopoly deterred many responsible people from taking part in 
 banking; and it gave an indirect premium to petty traders who opened " banks" 
 without system and without resource. 
 
 ' Eiesser, l.c pp. 336 — 7. He gives a long table of representatives of banks 
 or industrial companies ; a point to which we must return in Book III. 
 
 ' Some highly coloured, but instructive, observations on Germany's banks, 
 her study of markets, and her commercial penetration, wiU be found in Prof. 
 Hauser's Oermany's commercial grip of the world. 
 
 The Social Verein published a remarkable set of monographs on the dis- 
 
RELATIONS OF GERMAN AND AMERICAN BANKS TO BUSINESS 343 
 
 The consolidation of banks proceeds apace in Germany, as ii, ix, 4. 
 in England. Its motives are partly the same: they include 
 economy in the transmission business, and in the keeping of cash 
 reserves; together with a greater independence of the varying 
 fortunes and activities of particular fields of investment. But 
 in addition, a German bank consolidation has generally some 
 connection with the needs and opportunities of some industry in 
 which one or more of the banks concerned has a special interest. 
 Thus the power of the High-finance, embodied in the great 
 banks of Germany, is becoming an imperiutn in imperio. It is 
 fostering carteUization in every branch of industry, and in this 
 and other ways it is helping the commercial element to obtain 
 the upper hand over the constructive, faster perhaps in Germany 
 than anywhere else: but more of this later on^. 
 
 turbances in German business {Storungen in deutschen Wirlhschaftaleben) at the 
 turn of the century; and one of these relating to the influence of the great banks, 
 by Dr Ernest Loeb, brought out the facts that most of the banks took what 
 proved to be too optimistic a view of the situation in 1899; but that the older 
 banks were generaDy more cautious than their newer rivals, and especially than 
 those which had recently increased their capital very fast (Schriften, No. 110, 
 p. 313). 
 
 ' Herr Calwer, who is friendly towards carteUization, frequently calls 
 attention to the influence which the banks have exerted in promoting it. And 
 yet he complains, Handel und Wandel, 1900, p. 155, that great banks arrive 
 at mutual understandings which enable them to regulate prices in the money 
 market very much as an ordinary cartel does in the market for its own special 
 wares. "Berlin High-finance unquestionably dominates the most representative 
 and the largest businesses in every branch of production." He gives the titles 
 of the chief of the 350 large industrial companies in which one or other of seven 
 banks named by him has a seat on the directorate. This matter is discussed 
 from another point of view below, pp. 566 — 570. 
 
 The position that a country, poorly supplied with capital, is almost compelled 
 to look to its banks for aid in speculative business; but that Germany has 
 reached a stage at which some of her banks might with advantage devote them- 
 selves more exclusively to the narrower affairs of deposit and transmittance, is 
 taken by Dr Adolf Weber, Depositenbanken und Speculationsbanhen. 
 
 It is however noteworthy that in Silesia the iron and steel industries 
 are in the hands of wealthy families, who dominate the banks; and that 
 even in Westphalia, where expansion has been more rapid, the chief indus- 
 trialists are becoming independent of the banks. Prof. Schumacher (in 
 Schmoller's Jahrbuch for 1906) notes this, and attributes it in part to the fact 
 that few bank officials have been found capable of conducting large enter- 
 prises. 
 
 This picture of course relates to conditions antecedent to the great war. The 
 changes in it, which may result from the destruction of capital and other 
 influences of the war, are not to be foreseen. 
 
344 BUSINESS ORGANIZATION: ITS FINANCIAL BASIS 
 
 II, IX, 4. Passing to the United States, we find the concentrated force 
 of capital even more striking there than in Germany. But its 
 organization has been less bureaucratic, less symmetrical, and 
 more fitful in its action. According to common repute, there is 
 no set of bankers and banking officials that is shrewder, more 
 alert, or more generally capable than those of New York: but 
 the banking system, as a whole, has lacked something of that 
 symmetry and caution, and perhaps also that restraining in- 
 fluence of public opinion, which older banking systems have 
 derived from their slow growth and their respect for traditions. 
 Traditions indeed are to-day little better than fetters in some 
 branches of business: but they are supports rather than fetters 
 in banking; where the welfare of all requires imperatively that 
 the enterprise of each should take account of considerations 
 other than those enforced by the letter of the law, and his own 
 immediate profit. The absence of such traditions has been 
 emphasized by the predominating power in American finance, 
 exercised by a relatively small group of men, who have com- 
 bined the ownership of vast wealth with the ambition to show a 
 Napoleonic faculty in its use. They have owned some private 
 banks, which take a leading part in great financial operations; 
 and they have controlled some large joint stock banks. But the 
 greater part of their fortunes has been acquired by constructive 
 and strategic faculties; which have been applied to railways, 
 to mining, or to manufacture, or to all combined. The peculiar 
 conditions of American business and finance caused at one time 
 some anxiety lest an implicit "trust" or combination of financiers 
 shoxild dominate the business of the country: that fear seems 
 to have been definitely laid by the great Federal Eeserve Act of 
 19131. 
 
 That Act aims at preserving the full freedom of enterpriae of all classes of 
 banks, in so far as their action does not indirectly make for general instability 
 of credit: and at keeping only suoli control over them, aa is necessary for 
 combining a solid basis of the currency with adequate elasticity in times of 
 need. This control is to be exercised in the main by the Federal Reserve Board; 
 which is so constituted as to secure in explicit terms recognition of that supreme 
 obligation of the banking community to the general business community. 
 This has been in effect, though not in form, obtained by the predominance of 
 representatives of general business on the Board of Directors of the Bank of 
 England: the influence of Government is however greater and more direct 
 
RELATIONS OF GERMAN AND AMERICAN BANKS TO BUSINESS 345 
 
 But no banking reform can remove some of the dangers ii, n, 4. 
 wMcli are interent in the power of very rich men, who have not 
 retired into the quietude which is preferred by most of the 
 wealthy famiUes of old countries, but are still eager for the 
 excitements of the chase in the hunting ground of Wall Street. 
 Their power is increased by the facts that absolute control of 
 a joint stock company is given by the possession of fifty-one 
 per cent, of its stock, or sometimes even only of special issues 
 of its stock; and that, as has already been observed, when a 
 great part of the stock is held in small lots by people far 
 removed from one another, one-third or even much less of the 
 whole stock will give practically safe control. Now, if as 
 often happens, one company holds a controlling share of the 
 stock of another, then those who control the first control the 
 second: and an investment of one million in the first may give 
 control of four millions in the second, or even more. Next, the 
 changiag conditions of life are making it desirable to employ 
 companies, rather than to ask private friends, to act as trustees 
 for property: so "trust companies" (not to be confounded with 
 "trusts") have been founded for this purpose; and they, 
 together with insurance companies, hold large quantities of 
 shares in railways and industrial concerns. Now it is compara- 
 tively easy either to control these companies directly (for of 
 course their own stock is not very large); or to make terms 
 with their directors, and to command the voting power given 
 by the shares which they hold. 
 
 Last, but not least, "communities of interests" are constantly 
 created for various purposes, more or less permanent, by informal 
 agreements that the Board of Directors of each of several great 
 companies is to include some members of each of the other 
 
 in the American, than in the English, control of the gold reserve of the 
 country. 
 
 It is to be observed that the movement towards the aggregation of banks into 
 large units, each having many branches and sub-offices, which has beefti con- 
 spicuous in England and Germany, has not gone far in America. There are 
 a few powerful banks, chiefly in New York: but conditions somewhat similar 
 to those of England early in last century have promoted the growth of an 
 immense number of small local banks: and the new law, which gives some- 
 what increased security for their good guidance, seems likely to maintain a 
 notable diffusion of the minor forces of finance by the side of intense concen- 
 tration of its main forces. 
 
346 BUSINESS ORGANIZATION: ITS FINANCIAL BASIS 
 
 11.11,5. Boards: and this often acts as an intermediate stage to an 
 interchange of the holdings of the several companies. If this 
 interchange is complete, the result is in effect a fusion of the 
 companies : if it is partial, it forms a strong bond between them, 
 which is not very likely to be dissolved. Thus the total indirect 
 control, which the great capitalist groups exert, becomes very 
 extensive; insomuch that campaigns in which either side is 
 equipped with an effective voting force, amounting to several 
 scores or even hundreds of millions of dollars, are very common. 
 
 5. Suggestions that Britain's industry and trade might 
 derive material assistance from powerful and prominent 
 fnancialinstitutions, which would supplement, and cooperate 
 with, her great banks. 
 
 We now resume the consideration of the British banking 
 system. Its unrivalled efficiency in those tasks, to which its 
 chief energies are devoted, has some defects of its quahties. 
 Its general rule, that credits must be covered by handing over 
 marketable securities to the custody of the bank, is a necessary 
 condition for the maintenance of its power to meet any sudden 
 and violent call for return of funds given into its charge. But 
 this rule is relaxed in special cases: for otherwise the banking 
 system while working largely with capital placed in its custody 
 by men of but small means, would be compelled to refuse aid 
 to any whose total capital did not overflow the most urgent 
 needs of their business; except in so far as it can be obtained 
 by discounting bills, a process not always convenient. 
 
 The private banker whose life was spent in one locality was 
 able to ascertain the characters, habits, and prospects of his 
 neighbours more thoroughly than is possible for the branch- 
 manager of a great bank, who is often almost a stranger to the 
 locality: and therefore loans on "personal" credit to businesses 
 which are not strong, are perhaps rather scantier, and yet not 
 more safe, than they would be, if a considerable number of the 
 smaller private banks could hold their own. But, as Bagehot 
 argued in his epoch-making Lombard Street, 1873, the trend of 
 events has moved increasingly against them since about 1850. 
 The borrower must therefore be content with the reflection, 
 that, when he can supply the needed security, he is certain to 
 
PROPOSED ADDITIONS TO BRITAIN'S FINANCIAL EQUIPMENT 347 
 
 obtain immediately almost unlimited funds at a rather low rate ii, u, 5. 
 of interest: and thus a little evil is mingled with the great good 
 efiected by the consolidation of banking interests^. 
 
 Larger issues are now being raised by the question whether 
 this consolidation has made full use of its strength. Great 
 banks do nearly all the work that used to be done by small 
 banks, with ever increasing efficiency. But, it is asked, whether 
 they should not approach some larger tasks, which were beyond 
 the reach of smaller banks; and which, as the experience of 
 Germany and other countries has shown, are within the reach 
 of great banks. 
 
 In particular it is suggested that, in this age of rapid pro- 
 gress, attention needs to be directed to ventures that show a 
 promise of becoming strong, at least as much as to those which 
 are already strong: and that some enlargement of the scope of 
 the work of giant banks in this direction would be of public 
 service. A little may perhaps be efiected by the direct action 
 of great banks of the ordinary type: but there seems to be a 
 large and rapidly widening scope for prominent and powerful 
 financial institutions, which would be called "banks" in other 
 countries; though, to avoid misapprehension they should avoid 
 that title in Britain. For instance it seems to have been fully 
 established that prompt and strong assistance is not always to 
 be had for such inventions and other new ideas, as are in the 
 minds of men whose financial position is not already strong; 
 and who do not know their way about the City of London. In 
 Germany, on the other hand, "the pioneer would take his pro- 
 posal to one of the great banks with an Industrial department; 
 and the proposal would immediately be put before experts, 
 scientific and technical, well known to the bank and thoroughly 
 trusted who (on the assumption that the proposed business was 
 really good) would report well on it, and would he believed^." 
 
 ' The benefits of a fusion of banks already strong are perhaps greatest when 
 a bank in a residentiary district finds an outlet for the savings of its clients by 
 alliance with another, whose chief connections are with industrial districts, 
 greedy of capital. And a recent fusion of a colonial bank with a British bank 
 promises even larger advantages of the same kind. 
 
 " From a pamphlet by Mr William Olsson, a Swede who has had exceptional 
 opportunities of comparing the methods of high finance in Germany, Britain 
 and other countries. Some account of it is given in The Economist, 5 Feb. 1916. 
 
348 BUSINESS ORGANIZATION: ITS FINANCIAL BASIS 
 
 II, IX, 5. Of course work of this kind is done in London by varioua 
 financial houses: but their scientific and technical equipments 
 are not organized on as massive a scale as those of (say) the 
 Deutsche Bank. Some of them are powerful: but they do not 
 seek prominence; and the guide posts, which might point the 
 inexperienced inventor to them, are not as clear as those which 
 point to a great bank. These and other considerations have 
 led to the establishment of "The British Trade Corporation" 
 starting with an initial capital of £2,000,000. Its chief immedi- 
 ate purpose seems to be the granting of relatively long credits 
 to merchants and producers engaged in business over-seas; so 
 that they may be on equal terms with competitors, who are 
 aided by foreign, and especially by German banks. But, though 
 this be the most pressing matter at the time, the largest scope 
 for institutions similar to it, is likely to be found in connection 
 with the development of industry at home: for, if recent develop- 
 ments may be taken as true indications of the future, a great 
 part of the material plant of many industries will need to be 
 recast in each coming generation. And indeed the Prospectus 
 of the Trade Corporation points in that direction: — "There 
 exists to-day no large financial institution possessing an indus- 
 trial department or an organization for study and research into 
 new ideas and inventions, which is specially equipped to examine 
 and nurse new schemes or developments untU sufficiently proved 
 and ripe for public investment. The Corporation will make 
 this a special feature of its business, and will aim at becoming 
 a link between British industry and the British investor." 
 
 Its affairs are in such strong hands that it is not likely to 
 over-reach its strength. But so many and so large are the 
 suggestions already made for the work to be done by it, and 
 similar institutions, that their accomplishment would need the 
 locking up of capital amounting to many scores of millions of 
 pounds: therefore, these financial institutions must speed on its 
 way to the Stock Exchange many a venture which they will be 
 unable to support permanently^. 
 
 ^ The foundation of the Corporation was the chief immediate result of the 
 appointment in 1916 of a very strong Committee of the Board of Trade, with 
 Lord Faringdon in the chair. The following passages are taken from its Report — 
 "There exist to a considerable extent at the present time in this country 
 
PROPOSED ADDITIONS TO BRITAIN'S FINANCIAL EQUIPMENT 349 
 
 the machinery and facilities for the finance alike of home trade and of large II, ii, 5. 
 over-seas contracts, and for carrying through much of the business which has 
 been done by foreign banks. The British banks afford, we believe, liberal 
 accommodation to the home producer. British bankers are not shy in making 
 advances on the strength of their customers' known ability and integrity, and 
 the charges for accommodation are we believe often lower than the corresponding 
 charges in foreign countries. Similarly, the Colonial Banks and British-Foreign 
 Banks and Banking Houses render immense assistance to British trade abroad; 
 and certainly in the Far East and in many parts of South America British 
 banking facilities do not fall short of those of any other nation. We find also 
 that, in the case of large contract operations, British contractors with the assist- 
 ance of Financial Houses have in the past been ready to provide large amounts 
 of capital, and to take considerable risks in connection with the operations which 
 they have undertaken. 
 
 "Our arrangements, however, are faulty in our not co-ordinating many of 
 the facilities mentioned in the previous paragraph. We recognize also that the 
 British manufacturer may be frequently in want of finance of a kind which a 
 British Joint Stock Bank with liabilities as above described could not prudently 
 provide, whereas the German Banks in particular seem to have been able to 
 afford special assistance at the inception of undertakings of the most varied 
 description, and to have laid themselves out for stimulating their promotion and 
 for carrying them through to a successful conclusion." 
 
 "Foreign banks have, in most of their operations, adopted the course of 
 forming syndicates to undertake any business of considerable magnitude. They 
 have headed such syndicates and they have taken the labouring oar in connection 
 with investigations. The members of the syndicate have generally included 
 other banks: and associated with them have been those who were particularly 
 interested in the class of business proposed to be done. These syndicates are 
 formed after the first superficial enquiry has satisfied the banks that there is 
 apparently a good business to be done. Directly this pomt is reached, the 
 expenditure in connection with thorough investigation is on account of the 
 syndicate. If the business is ultimately proceeded with, the profits or losses on 
 the wind-up of the business are shared pro rata after allowance to the bank for 
 management. Some such procedure should be followed here. It would enable 
 the Institution to undertake business of a comprehensive character, and its 
 'imprimatur' would have value when issues were made to the pubhc." 
 
 The Report suggests also that the Institution should receive aid from Govern- 
 ment Officials; especially from Commercial Attaches and Consuls. It is further 
 suggested that each such Institution should be specialized for particular locali- 
 ties or for particular large groups of industry : also that the present great banks, 
 either collectively or in groups, should own the capital of one or more such 
 institutions; each of which should have a highly organized staff of technical 
 advisers. In that case, a business man with a new idea, but without special 
 technical or financial experience, might get advice through his own bank from 
 experts of the Corporation: and, if they reported favourably on his idea, his way 
 to needed financial aid would be made smooth. But such suggestions have to 
 run the gauntlet of much criticism and perhaps some hard experience. Expert 
 techrucal guidance on some matters can be better obtained by the associated 
 efforts of particular branches of industry, than by aid of financial institutions: 
 but this matter belongs to the end of Book III. 
 
CHAPTER X 
 
 BUSINESS ORGANIZATION. ITS TASKS AND 
 REQUIREMENTS OF FACULTY 
 
 II, X, 1. 1. The value of a machine to a business can he calcu- 
 
 lattd on the basis of its efficiency for its immediate work 
 But the value of an employee must be estimated, partly by 
 instinct, with a view to the probable development of his 
 capacities : and the difficulty of this task is increased by the 
 conditions of modern business. 
 
 Although human nature is nearly the same now as of old 
 time, while the plant and processes of almost every industry 
 have changed fundamentally more than once during the last 
 five generations; yet the problems which the head of a business 
 has to solve in relation to its personnel have changed and are 
 changing their character much more completely than those 
 which he has to solve in relation to its plant and processes, 
 except in a few industries. For his plant and his processes are 
 always under his eye; and though he must trust to second- 
 hand information in regard to many of their details, yet any 
 information that he needs is always to be had with certainty 
 and precision. On the other hand a certain and precise know- 
 ledge of the characters of employees by close contact and con- 
 tinuous observation, such as prevailed in the small workshops 
 of former times, is not to be had at all : and the head of a large 
 modern business must delegate to others nearly all responsi- 
 bility in regard to the greater number of his employees. He ia 
 indeed directly responsible for the choice of his chief subordinates: 
 he needs quick insight into character, and some power of in- 
 fluencing it; and he must exercise this insight and power largely 
 in calling to his assistance men who are possessed in various 
 degrees of like endowments. 
 
CONDITIONS OF THE EFFICIENCY OF EMPLOYEES 351 
 
 The relations of an employer to his employees generally ii x, i. 
 contain some elements which have little connection with busi- 
 ness: and, even from a merely business point of view, account is 
 to be taken of the fact that the trust, esteem and affection of 
 his stafE are a valuable business asset, of a kind which his 
 machinery cannot supply. But, for the moment, we are to watch 
 him when considering how much it is worth his while to pay a 
 certain employee, from nearly the same point of view as that 
 from which he would consider how much it is worth his while to 
 pay for the use of a certain machine. 
 
 When the master manufacturer was the leader and perhaps 
 the most skilled artisan of a workshop, assisted by a few 
 workers of various ages, his instincts had fuU opportimity for 
 putting each one to the task appropriate for him within the 
 narrow range of the shop. There was no subtle analysis of 
 character and its potentialities: but experienced instinct carried 
 far. Education by imitation began in early youth, when 
 mind and body were most plastic: and the experience of 
 rowing and other athletic exercises, has led the way towards 
 many modern improvements in school education: an hour's 
 rowing behind a first-class oar teaches more than much verbal 
 exhortation^. 
 
 For great good on the balance, but for evil in some degree, 
 the boy now remains at school tiU his susceptibility to the 
 supreme educational influence of imitation has been somewhat 
 dulled: and meanwhile the scope for boy labour in those 
 occupations, which used to afiord the most excellent training, 
 has greatly diminished, for the work is done now mainly by 
 machines. Some compensation for these losses is found in 
 the movement for technical education in continuation schools: 
 but, since those, whose example is to be followed, are relatively 
 few in a school, though they are numerous in workshops, 
 imitation in it has to yield the first place to formal instruction. 
 On the other hand the boy's general faculties are now more 
 highly developed when he comes into the workshop : and there is 
 more material to work upon in the selection of the most fitting 
 
 ' Prof. W. D. Scott, in his suggestive study of means of Increasing human 
 efficiency in business, puts the educative influence of imitation into the fore- 
 ground. 
 
352 BUSINESS ORGANIZATION: THE PERSONAL ELEMENT 
 
 11,1,1. task for liim. In businesses of small, and even of medium 
 size, each employee can be to a certain extent treated as an 
 individual human being: his strong points and his weak 
 points are known; and his latent efficiency may be evoked 
 by a word or two of authoritative advice on one occasion, 
 and a tentative change in his work on another. The methods 
 of school education have improved greatly, and tend increasingly 
 to strengthen the children's minds. But to this general state- 
 ment there is one deplorable exception in English-speaking 
 countries. In learning by rote the vagaries of English spelling, 
 as misleading historically as they are tedious in practice, no con- 
 structive faculty is strengthened. A rational system of spelling 
 might set the equivalent of at least a year's work in elementary 
 schools free for drawing, and for studies of nature: these would 
 sow germs of the faculties of observation and reasoning; and 
 thus prepare the mind in elastic youth for the work and re- 
 sponsibilities of after life. The divergence of pronunciation 
 from spelling presses on all classes of the population: but it is 
 most oppressive to those classes whose school-term is shorfc^. 
 
 As a rule, there is no one in a large business who has at 
 once the authority, the opportunity and the interest that might 
 empower and impel him to make a careful study of the abihties 
 and aptitudes of each employee in the lower grades; to direct 
 those abilities and aptitudes to their most appropriate work and 
 educate them in it. Foremen and other subordinate officials 
 have some interest in getting the most work that they can out 
 of each man as he is; but they seldom take account of what he 
 might possibly become. This is one cause of a certain tendency 
 on the part of the less energetic members of a trade union to 
 press for a somewhat high standard of pay for an amount of 
 work, that is far below the maximum which they can easily 
 
 • Of course it would need to be framed by a convention of men of high 
 philological and educational authority, appointed by the Governments of English- 
 speaking countries. It would not aim at forcing the written language into 
 exact conformity with any one variety of the spoken: but it would seek a mean 
 position, that represented fairly well the common usage of the English-speaking 
 world : and a spoken language, in ever closer correspondence with the new written 
 language, would in the course of a generation become the general language 
 of international intercourse. The notion that existing spelling haa a sound 
 historical basis ia of course erroneous. 
 
CONDITIONS OF THE EFFICIENCY OF EMPLOYEES 353 
 
 accomplish; and to be relatively indifEerent to a prospect of high ii, x, i. 
 rewards for enlarged efficiency. 
 
 Increasing attention is being paid to this evil by far-seeing 
 and public-spirited men in control of large establishments. 
 Some of them make it a rule that failure to succeed in one kind 
 of work shall not be taken as ground for dismissing a willing 
 worker; and that he shall first be tried in work of other kinds. 
 "By such shifting the right place can often be found for him. 
 Young people, to whom in spite of long trial and the best will 
 it seems impossible to supply certain automatic machines, 
 become excellent workers at much more difficult labour in the 
 same establishment. Women, who are apparently careless and 
 inattentive when they have to distribute their attention over 
 a number of operations, do high-class work when they are 
 engaged in a single activity; and in other cases the opposite is 
 reported." But as things are the operative who is a failure at 
 one task, seldom has any opportunity for showing his strength 
 in other work: he is simply dismissed, and his fate in his next 
 employment may be no better^. 
 
 Again there are some exceptional works in which the 
 standard of intelligence required of nearly all the operatives 
 is so high, that labour becomes an education. A splendid 
 instance of this is the Zeiss glass works, which, under the noble 
 guidance of Abbe, steadfastly pursued ideal perfection in manu- 
 facture, secure in the confidence that good work would bring 
 adequate profits. He knew that "in order that an article may 
 really excel, it nu^st be the outcome of thorough theoretical 
 knowledge, combined with great technical skill"; that is, when 
 "everyone participating in the manufacture devotes his whole 
 experience, intelligence, and time solely to the production of 
 this one article." But he "recognized that even this principle 
 of the subdivision of labour has its limits." 
 
 For he gradually foimd that, while the works were making 
 nothing but microscopes, "the worker suffering from the mono- 
 
 ' Something may be accomplished by direct applications of science. But 
 from the time of Owen down to that of yet living leaders of industry, sucn as 
 those whose endeavours and aoliievements are recorded in Meakin's Model 
 Factories and Villages, the chief pioneers of progress have been plain men, 
 whose enthusiasm and ardent sympathy have been guided oniy by instinct and 
 business judgment. 
 
354 BUSINESS ORGANIZATION: THE PERSONAL ELEMENT 
 
 II, X, 2. tony of always having to work in the same groove whether 
 with the hand or brain, has his mental vision thereby dulled 
 for anything situated beyond his own narrow horizon, and 
 loses the power of utilizing at the right moment for his own 
 particular purpose, anything lying a little beyond his ordinary 
 everyday path." So, true to the proverb "to rest is to rust," he 
 multiplied the products of the works, and let in fresh air past 
 the barriers of monotony^. 
 
 But in spite of such broad movements, the large majority of 
 employers and their officers are still apt to keep philanthropy 
 and business in different compartments of their minds: partly 
 because, though the aggregate profits of business are large, 
 they are a diminishing percentage on outlay. In some imiform 
 industries this percentage is very low; and it might indeed be 
 wiped out by a comparatively small increase in outlay, unless 
 it was in some degree remunerative from the purely business 
 point of view. This consideration suggests the great social 
 importance of evidence that has recently been collected to the 
 efiect that much of that care for employees, which has been 
 prompted in the past mainly by altruistic motives, is com- 
 mercially profitable. 
 
 2. Faculties needed hy the head of a large business; and 
 by its chief officials. 
 
 The following observations are .so worded, for the sake of 
 simplicity, as to apply specially to the case of a business, owned 
 and controlled by a single individual: they imply throughout 
 the possibility of maintaining unity of purpose and continuity 
 of policy. They apply to a company, the "head" of which is a 
 Board; provided either tradition or the predominance of a single 
 masterful mind and wiU enables the Board to act coherently, in 
 spite of some divergence of temperament and interest among its 
 members. 
 
 The tasks of the head of a large business are heavier than 
 those of a small one, and yet they may be fewer in number. For 
 
 * The German proverb ia "Sast ich, so rosl ich" % but hia work was not 
 complete till he had shortened the houra of labour and made other provision 
 for the rest, which ia recuperative and develops energy, under the variant 
 proverb " Rasl ich, so rilst ich"; i.e. "To rest is to prepare" (Auerbaoh, The 
 Zeiss Works, pp. 5, 6, and 113). 
 
RELATIONS OF HEAD OP LARGE BUSINESS TO CHIEF OFFICIALS 355 
 
 he must delegate multitudinous business details to others : and ii, x, 2. 
 the details even of a small business are generally more numerous 
 than the broad problems of a large one. He is primarily re- 
 sponsible for the general plan of the business: but second in 
 importance only to that is his selection and quiet control of 
 officials who are responsible for details. In a very large business 
 he may indeed delegate the greater part even of that responsi- 
 bility to chief officials : but he bears the weighty task of reading 
 the characters of strong men: and therefore he must be very 
 strong. Meanwhile the study of the organization and policy of 
 his business is likely to require a larger originality, and a wider 
 outlook than are needed for similar tasks in a business of medium 
 size. Let us go into some details. 
 
 An adequate supply of capital being assumed, the chief re- 
 quisites of the head of a considerable business may be classed aa 
 (a) judgment, prudence, enterprise, and fortitude in undertaking 
 and carrying risks: (6) an alert acquaintance with appropriate 
 technique; and some power of initiating advance: (c) a high 
 power of organization; in which system plays a great part, but 
 "always as a servant, never as a master": (d) a power of reading 
 character in subordinates; together with resolution, tact, trust 
 and sympathy in handling them: (e) prompt diligence in assign- 
 ing to each the highest work of which he is capable, or can be 
 made capable within a moderate time. All these qualities are 
 needed in the head of a business of even moderate size: and, if 
 it is to be thoroughly well administered, all of them are required 
 more or less in its chief officials; for the head cannot be directly 
 in touch with details. He needs men immediately under him 
 who would be capable heads of small businesses: but their tasks 
 are lighter than his, because the range of the responsibilities of 
 each of them is narrower than his. He must hold aU depart- 
 ments in view; partly because he needs frequently to revise his 
 estimate of the energy, ability and integrity of each departmental 
 chief; but mainly because the changing courses of industry and 
 trade require continual alert watching of the mutual relations 
 and proportions of the various departments of the business. 
 This task belongs to the head alone: it cannot be delegated; 
 though work preparatory to it is often shared out among several 
 directors of a joint stock company, and even among trusted 
 
356 BUSINESS ORGANIZATION: THE PERSONAL ELEMENT 
 
 II, i, 3. chief officers of large businesses generally. In the case of a giant 
 business the responsibUitiea of the chiefs of particular estabUsh- 
 ments, and even of particular departments of one establishment, 
 may be as heavy, and almost as wide-spreading, as those of the 
 head of an independent business of moderate size: though some 
 large questions of organization, and nearly all large questions of 
 finance will be ultimately determined by the head of the whole 
 business. 
 
 3. The education of business faculty. 
 
 As will be argued presently, constructive genius of the highest 
 kind seldom owes much to education: but, with that exception, 
 all orders of business ability may be fostered by appropriate 
 preparation in early years. The circumstances, which have im- 
 paired the forces of British education in past times, have already 
 been indicated^. But a little may fitly be said here as to the 
 functions of education in promoting the alertness, sense of pro- 
 portion, and strength of reasoning which are required in business. 
 
 The main point is that the chief function of education is to 
 "educate" faculties, that is to bring them out and develop them. 
 A great part of the instruction, given in most schools and many 
 universities, imparts information, with scarcely any education in 
 the true sense of the term : much of it even tends to hinder the 
 movements of faculty by clogging it with inert matter. For 
 indeed a man, whose own mind is stagnant, can impart know- 
 ledge without efiort : but the education of faculty is a task which 
 calls for vitality and initiative on the part of the educator. 
 Therefore paths of least resistance have commonly been sought 
 in many classes of schools, especially where the teachers have 
 been few in number relatively to the pupils; and even to some 
 extent in universities. But continuous description and explana- 
 tion tend to deaden the minds of the hearers; and should not 
 find place in oral instruction except for some urgent reason^. 
 
 1 Above, pp. 95—99. 
 
 ' Injury is done by the continuous reading aloud of matter, whioh could con- 
 veniently be printed, and is perhaps already accessible in good text-books. The 
 students should be required to read such books; and any explanation given in 
 lecture should be supplemented by occasional questions pointing towards the 
 next step in description, in explanation, and above all in reasoning. There ia 
 something to be said for a plan, under which the lecturer prepares beforehand 
 
THE EDUCATION OF BUSINESS FACULTY 357 
 
 The higher branches of education in America lagged for some ii, x, 3. 
 time a little behind the best European methods : but their rapid 
 advance in recent times has brought them into the first rank, at 
 all events in those studies which look towards the future rather 
 than the past: and Britain may profit much by some of her 
 suggestions. The character of the German people differs from 
 that of Americans and Britons. It has more patience and steady 
 assiduity; so that methodical, orderly procedure in school and 
 college has peculiar attractions for them. The splendid organi- 
 zation of their Real schools and colleges, devoted to the direct 
 preparation of youths for the practical work of after life, is 
 specially suitable to their temperament: and any danger to 
 intellectual individuality, which it might threaten, is in great 
 measure warded off by the abimdance of their Universities, in 
 which high ideals of study are maintained. But Britain's Uni- 
 versities are still rather few: and, partly for that reason, the 
 new desire for education, as a source of strength in industry and 
 trade, might conceivably be turned to but indifferent account, 
 if German Real education were too closely followed. Fortunately 
 however the last few years have seen an increasing tendency on 
 the part of the British Government and people to seek in such 
 matters the counsel of leaders of scientific study: and in that 
 tendency there is safety^. 
 
 sufiSoiently to require to use only a few notes as guide-posts: he then thinks the 
 matter out as he goes, and gets his class to think with him. If he strays into an 
 unpremeditated illustration or inference; the class, seeing the effort of his mind, 
 and stimulated to work with it, will have their strength brought out more in a few 
 minutes than it would be in an hour in which information is loaded into their 
 minds as goods are loaded into trucks. If they seem bent on passive entries into 
 note-books, they may be forced into an active and even critical attitude, by 
 the quiet insertion of an inaccurate statement, or invalid argument, into the 
 lecture; and by questions being asked about it. 
 
 The importance of developing power, rather than knowledge, is well urged 
 by President Hadley, The Education of the American Citizen, pp. 175 — 190. 
 
 ' A notable article on education for business men ( Unternehmer), in Schmol- 
 ler'fl Jahrbuch, 1916, complains however that German Universities themselves 
 devote too much attention to preparing those, who aim at employment under 
 Government, for official examinations. The writer insists that the education 
 of business men should be more free; and bring them more into contact with 
 those whose minds and associations are less distinctively official: it should 
 include some study of economic science. The subjects of this Section are con- 
 sidered further in Appendix K. 
 
358 BUSINESS ORGANIZATION: THE PERSONAL ELEMENT 
 
 II X 4. 4. In periods of economic reconstruction there is an 
 urgent demand for creative faculty ; and those who come 
 to the front, seldom owe much to any formal preparation 
 for their worlc. 
 
 "The poet is born not made." The original meaning of the 
 word jioet is "a man who creates": and it is a commonplace in 
 University life, that while the merely able man's success depends 
 greatly on the teachers into whose hands he has fallen, the man 
 of genius is fashioned mainly by himseK. In like manner it 
 seems to be true that the man, who proves to be endowed with 
 business genius, has seldom owed very much to formal education. 
 The peculiarity of his mind does not lie in the power of doing 
 any one thing in particular. He penetrates quickly to the root 
 of each of the many conditions of success in the attainment of 
 a proposed practical end: he coordinates them, moulding and 
 combining them anew. He formulates large schemes of opera- 
 tions, measuring their risks, and facing steadily those which his 
 judgment approves. He may not have the faculties needed for 
 scientific research, or even for highly specialized invention: even 
 if he has them, he can hardly give them full exercise without 
 blunting the edge of his energy in that work which bears most 
 directly on his immediate end. But he watches all new thoughts 
 and inventions which point to that end; and he is quick to 
 adapt them, or to cause them to be adapted, for his special 
 uses. These considerations were most strikingly illustrated by 
 American industry in the phase in which it was about a genera- 
 tion ago. 
 
 But the earlier history of British industries was on similar 
 lines; for, as we have seen, the leaders of those industries in 
 the last quarter of the eighteenth and the first quarter of the 
 nineteenth centuries were mostly rugged men, with a much 
 narrower outlook than that of most of the later leaders of 
 American industry; but with like self-reliant, self-contained 
 characters. A bold, vigorous use of the newest machinery and 
 methods put them for a time beyond the range of competition 
 by those, who were much occupied with careful attention to 
 details and the teachings of long experience. The stream oi 
 inventions never slackened; but yet, when the main outlines 
 
THE HIGHEST CREATIVE FACULT? DEVELOPS ITSELF 359 
 
 of the new methods were fairly settled, machines with the ii, x,4. 
 last improvement but one could hold their own fairly well. 
 From that time forward strong self-reliant energy lost some of 
 its importance relatively to a sedulous care for detail; and 
 also to careful account-keeping and other irksome matters, in 
 which organized experience is more serviceable than quick 
 flashes of individual initiative. Consequently, before businesses 
 began to fall largely under Joint Stock ownership, they again 
 became hereditary. The son of a manufacturer profited by 
 traditions as to things, methods and persons handed down to 
 his father; and a youth who rose from the ranks into business 
 had to overcome more difficulties on his way than during times 
 of revolutionary changfe. 
 
 Those who held the chief places in American industry at the 
 end of the nineteenth century, had lived through a period of 
 transformation similar to that which British industry had 
 undergone several generations earlier. Thus, as already noted, 
 Mr Carnegie sets out a long array of leading industrial businesses, 
 which have been founded in America during the last two 
 generations by mechanics, clerks and office boys; and of great 
 commercial houses that have been founded by clerks and office 
 boys: but he can make only a short list of those which have 
 been founded by men whose early lives were spent under easy 
 conditions^. 
 
 • He concludes: "Neither capital, nor influence, nor college learning, nor 
 all combined have proved able to contend in business successfully against the 
 energy and indomitable will which spring from all-conquering poverty." He 
 lays stress on the fact that an alert office boy has opportunities for reading the 
 characters of all conditions of men; while the lad who lives at home, at school 
 and in college till he is twenty-two is often brought into direct contact with only 
 one thin stratum of human character. Mr J. D. Rockefeller's account in his 
 Seminiscences of the education, which he got by keeping his ears open while doing 
 menial work in the office of a small business, is very illuminating. It is however 
 to be remembered that the percentage of the mechanics, clerks, office boys and 
 others, who have used these advantages as ladders, by which to climb to the 
 highest posts of business, is not very great : it may be less than that of the college 
 lads who have turned their connection with business to good account. 
 
 Mr Archbold, a vice-president of the Standard Oil Company, ascribes 
 Mr Rockefeller's success to the marvellous "power of control" by which he 
 "can so draw together the best men in mechanics, in executive work, in buying 
 and selling, that they work as a unit." 
 
 Mr Gates, who ultimately became a chief leader of the iron and steel in- 
 dustry, was put into a responsible position, though without any experience in 
 
360 BUSINESS ORGANIZATION: THE PERSONAL ELEMENT 
 
 II, 1, 5. 5. The increasing scope for trained faculty and 
 methodical organization of detail in industry and trade. 
 
 Opportunities for economic reconstruction, offered by the 
 opening out of unknown Continents and of new communications 
 between old Continents, belong in great measure to the past. 
 And, though it is true that the industrial evolution caused by 
 the advance of technique during the last few decades has been 
 much more rapid than at any other time; yet the leading char- 
 acteristic of modern advance is its increasing dependence on 
 faculties and aptitudes that need to be developed by patient 
 study, if not by some sort of academic discipline. 
 
 Even on the side of business speculation we find that 
 individual initiative is being in some measure supplanted by 
 agencies, which give great scope to alert diligence combined 
 with moderate natural ability and resource. The ordinary 
 newspaper press and special trade journals now supply at a 
 nominal cost detailed information on nearly every aSair, in 
 which a business man is interested; and he can supplement 
 it more quickly than formerly by confidential information as 
 to any matter of private interest. He can, if he will, know all 
 that is happening at home and abroad in regard to things in 
 which he is interested as buyer or seller; what new sources 
 of supply are being opened up; what new demands are growing 
 and which of them are likely to be permanent; what new 
 technique is being tried, and how the trials are going: what new 
 uses of by-products are being developed; and what progress 
 is being made by industries cognate to his own, on which its 
 progress may largely depend. In these and other ways the 
 new age gives ever increasing opportunities to the business 
 man to strengthen his enterprise by making good use of in- 
 formation, which is generally accessible, but yet cannot be 
 
 business, because Mr Rockefeller had observed that he showed capacity in his 
 work for the Baptist Education Society: and later on, Mr Gates appointed 
 Mr Bowers, "an honest, enterprising, keen and thrifty man," but one without 
 any experience in the management of shipping, to control the company's fleet 
 of lake steamers. The splendid career of the electrical works of Siemens and 
 Halske owed much to the decision of Halske to call to his aid the artillery 
 oflBcer Wiener Siemens, who had then no knowledge of the business. And 
 the Zeiss works profited in like manner by annexing the University professor 
 Abb6. 
 
INCREASING SCOPE FOR ALERT TRAINED FACULTY 361 
 
 turned to account without some mental efiort; and if he does n, x, 5. 
 not avail himself of them, he must make way for more alert 
 competitors. 
 
 Moreover the man whose originating ability, though con- 
 siderable, is not of the first order, must depend largely on a 
 careful study of the best results that have been attained by 
 others. For otherwise he may be outpaced by those who have 
 scarcely any high initiative, but can bring to bear on their 
 work a sound trained faculty in thinking clearly; and who have 
 learnt under good guidance how to turn to account the multi- 
 tudinous knowledge, which modern resources place at the 
 disposal of those who seek them rightly. This training is not 
 necessary for the man of high natural genius: he is eager for 
 work in which his great strength tells, and has too much self- 
 respect to refuse helpful guidance from any source: but a man 
 of less exceptional ability, whose mind and character have not 
 been disciplined, is apt to humour a false pride by a partiality 
 for his own devices. Thus America, while following the lead of 
 Germany in the subtler technical applications of science, is 
 pioneering applications of a broad University training in the 
 conduct of business. As Mr Carnegie says: — "the trained 
 mechanic of the past, who has hitherto carried off most of the 
 honours in our industrial works, is now to meet a rival in the 
 scientifically educated youth, who wiU push him very hard 
 
 indeed The mechanic is disposed to adopt narrow views of 
 
 affairs, for he is generally well up in years before he comes into 
 power; while the scientifically trained boy has no prejudices, 
 and goes in for the latest invention or newest method, no matter 
 if another has discovered it^." 
 
 ' There is much helpful suggestion in the contrasts drawn by Dr Youngman, 
 Economic causes of great fortunes, between the origin of representative fortunes 
 in three stages of American history, viz. (1) John Jacob Astor's many sided 
 work, on lines not very different from those of the eighteenth century; (2) the 
 powerful, if often malignant. Stock Exchange speculations of Jay Gould; and 
 (3) the even stronger building up of "group fortunes" by quiet incessant, 
 financial operations, not always above criticism from the social point of view; 
 but in which "constructive speculation" has predominated on the whole. His 
 study points to the conclusion that there is no one route by which even any 
 one great fortune has been reached; and that versatility, as well as imagination, 
 judgment and assiduity have been conspicuous in the making of every sort of 
 great fortune. See also Dr Watkins' The growth of great fortunes. 
 
 12—5 
 
362 BUSINESS ORGANIZATION: THE PERSONAL ELEMENT 
 
 II, X, 6. 6. The organizing faculty of a masterful mind can 
 sometimes make itself felt over the whole of a large business, 
 even when owned in joint stocJc; largely through its influence 
 on well-chosen chiefs of departments. 
 
 The position of an able man, conducting a business which he 
 owns, is very strong in industries in which almost the maximum 
 of efficiency can be attained by a comparatively small capital; 
 which are constantly changing their form; which require restless 
 care and initiative; and in which the selection of the right man 
 for any post of responsibility is too critical and difficult a task 
 to be performed adequately by salaried officials. 
 
 A business owned by one man seldom offers scope for quite 
 the highest forms of organization. But under modem con- 
 ditions, and especially in the New World, a man of ezceptional 
 genius may build up so large a business, while he is still in 
 the prime of life, that it becomes an organic whole, more 
 complete, more carefully organized, and more efficient than any 
 which could have been created, before steam and electricity and 
 large mobile stocks of capital had quickened the growth of 
 great enterprises. All its various departments are coordinated; 
 means are nicely adapted to ends; and human capacities are 
 adjusted by sympathetic insight to their several tasks. Only 
 a little of this harmony is sacrificed, and fresh strength is 
 generally gained, when the head of a business takes to himself 
 fitting partners; and even when the partnership is turned into 
 a joint stock company with limited liability, with the under- 
 standing that its shares are not to be put on the market, but 
 to be held by those who are actually conducting its affairs. 
 Under favourable conditions such a business may flourish for 
 many years, as is shown by much experience in England and 
 other Western countries. So long as the men who have made 
 it remain at the helm, it is likely to retain nearly all the 
 energy and resource of individual management, combined with 
 greater breadth and solidity. For such men are able to decide 
 freely each question on its merits. They can boldly invest 
 large sums in improvements, the importance of which is not 
 obvious to the onlooker, but which will bear rich fruit in 
 due time. They can throw away plant that is almost new, if 
 
FAR-RKACHINQ INFLUENCE OF A STRONG MAN 363 
 
 more efficient plant has just been invented; for they are in no ii, i, 6. 
 fear of the censure of shareholders, who cannot understand 
 either the merits of the new plant, or the conditions which 
 made the purchase of the abandoned plant reasonable at the 
 time^. 
 
 But this brings us back to the difficulty suggested at the 
 beginning of Section 2, that continuity of policy, and unity of 
 purpose are not always to be had on a Board of Directors; 
 especially in a business, which can get but little guidance from 
 tradition. In fact, a joint stock company, when exceptionally 
 progressive, generally shows the impress of an individual mind 
 and character. This is marked in the railway history of England: 
 and in America the president of a railway system of some ten 
 thousand miles, especially if he and his friends hold a consider- 
 able part of its stock, may fashion the railway, and even to 
 some extent the district which it serves, largely on his own model. 
 But after all, the main work of a railway is relatively uniform 
 and amenable to routine methods: it may flourish if that is 
 weU done, even though its minor departments are not highly 
 efficient. The difficulties of centralized administration are 
 greater in vast manufacturing undertakings^. 
 
 The creation of vast businesses involves great risks unless 
 there be good reason to expect that men competent to manage 
 them wiU be forthcoming. It is often assumed that they are 
 sure to be forthcoming: but history gives little support to this 
 belief. "There are many who can manage a million dollars, 
 few who can manage ten million, and next to none who can 
 
 ' This arrangement may be adopted in order to enable some members of a 
 partnership, or small company, to retire from active participation in the business 
 and to Unlit their risks to their holdings: — a plan which may work well if the 
 active members are strong, and the passive members give them a free hand. 
 
 ' Sometimes the inevitable difficulties of vast size are increased by making 
 provision for the heads of secondary businesses which have been absorbed in 
 order to strengthen the strategical position of a great amalgamation. 
 
 Centralized administration of railways has always owed much to the tele- 
 graphic communication which the exigencies of the traffic require to be main- 
 tained even with the smallest station. But the telephone is more efficient 
 than the telegraph in enabling the chief to read the character of his subordinates, 
 and it is lending its aid in a special degree to scattered branches of a manufactur- 
 ing business. It enables, for instance, the chief chemist to bo largely responsible 
 for the chemical side of the work of the branches: this promotes order and 
 economy in the first instance, but may weaken the character of his assistants. 
 
364 BUSINESS ORGANIZATION: THE PERSONAL ELEMENT 
 
 II, X, 6. manage fifty million. The mere work of centralized administra- 
 tion puts a tax on the brains of men who are accustomed to a 
 smaller range of duties, which very few find themselves able to 
 beari." 
 
 ' Hadley, The Education of the American Citizen, p. 42. Evidence to a 
 similar effect was given before the Industrial Commission by eminent promoters 
 of the tendency towards industrial consolidation. Mr Flint, an authority of 
 almost unrivalled experience, admitted that a consolidation, that can be worked 
 efficiently by "an intellectual giant," may be in great danger in the hands of 
 anyone else {lieport of Industrial Commission, vol. xm. p. 84). In the North 
 American Review, May, 1901, he said: "Had A. T. Stewart been a member of 
 an industrial combination at the time of his death, of which combination 
 John Wanamaker had also been a member, the business of A. T. Stewart & Co. 
 would never have declined." But this takes no account of the chance that 
 Wanamaker's full faculties might not have developed under such conditions. 
 
 Mr Schwab, who was then President of the United States Steel Corporation, 
 told the Commission that the limit of a single man's power of controlling a 
 great concern had not been reached: but he admitted that "it is a matter of the 
 greatest difficulty to-day to hire administrative ability sufficient to run a concern 
 without loss." And, so far from laying great stress on the economy of unified 
 administration in i very large business, he "was careful to throw the whole 
 responsibility for the results and the manufacture upon the subsidiary or- 
 ganizations." He thought it better in the long run to put three rollings under 
 the independent controls of three men, than to put all under that of the ablest. 
 He set the three to rival one another; and thus in effect supported the prin- 
 ciple of competition against that of monopoly. He described the U.S. Steel 
 Corporation as "largely a clearing house for information" between the presi- 
 dents of the subsidiary companies. Each is allowed to make bargains freely 
 with the others: and "each company is so interested in its own business that 
 it is hard to get them to make bargains, each wants to drive so close a bargain 
 with the other." But of course all are ultimately controlled by the power, 
 which the possession of the majority of the shares in each subsidiary company 
 gives to the central administration, of displacing at the next annual meeting 
 any director or other officer who does not fall in with the central policy; and 
 Mr Schwab told the Commission that Mr Carnegie had started by forming a 
 separate company for each branch of his business, while he himself of course 
 retained a controlling interest in each, corresponding to that which is held by 
 the central administration of the U.S. Steel Corporation: but at last Mr Carnegie 
 fused all these companies into one; because he considered it was not for the 
 good of the whole that those in (say) the coke department should have their 
 own special interests to look after, when a contract was being arranged between 
 it and (say) the steel department. (76. pp. 493, 450 — 3, and 403.) 
 
CHAPTER XI 
 
 BUSINESS ORGANIZATION: APPLICATIONS OF 
 SCIENTIFIC METHOD 
 
 1. Movements towards the general application of ii, n, i. 
 scientific metJiods in business administration ivere pioneered 
 by studies of cost-accounts. 
 
 We have seen how modern industry is compelled to make 
 increasing use of the results obtained by professional students 
 of science; and even to set up great laboratories for the intensive 
 study of particular scientific problems, which lie in the course 
 of its higher developments. We are now to consider recent 
 developments of an old tendency to apply scientific methods to 
 the organization and administration of business as a whole. The 
 tendehcy to the use of systematic analysis as an engine of 
 business, first attracted general attention as the result of dis- 
 satisfaction with the crudity of customary methods of making 
 up "cost-accounts"; that is, accounts which claim to show the 
 total charges to be attributed to each particular class of product. 
 Incidentally progress was made in the easier task of enabling the 
 accoimts of a large business to act as a substitute for the eye of 
 the master of a small business, in regard to the prevention of 
 waste. 
 
 Absolutely exact cost-accounting would of course require 
 that the path of each element of material, on its way to 
 becoming a finished product, be traced sufficiently to show how 
 much of it was embodied in the product, how much was 
 consumed in the process, and how much was wasted or 
 otherwise lost, and so on. In ordinary practice such matters 
 are of course not set out fully in the accounts; but foremen 
 and other officers are intrusted to see that material is not 
 
366 BUSINESS ORGANIZATION BY SCIENTIFIC METHOD 
 
 II, II, I. wasted, and that the operatives give a fair return for each 
 hour's wages. Such checks as are applied are commonly 
 rather general in character. Experience is trusted to show 
 about how much consumption of material, and expenditure of 
 labour is required for a given output of any kind: a certain 
 normal allowance is made for wastage; and any consider- 
 able excess can be met by a special inquiry. Also, when 
 several works in the same ownership are engaged on the same 
 process of manufacture, the supreme control can infer, from 
 a comparison of their accounts, which of them is the most 
 economically and efficiently managed: such comparisons tend 
 to strengthen large aggregations of business on a side on 
 which they are apt to be weak. For indeed the personal obser- 
 vations, and the instinctive judgments on matters of detail, 
 which are within the competency of a small master "whose eye 
 is everywhere," are chief sources of his strength. They enable 
 him with but little efEort or outlay to exercise so efiective a 
 check on sluggishness and waste, that a large business, con- 
 ducted on traditional lines, cannot attain to it even by lavish 
 expenditure^. 
 
 In a large business the vigilance of trusty officials may furnish 
 an adequate safeguard against some wastes: but there are many 
 for which no check seems possible except that furnished by 
 a comparison of written records of the various sides of each 
 transaction. This is one of the tasks of the science of accounting, 
 
 > This fact was impressed on me in one of the tours which I made formerly 
 in the manufacturing districts of England and some other countries. I may 
 record the extreme instance of the owner of a lock factory, employing some 
 thirty hands. I was directed to him as one whose goods were of high quality, 
 and commanded a price somewhat above the average. His method of working 
 without any clerks, and with but few written accounts, was instructive. His 
 materials were all under lock; and the keys were never out of his control, except 
 when he left them with his sister during his absence from home. He gave out 
 to each man from time to time such material as was appropriate ; and he knew 
 without consulting books whether the man made good use of it. He knew this 
 partly by general reasoning, and partly by observation : for in constant presence 
 among the men, he had learnt to measure narrowly the skill, diligence, judg- 
 ment and carefulness of each. He knew, without any aid from records, almost 
 exactly what each thing produced in his factory had cost him, and therefore 
 what rate of profits he was making on each class of his work : for, his work being 
 all of one kind, he could frame his estimates of indirect outlay on each task by 
 means of his knowledge of the direct outlay on it. 
 
SCIENTIFIC AIMS IN COST-ACCOUNTING 367 
 
 which has received a very high development during the last few ii, n, i. 
 generations. But its finest work is too laborious, intricate, and 
 costly to be appropriate to any but very strong businesses: and 
 in fact the check, which accountants exert on waste, has often 
 been limited to ascertaining that the entries made in a broad 
 statement of one side of the work of a business correspond to 
 those made in a similar broad statement of another side. Even 
 now they often merely apply a few broad rules, which represent 
 broad results fairly well, while making no pretence of being 
 adapted closely to the special circumstances of each individual 
 case. 
 
 Gradually however increasing attention has been paid to the 
 actual extent to which each process of production has laid under 
 contribution, directly or indirectly, the several material resources 
 and human energies belonging to the business: and, in so far as 
 this is done, opportunity is afforded for ascertaining which of its 
 elements have yielded the best results, and where there has been 
 any waste. It is for instance ascertained how much use was 
 made during the production in question of each class of plant: 
 account is taken of the cost of that plant, its wear and tear, its 
 consumption of power; and in some cases even of its liability to 
 rapid depreciation, in consequence of the dependence of the 
 demand for its services on evanescent fashions, etc. Similarly 
 the charges to be set against any particular product on account 
 of storage accommodation, and expenses of internal movement, 
 are specially examined, in cases in which these charges are 
 likely to be exceptionally light or exceptionally heavy: for it is 
 obvious that goods which occupy little space, but demand much 
 high grade labour, are easily marketed and are made of expen- 
 sive material, ought to be charged on these accounts at a low 
 rate relatively to their prime costs; while a high rate is appro- 
 priate to things which have the opposite characteristics. Again 
 an hour's work of a machine for which there is but little appro- 
 priate work must be charged more highly than that of a machine 
 which is seldom idle: machines, that do little work, are often 
 engaged on things that are not in general demand; therefore 
 sell slowly; and have high traders costs on the turnover: and 
 so on. 
 
368 BUSINESS ORGANIZATION BY SCIENTIFIC METHOD 
 
 ir, XI, 2. 2. A general view of the aims and methods of the move- 
 ment that goes by the title, "Scientific Management." 
 
 A little -while ago no one would have been likely to suggest 
 that it would be profitable to keep elaborate records of every 
 detail of the expenditure of material and labour in a factory 
 with a large and various output. But a scheme has been already 
 brought into operation on a considerable scale ia America, under 
 which it is claimed that such records are obtained as by-products 
 of a movement for applying to the mental work of business 
 those general methods of extreme subdivision and specialization 
 of labour, which have greatly increased the aggregate efficiency 
 of manual labour^. 
 
 Its chief originator was the late F. W. Taylor: it was 
 developed, with some variations from the original plan, by 
 Mr Emerson, Mr Gantt and others; and it has now a powerful 
 band of constructive advocates. It does not claim to set up 
 a science of business: tliat is not yet in sight, and perhaps it 
 is unattainable. But it has in great measure made good its 
 claim to carry the application of scientific methods to the broader 
 problems of business, much further than they had been carried 
 before. Many of its chief proposals have been applied by able 
 business men in past times, and eipecially in recent decades: 
 but it has given them such coherence, and power of progressive 
 development by aid of organized records, that it seems likely to 
 influence economic advance on many sides; even though it may 
 be found that some of its claims are pitched too high, and that 
 some others are opposed by too strong drifts of opinion and 
 sentiment, especially among British operatives, to be likely to 
 meet with general acceptance in the near future. 
 
 The present Volume is concerned chiefly with the busmess 
 point of view of industry and trade: but their human aspect 
 must be made prominent in the present chapter. For Scientific 
 Management is in the main a method of redistributing and 
 reorganizing the functions and the mutual relations of the 
 personnel of a great business, with the purpose of increasing 
 aggregate efficiency by narrowing the range of responsibility of 
 
 1 Some explanation oa thia subject is given at the end of the following 
 Section. 
 
A GENERAL VIEW OF ITS AIMS AND METHODS 369 
 
 most of its employees, and bringing careful studies to bear ii, xi, 3. 
 on tlie instructions given in regard to the simplest manual 
 operations. 
 
 The chief outward token of the new plan is the elaboration 
 of a system of cards so full, and so carefully organized that the 
 central control shall have a firm basis for arranging the details 
 of its work. Other cards, partly duplicates of cards which remain 
 with the central control, pass downwards through heads and 
 subheads of departments, and minor officials; while some reach 
 the manual operative. They cover very many details, of which 
 no record had been kept previously even in the most highly 
 organized businesses: but almost all of those details, which an 
 expert cost-accountant desires, are entered on some classes of 
 them. It is claimed for instance that the cards, issued for the 
 purpose of insuring that each department and sub-department 
 shall be always supplied with the material needed for uninter- 
 rupted work, afford automatically a basis for reckoning the 
 obligations under which a cost-accountant would need to put 
 them; and the special purposes of those obligations. Meanwhile 
 the cards, being passed from hand to hand, may discharge 
 various executive functions in all departments of the business; 
 whereas entries in ledgers, or on cards designed for exclusive 
 use in the office, have a much narrower sphere of influence^. 
 
 3. The chief responsibility for the affairs of a great 
 business in Scientific Management is intrusted to a Plan- 
 ning Department: and this, togetlier with the higher control 
 under which it worJcs, develops the organization of the busi- 
 ness according to "function" rather than "line." 
 
 Thus one main drift of Scientific Management is towards 
 concentration, combined with speciahzation of control in regard 
 to all matters that require thought and judgment: a second 
 main drift has its chief origin in studies of machine tools, and 
 of the relative efficiencies of various manual operations. The 
 
 ' Some tendency to underrate previous progress can often be noted in a 
 bold strong new venture: and models of entries in ledgers and other olfice 
 records, which seem to anticipate some cards that are prominent in the new 
 movement, may be noted in as old a book as Factory Accounts (by Garoke and 
 Fells, London, 1887). 
 
370 BUSINESS ORGANIZATION BY SCIENTIFIC METHOD 
 
 ir, XI, 3. result of the second may be epitomized in the phrase that 
 traditional methods of work, and especially of manual work, 
 are "excellent servants, but not good masters." They are the 
 heirs of the progressive experience of ages: and it would be 
 foolish to attempt to build up new methods without care for the 
 many fine and subtle indications that are latent in the old. 
 But nevertheless the promoters of Scientific Management have 
 shown some surprising instances of economy of effort, obtained 
 by the suggestions of an expert in mechanical science; and by 
 practice, working on the basis of traditional methods of manual 
 work. 
 
 These two drifts, the one towards extreme subdivision of 
 mental effort, and the other towards the bringing of specially 
 trained intelligence to bear in turning to account the traditional 
 methods of ordinary labour, have issued almost necessarily in a 
 proposal to set up a "Planning Department"; which has the 
 duty of making provision for every need of every operative who 
 will be called upon to contribute to any process of production. 
 This proposal, though not the starting point of the movement, 
 is the best starting point for a general description of its influ- 
 ence on business administration. The movement is in effect 
 a bold effort towards the progressive application of analysis, 
 observation, experiment, and reason to a class of problems 
 which have until recently been in the hands of men little 
 addicted to analysis; and in which much virgin soil awaits, 
 even in old countries, those who bring powerful methods of 
 thought to bear on it. But America offers an exceptionally 
 large scope for the movement: for her problems are newer and 
 her artisans have less set habits and traditions than those 
 of Britain, or even of Germany; and her business men, if 
 less sedulous students of science in the narrower sense of the 
 term than those of Germany, have developed a more con- 
 spicuous faculty for the application of laboratory and other 
 scientific methods to the larger problems of business adminis- 
 tration. 
 
 The movement has not escaped the danger of exaggeration 
 by enthusiastic adherents: but its chief leaders regard it as 
 a development on a large scale of certain well-known principles. 
 They urge that progress has been most rapid, where experience 
 
SYSTEMATIC PLANNING: FUNCTIONAL FOREMANSHIP 371 
 
 in bulk has been supplemented by well-considered experiments ii, xi, s. 
 in detail. They lay stress on the two facts that every business 
 has some problems of administration to solve, which are peculiar 
 to it, just as it may have occasion to use some special machines; 
 and that most of its problems have much in common with many 
 that have to be faced in other businesses^. 
 
 The exigencies of an army in the field require that com- 
 plete authority be given to every officer, commissioned or 
 non-commissioned, in regard to all doubtful matters, as to 
 which no instructions from a higher authority are available on 
 the spot. But the organization of the army as a whole, in pre- 
 paration for war and in war, is committed to a large stafi, 
 consisting of many departments, each specialized on a distract 
 function, under a supreme control. Traditionary business 
 arrangements, it is urged, foUow the order of "line organization," 
 in which each one receives all his instructions from the same 
 superior; though the exigencies of a campaign, out of which 
 this order arose, have seldom any existence in a compact busi- 
 ness, however large: "stafE" or "functional" organization is 
 more efficient under favourable conditions, such as are often 
 found in large businesses. The particular details of stafE organ- 
 ization must vary from one industry to another. But the same 
 underlying principle applies to all: and we may with advantage 
 follow Taylor in taking large engineering works as representative 
 of conditions in which the advantages of Scientific Management 
 carry furthest. 
 
 On his plan the central office under the immediate direction 
 of the head of the business (practically the old counting house 
 rearranged) deals with questions of general policy, especially in 
 regard to sales: as, e.g., what things to make for stock, what 
 
 ' Some of the adherents of the new scheme have indeed brought it under the 
 suspicion of being "top-heavy" by proposing to apply it to small businesses, 
 for which it is not designed. Perhaps there have also been some departures 
 from Taylor's position that, in its essence, the movement is one for the super- 
 session of unreasoned routine by elastic methods; to the concoction of which 
 there have gone three parts in four of analysis, the remaining fourth being 
 common sense. The thought and experience of half a generation have already 
 brought out a number of variations on the original proposal, chiefly tending to 
 soften its rigid outlines; and in particular to mitigate the severity with which 
 the personal relations between the operative and those from whom he took his 
 instructions were at first subordinated to the technical. 
 
372 BUSINESS ORGANIZATION BY SCIENTIFIC METHOD 
 
 II, 11, 3. orders have to be accepted, and so on: it procures cost-estimates 
 by aid of the lower departments, and information as to prices to 
 be obtained by sale in different markets from its agents and 
 other sources. When it has decided that a certain thing is to 
 be made in any quantity, the Engineering and Drafting room, 
 or rooms, develop their rough estimates of quantities, and 
 prepare complete working drawings. All this is according to 
 customary routine: but under Scientific Management details 
 are worked out in advance; partly in order that working "in- 
 struction cards" may be prepared for every operative. 
 
 These instruction cards represent the combined work of 
 several men in the department, each of whom has his own 
 function. One is a specialist on cutting tools, and the use of 
 sUde-rules in regard to speeds. Another knows the best and 
 quickest motions to be made in setting up the work and removing 
 it, etc. A third gives the proper time for each element of the 
 work. All these details are written on a single card^. "A ticket 
 made up in the central planning department, when combined 
 with the instruction card, serves to plan the work in advance; 
 then it is used to control the order of work by being placed on 
 
 the bulletin board On this ticket is stamped the time at 
 
 which the work begins, and when it ends. It checks off the 
 progress of the work on the route-sheet. Then it goes to the 
 accounting department, from which the man's pay is made up. 
 It is then redistributed and furnishes the labour cost of the 
 particular operation on the cost-sheet of the job. From cost- 
 sheets similar to this are summarized not only the cost on all 
 jobs, but department expenses and charges, which appear in 
 each four-week period statement^." 
 
 A little will be said in the next Section as to the nature of 
 
 ' The "instruction card," in an engineering shop, instructs "both the 
 executive bosses and the men in all the details of their work. It tells them 
 briefly the general and detail drawing to refer to; the piece number and the 
 cost order number to charge the work to; the special jigs, fixtures, or tools 
 to use; where to start each cut, the exact depth of each cut and how many 
 cuts to take; the speed and feed to be used for each cut; and the time within 
 which each operation must be finished." This description of course refers to 
 work that is not of a routine character. A few words on the card suffice in 
 regard to familiar repetition work. 
 
 * See p. 12G of the Report of a conference on Scieniific Management held in 
 1911 at the Tuck School of administration and finance. 
 
SCIENTIFIC PLANNING: FUNCTIONAL FOREMANSHIP 373 
 
 the economies of manual effort which are claimed as resulting ii, n, 3. 
 from the application of analysis, experiment and measurement 
 to common operations. Assunung these economies to be highly 
 important, the following general positions are laid down: "If 
 practicable the work of each man should be confined to the 
 
 performance of a single leading duty AU possible brain- work 
 
 should be removed from the shop and centered in the planning 
 or laying out department, leaving for the foremen and gang 
 
 bosses work strictly executive in its nature Each man must 
 
 learn how to give up his own particular way of doing things, 
 adapt his methods to the many new standards, and grow ac- 
 customed to receiving and obeying directions covering details 
 large and small, which in the past have been left to his in- 
 dividual judgment The high priced mechanic needs (even 
 
 more than the cheap labourer) the cooperation of men better 
 educated than himself in finding the laws [appropriate for guiding 
 him in his work], and then in selecting, developing and training 
 him to think in accordance with these laws^." 
 
 In the new system, as in the old, orders seldom go past 
 subordinate officers: each man receives them from someone 
 immediately above him. But, whereas the operative was under 
 the exclusive direction and influence of a single foreman for 
 nearly all purposes; imaer the new system he takes orders in 
 regard to different sides of his work from eight (or some other 
 considerable number of) specialized foremen, commonly called 
 "bosses." Each boss acts as technical guide over a rather 
 narrow area for a large number of workmen; and therefore 
 his relations to each of them are so slight and impersonal, as to 
 
 ' See Taylor, Shop Management, pp. 98 — 100 and 113; and Scientific Manage- 
 ment, p. 97. 
 
 Emerson's method differs from Taylor's mainly by maintaining "line" 
 foremanship as far as possible: his "functional" experts are relatively few; 
 and every foreman or other officer in each line has access to an appropriate 
 expert in any difficulty: the expert instructs the line officer, who passes on 
 the instruction. Time alone can decide between the two. Taylor's method 
 seems to have as yet the greater number of adherents : but yet it is said that 
 the full system of functional foremanship has seldom been installed, and when 
 installed has in some measure yielded to a return of the old military order. 
 Differences among the systems of Taylor, Gantt and Emerson, the chief leaders 
 of the movement, are implicit in their writings; and are set out in many books; 
 for instance Thompson, I.e.; Drury, Scientific Management (where there are some 
 interesting personal details); and Hoiie, Scientific Management and Labor, 
 
374 BUSINESS ORGANIZATION BY SCIENTIFIC METHOD 
 
 II, XI, 3. have little control over his general conduct. A special "shop 
 disciplinarian" is therefore invoked in case of his wrong-doing. 
 Such a system, when thoroughly set up, and worked by able 
 and enthusiastic adherents, may not improbably turn the 
 existing faculties of the operative to the best account in the 
 production of material wealth. It is not irrelevant to remark 
 that international comparative statistics show the output per 
 head in engineering industries generally to be a great deal higher 
 in America than anywhere else; though it is true that much 
 of this difference is due to her extended use of standardized 
 mechanical processes. There is a notable excess in the horse- 
 power that aids each thousand operatives in America even over 
 that which prevails in Britain^. 
 
 In so far as the cards relate to payments for labour and 
 consumption of material, they afford a direct check always 
 available against waste and other forms of leakage. In so far 
 as they can be used to show how much time of any particular 
 machine has been given to the job, they contribute to an accurate 
 estimate of the cost of each product; on the assumption that an 
 hour's work of any machine is to be charged at the same price to 
 every class of product on which it is used^. 
 
 ' The shop disciplinarian "sees that a complete record of each man's virtues 
 or defects is kept." He has much to do with readjusting wages: and he should 
 be "peace-maker" (Taylor, Shop Management, pp. 103 — i; following a lumi- 
 nous account of the functions of the seven other "bosses"). Mr C. Bertrand 
 Thompson says that "the time study and instruction methods of Scientific 
 Management have increased the output of hand operatives from 10 per cent, to 
 about 300 per cent., the majority of cases lying between 60 per cent, and 
 100 per cent." {Q. J, of E. Feb. 1915, p. 278). But he points out that these 
 results involved elaborate organization: and the expense of that organization 
 may have outweighed the savings on the cost of manual labour in some cases. 
 It may be added that the personal influence of able exponents of the new system 
 must have counted for much. 
 
 ' Parkhurst, Applied Methods of Scientific Management, goes into this 
 matter in some detail. The time clerk's card, aided with appropriate clocks, 
 shows the time which each man (known by his number) is allowed for a job; 
 also the time, during which he is to use a certain machine for it. The cost clerk's 
 sheets show all materials requisitioned from stores or outside purchase for the 
 job: and also all charges actually made for labour spent on it. "All time 
 posted on the cost sheets is distributed into a daily wage distribution book, 
 which agrees with the similar entry made daily by the time clerk, so that the 
 time card coupons from which these postings are made, are sure to agree with 
 the total on the man's time cards, as shown by the time clock. A limit of error, 
 not to exceed four hours in time, or one dollar in money, or both, is allowed to 
 
SYSTEMATIC PLANNING: FUNCTIONAL FOREMANSHIP 375 
 
 The planning department arranges that nothing shall go into ii, xi, 4. 
 store or leave it without records, so made out as to check one 
 another automatically: that material shall be ready for every 
 job, and yet not be stored in excess; that each job shall be 
 pressed forward according to its relative importance, that every 
 class of machine shall, as far as possible, be in fairly constant 
 employment; and, of course, that the total "route" traversed 
 by each product during manufacture shall be short and easy. 
 The men in the shop follow their instructions; they are not 
 required to use any forethought, or any considerable discretion^. 
 
 Probably another generation must pass before experience 
 has taught how much of this vast detail is worth what it costs: 
 and in particular how far it is expedient to use the instruction 
 cards as a basis for exact accounts of all operations and their 
 costs. No doubt the same restless genius which has brought 
 Scientific Management to its present high level of achievement 
 wiU improve it progressively; till all the more obvious criticisms 
 on its general scheme will have become obsolete*. 
 
 4. In Scientific Management it is arranged that, as 
 far as possible, each frequently recurring manual operation 
 shall be made the subject of elemental time studies, conducted 
 under favourable conditions by highly trained observers, 
 who seek guidance from the traditional practice of skilled 
 operatives. 
 
 A movement making for large change is seldom both entirely 
 new, and very important. It is not likely to be very important 
 
 go uncorrected per week" (ib. 3 G). Stress is laid on the fact that the records of 
 the stores clerk afford an exact inventory up to date, without the cost and dis- 
 turbance of periodical stock-takings (ib. 3 F and 5 A). 
 
 ' A little may be added as to the work of the route clerk. He makes out a 
 "next-work order" for each piece needed for any job: and in this he is guided 
 (subject to certain technical considerations) by the geographical conveniences of 
 the order of movement; and by the extent to which the several machines happen 
 to be busy. Information on this last point is supplied to him by the order-of- 
 work clerk. He is present at the factory board meetings, so that he may learn 
 the relative importance of the different jobs, and bring the various parts through 
 for completion in the proper time. All next- work cards are received by him; 
 and the order, in which he arranges them, decides the order in which the fore- 
 men take them out and act on them. For further details, see Taylor, Shop 
 Management, pp. 110 — 120; and Knoppel, Installing efficiency methods. 
 
 ' Influences of the movement can be traced in many directions. For instance 
 Mr SeUridge'a "Organization Chart of a twentieth century Department Store.'' 
 
376 BUSINESS ORGANIZATION BY SCIENTIFIC METHOB 
 
 II, XI, 4. unless it has its roots in broad principles of liuman or material 
 nature: sucli broad principles have often suggested ideas, 
 which have been forgotten because they were not ripe, or 
 because the time was not ripe for them. In a later age they 
 are thought out anew, and attract general attention by their 
 own strength and by the favour of circumstances. One of the 
 chief ideas of Scientific Management was worked out a consider- 
 able way by Babbage in the middle of last century; and, for 
 good reasons, he took as his chief illustration the common task 
 of shovelling earth, which Taylor was to use for the same purpose 
 later on^. 
 
 with some 4000 employees, shows seven managers of departments. Four o{ 
 these are specialized vertically on the line system. But the Managers of StaS, 
 of Systems, and of Expenses, are functional, and are responsible for particular 
 sides of the whole business. The duties of the last of these are delicate: he is 
 to make suggestions for economy wherever he can see room for it. 
 
 ' Babbage says: "In taking a comprehensive view of any subject, it is 
 very desirable to throw into the shade all its minor points: but, in estimating 
 the consequences of any set of facts, there is another condition which must be 
 fulfilled, before we can arrive at accurate conclusions. If we are about to neglect 
 a cause on account of its apparent insignificance, it ia essential that it should 
 not be one of frequent recurrence." He remarked that the weaker of two men, 
 engaged on shovelUng earth, could do more work than the stronger, provided he 
 had made a more careful study of his work, and had hit upon a better weight of 
 earth to be raised at each stroke, a better number of strokes to be made in an 
 hour; and better weights, sizes and forms for his shovel and his barrow. He 
 further argues that, "if a labourer inconsiderately lifts his shovel but an inch or 
 two more than is necessary to throw its load into his barrow, although the 
 exertion of force is trivial in each instance, its repeated occurrence during the 
 whole day will produce at its conclusion a very sensible difference either in 
 fatigue or in the amount of the work done. Napoleon is said to have remarked 
 of Laplace, when he was Minister of the Interior, that he was too much occupied 
 with considering les infiniment petites. To dwell upon small affairs, which are 
 isolated, is not the province of a statesman: but to integrate the effect of their 
 constant recurrence is worthy of the greatest." And he lays down clearly the 
 great maxim, which has guided most of the best work of students of economics 
 as of other sciences: "One of the most important processes in aU inquiry is to 
 divide the subject to be considered into as many different questions as it will 
 admit of, and then to examine each separately; or, in other words, to suppose 
 that each single cause successively varies, while all the others remain constant." 
 (See his little known. The Exposition of 1S51, pp. 3 and 4.) Mr Thompson justly 
 remarks (Scientific Management, p. G) that, though the modem movement in the 
 same direction as Babbage's thought owes nothing directly to him, yet "the 
 extension of specialization beyond manual labour to mental labour, which is at 
 the basis of the Taylor doctrines of functional foremanship and the separation 
 of planning from execution," was suggested in Babbage's well known Economy 
 of Manufactures. Reference has been made (above, p. 224) to the fundamental 
 
ELEMENTAL TIME STUDIES 377 
 
 A great deal has been learnt as to what education can do ii, xi, 4. 
 and cannot do for the workman, since Babbage proposed that 
 improvement in such methods should be sought by education: 
 the workman must "when a boy have been taught to examine 
 separately" the details of his work. More is known now than 
 then as to the extent to which a thorough education of the masses 
 of the people can contribute to industrial e£ficiency, as well as 
 to the elevation of life: but experience has also shown that 
 mere education cannot easily fit a man for such complex tasks 
 as are demanded by the leaders of Scientific Management. 
 Moreover their judgment has perhaps been a little biassed by 
 the contrast between the intellectual agility of the class and 
 race to which they belong, and the crude physical strength of 
 many of the manual workers whom they direct. They therefore 
 propose to build themselves on the foundation laid by tradition 
 and the individual intelligence of the worker, but not to make 
 great demands upon it. 
 
 Further they urge that the fallibility of tradition as a guide 
 is evidenced by the multitude, "fifty or a hundred," of traditional 
 methods of performing almost every manual operation : and that, 
 on the other hand, the fundamental accuracy of traditional 
 guidance is shown by the facts that almost all traditional methods 
 conform to the rules that rhythmical movements are physio- 
 idea of his famous chapter on "The division of [manual] labour" : his less known 
 chapter on "The division of mental labour" ends with a eulogy of the partial 
 Bystem of functional foremanship which already prevailed in mines. 
 
 Babbage and Taylor were similar in other ways. Babbage spent much of 
 his life in working on his "Differential Machine," for mathematical calculations, 
 — ^probably the most marvellous mechanism ever devised: his analysis of the 
 cost of making pins is quoted in a Report of a Committee of American Engineers, 
 1912, reprinted by C. B. Thompson, I.e. pp. 171—2. 
 
 Taylor having been impressed by the haphazard adjustments of cutting tools, 
 and the machines in which they were set to their tasks, resolved to find general 
 principles which should govern the shape of the tool; and also the relations 
 between the amount of power supplied to the driving tool, the rate of its 
 movement, the rate of feed of the material, the depth of the cut to be made 
 and so on. He claimed to have connected these elements by mathematical 
 formulae; which, when embodied in a set of four special slide-rules, will enable 
 engineering artisans to obtain at once the adjustments most suitable for any 
 particular case. His expenses during the twenty-six years spent on this task, 
 in the course of which he cut four hundred tons of metal into chips, were de- 
 frayed by ten industrial companies : and it appears that the result amply justified 
 the outlay. 
 
378 BUSINESS ORGANIZATION BY SCIENTIFIC METHOD 
 
 [1,11,4. logically advantageous; that economy of nervous stimulus is 
 attained by avoiding the use of large muscles when the work 
 can be done efficiently by small muscles; and so on. They have 
 set themselves to "induce each workman to use his best 
 endeavours, his hardest work, all his traditional knowledge, his 
 skill, his ingenuity and his goodwill — in a word, bis 'initiative,' 
 60 as to yield the largest possible return^." 
 
 These general principles can be most easily apprehended by 
 a detailed instance: and none better can be taken than that of 
 shovelling; which, as has just been said, Babbage and Taylor 
 have alike recognized as combining the advantages of familiarity, 
 definiteness, and a greater complexity of movement than is 
 generally recognized. 
 
 Two first-class shovellers in a business, that employed many, 
 were invited to work for two or three months, on the under- 
 standing that, while complying with instructions, they should 
 receive double their usual wages. A man stood over them all 
 day with a stop-watch; so as to find out how much they did in 
 a given time, with varying shovels and loads and periods of rest. 
 The bargain with them was that they were neither to hurry, nor 
 to "soldier," but just to go at their ordinary fair pace. Patient 
 experiments ultimately brought out a standard weight of twenty- 
 one pounds for each lift: a standard lifting movement in which 
 the shovel rested on the left leg, and the weight of the body 
 was thrown on the right arm so as to start the weight of the 
 shovel upwards by its own fall. Then the standard wage rate 
 per ton raised was so adjusted that a first-rate man, not one of 
 exceptional excellence, would earn when working on the new 
 method nearly two dollars; that is about half as much again as 
 had been ordinarily received in the district for shovelling work: 
 but for all that the use of the left leg as a fulcrum does not seem 
 to become general in shovelling. 
 
 After standards of the mode of handling the work, of the 
 amount done by a high-class shoveller, and of the payment for 
 it, had been thus settled; the next step was to set up an office, 
 in which three college men with their clerks and assistants, 
 
 ' See Taylor, Scientific Management, oH. n, and Munsterberg, Psychology 
 and Industrial Efficiency, also Biioher's Arbeit und Hhythmus. 
 
ELEMENTAL TIME STUDIES 379 
 
 planned the work for each of the 500 workmen employed in ii, xi, 4. 
 the business, at least one day in advance. Each man in the 
 morning got a slip of paper telling him what shovel to get from 
 the store-room, and where to begin work; while a second paper 
 told him what wage he had earned according to the new 
 standards. If that wage fell much below the standard wage, 
 a "teacher" was sent to improve his methods: if he was 
 obstinate he was dismissed: if he was weak, he was tried at 
 another job. In the result the average earnings of those who 
 remained at the work were sixty per cent, higher than those 
 of the earlier and less carefully selected group had been: but 
 the combined costs of the work and its organization had been 
 halved^. 
 
 The method of time studies is in the main unaltered when 
 a particular job in an engineering workshop is the subject of 
 experiments. An intelligent and willing artisan is selected, 
 and a specially qualified officer set to superintend him. The 
 job has been considered beforehand, and analysed into its 
 various elements. All necessary provision of appropriate 
 material, tools, etc., are ready to hand; so that he is not re- 
 quired to make any movements save those which belong 
 necessarily to the job, and is never held up for want of any 
 requisite. He is induced to work hard, but not so hard as to 
 overtire himself: for his output is wanted to be representative 
 of that which can be maintained steadily by workmen generally; 
 provided, of course, they are supplied with the same standard 
 appliances and subsidiary care, as have been prepared for him. 
 A full record is made at each observation of all details; such as 
 the sequence of operations, the tools and their adjustments, and 
 the speeds, feeds, cuts, etc., employed: these may throughout 
 follow a standard; or they may be varied from one experiment 
 to another; the times being taken in every case with a stop- 
 watch. 
 
 The superintending officer has perhaps made many such 
 studies of elementary motions or groups of motions in regard 
 
 * Further details will be found in Taylor's address to the Tuck School 
 Conference, 1912; and in his Scientific Management, pp. 65 — 77. He "had 
 never met a shovel-contractor to whom it had ever occurred that there was such 
 a thing as a science of shovelling." 
 
380 BUSINESS ORGANIZATION BY SCIENTIFIC METHOD 
 
 II, XI, 4. to similar work. He takes account of them, and of similar 
 studies recorded by others: and lie looks at the physiological 
 and psychological elements of the whole, as well as at the 
 mechanical. Thus he is able from time to time to make sug- 
 gestions for changing the method of various movements and 
 perhaps their order: and he continues to experiment till he can 
 no longer efiect any further economy of efiort^. 
 
 • When Bystematio stop-watch observations of a number of miscellaneous 
 jobs have been made, an almost incredibly large part of the workers' whole time 
 is found to be taken up with minor elementary operations, which are often but 
 little heeded; such as raising different things from floor to machine by hand or 
 crane; and again clamping with different sorts of clamps and bolts. Elemental 
 times for such actions have very wide application, not only in almost every 
 workshop, but also to many different classes of work in each. Mr Sanford 
 E. Thompson, whose investigations formed the basis of the detailed account of 
 time studies {Shop Management, 149 — 158), reports later that there are "instances 
 of data, taken in Philadelphia oil the manufacture of one type of machinery, 
 being used in Boston for the manufacture of an entirely difierent type " (Journal 
 of Political Economy, May, 1913, p. 380). 
 
 In these studies experiments are made as to the periods of rest, which are 
 found most conducive to lasting efficiency in work which puts great strain on 
 particular muscles or nerves. They sometimes extend to minute motions, too 
 small to be recorded by an ordinary watch, but yet important in the aggregate. 
 Mr Gilbreth applied to them " a motion-picture apparatus, including in the field 
 of vision a large faced clock, the rapid movements of whose hands record small 
 divisions of a second. In the back-ground is a close net- work of fine lines." The 
 result can be read with a magnifj'ing glass; so that, "even in the nimblest work, 
 an expert can detect false motions, and tell the worker which of his various woys 
 of working are the most efficient." 
 
 As might be supposed, the practical applications of this method in business 
 are more interesting than important. But it has recently proved of excellent 
 service in helping soldiers who have lost a Umb, or are otherwise crippled, to 
 do industrial work. It enables many customary motions to be eliminated, and 
 others modified; so that, for instance, a man who had lost both his arms has 
 been taught to drive a motor car safely at 100 miles an hour. (Times Engineering 
 Supplement, December, 1916.) 
 
CHAPTER XII 
 
 BUSINESS ORGANIZATION: APPLICATIONS OF 
 SCIENTIFIC METHOD, CONTINUED 
 
 1. The principles of Scientific Management lead up to ii, xn, i. 
 a careful analysis, partly on lines which have long been 
 followed in some British aiid other indust7-ies, of the notion 
 implied in the term "a standard rate of wages." A claim 
 to be worlcing towards "absolute" standards. 
 
 The problems of remuneration of labour, so far as appro- 
 priate to this work, belong to its second Volume: but there 
 seems to be an advantage in making a few observations in the 
 present place on the attitude of Scientific Management towards 
 some of them. Although the general tendency of the increase 
 of knowledge and the improvement of communications has been 
 to facilitate contracts, yet the bargaining between employer and 
 employee as to the amount of work to be done, and the wage 
 to be paid for it, has become in some respects less easy and less 
 free than formerly. An operative, who worked more strenuously 
 than was the custom, was always likely to be rebuked by his 
 shopmates. But now he is likely to be called to account at a 
 trade-union meeting, and incur grave censure: for it is argued 
 that his example will tend to make a bad precedent, from the 
 operatives' point of view, in regard to the work expected to be 
 done for a given wage throughout the district, and even beyond. 
 
 The method of payment by piece is preferred in most 
 industries by employers; and, for various reasons, it is in- 
 creasingly tolerated, and even in some industries insisted upon by 
 employees. But the spread of a uniform piece-rate throughout 
 a large district introduces a new social discord: for a fixed 
 
382 BUSINESS ORGANIZATION BY SCIENTIFIC METHOD 
 
 II, XII, 1. rate of payment for work done under varying conditions 
 yields a varying, and not a uniform, rate of remuneration for a 
 given amount of good work. In some shops the plant is the 
 best attainable; and every provision is made for the regular 
 supply to each artisan of work to be done, and of the imple- 
 ments and materials which he needs: the piece-rate required 
 to enable a man to earn good wages in them is lower than 
 in others, which are ill managed. The alert employer is there- 
 fore liable to be held to piece-rates so high as to give him Uttle 
 or no reward for his enterprise and energy: an improvement 
 which costs £100, might yield him a return of £200 if he were 
 free to lower the piece-rate to a level which enabled the same 
 wage as before, or even a little above it, to be earned by equal 
 exertions; but, if he must pay the old piece-rate, he may lose 
 nearly the whole £100. The pressure of a standard piece-rate, 
 without provision for standard conditions, hampers some of 
 the best businesses. It retards industrial progress in England 
 and some other countries; in spite of the fact that with a uniform 
 piece-rate the employer, whose plant and methods are the best, 
 can generally secure an abler and steadier set of employees than 
 the average. 
 
 America has suffered relatively little from this particular 
 evil. For her conditions change so rapidly that fixed rates of 
 any sort have seldom a very strong footing: her employers are 
 specially alert and resolute; and — the chief cause of all— the 
 workers in her great industries, being of many races and generally 
 strangers to one another, have as yet but little cohesion. These 
 same conditions have aided the endeavour of the leaders of 
 Scientific Management to introduce standard rates of remunera- 
 tion for work done under standard conditions; and to make 
 provision for increase of the payment, wherever the conditions 
 fall short of the standard set for them. 
 
 And yet the most important successes in the attainment of 
 " standard rates of pay by piece," in this the only true sense of 
 the term, have their origin in difierent and nearly opposite 
 circumstances. They are found in industries in which almost 
 precisely the same task has long been performed by many 
 thousands of workers in almost the same way. Especially in 
 the Lancashire cotton industry the standard piece-rate of wages 
 
SEARCH FOB ABSOLUTE STANDARDS 383 
 
 is a true standard rate: for experience has gradually set up ii, m, i. 
 understandings as to the allowances to be made in regard to 
 both quantity and quality of output for particular shortcomings 
 in plant, material or other elements. If an operative thinks 
 that insufficient allowance is made on these accounts in any 
 case, an official of his Trade-union is called to arbitrate, with or 
 without the presence of an official of the Employers' Federation, 
 In many cases the judgment of the Trade-union official alone 
 is accepted: if both officials are summoned, they nearly always 
 agree, and their decision is adopted without demur. This 
 standard is in no sense an "absolute" standard: it does no more 
 than to insure a fair approach to uniformity of remuneration 
 to equally efficient workers in difierent factories. The enter- 
 prising employer is rewarded for his good deeds, and so is the 
 skilful and energetic employee: there is an almost perfectly 
 level rate of real remuneration throughout each subdivision of 
 the industry. 
 
 The method is excellent within its limitations. Being based 
 on the experience of the past, it is not fuUy applicable to in- 
 dustries whose technique changes rapidly. And of course it does 
 little towards answering the questions whether the levels are 
 equitable, as between various classes of those interested, and 
 especially between employers generally and employees gene- 
 rally; and whether they are those best calculated to promote 
 himian well-being and to accelerate economic progress. The 
 only substitutes for answers that are available practically, 
 perhaps about the only substitutes for which human nature 
 is fully prepared in its present stage of evolution, are in the 
 arbitrament of conffict, actual or threatened, between the 
 organized forces of employers on the one side and employees on 
 the other: the relative strengths of these forces being influenced 
 from time to time by strategical devices, and accidental incidents. 
 But the controlling force in the background is exercised by 
 the fact, that if profits in any industry are abnormally low 
 relatively to the faculties and the capital required for working 
 it efficiently, employment will dwindle, and therefore the 
 standard of wages must come down: while conversely, if that 
 standard falls materially below the level of wages in occupations 
 of similar difficulty and strain, employers will ere long be so 
 
384 BUSINESS ORGANIZATION BY SCIENTIFIC METHOD 
 
 II, XII, 2. stinted of labour, as to have no strategical defence against a 
 strike for a rise in tiie standard. 
 
 The standard wage for each manual labour task, which 
 Scientific Management would set up, is in like manner liable 
 to be altered by changes in economic circumstances, which 
 may tend to strengthen or weaken the strategic force of em- 
 ployers and employed, whether organized or not. Nevertheless 
 the standards toward which Scientific Management is working 
 have real, though very narrowly limited, claims to be described 
 as in some degree "absolute." For, in the first place, its standard 
 rates depend in a less degree, than do those reached by older 
 methods, on specific customs relating to each particular task: 
 and, in the second place, they claim to have a foundation in 
 the mechanics of elemental movements of the human body, the 
 measurements of which have something of that aloofness from 
 irrelevant accidents, which belongs to laboratory experiments. 
 Let us look back a little. 
 
 2. Suggestions that very high efficiency of plant can he 
 obtained without overstraining the operative in charge of 
 it, by supplying him with high standard conditions ofworh, 
 and causing his remuneration for each job to increase with 
 every increase in the speed of its performance. 
 
 Scientific Management approaches the problem of remimera- 
 tion for manual labour by the reflections that time-wages give 
 no direct stimulus towards efliciency; and that piece-rate wages 
 err by yielding the same payment to two men, using similar 
 plant for the same job; though one of them has occupied his 
 plant with it for a day and a half, and the other only for a day. 
 It insists that the importance of setting up a direct connection 
 between an operative's remuneration for a job and the shortness 
 of the time daring which he keeps his plant occupied on it, grows 
 with the present rapid iacrease of the costly plant, for which he 
 is responsible. Moreover the life of many kinds of plant is beiag 
 rapidly shortened: high-grade plant is seldom worn out; its 
 power of work lasts longer than its claim to be the most efficient 
 of its kind, and the additional wear and tear caused by keeping 
 it more fully at work is almost negligible. These facts are 
 
SCIENTIFIC METHOD CLAIMS EFFICIENCY WITHOUT STRAIN 385 
 
 indeed at the base of the "Rowan" and other simple sys- il, xh, a. 
 terns of remuneration, which have already some vogue in 
 Britain^. 
 
 But Scientific Management claims that a change in the mode 
 of reckoning remuneration does not suf&ce: there is needed in 
 addition a "scientific" ascertainment of the time which the job 
 requires when performed with standard provision of accessories, 
 and by a workman of fair average ability. It therefore starts 
 each problem of standard wage fixation by arranging the con- 
 ditions of the operative's work in all details, and by so instruct- 
 ing him as to his method of work that he is able to get more 
 out of his plant, without undue efEort, than he could otherwise. 
 It sets its standard time by observation of the work of a 
 willing operative of fair, but not exceptional ability; it sets 
 the standard wage which corresponds to that standard time, 
 a good deal higher than that which the same man would get if 
 employed in the ordinary way; and finally it increases the wage 
 for the whole of his job for every diminution below the standard 
 of the time during which he detains his plant on it*. It claims 
 that standardization of the conditions and methods of work 
 secures the employer against the danger of finding himself un- 
 able to keep any promise that he may have made that the rate 
 of remuneration, when once settled, shall not be lowered, unless 
 some definite change in technique, or the auxiliaries, or the 
 general conditions of the labour market renders obsolete the 
 basis on which the standards were set up. Professor Hoxie, 
 "Investigator of Scientific Management for the United States 
 Commission on industrial relations," amassed a vast amount of 
 information on this and similar subjects from operatives and 
 
 • Diagrams illustrating the working of the schemes of remuneration on this 
 plan, proposed under Scientific Management, the Rowan scheme and others are 
 shown in A rational wages system, by Henry Atkinson; and their several prin- 
 ciples are explained by C. B. Thompson, I.e. pp. 684 — 705. 
 
 * Under the Taylor system the operative is penaUzed severely if he takes 
 more than the standard time, but rewarded highly if he takes much less. 
 Gantt and Emerson are gentler towards rather low efficiency; and not quite su 
 Hberal towards that which is high. The terms of the definition of a standard 
 wage for a standard task under standard conditions allow in effect for re- 
 consideration of the money-wage in consequence of an established change in 
 the purchasing power of money 
 
 M. I. T. 1 i 
 
386 BUSINESS OEGANIZATION BY SCIENTIFIC METHOD 
 
 II, XII, 2. employers; and he holds that this claim of employers is sub- 
 stantiated, though many others are not^. 
 
 The leaders of the movement are emphatic in their assertion 
 that " strenuousness is the opposite of efficiency": if a man is 
 tempted (save in some exceptional emergency) to be strenuous, 
 that proves that the preparation for his work has been inade- 
 quate, and not on the lines advocated by the leaders of the 
 movement. They have indeed gone beyond most other students 
 of business administration, in their sedulous applications of the 
 teachings of advanced modem physiology and psychology as to 
 the increase of efficiency which may result from appropriate 
 rest, relaxation, and amusement^. 
 
 Some opposition to the movement has arisen from the erro- 
 neous notion that it proposes to put so great a strain on the 
 worker as to exhaust him in a few years. The employer, it is 
 supposed, may find his advantage in paying strong men highly 
 for turning his expensive plant to the best account; but the wages 
 so earned will really be at the cost of their future efficiency: and 
 that cost will fall on them; for the employer wiU meanwhile 
 have filled their places by others whose fresh strength he will 
 shortly exhaust. There seems to be no good groimd for this 
 charge; though, no doubt, some unguarded phrases as to the 
 real cheapness of the exceptionally vigorous labour with which 
 the new scheme is to supply the employer are partly responsible 
 for the misunderstanding®. 
 
 It is admitted that the plant which an operative controls, is 
 to have no rest: but it is urged that the time, which under 
 otiose management he often spends in arranging for the con- 
 
 ' Hoxie, Scientific Management and Labor, p. 84. 
 
 ' They have charaoteristioally tabulated the numerical results got from n 
 study of the strain involved during every second in which a heavy weight is 
 carried: they show that in such cases, many periods of rest combined with 
 rather rapid movements during less than half the working day, gave the best 
 result. And again that when pig iron is being handled (each pig weighing 
 92 pounds) a first-class workman can only be under load 43 per cent, of the 
 day. Of course, the lighter the load, the greater the percentage of the day in 
 which activity is advantageous. 
 
 " Probably too great stress has been laid on the fact that at Bethlehem Steel 
 Works, under Mr Taylor's management, " the tasks were aU purposely made so 
 severe that not more than one out of five labourers (perhaps even a smaller 
 percentage) could keep up" {Shop Management, pp. 64 — 55): that was ezcep- 
 tional, and its example has not been followed. 
 
SCIENTIFIC METHOD CLAIMS EFFICIENCY WITHOUT STRAIN 387 
 
 tinuance of the machine's work, is to be given to keeping the il, xn, 2. 
 machine at work: his occupation is not intensified, though that 
 of his plant is: the various specialized "bosses" see to it that 
 he has nothing else to do. Strain on the worker is to be shunned 
 for business reasons, as well as humanitarian: and heavy work 
 is to be done by carefully picked men, who can do it without 
 strain. Every man is to be carefully selected as appropriate 
 for the work he is to do, whether it be heavy and suitable for 
 an "ox-like" man, or light and needing agile fingers and delicate 
 care: he is to be specially taught how to do that work: and he is 
 to do no other. The standard price for the work is to be set at 
 such a level that a willing, good, but not exceptionally able, worker 
 under standard conditions wiU earn as much as he did under 
 the old conditions; though his output is considerably lower than 
 that which emerged in the standard-making experiments. So far 
 all seems well. 
 
 But doubts begin to rise, when advocates of the new order 
 hint that no room can be found in it for any worker who is not 
 somewhat highly endowed with manual energy; that a great part 
 of the mental work, which used to be committed to operatives 
 and foremen, will be absorbed by the Planning department; and 
 that nearly aU the machines of an engineering shop may "be 
 run by men who are of smaller calibre and attainments, and are 
 therefore cheaper, than those required under the old system^." 
 They are, no doubt, justified in saying that the ordinary man 
 underrates greatly the amount and the difficulty of the work, he 
 can do under the best conditions; and that their method will pro- 
 gressively enable him to increase that work without overstraining 
 himself. But there seems to be at present no considerable body 
 of experience at the back of their sanguine expectation, that the 
 new system wiU overcome the difficulties, with which modern 
 business has to contend, in organizing the work of those operatives, 
 who are not marked out by exceptional energy and individuality 
 as specially adapted to it. 
 
 It is true that under the new system, working with the 
 freedom which is allowed to it by the special conditions of 
 America, unskilled labourers of good physique and moderate 
 
 ' Taylor, Shop Management, p. 108. 
 
388 BUSINESS ORGANIZATION BY SCIENTIFIC METHOD 
 
 II, xn, 3. natural intelligence are educated in certain narrow tasks; pushed 
 into work which used to be regarded as appropriate to skilled 
 artisans; and enabled often to earn very high wages at them. 
 It is true that the ablest of the artisans, whose places are thus 
 filled, are promoted to still more highly paid work as special 
 "bosses," if not to yet more responsible posts; and that some of 
 the works, in which the system is fully developed, have an out- 
 put exceptionally great in proportion to the number of their 
 employees, and are making very large additions to the aggregate 
 production and wealth of the country. These are great achieve- 
 ments: and yet we are bound to reflect that the effects of 
 taking away from the operative any duty, save that of carrying 
 out Ma instructions carefully, are not likely to be altogether 
 good. 
 
 The system has indeed been defended against the charge 
 of monotony, by reference to the fact that the endeavour to 
 work up to a high standard of output keeps the mind active. 
 But that sort of activity is not educative: it may even prevent 
 the mind from getting the rest during monotonous work, which 
 might fit it for taking part in those higher activities of mind 
 and spirit, which used to belong almost exclusively to the 
 dominant classes and now belong to the entire people. It is 
 true that leisurely walking is often an aid to thought, partly 
 because it is monotonous: but walking up a steep hill under 
 a heavy load, though equally monotonous, is not conducive to 
 mental activity: and Scientific Management, though averse to 
 strenuousness, requires attention to be kept close to the work. 
 But yet there may be more force in some of the pleas advanced 
 in defence of the treatment of labour under Scientific Manage- 
 ment than appears at first sight: let us look more closely into 
 the matter. 
 
 3. General relaii.O'ns of Scientific Management to the 
 remuneration of manual labour and to the democratic con- 
 trol of industry. 
 
 The movements which are classed under the name Scientific 
 Management had to overcome great obstacles. Many sound 
 reas6ns and more prejudices in favour of established methods 
 were urged against them. If no step had been taken until all 
 
INFLUENCES OE SOIENTIFIO MANAGEMENT ON THE WORKER 389 
 
 objections had been answered to the satisfaction of the objectors, n, xii, 3. 
 progress would have been slow. Strong resolution has been 
 needed and has threatened to bring the movement under the 
 suspicion of autocratic tendency. 
 
 This danger has indeed not been entirely overlooked: the 
 leaders of the movement have themselves pointed out that the 
 scientific establishment of standard elemental times, could be 
 undertaken by employers and employed acting together, through 
 joint committees, or otherwise. Undivided responsibility and 
 prompt autocratic decision were indeed necessary at first: but, 
 though they will always facilitate progress in some directions, 
 they are no longer necessary. There is no fundamental obstacle 
 to their being so developed as to meet all the reasonable needs 
 of working-men who are gregarious in habit, with a bias towards 
 collective action; and who have but moderate ability and but a 
 moderate desire for hard work. 
 
 The difficulties in the way of a democratic adjustment of 
 standards for the wages of work under standard conditions are 
 moreover increased by the incessant changefulness of methods 
 and of plant. It has already been observed that the trouble is 
 not greatly felt in the Lancashire cotton industry in which the 
 products are relatively uniform, and the plant has been settling 
 down towards its present shape during a century. But in 
 industries that are new, or are being rapidly transformed, 
 standard conditions must be incessantly changing; and allow- 
 ances for deviation from them may probably be demanded in so 
 many cases, that to deal with each by democratic procedure 
 wUl, for some time at least, be scarcely practicable. It is to be 
 remembered that a chief ground for holding the new method to 
 be "scientific" is that in such cases an estimate of the effort 
 required for any piece of work can be based in part on previous 
 stored-up records of elemental times: but this is a highly com- 
 plex matter: and the organized removal of all need for the use 
 of individual discretion from the operative, which is a main 
 feature of the movement, is not a good preparation for so 
 extremely arduous a task. There is however another side 
 of the matter; and we shall see that an alert workman may 
 find under Scientific Management considerable opportunities 
 for obtaining insight into administrative problems, with which 
 
390 BUSINESS ORGANIZATION BY SCIENTIFIC METHOD 
 
 II, HI, 3. the ordinary working-man is seldom much concerned, unless he 
 be in a cooperative or a copartnership factory^. 
 
 The leaders of Scientific Management claim that, on the 
 balance, it develops the intelligence of the workers: that it 
 "trains them mechanically as they were never trained before, 
 energizes them intellectually, and extends their opportunities 
 for advancement; and it gathers up and systematically transmits 
 to the workers all the traditional craft, knowledge and skill which 
 is being lost and destroyed under the current industrial methods." 
 They assert further that in fact promotion is exceptionally rapid 
 under Scientific Management; and that efficient operatives 
 seldom move from under it except to take posts of high re- 
 sponsibility elsewhere. There is no doubt that the Taylor system 
 of remuneration attracts workers of exceptional capacity, and 
 deliberately penalizes those who are incompetent; and there is 
 no reason to question the statement that promotion is rapid 
 under it. But trade-unions assert that "it looks on the worker 
 as a mere instrument of production, and does not tend to 
 develop general or long time efficiency": and far from being 
 grateful for its supplying them with the quintessence of the 
 experience of the ablest workers; they complain that it "tends 
 to gather up and transfer to the management aU the traditional 
 knowledge, the judgment and the skill, and monopoUzes the 
 initiative of the worker in connection with the work." They 
 claim also that it greatly increases the number of "unproductive 
 workers"; i.e. those engaged in clerical work, and often squeezes 
 out of the workers vast overhead charges. 
 
 ' Professor Person, the Director of the Tuck School, told the American 
 Economic Association: "It is possible to conceive of the time when the manage- 
 ment of a business and a board from the union shall together make the time 
 studies, set the task, and determine the differential rate; and then the board 
 turn to the members of the union, and say, 'The rate is just, even according 
 to your respective abilities.' Under scientific management one element of 
 trouble in the bargaining between management and labour, a lack of knowledge 
 of the facts, would be absent. Scientific management determines with extra- 
 ordinary exactness the facts of production under any given conditions. Labour 
 when it knows the facts is reasonable." But representatives of labour are not 
 to be satisfied that Scientific Management acted fully up to its profession of 
 putting no unreasonable pressure on the operatives. See for instance the 
 contributions of Mr Tobin on behalf of the Boot and Shoe Workers' Union, 
 pp. 204 — 238. See also the discussion of Scientific Management on Mr Cadbury'a 
 initiative published for the Sociological Society in 1916. 
 
INFLUENCES OF SCIENTIFIC MANAGEMENT ON THE WORKER 391 
 
 On the other hand, leaders of the movement claim that it ii, m, 4. 
 does away with the need, under which manual workers have 
 previously lain, for the support of collective bargaining in regard 
 to their remuneration. But this is not admitted by the trade- 
 unions: and the careful investigation of Prof. Hoxie points to 
 the conclusion that "even where the employers have no special 
 autocratic tendencies. . .the workers have no real voice" in the 
 conditions of their employment; and that "with rare exceptions 
 democracy under scientific management does not and cannot 
 exist apart from unionism and collective bargaining^." 
 
 4. Though the wage systems of Scientific Management 
 give small scope for collective action by employees, its open 
 methods of planning may do a little towards fitting manual 
 worlcersfor the responsibilities of democratic control. 
 
 In Britain, though not in an equal degree in America, in- 
 dustrial traditions are powerful. Class consciousness is cherished 
 by the manual worker with an almost religious fervour, which 
 commands respect; even though a more penetrating knowledge 
 of the questions at issue might often convince him that a claim 
 made on him in the name of duty to his class, is not truly in 
 the interest even of that class. It seems therefore probable 
 that, while Britain may derive great and almost unmixed gains 
 from the technical adjustment of each worker's plant, methods 
 of work, and auxiliary conditions to the highest standard which 
 Scientific Management can devise; yet adjustments of a standard 
 
 ' Hoxie, I.e. p. 109. The above description relates mainly to the Taylor 
 system; from which the Gantt system differs little. Mr Emerson's attitude is 
 more sympathetic than Taylor's; but even Prof. Hoxie's careful comparison of 
 the two (I.e. pp. 152 — 168) leaves some matters obscure. Emerson says indeed 
 that "What can be done in an hour [with standard plant and subsidiary ar- 
 rangements] is for neither the man nor the employer to determine. It is as 
 technical a problem as calculating an eclipse. The share of the worker in the 
 gain, as cost-efficiency increases, is a proper subject for bargaining" (Tuck 
 School Conference Report, p. 104). And, though he is not always consistent (see 
 Hoxie, p. 165), it seems that he is in large measure tolerant of trade-union 
 cooperation in the bargaining; as to which there is great difficulty under 
 Scientific Management, even with the best intentions. The Taylor system 
 proposes to welcome it: but asserts that it makes "collective bargaining and 
 trade unionism unnecessary as means of protection to the workers" (ih. p. 147); 
 while the unions assert that it "makes collective bargaining practically im- 
 possible, and destroys the union spirit and organization" (ib. p. 177). 
 
392 BUSINESS ORGANIZATION BY BCIENTIFIC METHOD 
 
 II, xn, 4. task and a standard wage can seldom be satisfactorily arranged 
 by employers alone. Representatives of the manual workers 
 must, as a rule, be able to take part in tbem. This cooperation 
 may be facilitated by the present movement towards the setting 
 up of joint committees of employers and employed for each 
 industry as a whole; for each important branch of it; and, in 
 appropriate cases, for individual works. Such cooperation is 
 likely to be the more effective, the more the workers understand 
 that, though the immediate interest of any particular class of 
 workers may point towards easy-going methods of production, 
 the working classes as a body have a very strong interest in the 
 efficiency of those businesses, to which the methods of scientific 
 production are most likely to be applied. Let us look into this. 
 
 The growing power and intelligence of the manual labour 
 classes go far towards overcoming the difficulty, which everyone 
 has in some degree when he attempts to measure the abilities 
 of men who are abler than he is. This difficulty has hindered 
 the progress of cooperative production and of profit sharing; 
 though both of those great movements have helped towards 
 a general understanding of the dependence of industrial progress 
 on the provision of expensive plant by private capital: the State 
 has been a borrower of capital; and is not likely soon to be able 
 to provide it for ordinary business. Therefore considerable credit 
 may be given to Scientific Management for the contribution- 
 small though it may be — which its methods make towards 
 enabling a thoughtful manual worker to form some sort of in- 
 dependent judgment on the course of a business, in which he is 
 employed. 
 
 In works, which are organized on the ordinary plan, the 
 manual worker is seldom in a position to read the motives of 
 those who issue orders affecting his work; for the general plan 
 of the operations is not conspicuous. But under Scientific 
 Management organized planning is done in the open and made 
 prominent by series of "instruction cards"; each of which, 
 whenever it comes into the hands of a thoughtful man, may 
 suggest to him something of the purposes and methods of those 
 who have constructed it. Comparisons of different sets of cards 
 may further suggest comparisons of the abiUties of different seta 
 of officials; and, in these and similar ways, some small insight 
 
SCIENTIFIC MANAGEMENT ANB DEMOCRATIC CONTROL 393 
 
 into the higher problems of administration may be gained, by ii,xii,4. 
 aid of the thoroughness with which planning in all its branches 
 is worked out and made manifest. Thus, though it be true 
 that Scientific Management diminishes the need of the operative 
 for resource and judgment in small matters, it may help him at 
 first a very little, and afterwards a good deal more, to estimate 
 the characters of those' who bear large responsibilities. Unless 
 and until he can do that, democratic control of industry will be 
 full of hazards. For a people which endeavours to rule its rulers, 
 without being able to enter into the difficulties of the work to 
 be done, is apt to fall under the guidance of plausible speakers. 
 In such case, what appears as democratic control becomes in 
 efiect haphazard oligarchy. 
 
 American methods of Scientific Management will need to 
 be somewhat modified, before they can obtain a very wide 
 acceptance in British industry; where — it must be repeated — 
 sectional solidarity has an intensity that does not exist at present 
 amid the rapidly changiag technical and racial conditions of 
 American industry. But it happens that, at this very juncture 
 there is growing up a strong movement, the leading ideas of 
 which are embodied in the well-known "Whitley Keport." It 
 proposes that employers and employed shall discuss matters 
 of common interest, first in "Works Committees" of individual 
 factories, etc., and afterwards in District Industrial Councils, 
 the members of which are elected by Works Committees; 
 while still larger National Councils are to be elected by the 
 Local Councils. This movement is already being turned to 
 account in developing some of the leading ideas of Scientific 
 Management under the organized joint direction of employers 
 and employed^. 
 
 1 The Whitley Report substantially adopts the "Outlines of a settlement" 
 which are set out at the end of a Memorandum on the industrial situation after 
 the war, issued by the Garton Foundation in June, 1916— a document of singular 
 constructive force, but inadequately known. The issues here raised belong to 
 the study of the influences of industrial organization on social weU-being, which 
 \a proposed to be included in a companion volume to the present on Industry 
 aiid Trade. 
 
 But one or two suggestive facts, taken from a Report on Works Committees, 
 published in March, 1918, by the Ministry of Labour, may be mentioned. One 
 firm reports that "the management discusses with the [Works] Committee, 
 or those of it concerned, changes of process, while the men according to the 
 
 13—5 
 
394 BUSINESS ORGANIZATION BY SCIENTIPIC METHOD 
 
 II, III, 4. The tendencies of the age are, no doubt, towards increased 
 solidarity of those engaged in any industry: the employers act 
 together in various degrees; and each class of employees also 
 act together rather more closely as a separate group as to 
 some matters and in alliance with other groups as to others. 
 Such movements may be productive of great good to the parti- 
 cular industries, or groups of industries concerned; and to the 
 nation as a whole. They are signs of healthy vigour; but they 
 also suggest grounds for anxiety. For grave and far-reaching 
 injuries to the common weal might arise if strongly organized 
 joint committees of employers and employed in industries, or 
 groups of industries, which controlled important products, were 
 tempted to use their power in the furtherance of their sectional 
 interests. There are many ways in which such a poUcy might 
 benefit, at all events for a decade or more, those who set them 
 up; while their gain, easily visible, might probably be much 
 less than the aggregate loss, which the nation as a whole would 
 sufier in ways that cannot be easily traced. 
 
 Some light is thrown on these matters in Book III; which is 
 given to a study of the good and the evil, the strength and the 
 weakness of those combinations and aggregations in industry 
 or trade, which develop monopolistic tendencies, whether of set 
 purpose or not. 
 
 view of the management 'have helped the management in many oases on 
 knotty problems of output, and have made suggestions, which were acted upon.' 
 ...The system of base time for premium bonus work prevails throughout the 
 works: and if the base cannot be settled between the foreman of the depart- 
 ment and the workmen, the matter is brought by the Convener and Shop 
 Steward of the department before the management" (p. 58). 
 
 Again another firm describes (pp. 59 — 65) its system for fixing pieet-work 
 prices by conlinuous arhilration. "One of the greatest objections to present 
 piece-work systems is that the employer works out the price in secret, writes 
 down the time on a card, and then settles the price.... The following is the 
 agreement reached between the principal Union of metal workers and our- 
 selves: — On getting out a new job we would calculate the feeds and the speeds, 
 which were suitable for the tool, on which the job was to be performed; and 
 then put forward the time to the man who had to do the job." If he objected 
 he could "go to the Time Study Office " and talk the matter out. If no agree- 
 ment was then reached, the matter would be referred to a Committee consisting 
 of the workman himself and two others "selected by him, who are operating 
 the same type of machine, or whose work is closely allied to the work in 
 question" ; together with three representatives of the firm. If still no agreement 
 was reached, new studies of the matter are to be made. 
 
BOOK III 
 
 MONOPOLISTIC TENDENCIES : THEIR RELATIONS 
 TO PUBLIC WELL-BEING 
 
 CHAPTER I 
 VARIOUS mPLUENCES OF MONOPOLY ON PRICES 
 
 1. Introductory. iii_ ,_ i. 
 
 The first chapter of the preceding Book contained a broad 
 sketch of the relations between production, consumption and 
 value, on the supposition that the production of a commodity is 
 not restricted by exclusive privileges or advantages: and that 
 consequently, if its supply runs so short that its price is con- 
 siderably above its expenses of production, an increase of supply 
 will be speedily caused by the high profits held out to those 
 who can bring more of it to market. And the chapter ended 
 with an indication that a companion to that sketch would be 
 presented here, designed to show the nature and extent of the 
 modifications in the problem of value, which may result from 
 the exclusive possession by a single person, or by a group of 
 persons acting in concert, of facilities for producing the com- 
 modity. The sketch, contained in this chapter and the next, 
 is of the same character as its precursor; and may for the same 
 reasons (see p. LSI) be omitted by some readers. 
 
 The contrast between the subjects of this Book and the last 
 is commonly described as the contrast between monopolistic 
 and competitive conditions. This description may often serve 
 on account of its brevity; but it is open to misconception. 
 For, as we shall see presently, the fiercest and cruellest forms 
 
396 VARIOUS INFLUENCES OF MONOPOLY ON PRICES 
 
 III, 1, 1. of competition are found in markets wMch are no longer quite 
 free, but have been already brought in some measure under 
 monopolistic control. In a truly open market, competition is 
 often constructive and not ungenerous. But, when a giant 
 business is striving to attain a monopoly, or to repel rivals from 
 ground which it wishes to make its own, it is under strong 
 temptation to use ferocious and unscrupulous methods to com- 
 pass their undoing. 
 
 The central fact of the problem of value under competitive 
 conditions is (see II, i, 3) that scarcely any important result is 
 true in regard to both short periods and long: a great part of 
 the many barren controversies, that have raged on the matter, 
 results from attempts to refute statements relating to long 
 periods by others relating to short periods, or conversely. 
 Speaking broadly we saw that the fluctuating pressures of 
 demand on the market are the chief causes of temporary move- 
 ments of prices for most things, except those that are derived 
 from the harvests of the land or the sea: but that in the long 
 run the governing force is the relation of cost of production for 
 various annual rates of supply to the prices at which those rates 
 of supply can be marketed, A chief cause of the apparent difEer- 
 ences in character between the price movements of different 
 commodities lies in the fact that a period, which is long relatively 
 to the conditions of supply of one thing, may be short relatively 
 to those of another. Ricardo quaintly said "I do not dispute 
 the influence of demand on the price of corn, or on the price of 
 all other things: but supply follows quickly at his heels, and 
 soon takes the power of regulating price in his own hands; and, 
 in regulating it, he is determined by the cost of production^." 
 Thus the answer to the question whether variations in demand, 
 or variations in cost of production, exert the stronger influences 
 on value under competitive conditions in a given time, depends 
 mainly on the ease with which supply can alter its pace. 
 
 Similarly it wiU be found, generally speaking, that the 
 ownership of exclusive facilities for production or trade in the 
 modern world does not always suggest to a man of sound 
 judgment that he should pursue a severely monopolistic price 
 policy. On the contrary, he will keep a watchful eye on the 
 • See Dr Bonar's edition of Bkardo'a kttert to Malthus, p. 179. 
 
INTRODUCTORY 397 
 
 sources of possible competition, direct or indirect. If it appears iH, i, i 
 that those sources are likely to prove large and strong; and 
 that the pace at which competitive supply runs, is likely to 
 become considerable before long: then he will not make full use 
 of his power, but will adjust his prices to obtaining a firm hold 
 on the market before he can be caught by competitive supply 
 "following quickly at his heels." 
 
 It will in fact presently be seen that, though monopoly and 
 free competition are ideally wide apart, yet in practice they 
 shade into one another by imperceptible degrees: that there is 
 an element of monopoly in nearly all competitive business: and 
 that nearly all the monopolies, that are of any practical import- 
 ance in the present age, hold much of their power by an uncertain 
 tenure; so that they would lose it ere long, if they ignored the 
 possibilities of competition, direct and indirect. 
 
 This interlacing of monopoly price policy and of competitive 
 price policy has indeed always existed. But it needs more care- 
 ful study now than formerly: and this for several reasons. The j 
 temper of the age is increasingly analytical; while the contrast / 
 between the influences of cost of production on competitive and 
 on monopoly values is more complex than it was when the 
 foundations of modem economic science were laid. Again, 
 though the progress of analysis has taken nothing of importance 
 from the foundations which were then laid, it has built much 
 upon them; while the progress of events has brought into 
 promiaence many considerations, which might reasonably be 
 neglected for the practical purposes of business at that time, 
 but which the modem student is bound to examine with some 
 care. It is to be remembered also that, independently of the 
 general study of combination and monopoly on which we are 
 engaged just now, the relations between monopoly and compe- 
 tition prices have, now more than ever, a large place in problems 
 of international trade. 
 
 Stress must be laid on the fact that absolute monopolies 
 are of little importance in modern business as compared with 
 those which are "conditional" or "provisional": that is, which 
 hold their sway only "on condition" that, or "provided" that, 
 they do not put prices much above the levels necessary to cover 
 their outlays with normal profits. If they did, then competition 
 
398 VARIOUS INFLUENCES OP MONOPOLY ON PRICES 
 
 III, 1,1. would probably make itself felt; unless stayed by authority, 
 as is the case with patents, copyrights, and some rights of way. 
 The supply of water, gas, or electricity to any locality cannot 
 be distributed over several rivals: for, to say nothing of its 
 wastefulness, that would involve so many encroachments on, and 
 disturbances of roads, etc., that it could not be tolerated. The 
 greater part of the postal system is an absolute Governmental 
 monopoly almost everywhere: though there is some lack of 
 uniformity in relation to the collection and delivery of parcels 
 and other matters. Again in some countries railway work is 
 an absolute Governmental monopoly: and in other countries 
 there are many patches of practically absolute monopoly in 
 railway traffic. But many monopolies, which seem absolute, 
 are yet to some extent liable to be assailed by indirect routes; 
 and are incomplete and subject to the "condition" that the 
 monopolist makes no such extreme use of his power as will 
 induce others to force their way through obstacles and set up 
 efiective competition. 
 
 These obstacles are mainly of two kinds. The first is the 
 necessity for sinking much capital and eflort in setting up the 
 plant and organization, suited for competing on nearly even 
 terms with a strong business, already in possession of the field. 
 Few are able to do it: and fewer still are willing to take the 
 heavy risks involved in it. For this reason some kinds of 
 monopolies, which even a generation ago would have been 
 properly classed as provisional, have now become so strong as 
 to give grounds for raising the question whether authority 
 should be called in to exercise a control, which competition 
 might have been trusted to do in earlier times. This cause of 
 increase in the strength of monopolies in industry and trade, is 
 a maiQ subject of the present Book. 
 
 The second obstacle to the setting up of efficient compe- 
 tition with a business, that has acquired a conditional monopoly, 
 is the vis inertiae, the opposition to change, which is inherent 
 in human nature and in human conditions. It is being con- 
 tinually diminished by the influences of modern technique, no 
 less than those of modern habits of thought and life: and accord- 
 ingly some monopolies, so strongly fortified by large capitaUstio 
 resources, advanced methods, high ability and large business 
 
INTRODUCTORY 399 
 
 connections, that they would have been practically impregnable iil, j, 2. 
 not long ago, are now often quickly impaired^. 
 
 The industries of transport by land and sea have together 
 occupied more of the thought and energy of the populations 
 of the civilized world than any other, except agriculture. Agri- 
 culture has indeed been always a chief source of great fortunes: 
 but the owner of a large landed property has seldom extended 
 his direct control over the whole of it. The concentrated 
 control of large movable capital was pioneered by merchants; 
 though much the largest aggregations of fixed capital were 
 to be found in public highways, until railways began to dis- 
 pute that place with them. The industries of transport by 
 land and water have frequently changed their methods: but 
 their history is in this sense continuous, that the services 
 rendered by them have been more homogeneous, definite and 
 uniform in character throughout the ages than have been the 
 products of any other group of industries, except perhaps agri- 
 culture: and contests for dominion between the methods of 
 competitive and monopolistic organization have developed with 
 more continuity, and can be studied now more closely in them 
 than elsewhere. Britain is the chief inheritor of traditions in 
 regard to the sea: but with regard to railways America has 
 recently taken the lead in the constructive study of the complex 
 relations of competitive and monopolistic policies to public 
 interests; and a large place is given to the results of these and 
 kindred studies in the present Book. 
 
 2. The monopolistic element in the policy of cartels, and 
 other regulative associations of independent producers or 
 traders, is a chief instance of the interpermeation of com- 
 petitive and monopolistic policies. 
 
 Monopolistic aggregations have often been slow growths 
 from small roots; and have expanded under the influence of 
 constructive business enterprise, with little or no thought of 
 monopoly, till they had attained great strength. Monopolistic 
 
 • Monopolistic policies give scope for important uses of high analytical 
 methods. Coumot led the way: and among those who have made chief ad- 
 vances in it Professors Edgeworth and Pigou are prominent. Readers are 
 referred to their masterly work for an intensive study of the theory of monopoly. 
 
400 VARIOUS INFLUENCES OF MONOPOLY ON PRICES 
 
 111,1,2, federations, which are increasingly described by the German 
 name "Cartels," have their roots deep in the past, where the 
 spirit of comradeship was often as potent, as the desire for the 
 monopolistic regulation of prices. It seems probable that the 
 total influence exerted on prices by monopolistic associations has 
 been greater than that exerted by monopolistic aggregations. 
 
 Understandings and associations for the control of particular 
 markets have prevailed in almost all times and places, and have 
 been prompted by nearly the same motives as are at work 
 to-day. In primitive civilizations people of the same calling or 
 the same locality have generally acted together by habit and 
 instinct, rather than by any formal convention. And, though 
 the overt action of gilds, and other trade and professional 
 associations, has often shown deliberate and elaborate strategy 
 in dealing with the outsider; yet a great part of that collective 
 selfishness, which is thinly covered by some unselfish devotion to 
 the interests of a trading group, has worked through tacit and 
 indefinite understandings^. 
 
 In the modem age human nature remains very much as it 
 vras in former times: but intellectual habits and methods have 
 changed fast and progressively. The old associations of neigh- 
 bourhood and a common occupation have still considerable force: 
 but new developments of critical and analytical faculties have 
 caused men increasingly to submit their instinctive tendencies 
 to the cold arbitrament of numerical estimates. The gains and 
 the losses, in money and in ease, which are likely to result from 
 any plan of combined action, with its attendant discipline and 
 curtailments of individual freedom, are weighed against one 
 another; and, if the balance of advantage seems to lie with 
 organized regulation of marketing, a cartel or other association 
 is set up for the purpose. Its immediate and overt aim is to 
 maintain prices in particular markets against inconvenient 
 competition: and especially that of competitors who desire to 
 force their way into those markets by selling goods at, what 
 appears to be. less than their full costs. 
 
 ' The obviou3, but important fact that, if the price of a thing which several 
 persona are able to produce, ia to be kept much above its cost of production, 
 the inducements to combined action will be cogent, ia shown with the aid of 
 diagrams by Prof. Colaon, Court dVconomte polilique, vol. i. ch. ni. 
 
COMPETITION AND MONOPOLY IN THE POLICY OF CARTELS 401 
 
 Even a man, who occasionally acts somewhat in the same way iii, t, 2. 
 himself, is apt to regard all such intrusion on his own particular 
 market as "unfair," If his ways are old-fashioned, and his costs 
 are high, he may even regard as unfair the selling at prices, 
 which yield some profit to others, whose plant and organization 
 are superior to his. Thus he is prepared to give a ready ear to 
 suggestions that he should take part in a defensive association 
 or federation, the members of which undertake not to sell at 
 unfairly low prices in a certain area; and to oppose any intrusion 
 of unfairly low priced goods by various strategical devices: the 
 chief of these are underselling the intruder in his own particular 
 markets, and boycotting those who supply his wants. "Defen- 
 sive" combinations of this kind make out a claim to be morally 
 right: and those, who are in need of defence, eagerly endorse 
 the claim ; even though the assailants differ from themselves only 
 in being more able and better equipped with appropriate plant 
 and method. The strength of purpose thus obtained is often 
 developed by combat, and by common exertions for overcoming 
 difficulties. After a time they think less of the defence of 
 markets, in which they had already established themselves; and 
 more of extending control, by alliances and otherwise, over wider 
 markets. If they yield to this temptation, they are on a steep 
 and slippery incline, heading towards a federated monopoly; 
 which is often uncompromising in purpose, though probably 
 limited in extent^. 
 
 There are three classes of producers who are not tempted to 
 restrictive combination: those who produce for their own con- 
 sumption; those who produce things for sale in a large open 
 market in such small quantities, that current prices will not be 
 appreciably affected by anything which they may do or abstain 
 from doing; and lastly the owners of absolute monopolies. The 
 first two classes have indeed grave anxieties : short harvests may 
 inflict hardships on those who rely on the produce of their own 
 farms: glutted markets may grievously distress the small pro- 
 ducer for sale; and even the absolute monopolist must think and 
 contrive a great deal if he is to make the best of his property. 
 But on none of these people does the burden lie of guarding 
 
 ' In thia connection reference may be made to the first chapter of the 
 previous Book, and especially its last paragraph. 
 
402 VARIOUS INFLUENCES OF MONOPOLY ON PRICES 
 
 111,1,2. watchfully against the encroachments of others. That burden 
 lies on those who have to defend a market which is open to 
 attack: it is the heavier, the greater is the value of the partially 
 monopolistic advantages which they hold in it, and the greater 
 therefore the eagerness of others to intrude. 
 
 When discussing the costs of marketing (above, pp. 271 — 3) 
 some explanation was ofiered of causes which lead the seller to 
 court the favour of the buyer in regard to particular transactions, 
 especially in retail trade: although in the long run consumers 
 would suffer more from a restriction of their supplies of urgently 
 needed goods, than producers would by being driven to another 
 occupation. That explanation being assumed, it may be added 
 briefly that combination tends to aid sellers more than buyers 
 in regard to immediate transactions. For, under ordinary 
 circumstances, if a buyer passes from one seller to another, 
 the seller loses his normal profit, while the buyer is likely to 
 get his needs supplied without difficulty and possibly at some 
 extra advantage; but, if combination has so fixed prices that 
 the purchaser cannot expect to improve his position by passing 
 to other sellers, he is likely to accept the first seller's terms 
 without demur. This consideration suggests that monopolistic 
 combinations are likely to be more frequent among sellers than 
 among buyers: and that such combinations as are effected 
 among buyers are, for the greater part, evoked as defensive 
 measures by combinations among sellers. We shall find that 
 this is the case in fact. 
 
 It will appear also that in the long run combinations of 
 buyers are on about equal terms with combinations among 
 sellers; except when a combination of sellers controls the chief 
 efEective sources of supply of a necessary raw material. The 
 most necessary raw material is that of staple foods. Govern- 
 ments have often been called on to intervene between un- 
 organized consumers and organized dealers in grain: and, as 
 the world-war has reminded us, when ordinary markets are 
 partly closed by military operations, authoritative intervention 
 may be required in regard to dealings in many things besides 
 muniments of war. 
 
PRICE POLICIES OP VARIOUS SORTS OF MONOPOLIES 403 
 
 3. Pricepolicies of monopolies, absolute and conditional, in, i, 3. 
 in regard to immediate net revenue and to prospects of future 
 development. 
 
 In the remainder of this chapter the monopolist will be 
 supposed to make only one product for sale ; and to supply it to 
 all purchasers at the same price, subject only to such variations 
 as may correspond to varying costs of delivery. More complex 
 issues will be opened out in the next chapter. 
 
 Unconditional natural monopolies, such as those given by the 
 possession of a unique mineral spring or vineyard are relatively 
 rare. The possession of the only coal-mine in a district may 
 give its owner an almost unconditional monopoly there, because 
 coal cannot be carried great distances by land cheaply. But it 
 has already been observed that, as a rule, unconditional mono- 
 polies are the products of authority: they were very common in 
 early times : but now almost the only relics of them are designed 
 merely to prevent people from infringing the reasonable rights of 
 others in their own productions. 
 
 Reference has also been made to the monopolies that some 
 trading companies acquired long ago in regard to spices, salt, 
 and other flavours, which contribute much to enjoyment; but 
 are yet consumed in so small quantities, that a ten-fold rise 
 in price above the cost of obtaining them in a free market makes 
 no very great demand on the purses of customers. When the 
 Dutch, having obtained a monopoly of the trade of the Spice 
 Islands, found it to their advantage to burn a great part of 
 the crop after a large harvest, they were sounding the keynote 
 of extreme policies of absolute industrial monopolies. 
 
 Dunlop's simple valve for keepiag the air in a cycle tyre at 
 high tension added much to the value of a cycle; and therefore 
 the licence to make use of it could be sold at a considerable 
 percentage on the price of a costly cycle, that is at many times 
 its own cost of production. Again, Coats' trade-mark on sewing- 
 cotton is of exceptional value; because if a person were to 
 experiment with a cheaper sort of thread, which turned out 
 badly, the saving of a halfpenny on thread might so damage 
 expensive costumes, etc. as to cause inconvenience or loss of trade 
 reputation worth many shillings, or even pounds: thus the 
 
404 VARIOUS INFLUENCES OF MONOPOLY ON PRICES 
 
 III, 1, 3. unique position, which Coats' Combination holds among British 
 monopolistic busiaesses, results in part from the fact that its 
 products constitute a small but essential link in processes of 
 production which are in the aggregate of very great value. 
 
 It will be convenient to refer occasionally to the amount of 
 the profits, which a monopolist is enabled to make by setting his 
 price above that which covers his full costs of production; in 
 which are to be included of course allowance for risk and 
 depreciation, and for the remuneration of his own work in 
 connection with the business. This may be called the monopoly 
 net revenue, which he wiU get from the adoption of that price. 
 Speaking generally the price, at which he ofiers his goods, will 
 govern the amount of his sales; and therefore of his total costs 
 of production, as just described. His monopoly net revenue 
 will be the excess of his receipts over those costs. The higher 
 he sets his price, the less he will sell: and therefore if his costs 
 of production are always in the same proportion to his output, 
 his monopoly net revenue will be greatest for that price, which 
 makes the number of units sold, multiplied into the excess of 
 his price over his costs per unit, to be the greatest. Speaking 
 generally again, his inducement to keep his price rathet low in 
 order to increase the demand, will be stronger if his costs of 
 production per imit diminish with increased output, as is the 
 case in manufacturing and other Increasing Return industries, 
 than in Constant Return industries: and it will be least of all in 
 such a case as the production of a wine of unique flavour, which 
 can be raised only from a small area. 
 
 His monopoly revenue is the excess of his receipts over his 
 outlay with normal profits: and his aim may be to fix his price 
 (and therefore the amount of his sales) at that level which 
 will yield him for the time the highest gains: that is at his 
 maximum net revenue price. This is often inadequately ex- 
 pressed by saying that the owner of a monopoly aims at the 
 highest charges "which the market wiU bear"; or, it a railway 
 is under discussion, at the "highest charges which the traffic 
 will bear." Sometimes the same notion is thrown into a nega- 
 tive form without real change of meaning, and it is said that 
 the monopolist will take care in his own interest not to charge 
 more than the market will bear. But all these phrases lack 
 
PRICE POLIOIES OF VARIOUS SORTS OF MONOPOLIES 405 
 
 definiteness. For the market will bear a great many prices iii, i, 4. 
 though it will contract its demand as the price rises; whereas 
 a competitive market will seldom bear permanently any price 
 which does not correspond to cost of production. What is 
 really meant is that he attempts to select a price which will 
 just not drive away a large body of customers, or even prevent 
 him from attracting them. For this purpose he needs to study 
 the elasticity with which demand will respond to a low price, as 
 well as his costs of production^. 
 
 4. Ben^ts which the public may derive from a fa/r- 
 seeing tise of monopolistic power under certain conditions. 
 
 Selling at a price lower than that which would maximize 
 the immediate net revenue of the monopolist, in order to 
 familiarize consumers with his product, is an investment of 
 capital in the expectation of deferred gains; and indeed it may 
 be regarded as a particular form of the investment of capital 
 in lavish advertising. All such expenditure, if well devised, 
 facilitates further advantageous extensions of plant and further 
 subdivision of labour, which tend to reduce costs; and it may 
 lead to so great a reduction of costs that the price, which will 
 maximize his net revenue, will fall below that originally adopted 
 
 • A numerical example may be helpful. Suppose 10,000 units of a product 
 are being produced at an outlay of 6s. per unit, and sold at 9s. : thus yielding 
 30,000«. for total profits, i.e. for ordinary profits, together with additional 
 monopolist gains. Suppose that twice the number can be sold at ^s., the demand 
 being elastic. The profits will then rise to 40,000 shillings, if the outlay per unit 
 falls to 5s., under a tendency to Increasing Return (though it would have fallen 
 to 20,000 shillings if the outlay per unit had been constant). If howeTer the 
 demand had been less elastic, so that 20,000 could not be sold at a higher price 
 than 63., then it would not have been advantageous so to enlarge the plant 
 as to produce 20,000. 
 
 It may be well to observe that as the monopolist will, in his own interest, be 
 inclined to favour things that conform to Increasing Return by low charges, in 
 order that he may increase their consumption, and gain the economies of 
 production on a larger scale: so it is a, general rule that, otlier things being 
 equal, the Finance Minister should press on products of Decreasing Return 
 industries rather than on products of Increasing Return industries. For a tax 
 on either class tends to diminish consumption : and therefore to lower the price 
 of the untaxed product in the first case and to raise it in the second. Thus the 
 tax raises the price against the consumer by less than its own amount in the 
 first case and by more than its own amount in the second. The above argument, 
 in relation to taxation, is illustrated by diagrams in my Principles, Book V, 
 xiu, 4. 
 
406 VARIOUS INFLUENCES OP MONOPOLY ON PRICES 
 
 111,1,4. as an investment for future reward. His net revenue may 
 continue to rise, while his price continues to fall. 
 
 Again, though a trade association may undertake a part 
 of the expense of bringing to the notice of the public a product 
 in which its members are interested; no one of many producers 
 of the same thing may have an adequate interest in pushing its 
 claims on the attention of the general public, unless his con- 
 tiguity with them, or some other cause, may be likely to turn 
 their custom in his direction. The far-sighted monopolist, on the 
 other hand, is constantly considering what new advantages he 
 can afford his customers, present and prospective, which will 
 remunerate him in the long run, even though they reduce his 
 monopoly revenue for the time being: a new suburban railroad 
 sometimes makes temporary concessions, such as cheap or even 
 free season tickets, to induce builders to erect houses in its 
 neighbourhood. Or again a monopoUst may go to some expense 
 to aid people in turning to good account what he has to ofEer^- 
 
 In all such cases the monopolist expects to obtain a large 
 share of the whole benefit that wiU result from calling the atten- 
 tion of consumers to a commodity that will serve them well; 
 from offering it at a price that will attract them to it, and 
 generate habits of familiarity with it; and from aiding them to 
 use it to the best advantage. In fact he makes a compromise 
 between the prices which he would charge, if his sole object 
 were to increase his immediate revenue; and that which he 
 would charge, if he counted a benefit to consumers as of equal 
 value with a similar benefit to himself. 
 
 A great monopoUst railway in a new coimtry sometimes 
 finds itself in a position somewhat similar to that of a monarch 
 whose prosperity depends on the weU-being of his subjects, which 
 
 ^ The care and expenditure which the monopolist owner of a trade-mark, 
 patent, or other speciality devotes to arousing the pubUo to its claims have 
 been considered in II, vn. 
 
 A purveyor of night-lights has sold at a very low charge an apparatus for 
 enabling the light to maintain a supply of warm food. And — to take a larger 
 illustration — some railroads in the Western States of America, finding that the 
 badness of the local roads made the cost of transport between farm and local 
 railway station a considerable addition to the freights for long distance traffic, 
 set themselves to educate the farmers in road making : a fully equipped train 
 with a road-engineer and gang of navvies was sent to a station, to stay there 
 till a short piece of road had been made gratis, as a model to be copied. 
 
MONOPOLIST POLICIES IN RELATION TO PUBLIC INTERESTS 407 
 
 in its turn is highly sensitive to his care for or neglect of their iii, i, 4. 
 interests. In such a case the monopolist or the monarch may 
 act in almost the same way under the influence of shrewd busi- 
 ness calculations, as he would if his chief aim were to benefit 
 his customers or his subjects. A monopolist's inducement to 
 move in this direction is especially strong if the cost of a large 
 output is relatively less th&.n of a small. It may then be worth 
 his while to sell temporarily at a price below the cost for a small 
 output, and therefore at a loss; looking for his reward when 
 the demand is large, and his costs relatively low. He cares 
 little at what cost a temporary increase of output can be made: 
 his concern is to know at what cost he will be able ultimately 
 to meet the increased demand which he is proposing gradually 
 to develop; it being assumed that he feels confident that his 
 hold on an elastic market will last long. The length of time 
 required of course depends on circumstances. If it were possible 
 to adapt the duration of each patent grant to its peculiar con- 
 ditions, the public interest would call for a specially long period 
 for patents relating to processes to which the law of Increasing 
 Return applied strongly, but in which its effects are slowly 
 developed. 
 
 It is to be noted that, however far-sighted a monopolist is, 
 he may be unable to abstain from grasping at quick returns, if 
 his capital is small, and his credit is poor. An outlay for distant 
 returns which would be profitable, if he could borrow at five per 
 cent, per annum, may be impracticable if he must pay ten per 
 cent. The same difficulty often cripples the energies of an able 
 poor man engaged in competitive business: but if he does not 
 occupy a fitting place, that place may be filled by others. On 
 the other hand the best ideas of an inventor are often lost to 
 the world, because he fails to induce a sanguine estimate of the 
 value of his invention among those who could supply him with 
 capital. 
 
 But too much stress has sometimes been laid on the in- 
 fluence, which the rate of interest exerts on the inclination 
 of a monopolist to subordinate his immediate mterests m a large 
 net revenue to the development of his resources in such ways as 
 may enable him to make great gains bi the future; and mean- 
 while to supply his products at a price not much above their 
 
408 VARIOUS INFLUENCES OF MONOPOLY ON PRICES 
 
 III, 1, 4. present cost of production, and possibly even a little below it. 
 This consideration is important; but it is not confined to mono- 
 polistic businesses: it applies in some degree to almost every 
 business in an Increasing Return industry. The fall in the rate 
 at which additional capital can be obtained for making expensive 
 experiments, for setting up costly appliances which may special' 
 ize and economize labour and so on, has been a chief promoter 
 of that progress, which has greatly increased the command 
 of all, and especially of the working classes over conveniences, 
 comforts and luxuries, that were either unknown, or else the 
 exclusive perquisite of the rich in earlier times. The monopolist 
 of a product has no monopoly of this tendency; but, no doubt 
 he is often in a position to make large use of it: and, in so far 
 as it inclines him to sell at low prices, in order to develop a 
 future consumption which will accrue directly to his benefit, the 
 consumers of his product enter at once into benefits, which would 
 otherwise have been deferred till the technique of its production 
 had been considerably advanced. In this respect therefore the 
 public has an exceptional interest in the supply of large resources 
 to an enterprising and public spirited monopoly. 
 
 But on the other hand its strength, if excessive, may become 
 a source of national danger. For instance, the coal industry, 
 especially in alliance with the iron industry, might conceivably 
 attain to a monarchic authority throughout a whole country 
 almost as unchallenged as that of the sole railway system in an 
 inland district of a great continent. England was the first to 
 feel this danger: it has been considered in America; but it seems 
 to be more nearly imminent in Germany than anywhere else. 
 The public spirit of American railroads has been stimulated in 
 some directions by legislative and administrative intervention, 
 actual and projected; and similar intervention may be needed 
 in an increasing degree with regard to the few other monopolies 
 that threaten to be both lasting and strong. 
 
 But, after all, the most powerful protection to public interests 
 against the possible lassitude and exactions of jrailway officials 
 and shareholders has not come from Government. It has come 
 from the increasing force of indirect competition as regards 
 railway services. They have seemed ever to be on the point 
 of escaping from competitive influences; and to be able to adjust 
 
MONOPOLIST POLICIES IN RELATION TO PUBLIC INTERESTS 409 
 
 their charges to what the traffic would bear with even less regard m, i, 4. 
 to cost of service: but in fact the indirect influence of cost has 
 incessantly asserted itself to a degree that cou.ld not have been 
 anticipated when Stephenson more than half-a-century ago said, 
 with reference to railways, that "where combination is possible, 
 competition is impossible." 
 
 Many of those manufacturing aggregations, which are com- 
 monly regarded as monopolies, are in considerable danger from 
 the indirect competition of businesses, which seek to attain ends 
 similar to their own by other routes. This is a danger which 
 is often overlooked, till the new method has already estab- 
 lished a firm position within what was thought to be the special 
 territory of the monopoly, and has even introduced some changes 
 in the habits of consumers which cannot easily be reversed. For 
 instance, a high price of gas in some places, in which gas was 
 regarded as having a monopoly, has been reduced under the 
 influence of growing competition from petroleimi and electricity: 
 and more recently improvements in electric light have been 
 stimulated by the economy of improved incandescent gas- 
 mantles. 
 
 Another illustration may be taken from the case of the 
 partial monopoly of a trade-union. About the year 1880 the 
 masons' union made so harsh a use of their power, that builders 
 were unwilling to bind themselves by penalty to finish in a given 
 time any contract that involved much stone work. So English 
 architects set themselves to substitute the effect of shadows 
 thrown by varied forms of brickwork for that relief to the 
 monotony of buildings, which they had sought in the use of 
 stone work. As a result, their command over brick as an efiective 
 material has increased fast; while there has not been a corre- 
 sponding improvement in their command over stone. Thus 
 English architecture is in some respects richer, and in others 
 poorer, than it otherwise would have been : but perhaps another 
 generation wiU elapse before the number of skilled masons in 
 England is as large as it would have been if their union had shown 
 more moderation in 1880. 
 
CHAPTER II 
 
 VARIOUS INFLUENCES OF MONOPOLY ON PRICES, 
 CONTINUED 
 
 III, n, 1. 1. Partial shiftings of burdens imposed on monopolies. 
 
 The imposition of a tax is connnonly taken as representative 
 of the many various burdens which may be imposed on a mono- 
 poly: and we may follow that plan. The burden may be caused 
 by a partial failure of supply of some material or labour needed 
 by it; or by onerous conditions of working imposed on it in the 
 interests of public health or by other causes. But so far as the 
 questions now before us are concerned, such burdens have the 
 effect of increasing its costs, or otherwise lowering its revenue: 
 and such effects are conveniently regarded as equivalent to the 
 incidence of taxes imposed specially on it. 
 
 If a tax is set on anything that a man uses in business, he 
 endeavours to recover the tax from his customers by putting up 
 the price of what he sells. Others in the same business do the 
 like; and a part of the burden of the tax is thus shifted "for- 
 wards" on to consumers. In consequence they are lilcely to 
 diminish their consumption of his products: and therefore he 
 diminishes his purchases of materials and other things. Thus a 
 part of the burden is probably shifted "backwards" on to those 
 from whom he buys; and they in their turn are likely to shift 
 a part of that part backwards on to those from whom they buy: 
 and so on. Similarly, if those who purchase his products, require 
 them for use in business, they are likely to shift a part of the 
 burden a second time forwards on to their customers. If indus- 
 trialists and traders are alert, and but little under the influence 
 of habit; and capital-supply is highly organized — in short, if the 
 general economic conditions are fluid — the shifting will be rapid: 
 
SHIFTINGS OF BURDENS SET ON MONOPOLIES 411 
 
 the more viscous they are, the slower and less complete will the iii, ii, i. 
 shifting be. Monopoly tends to resist adjustments of means 
 to ends, but in ways rather diSerent from those of simple 
 viscosity or immobility: and its action in presence of a new tax, 
 or other disturbance varies with the nature of the attack made 
 on it^- 
 
 If a tax on an absolute monopoly is levied either as a 
 fixed sum, or as a percentage on the net income derived from 
 it, the monopolist will be in a position from which no escape 
 can be found by raising his price. He is supposed already to 
 have put the price so high, that any further rise might so lessen 
 his sales as to lower his net revenue: and a tax, which is not 
 adjusted to the amount of his sales, or the price at which he 
 sells, cannot be evaded by a raising of his price: for that would 
 threaten his net revenue. If the tax is fixed in amount, he will 
 simply pay it out of a smaller net revenue : if the tax is assessed 
 at, say, a tenth of his net revenue, he will retain nine-tenths 
 of that smaller revenue for himself instead of nine tenths of his 
 full original revenue^. 
 
 ' The general principles which govern the shifting of the burden of a tax 
 from its point of first impact were clearly set out by Ricardo : and subsequent 
 analysis, partly in mathematical form, has greatly developed his work. Our 
 present knowledge does not supply a sufficiently firm foundation of ascertained 
 fact, especially in regard to the ever varying plasticity of industrial and other 
 economic relations, to enable this reasoning to reach exact practical conclusions. 
 Analysis may however indicate broadly the nature of the shifting that will 
 result on various definite assumptions as to the fluidity, the viscosity, or the 
 rigidity of the several elements : and in this direction there seems to be hope of 
 yet further progress. 
 
 Where everything is either absolutely rigid or absolutely fluid, a knowledge 
 of the tendencies of change points clearly the way to a knowledge of their 
 results. But in fact scarcely any economic element is either absolutely rigid or 
 absolutely fluid: nearly every one is more or less viscous. If the viscosity is 
 slight, reasoning based on the assumption of perfect fluijiity, may be fairly 
 applicable to most problems that range over long periods of time. But, if the 
 viscosity is great, tendencies, indicated by present conditions, may work slowly: 
 and thus may not have completed their work before new conditions have come 
 into being, and set up different, perhaps even reverse, tendencies. Indeed 
 uncertainties in regard to this viscosity are a chief cause of the limitation of the 
 scope of pure reason in real economic problems. 
 
 * Nevertheless the common opinion, that such a tax is likely to cause the 
 monopolist to raise his price, is not without some justification. For the mono- 
 polist might probably raise his charges, and attribute the rise to the tax. The 
 rise of price would diminish consumption, and therefore the number of employees 
 needed for his work: he might probably dismiss some, and lower the wages of 
 
412 VARIOUS INFLUENCES OP MONOPOLY ON PEICES 
 
 III, tj, 1, On the other hand a tax proportional either to the amount 
 of his output, or to his gross revenue (that is the amount sold 
 multiplied into the price) would give an inducement to the 
 monopolist to lessen his output and raise his price. Fot by so 
 doing he would escape a part of the tax: and thus the excess 
 of total receipts over total outlay might probably be increased 
 by a diminution of output, though before the imposition of 
 the tax it would have been lessened. As a consequence of the 
 diminution of his output, he might probably be forced to 
 dismiss some of his employees, and be tempted to lower the 
 wages and salaries of others. In these ways a part of the 
 burden of the tax would be shifted to other shoulders: and, in 
 so far as he diminished his purchases of plant and material, 
 some share of the burden would be diffused over a still wider 
 area^. 
 
 The case of a conditional monopolist is rather different; 
 chiefly because any tax, levied on him, would be likely to be 
 levied, in some degree at all events, on any present or future 
 competitors. He would therefore reflect that he might set his 
 price rather higher than had seemed safe before, without attract- 
 ing much new capital into his special province. That would be 
 true, even if the tax were of fixed amount, or assessed on his net 
 income: and if it were assessed on his gross income, or on his 
 output, he might perhaps raise his price by nearly the full 
 amount of the tax. 
 
 others; always throwing the blame ol the change on the tax. It would then 
 appear that he was shifting a part of the burden of the tax on to hia employees 
 and another part on to his oustolners. But the appearance would be illusive. 
 The tax did not give him any new power to gain by raising his charges. It was 
 always open to him to raise his price, to stint his production, and to take 
 advantage of his diminished need for labour to force down wages temporarily 
 at least. He did not take that course, because on the whole he reckoned the 
 price already chosen to be the moat advantageous to him; and the tax if im- 
 movably fixed would have made no alteration in any of the data on which he 
 fotmded that conclusion. The only change made by it was to give him a motive 
 for impelling his customers and his employees to intervene between him and the 
 Public Treasury. 
 
 ^ The observations in the previous footnote apply to this case abo. The 
 analytical side of the subject of this Section is developed with numerical and 
 diagrammatio illustrations in my Principles, V, xiv, and ia the corresponding 
 Mathematical Appendices. 
 
DISTRIBUTION OF GENERAL COSTS OP A MONOPOLY 413 
 
 2. Influences which varioris degrees of monopolistic ad- in, n, 2. 
 vantage may exert on the distribution of the burden of the 
 general costs of a business among the several groups of its 
 products. 
 
 'We must here revert to the consideration that, when a 
 business produces more than one thing, the costs which are 
 incurred on account of each several process of production cannot 
 be definitely ascertained. The costs in view in such a case are 
 not the prime or "out of pocket" expenses, directly incurred on 
 account of a particular smaU order or contract. They consist 
 of a share of the general costs of the business; due provision 
 being made for keeping the plant in full repair and of suitable 
 capacity for its work. 
 
 We have seen^ that, when the common costs of a group of 
 products are so intimately associated, that each of the products 
 can be produced to good advantage only in association with some 
 or aU of the others, then the problem is assimilated in some 
 degree to that of "joint products," such as mutton and sheeps' 
 wool, the production of which cannot be separated; though the 
 relative proportions of the several products may be varied. In 
 this case the distribution of general costs becomes somewhat 
 arbitrary. But the economy of producing (or marketing) to- 
 gether several different products, which can conveniently be 
 handled "in common" by the same plant and organization, 
 though often considerable, is seldom over-mastering. Con- 
 sequently, if any one of those who produced several varieties of 
 such goods were to try to place on any one variety much more 
 than its due share of the general costs of his business, he might 
 probably find himself undersold by someone who specialized on 
 that variety. Therefore the freedom which he has in distributing 
 those costs, though real and important, is rather narrowly 
 limited: he cannot afford to leave out of mind the principles ac- 
 cording to which the general costs of a business are ordinarily dis- 
 tributed among its various products, nor to depart far from them. 
 
 The monopolist is bound by no such fetters. He may indeed 
 need to watch the prices of products which, though different 
 from his, might displace some of them, if his were not easily to 
 
 1 Above, II, I, 8. 
 
^14 VARIOUS INFLUENCES OF MONOPOLY ON PRICES 
 
 III, n, 2. be had: but in the main he has to consider only how to increase 
 the amoimt by which his own net profits exceed those of ordinary 
 busiQesses. 
 
 Let us take the case of an absolute monopoly, which has 
 already established its market, and has no exceptional reason 
 for sacrificing present income for the sake of a distant future. 
 Of course its owner will not undertake any new outlay, unless 
 he has a fair prospect of recovering it with at least normal 
 profits from the sale of his products. First let us suppose that 
 the outlay is expected to improve their quality, and to enable 
 him to charge higher prices for them, while maiataining or 
 perhaps even increasing their sales; he will then consider which 
 groups of them can bear the greatest increase in price without 
 considerably checking demand; and he wiU make them carry 
 the chief part of the expenses of his new outlay. If, through 
 political or other pressure, he is prevented from raising the price 
 of any one, he wUl conclude that he must throw a larger share 
 than he woidd have wished on other products; or, in an extreme 
 case, abstain from the projected outlay. 
 
 Let us now pass to an absolute monopolist who has reason 
 to beHeve that he may greatly develop the market for some of 
 his products by selling them a good deal below the prices, at 
 which they would yield him the largest net revenue in the 
 present. He may of course reckon that, with a larger output, 
 he will have lower costs of production per unit; so that ere 
 long the prices which will yield him the maximum net revenue, 
 will be as low as, or even lower than, those which he is now 
 charging. Thus the price policies, which he adopts for different 
 products, are partly dependent on one another. If he receives 
 less than he expected from one product, he may be unable to 
 sacrifice as much immediate revenue for the sake of future 
 gains, as he had proposed: and he may raise some of his other 
 prices. Similarly, if a tax were imposed on one of his products: 
 he would then be likely, in effect, to throw more of the burden 
 of the general costs of his business on other products^. 
 
 ' If the taxed product were a "joint product" in the narrowest use of the 
 term with some other that he made; then the lessening of the sale of the first, 
 caused by the tax, would tend to diminish his output of the second; and he 
 would almost certainly raise the price of that. 
 
DISTRIBUTION OF GENERAL COSTS OF A MONOPOLY 415 
 
 The conditions which may call for such action on the part of III, n, 3. 
 an absolute monopolist are indeed rather infrequent: that is 
 not of much practical importance, because absolute monopolies 
 are rare. But such conditions are common in the much more 
 numerous group of conditional monopolies. For suppose a 
 steamship company, or a large manufacturing company of any 
 kind, has attained a conditional monopoly in a certain area. It 
 will consider the danger that the high aggregate profits which 
 it is making on its busiuess as a whole, are likely to tempt new 
 rivals into its area. If a new tax or some constrictive regu- 
 lation is imposed on one group of its services or products, it 
 may assume that potential rivals would make account for like 
 treatment, and regard the prospects of making high profits on 
 a competitive undertaking as less bright than before: and in 
 consequence it may probably raise its charges for some services 
 or products, that are not affected by the new legislation, a 
 little nearer to the levels, which would give the maximiun net 
 monopoly revenue. Of course it would not raise them above 
 those levels. 
 
 More complex issues are raised when a monopolist's product 
 is sold in several markets, in some of which the demand for it 
 is elastic, and in others inelastic : for he has stronger inducements 
 to lower his price in the former than in the latter. Again, one 
 of two markets, otherwise similar, may be at a much greater 
 distance than the other; and, if his own charge is the same for 
 the two markets, the price of the product when bearing high 
 costs of carriage may be almost prohibitive; though the lower 
 price at which the nearer market obtains it may not be too 
 high. This is one of several causes, legitimate and illegitimate, 
 making for price-discriminations in monopolistic poUcy. 
 
 3. Unequal or "discriminating" charges for the same 
 goods or services delivered under dissimilar conditions may 
 he a part of a reasonable, mid even of a constructive policy : 
 but the line of demarcation between these and others, which 
 aim at the destruction of inconvenient rivals, is often hard 
 to be drawn. 
 
 So far it has been assumed that the monopolist sells to all 
 purchasers at the same price. But it may be that his goods or 
 
416 VAEIOUS INFLUENCES OF MONOPOLY ON PRICES 
 
 III, u, 3. services are in such urgent demand from some groups of well-to- 
 do customers that their purchases will be but little diminished 
 by a great rise of his prices. Meanwhile other groups may be 
 unwilling or unable to make considerable purchases at any but 
 a low price: they may have convenient access to some tolerable 
 substitute; or they may be relatively poor, or finally have no 
 great occasion for the things he offers. Unequal conditions of 
 these kinds are to be found in connection with the retail supply 
 of many classes of goods. 
 
 In such cases it is generally the rich, who are charged the 
 higher prices. But in large commercial transactions, especially 
 in regard to transport services, any differential treatment that 
 is made, is likely to be in favour of the more powerful customers: 
 and this fact has contributed largely to a hostile attitude towards 
 railway discriminations generally, which was very prominent not 
 long ago, and has considerable strength still. 
 
 This attitude ia its turn has fostered the opinion that if a 
 railway, or other partial monopoly, were forced to charge the 
 same price to all, that price would be lower than the average of 
 its charges had been when it was free to vary them to suit its 
 own advantage. There are some cases in which this result would 
 follow. But in other cases the monopolist would simply dispense 
 with those of his sales, which could only be made at a low price: 
 with the result that some of his customers would be seriously 
 prejudiced; and the uniform price, which he charged, would 
 probably be higher than the average of those which he had 
 previously charged. 
 
 Whether the first or the second of these results follows, 
 depends on the relative capacities of the markets for which he 
 judges high prices to suit his purpose the better, and those for 
 which he prefers low prices. For instance, in rural districts the 
 only good artificial light to be had is that of mineral oil; in 
 urban districts where gas or electricity is accessible, scarcely 
 anyone would use oil if it were dear. If then the supply of oil 
 were in the hands of a monopolist who was able to discriminate, 
 he would charge a high price in the first set of districts, and a 
 low price in the latter. If he were prevented from discruni- 
 nating he would consider whether the custom of the urban 
 districts was worth retaining at the cost of charging a low price 
 
GOOD AND EVIL IN PRICE DISCRIMINATIONS 417 
 
 in the country. This would depend on the volume of the urban in, n, 3. 
 demand; and on the relation between the low price, which alone 
 it would bear, and his costs. If the urban demand at a price 
 considerably above cost of production were very great relatively 
 to that of the country, his single price would be a low one. If 
 not he would prefer sales in the country at a price which gave 
 him a large margin of profit; and, abandoning urban markets, he 
 would charge a higher price than if he were able to discriminate. 
 
 But unfortunately a discrimination, which belongs to legiti- 
 mate constructive business, is not always capable of being dis- 
 tinguished clearly from one, which is strategic and may involve 
 danger to the body politic. A strategic discrimination nearly 
 always has some constructive value; and its apologists naturally 
 put this into the foreground. It often happens that they alone 
 have the knowledge required for assigning to these two elements 
 their true relative values. The public, in doubt, may be com- 
 pelled to acquiesce in some discriminations, the real purpose of 
 which it suspects to be destructive: while it must prohibit others 
 that may be constructive under some circumstances, but also 
 may be apphed to evil uses by routes which it is not easy to 
 trace^. 
 
 This matter is becoming increasingly serious with the con- 
 
 '■ This difficulty may be illustrated by an extract from the Report of the 
 Commissioner appointed in 1904 to inquire whether the great firms engaged in 
 the beef industry had been acting in violation of the public interest. He refers 
 to the charge that they had injuriously undersold local dealers in small towns 
 by exceptional prices at the season when the local supply was largest; and 
 gives (pp. 80, 81) Mr J. Ogden Armour's defence: — "On account of local con- 
 ditions we have frequently been obliged to sell meat products at a loss in certain 
 sections for certain periods of time in order to keep our branch houses running. 
 There are, for instance, certain markets in Ohio which, during part of the 
 year, are supplied largely with local cattle grown in the neighbourhood. Of 
 necessity the prices at that time are not good, and the volume of our business 
 is cut down. We nevertheless continue to sell some beef, because we have our 
 investment there and a staff of men, so that the expense goes on constantly, 
 and because we have a certain line of trade which we must keep on our books. 
 We cannot close up one month and open the following with any success. The 
 practice of selling at less than cost has not been pursued in any case with a 
 view to obtaining a virtual monopoly of the supply of any meat product, nor has 
 it in any case resulted in securing to this company any such monopoly in any 
 part of the country." No one can question the prima 'facie validity of the 
 defence: but those who have suffered from the underselling while not definitely 
 asserting that "a virtual monopoly" has been aimed at, may doubt whether 
 the chief motives of the imderselling have been made public. 
 
 M. I. T. 14 
 
418 VARIOUS INFLUENCES OF MONOPOLY ON PRICES 
 
 III, II, 4. tinual growth of vast capitalistic aggregations. Thus, returning 
 to the case of mineral oU, let us suppose that the greater part of 
 the trade in it throughout a large district had fallen into the hands 
 of a company, which desired to make its monopoly complete. 
 It might watch for the appearance of competitors with small 
 means; and if allowed to discriminate it might destroy them by 
 selling at a very low price in their immediate neighbourhood. 
 But it could not afEord to adopt this price everywhere: and if 
 forced to maintain a single price (after due allowance for differ- 
 ences in costs of delivery), it would reach uniformity by ceasing 
 to sell any oil at a very low price: that is, by raising the average 
 price of its sales. And yet this result might be more in the public 
 interest in the long run than that which would follow from opening 
 the door to malignant discrimination; which might begin by 
 suppressing nascent competition, and end by raising prices 
 generally, though not necessarily to a uniform level, throughout 
 the whole district. 
 
 4. The relations between two monopolies each of which 
 is depeiident on the services of the other. Buyers' monopolies. 
 Local and other partial monopolies in multiple ownership. 
 
 If the product of each of the two monopolies is useless 
 without that of the other: if each is absolutely free from the 
 competition of any possible substitute, and the owner of each is 
 able and willing to wait for any length of time; then there is 
 no possible issue to the contest between them for the upper 
 hand; unless it be found in the good nature and sense of one or 
 both. This case has, of course, Uttle practical interest: for the 
 shortness of human life, the changing conditions of demand, and 
 the development of technique have nearly always loosened some 
 one or more of the foimdations of any conflict between mono- 
 polists, which has appeared to have no solution. Nevertheless 
 any such contests which appear likely to last long, may be of 
 public concern, and give occasion to anxious thought on the 
 part of responsible statesmen. 
 
 It is customary to regard the employer as the buyer of 
 labour, and the employee as the seller of it. But a well-known 
 boast of exceptionally powerful trade-union officials is that they 
 practically control their whole industry, and allow the employer 
 
PROBLEMS OF CORRELATED MONOPOLIES 419 
 
 just as much as they consider necessary to keep hin) at his work: iii, n, 4. 
 they claim to be the buyers of the employer's services. The 
 industry is of course dominated by long established routine: 
 a similar boast could not be made in an industry, in which no 
 moderate success could be obtained by an employer, who lacked 
 the faculty and the opportunity for constant readjustments of 
 his methods, and for casting away plant which became obsolete 
 long before it was worn out. 
 
 This illustrates the principle that when the services of two 
 sets of people are required for producing a certain result, and 
 neither can be turned to any considerable use unless it has 
 the aid of the other, then it is a matter of small importance 
 which of the two receives the price for the common product, and 
 pays the other for his share of the work. What is important, 
 is the question which of the two is in the better position for 
 bargaining. 
 
 Again a railroad serving a purely agricultural district of 
 a new country, must look to freights of farm produce as its 
 main source of revenue; while the farmers are dependent on 
 sales, which they cannot make without the aid of the railway, 
 for the whole reward of their labour beyond their own food. 
 If the railway is strong and uncontrolled, it may in efiect say 
 to the farmers either, "We will sell to you or to any purchaser 
 from you, our services at rates that will leave you a bare living," 
 or "We ofEer you a price for your produce, which will give you 
 a living. If you refuse it, we will not carry your produce at 
 any rate which it can bear." The results are the same in the two 
 cases, though in the one case the railroad appears as a mono- 
 polistic seller and in the other as a monopolistic buyer. In 
 either case it would probably have the upper hand, because it 
 could afford to wait. 
 
 If, however, the farmers were able to combine and make a 
 railway to reach the ocean, or navigable water leading to it, they 
 might send their produce to markets hitherto inaccessible to 
 them: and, acting in combination, they might refuse to buy any 
 transport from the railway (or, which comes to the same thing 
 ultimately, to sell any produce to it) except on terms only just 
 sufficiently favourable to it, to keep it in business. 
 
 Again, consider cartels, each of which controls a stage of a 
 
420 VARIOUS INFLUENCES OF MONOPOLY ON PRICES 
 
 III, II, 4. single branch of production: as, for instance, that of drawing the 
 wire of which wire nails are made, and that of making the nails. 
 In this case it is possible for those engaged in either stage to 
 undertake the other also. Movements of this kiad are going on 
 in all countries, but especially in Germany: they indicate that, 
 though the buyer generally has the upper hand of the dealer 
 in the ordinary course of trade, a combination of sellers fre- 
 quently dictates terms to a combination of buyers: and, if the 
 buyers are not ultimate consumers, the public may suffer a 
 two-fold burden. 
 
 This leads to the remark that, if each of two monopolies 
 is essential for the performance of a given pubUc service, and if 
 there is no chance that any effective competition will be offered 
 to either, then it is generally in the public iaterest that they 
 should be amalgamated. For when separated, the benefit of any 
 outlay, made by either for the improvement of its efficiency, will 
 accrue partly to the other, untU new terms for the division of 
 the earnings of their joiat work have been agreed on: whereas 
 a single monopoly would get at once the whole reward of its 
 enterprise. 
 
 Monopolies of this class are, however, seldom as absolute and 
 permanent as they appear; and it may be important in the public 
 interest that doors should be left open for the appearance of 
 competitors. Suppose for instance that a line of steamers runs 
 between two ports, each of which is served by only one railway: 
 the immediate effect of a purchase of the steamers by one of the 
 railways might probably add to the efficiency of the service 
 without any increase of cost ; and, possibly even at a lower cost. 
 But yet such a purchase might in the long run be contrary to 
 public interests, unless Government exerted a strong influence 
 on the railway to prevent it from making harsh use of its mono- 
 polistic power. In the long run, it might have been better that 
 the steamers, in independent hands, should have offered induce- 
 ments to a second railway to make connection with them at the 
 same, or some other, port"-. 
 
 ' The Railway Act of 1854, clause 30, ordered that a railway company, when 
 authorized to set up a line of steamers, should be required to charge the same 
 fares to passengers on the steamers, who travelled by rival lines, as it charged 
 to its own passengers: and the Act of 1883, clause 30, authorized any port 
 
PROBLEMS OF CORRELATED MONOPOLIES 421 
 
 Sometimes a conditional monopoly is held, not by a single iii, n, 4. 
 owner, but by a group of owners; who may act sometimes inde- 
 pendently of one another, and sometimes in more or less stringent 
 association. Many such monopolies in multiple oumership are 
 local: others are national, and they will call for careful study in 
 connection with the policies of international trade. Others are 
 based on common interests in some branch of industry or trade; 
 which is indeed open to all, but is yet a partial monopoly for 
 the time at least of those actually engaged in it. The most 
 prominent instances of these are cartels, the members of which 
 act in unison. But there are other cases of monopolies in multiple 
 ownership; where the bond of union is very slight. They are 
 largely associated with localized ownership of property: taxes 
 (or rates) levied on them are often spent mainly for their benefit, 
 and are not "onerous": something is said about them in 
 Appendix L. But an imaginary illustration, more appropriate 
 to this chapter, may be given here. 
 
 Suppose that there are several patents, all about equally 
 eSective for making a thing; and that there is no good method 
 available for making it, which does not infringe one or more of 
 these patents: also that the various patentees do not agree on 
 terms of fusion. Each might look to get a certain monopoly 
 revenue in excess of normal profits on his capital (remuneration 
 for his own work being included); and push the sales of his 
 goods at the expense of his rivals. If the industry yielded a 
 more than proportionate increase of product to increased labour 
 and capital, the well-known conditions of unstable equilibrium 
 would arise: each would hope by increasing his production to 
 undersell his rivals, and thus gain the power of still further 
 underselling them with increased profits to himself. Thus, 
 from a purely abstract point of view, it would appear that the 
 
 authority to claim a hearing of the charge that the railway company, or com- 
 panies, which served it, placed it at a disadvantage as compared with any 
 other port served by the same company or companies. 
 
 A somewhat similar critical case arises when the products of one place 
 A, can be best marketed at another place, B, on the same railway. Then the 
 carriers are likely to say that "the value of their service" is shown by the excess 
 of the B prices of those products over the A prices: while traders will justify 
 their B prices by reference to the carriers' charges. Circular reasonings of this 
 kind will be found to add to the inherent difficulties of many problems of semi- 
 monopolistic production, trading and transport. 
 
422 VARIOUS INFLUENCES OF MONOPOLY ON PRICES 
 
 III, II, 4. strongest competitor would ere long outbid all his rivals by 
 selling close to mere cost of production, or even below: and 
 reducing the problem to one of simple monopoly. But, in the 
 real world, increase in the size of a business goes with increase 
 of age, which is often a source of manifold weaknesses; and no 
 violence is involved in supposing that several firms with about 
 equal economies of production remain in competition. Then if 
 a tax fixed in amount were levied on each business, the burden 
 of the tax would remain on it, provided of course the tax were 
 not sufficiently heavy to put a stop to the business: and the 
 same would be true of a tax proportionate to the net monopoly 
 profits of the business. On the other hand a tax proportionate 
 to the amount produced, or to the gross receipts of each business 
 would diminish production; and parts of the burden of the tax 
 would be shifted on those who bought the product in question, 
 and on those who produced the materials and plant needed by 
 its producers. 
 
CHAPTER III 
 
 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 1. The interpermeation of competition and monopoly, iii, m, i. 
 illustrated by the simple case of traffic at a small ferry. 
 
 Man can create thought: but he can only move matter, 
 readjust it and bring it into position for being afiected by 
 Nature's chemical and vitalizing influences: there is indeed a 
 large element of simple transport in mining, forestry and even 
 some manufacturing industries^. But yet the "transport" 
 industries, which imdertake nothing more than the mere move- 
 ment of persons and things from one place to another, have 
 constituted one of the most important activities of man in every 
 stage of advanced civilization. 
 
 Transport is a common need of nearly all persons and nearly 
 all goods. Speaking generally, each transport agency can carry 
 almost anything in its special area; and it thus difEers from 
 a cotton spinning mill, the plant of which cannot be used as 
 a whole for any other purpose than its own. But much of 
 the plant of an engineering establishment often takes part in 
 the making of hundreds of various products. No' doubt there 
 is much variety in the handling appropriate to them: but a 
 similar variety is often met in the handling for transport of 
 various things; as, for instance, human beings and live animals; 
 coal and gold; lumber and perishable fruit. Thus the services 
 rendered by transport agencies are so much more imiform in 
 character than those rendered by most other industries, that 
 the varying relations of monopoly and competition can be traced 
 in them, with less intermingling of technical considerations 
 peculiar to them than in the case of any other great group of 
 
 ' See above, II, I, 2. 
 
424 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, III, 1. industries. They are therefore used to set the keynote of the 
 present Book. 
 
 As was indicated at the beginning of this Book, the most 
 prominent instance of the interpermeation of competition and 
 monopoly in the modern world is to be found in railway traffic. 
 But the advantages which a railway company derives from 
 the exclusive occupation of a great thoroughfare have very 
 little counterpart in other industries. Accordingly it is best to 
 start with industries of -transport on open ways by land and 
 water: for competition penetrates into them further than into 
 the railway industry. 
 
 The main outlines of the problems of transport are presented 
 in their simplest form in the case of a small ferry. For the 
 journey being short, the same boat generally carries passengers 
 and all manner of goods: there is no occasion to make special 
 provision for things that need to travel quickly, or require 
 careful packing or tending. Thus the ferry diEers widely from 
 a shipping line and a railway: but yet its management some- 
 times raises issues, which are prominent in railway literature. 
 
 For instance, a ferry-boat with only half its complement of 
 passengers could take a few more without appreciable cost. 
 When therefore we say that free competition among ferry-boats, 
 where there is no monopoly, tends to make the charges equal to 
 the cost of service; what we mean is that it tends so to adjust 
 the supply of ferry-boats and their charges to demand, that the 
 earnings of a boat give normal remuneration to the capital and 
 labour invested in it: competition adjusts charges, not to the 
 cost of carrying any particular passenger, but to the whole 
 process of ferrying for goods and passengers alike. 
 
 If the boats carried only passengers, each passenger might 
 fairly be said to have cost the aimual expenses (including profits 
 and depreciation) of working a ferry-boat, divided by the number 
 of passengers carried in the year. This is a simple instance of 
 the general proposition that the cost of production, with which 
 economic science is concerned, is scarcely ever that of a single 
 unit; it is nearly always that of a whole process. The cost of 
 a particular copy of a book or a particular ice, like that of carry- 
 ing a particular passenger on such a ferry, must be inferred from 
 
ILLUSTRATION FROM A SMALL FERRY 425 
 
 the cost of the whole production. A book left on the publisher's III, m, i. 
 hands, or an ice which a vendor takes home on a hot day, 
 corresponds to a vacant place in a ferry-boat or a railway train: 
 the prices of those things which are marketed must cover the 
 costs of production of those which are not marketed. The fact 
 that a train can carry an additional passenger without appreci- 
 able cost to it, has sometimes been alleged as a distinctive feature 
 of the railway industry: but it is only a strong instance of a 
 general rule. 
 
 Again, on the ferry-boat, as on the railway, there is no simple 
 rule for dividing out the costs between passengers and goods. 
 If the space occupied by cargo could not in any case have 
 accommodated passengers, the division would, for the time, be 
 arbitrary. But the structure of a boat can often be so modified 
 as to change the proportions of the accommodation which it 
 offers for passengers and cargo: and then the additional cost 
 required for constructing and working a boat to carry rather less 
 cargo and rather more passengers, or vice versa, affords the basis 
 on which free competition could divide out cost and charges in 
 the long run between the two kinds of traffic. In such matters 
 the tendency to experiment, which is innate in human nature, 
 will sometimes try various arrangements: but more often there 
 is an inert acquiescence in a traditional shape of boat and a 
 traditional distribution of charges. 
 
 If aU the ferry-boats connecting an island with the mainland 
 are in the hands of a single owner, with absolute permanent 
 monopoly, unfettered by any regulations, his charges may 
 probably be adjusted to "what the traffic will bear," in the sense 
 of yielding the maximum monopoly revenue. But he may be in 
 some measure influenced by considerations other than those 
 of inunediate gain: and in the extreme case in which the island 
 belongs to him, he may reflect that charges, which appreciably 
 diminished its attractions for residence and for business, would 
 so retard the growth of population and the investment of capital 
 in it, that he would lose in rents of agricultural and urban land, 
 and in other ways, more than he gained from high charges for 
 the ferry. He may therefore lower his charges a long way towards 
 those which would afford the maximum total benefit : that is, the 
 sum of the net benefits which he derives directly from the ferry; 
 
 14—5 
 
426 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, III, 2. together with those derived by the islanders from the journeys 
 which they would take, and from the business which they would 
 carry out if the ferry charges were low, but which they would 
 forego if the charges were high. If he owned only a part of the 
 land, he would not, as a matter of business, lower his rates very 
 far: he might however adopt a "Compromise" set of rates, 
 lower than pure monopoly rates, but higher than those which he 
 would adopt if he regarded his own interest as substantially one 
 with that of the islanders. 
 
 2. On the 02}en high road some Icinds of traffic slww 
 traces of moiiopoly, and of the arbitrary distribution of 
 general costs : but comijetition keeps the cliargesfor the main 
 bulk of heavy traffic close to its actual costs. 
 
 The problems of a carrier on a route, which offers insufficient 
 employment for more than a single cart, resemble those of a 
 ferryman in like case. So long as he does not set his charges 
 so high as to invite competition, he has a partial monopoly; and 
 he may put a rather high charge on any service, which is desired 
 by people who can afiord to pay well, and have no convenient 
 alternative: though those services, which farmers and well-to-do 
 people can discharge easily for themselves, will not bear a high 
 rate. 
 
 More interesting are the problems of services by coaches, 
 working with fixed time tables, and carrying mails, passengers 
 and light parcels. Their equipment involves large expense, and 
 many journeys that hardly pay prime costs; and, partly for these 
 reasons, their charges are arranged in some respects on methods 
 which are commonly regarded as characteristic of monopolistic 
 railway policy. A coaching firm can adjust fares for passengers 
 inside and outside, and for parcels, to that which each sort of the 
 traffic will bear without greatly shrinking. If it finds that this 
 arrangement of charges, leaves part of its accommodation idle, 
 while another part is over burdened, the shape of the coaches 
 can be gradually modified to suit the changed conditions: or 
 supplementary vehicles can be employed. 
 
 Again, the conflict of interests between long and short 
 distance railway traffic is commonly associated with railway 
 monopoly: but it may exist on the highway, in a place where 
 
ON THE ROAD MONOPOLY IS RARE, COST OF SERVICE RULES 427 
 
 the total demand for the services of public passenger conveyance iii, m, 2. 
 is small, even though there be no monopoly. If there are two 
 or more roads (but no railroad) connecting two towns, the 
 coaches serving them will choose the shortest. Those who live 
 on a longer route will however desire facilities for travelling 
 both locally and to and from each of the towns: but their traffic 
 may probably not suffice to give fairly good occupation for a 
 single coach; therefore, if a coach is put on that route its 
 charges per mile may reasonably be higher than those on the 
 main route. But that coach could not attract passengers for 
 the through journey without carrying them at somewhat lower 
 fares for the whole journey than are charged on the main route; 
 and therefore at a much lower charge per mile than for local 
 traffic on its special route. 
 
 The competing coaches on the main route may acquiesce in 
 that arrangement. But if those who live on the longer route 
 find themselves charged more for a long stretch of the journey 
 between the two towns than is charged for the whole distance 
 between the towns by their route, a feeling of grievance arises; 
 which is not easily to be allayed by argument, though in fact it 
 is not well founded. Such cases are rare: but somewhat similar 
 cases of reasonably high charges for short distance traffic have 
 been given great prominence in discussions of public policy as 
 to railways; as we shall see. 
 
 Passenger omnibuses in London passed long ago out of the 
 hands of small firms into those of considerable companies. After 
 a time the companies divided out the traffic between them in 
 peace, broken occasionally by violent fights^. With the advent 
 of motor traffic, there has been an increasing advantage in being 
 able to keep a large general reserve which could come to the 
 aid of any particular district, in case of exceptional demands by 
 the public or breakdowns of the plant: thus combination grows. 
 
 ' They made common cause against interlopers; and there was an oiEce at 
 which a list of fees was kept, each corresponding to the price which must be paid 
 for leave to run an omnibus on a particular route at given hours of the day. 
 Of course any omnibus might start without paying the fee; but if it did, it 
 would be "nursed" by one running just before it, and another just behind 
 it; with orders not to spare the horses, but to cut in between the intruding 
 omnibus and its passengers. 
 
428 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, III, 2. But in cities of the first rank the competitive activities of tram- 
 ways and motor-cabs are supplemented by those of underground 
 railways. The recent amalgamation of London imderground 
 railway, tramway, and omnibus companies gives scope for great 
 economies and enlarged conveniences for travellers. It may 
 prove a great public benefit so long as those in control are able, 
 energetic, alert to seek improvements in technique; and to 
 promote subordinates, with true insight into their qualities of 
 mind and character. But, should any slackness supervene, the 
 monopolistic power of the amalgamation may raise demands for 
 authoritative intervention, and thus increase the burdens that 
 tend to impair the efficiency of Government in that work, which 
 it alone can do. 
 
 Again, much of the collection and distribution of large and 
 smaU parcels over a very wide area, though open to everyone, 
 falls necessarily into the hands of one or more powerful organiza- 
 tions: it is in fact of a scope too large to be perfectly managed 
 by any force less than that of the universal State post. Thus 
 the long-distance-distribution of light parcels, letters, etc., has 
 fallen almost wholly into the hands of public and private bodies 
 with large resources^. 
 
 Far different is the case of the transport of heavy goods by 
 road in large quantities. Everyone who habitually sends whole 
 wagon loads of any sort of goods, either keeps his own wagons 
 for the purpose; or makes a contract for the work on competitive 
 terms, close to actual cost of service, with some firm that is 
 specially equipped for such work. The recent improvement of 
 the surface of main roads, and the development of wagons and 
 even small trains propelled by steam or internal combustion 
 along the roads, introduces a new competitive element into 
 
 ' The divergences between charge and cost of service for postal services are 
 indeed grotesque. For instance, the charge for sending a book by post a mile 
 or so from one part of the same postal delivery system to another, is the same 
 as for sending it from any part of the Postal Union to any other, though the two 
 may be ten thousand miles apart. Perhaps motor wagons may redress some 
 of these anomalies; the charges for the delivery of parcels over small distances 
 being reduced to much lower levels by the activities of private companies. 
 These companies are however not unlikely to develop after a time monopolistio 
 tendencies. A comparison of the practice of the Governments of Western Europe 
 in this matter with that of American Express Companies in regard to the collec- 
 tion and delivery of parcels is not favourable to private capitalistic organization. 
 
ON THE ROAD MONOPOLY IS RARE, COST OF SERVICE RULES 429 
 
 the charges made by railways for carrying goods in bulk over iii, m, a 
 medium distances; of which more hereafter^. 
 
 3. On the ocean as on the land, charges /or the carriage 
 of heavy goods in bulk are governed mainly hy the costs of 
 the services rendered ; while the charges for quick transport 
 at fixed times are in great measure adjusted to demands for 
 tJie services rendered. 
 
 Britain is the chief home of the shipping industry. The 
 capital, which she has invested in it, is indeed small relatively to 
 that invested in her railways: but her prosperity depends on 
 the smooth working of her shipping industry in an exceptional 
 degree. Norway, New Zealand and Japan also have predomLaant 
 interests in the sea: but Britain for the present pioneers the 
 way in shipping problems. The best study of monopolistic 
 problems in shipping is that made by the British Royal Com- 
 mission on Shipping Rings (1906 — 9): and, as these problems 
 resemble monopolistic problems in general industries more 
 closely than do the problems of railway monopoly, it is fitting 
 that prominence should be given to them here. 
 
 Sailing ships used to lay themselves out mainly for cargoes; 
 though they were generally ready to take a few passengers. 
 They might have fixed times for starting; but they could not 
 have even approximately fixed times for arrival at the end of 
 long voyages, and they ofiered but few amenities: scarcely 
 anyone took a long voyage unless for urgent business. But 
 the economy and efficiency of large steamships have offered 
 increasing inducements for taking long voyages on even slight 
 occasions: and this change, together with the growing demands 
 and resources of the chief post offices of the world, has called 
 into existence great fleets of swift steamships, which make it 
 their first business to attract passengers, and in some cases 
 mails: their second aim is to attract such cargo as can afford 
 to pay relatively high charges for sure and quick transport^. 
 
 • See below, pp. 500 — 506. Attention has been called (above, p. 297) to 
 the advantage, which a giant retail business is obtaining over local shopkeepers 
 through its power of delivering its goods by a "fleet" of motor wagons: but the 
 issues raised thereby are of a different order from those now in view. 
 
 ' When business activity is high in America and low in Europe, a million 
 emigrants may go westwards in a single year; and a, considerable number of 
 
COMPETITION AND MONOPOLY IN TRANSPORT 
 
 The chief advantages which a great "Line" oflera to shippers, 
 besides quick transit in well-appointed and secure ships sailing 
 at short intervals, are implicit or explicit guarantees as to the 
 care with which the cargo is handled, and as to the stability of 
 the charges made. These advantages are of some importance 
 in regard to light goods, and small consignments of all sorts of 
 goods. Light goods, which are liable to damage by careless 
 treatment, are not readily consigned to the charge of an unknown 
 person: but the shipper knows that a great Line cannot afford 
 to let them be handled negligently, and he often does not even 
 concern himself to inquire by what vessel they will travel. 
 The more frail and valuable his goods are, the more highly he 
 prizes this speed and security, and therefore the higher is the 
 rate which "the traffic will bear" for them. Again, many, 
 foreign buyers desire to have prices quoted to them for deUvery 
 at their own ports. It is true that in the case of any particular 
 large consignment, the charge to be made on this account can 
 be ascertained by telephone and telegraphed to the buyer: but 
 for minor consignments, and especially for those advertised in 
 price lists addressed to small buyers, there is an urgent need of 
 charges fixed some time in advance^. 
 
 them return when the conditions are reversed. It is true that the great "Liner" 
 has no exclusive hold on emigrants and others who are content with rough 
 accommodation, provided the charge for it is low. But the carriage of a 
 thousand emigrants on a lower deck of a great ship can be effected very 
 cheaply: their food is inexpensive, and they pay little more highly for space 
 than does first-class light cargo : they even yield a higher rate of net profit on 
 their direct costs than do first-class passengers. In the main the carriage of 
 emigrants belongs to the great companies : expensive organization is required for 
 collecting full loads of emigrants. 
 
 ^ This is a matter which has more influence on the courses of international 
 trade than is generally known : its importance is increased by the almost universal 
 tendency of the present age towards keeping ever smaller stocks of each of an 
 ever increasing variety of goods; and replenishing the stocks by small orders 
 at frequent intervals. Liner freight rates are at so much a ton by weight, or 
 "measurement"; the latter being taken at forty cubic feet: that method is 
 chosen in each case which indicates the higher charge. 
 
 Differences in value and ease of handling have led to the placing of glass 
 ware in crates in class IV, with clay, chalk, crude forms of iron, etc.; while 
 iron chains, oak boards, etc., were in class II and copper in class I. The rates 
 for class I were nearly twice as high as those for class IV; but as glass pays by 
 measurement, a ton weight of glass pays at least as much as a ton of copper. It 
 may be added that shippers complained of the scarcity of information on such 
 matters; and that oven the Commission's inquiries met with but little response. 
 
MONOPOLY IS STRONG IN QUICK SEA TRANSPORT 431 
 
 But these advantages are of relatively small importance to iir, m, 3. 
 the shipper of common goods in bulk, such as grain, coal and 
 other minerals, cotton, jute, wool, etc. The shipper of such 
 things generally finds it to his advantage to hire, or "charter" 
 one or more cargo ships for the purpose. A great part of the 
 transport of all these things, and especially grain and coal, is 
 done by "Tramps"; that is vessels which have no regular route 
 and no fixed times of sailing, but ever seek those ports at which 
 they are most likely to get good freights. This work corresponds 
 to that of carts on the high road which carry things in bulk. 
 Lines of ships, like lines of coaches (where there are no railways), 
 carry passengers and small parcels^. 
 
 The freedom of movement of Tramps, and their variety of 
 size and speed, enable them to supply whatever accommodation 
 any merchant happens to want, without asking him to pay for 
 capacity or speed that he does not need: and their position is in 
 some respects impregnable. They do not indeed keep freights 
 steady: because harvest variations, and fluctuations of general 
 credit cause the total demand for shipping all the world over 
 to vary greatly from year to year; while the demand at any one 
 port may change violently with but short notice. A shipper 
 anxious to hit some market, where the price of his grain is a 
 few shillings a quarter higher than he can expect if he misses 
 that market, may be willing to pay 10s. extra per ton in order 
 to catch it; and that is a very large addition to the ordinary 
 Tramp rates for most voyages. On the other hand, when acci- 
 dent or miscalculation has brought to a port a tonnage much 
 in excess of the cargo available, Tramps will carry freight at a 
 merely nominal rate in a direction in which they expect to find 
 good employment. But in spite of these great fluctuations 
 
 • Of course the terms "large" and "small" are relative to the agencies 
 used: a small consignment for a ship would often be much too big for the largest 
 wagon. It requires an effort to apprehend the difference in scale between the 
 traffic of the ocean and that of the land: and some illustrative figures may be 
 of interest. The cargo of a small ship, if set on horse-drawn wagons, would 
 occupy several miles of road : that of the largest ship of the present time would 
 occupy about fifty miles. An efficient modern ship of 5000 tons net register, 
 capable of carrying more than ten thousand tons, will consume but two tons 
 of coal while steaming for an hour at the rate of about nine knots. That is, 
 the consumption of coal fuel needed for carrying one ton a hundred miles is 
 about three and a half pounds; costing less than a half -penny. 
 
432 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 in, III, 3. from time to time, the average costs of carrying the great mass 
 of heavy ocean traffic are kept down, directly or indirectly, by 
 the competition of Tramps very close to the actual costs of the 
 cheapest method of transport that has ever been known. Thus 
 it may be said that, as a rule, the prices current at ports of 
 delivery for goods carried in bulk exceed their prices at ports 
 of origin on the average of a decade (in which there has been 
 no great war or other violent disturbance) by amounts that are 
 just sufficient to cause the supply of cargo vessels to keep pace 
 with the increase in quantity of heavy freights that are seeking 
 tonnage^. 
 
 Of course the degrees of control over cargo rates which 
 are exerted by Liners and Tramps respectively vary with the 
 circumstances of each course of trade. The tonnage passing 
 between Europe and North America aimually exceeds that in 
 all the rest of the trade of the world. But it is largely occupied 
 with passengers; and there is so much empty carrying space 
 in the holds of many Liners that the regulation of cargo rates 
 by them is impracticable: they often underbid the Tramps, 
 Again the coasting trade of Britain is so much controlled by 
 railway competition, and so intimately connected with small 
 local affairs, that it also is not regulated. Again the tonnage 
 required for the trade to Europe from Argentina, Australia, and 
 some other countries is much in excess of that furnished by 
 Liners; and rates are practically governed by the supply of 
 Tramp tonnage relatively to the demand: but more of this a 
 little later^. 
 
 ^ Various estimates give to "Tramps," in the broad use of the term, from 
 five to eight-tenths of all the existing shipping. Agreements among them as to 
 rates are rare ; for it seldom happens that any one of them has a special interest 
 in any particular route. On the other hand there are signs of the appearance 
 of great lines of cargo steamers, with strong capitalistic backing: and, partly 
 for this reason, it seems possible that the conditions of heavy cargo traffic 
 may approximate in some degree to those of passenger and light cargo traffic. 
 The charges made during the world-war of course belong to a class by them- 
 selves. 
 
 ' The influence of Tramps is now strongest in grain trades, and especially 
 in the wheat trade. Of course coal cargoes are vastly heavier in the aggregate 
 than grain cargoes. But coal is often used by outgoing Liners and cargo-ships 
 to make up their loads: sometimes it is used for the return journey either by 
 the ship itself or by another belonging to the same owner; sometimes it is left 
 ftt a coaling port. Consequently no attempt is made to regulate the freights 
 
FUSIONS AND CONFERENCES OP SHIPPING COMPANIES 433 
 
 4. The growing concentration of a large part of the in, m, i. 
 oceanic passenger and light goods traffic in the hands of 
 a relatively small number of poiverful companies; groups 
 of which often act together in " Conference." 
 
 We saw in Book II how the progress of technique not only 
 increases the size of the plant which can he worked by a given 
 number of men, but also increases the efficiency of powerful 
 plant more than in proportion to its cost; and how these 
 changes tell on the side of the large business relatively to 
 the small. We saw also that these influences of progress have 
 been specially conspicuous ia the building and mechanical 
 working of giant ships. Moreover such ships can afEord a high 
 class of professional service, including that of wireless telegraphy 
 by night as well as by day, and other amenities. These direct 
 influences, tending to strengthen the companies that are already 
 powerful, are indirectly supplemented by geographical causes 
 which concentrate the best part of a country's trade in a small 
 number of ports, and thus further promote the expansion of a 
 company that is already powerful. For large ships need deep 
 entrance channels; and powerful mechanical appliances, that 
 will load or unload several thousand tons in a single day : a small 
 port cannot do this unless aided by some public authority, 
 or by a railway that reaches the ocean at that port. Eailway 
 enterprise and geographical causes in America and England, 
 but notably not in Germany, have opposed important resistance 
 to the overmastering predominance of a few great ports. 
 
 This geographical concentration is both cause, and effect, of 
 a continual increase in the range covered by a great shipping 
 Line. Partly by amalgamations or working agreements with 
 other Lines, and partly by setting up subsidiary lines of its 
 
 for coal: the supply of tonnage at coaling ports is generally much in excess 
 of the demand. 
 
 Both ordinary Liners and Tramps are yielding some ground to lines set up 
 by great railways to ply from ports served by them: also to lines specially 
 adapted to carry oil, or perishable fruit or cattle. These last can oft«n carry 
 passengers advantageously; for cattle and perishable fruit as well as human 
 beings, need speed and some care in handling. Those that bring butter, fresh 
 fruit and vegetables from the Continent to England are very swift; and, even 
 when they arrive at night, their cargoes are often unloaded and sent off by 
 %uick trains, so *s to req,oh the industrial districts the next iijorning. 
 
434 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 1X1,111,4. own, it is able to take efficient measures for attracting custom: 
 and it thus gets the better of any competitor, who follows the 
 old easy-going plan of waiting to be sought out by those who 
 have cargo to send. Its position is strengthened by its abihty 
 to collect, on through bills of freight, cargo from almost any 
 port on one long line of coast, extending perhaps along several 
 countries; and to deliver it at almost any port on another long 
 line of coast: the equipments of the great ports, between which 
 its main lines run, facilitate transhipments, when necessary. 
 On both its main and its subsidiary lines, it is likely to make 
 use of cargo steamers, of various sizes, as occasion demands: and 
 it may even make some use of Lines of cargo steamers, with fixed 
 time tables. It generally owns some of these steamers; and 
 "charters" others by the year or for particular tasks^. 
 
 A great company owning or controlling some fifty steamers 
 of various sizes is able not only to pick up and deliver freights 
 at many ports, but also to adjust the tonnage which it is 
 running on any particular route to varying demands. It can 
 advise any of its customers, who have about equally good access 
 to two or more ports, to send their cargo to that one from which 
 one of its vessels is on the point of starting for the particular 
 destination which he desires; it thereby obtains some of the 
 economies possessed by a giant business, such as the United 
 States Steel Corporation, of being able to direct any particular 
 order to that one of its plants which has at the time the best 
 facilities for it. As a canvasser for custom it has some of the 
 advantages of a Branch-shop Company^. 
 
 ^ By these means it escapes the necessity of carrying heavy cargo in bulk 
 on expensive ships, with high coal consumption; unless indeed the ship happens 
 to need ballast. Such things as steel rails are often taken at rates even lower 
 than those generally charged by a cargo ship, for they serve instead of water- 
 ballast : in fact, before the days of water-ballast they were said to be sometimes 
 carried gratis. 
 
 ' It may be well to go into some details as to the position which the chief 
 German line had reached in 1913; after having absorbed many others, and 
 formed a close alliance with its leading rival. A great part of the trade of the 
 central and western States of North America has about equally good access to 
 the sea at any one of several great ports on the coast line between the St Lawrence 
 and the Mississippi : and a large part of the whole American trade with Northern 
 Europe has a nearly even choice among several ports in Britain, France, Belgium, 
 Holland and Germany. The Hamburg-Amerika line, working in unison with the 
 Norddeutscher Lloyd of Bremen, had attained in 1913, an absolute control of tho 
 
FUSIONS AND CONFERENCES OF SHIPPING COMPANIES 435 
 
 The great lines generally have sufficient space for all the lil.in, 4. 
 high grade cargo that is offered. If it comes forward in unusual 
 quantities, they make room by declining lower grade freight; 
 and consequently their charges for high grade freight are hable 
 to less fluctuations from passing accidents than are the charges 
 for low grade cargoes in bulk. On the other hand the standard 
 charges made by Liners are not governed by large economic 
 forces as directly as are the average freights paid to Tramps: 
 they are governed by the estimates which a company or a Con- 
 ference forms of the net revenue to be derived from various 
 rates of charges; the highest rate being chosen, that will not 
 greatly check the normal flow of trade into their hands. But 
 charges may be oppressive to those who pay them, without ex- 
 ceeding the limit suggested by this rule. And against such 
 charges, the starting of an effective independent line of steamers 
 being generally out of the question, the only remedy is to be 
 found in expressions of public opinion, which may culminate in 
 an agitation for the intervention of Government. 
 
 Thus the general trends of the technical and financial deve- 
 lopments of the shipping industry favour the extension of partial 
 and conditional monopolistic control over an ever larger portion 
 of its work. There is a constant increase iu the variety and the 
 importance of the services which a giant company can render to 
 innumerable customers; few of whom could find any tolerable 
 substitute for its assistance, unless from the appearance on the 
 scene of a rival company of similar scope and strength. The 
 immediate result of such an arrival is usually a fierce rate- war: 
 the deferred result is often either a fusion of the two companies, 
 
 direct trade of Germany in the Atlantic Ocean. But the competition of lines 
 serving other 'ports of North- Western Europe remained strong enough to insure 
 a moderate use of that power, in regard to transoceanic trade : and, in order to 
 suppress that, it was said to maintain, in conjimction with its allies, a "fighting 
 fleet" of nine ships valued at £300,000 for the purpose of fighting opponents and 
 "nursing" them out of existence. 
 
 According to the Report of a Committee on the Shipping and Shipbuilding 
 Industries, 1918 [Cd. 9092], p. 95, nearly aU the German lines were associated 
 before the war in a Bhederei-Vereinigung. "A Contract with any one of these 
 lines was a Contract with the group." Germany's concentration of her chief 
 trade in two associated ports is an aid to the organization of her shipping trade, 
 though an injury to her industries. 
 
436 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, m, 4. or else a " Conference " between them. The Conference sets up 
 a common schedule of rates, while leaving for the time some 
 room for competition as to prompt action, and other facilities 
 and amenities. But this competition generally fades away rather 
 quickly; very few vestiges of it being left, even before the com- 
 plete fusion of the two has been effected. Such a fusion is not 
 unlikely to be made the occasion of a further fusion with one or 
 more other companies, whose routes overlap more or less those 
 on which the competition was first set up; for the power and 
 the appetite for extension are apt to grow with every increase 
 of it. 
 
 A great company or a Conference of companies thus obtains 
 control, which is not indeed absolute, but is yet practically un- 
 disputed for the time, of all that part of the trade of its special 
 area, that is not suitable for Tramps. It can therefore act very 
 much as though it had an absolute monopoly of that trade: 
 that is, it can distribute the general costs of its business as may 
 seem best in its own interest, and charge the rate that will yield 
 it the highest net gain for each service, account being taken of 
 the urgency and elasticity of the demand for that service. 
 
 There is however less that is arbitrary and accidental in the 
 apportionment of charges for ordinary consignments of difierent 
 sorts of goods than appears at first sight. Long estabhshed 
 usage, based in some degree on sound reason, has set up the 
 general principle that goods are to be classified for high or low 
 charges per ton (by weight or measurement) roughly as their 
 values are high or low; provided the difficulty and the risk of 
 handling are about equal. The several classifications set up by 
 diSerent companies and Conferences differ in detail, according 
 to the conditions of the routes of trade with which they are 
 associated: but all conform to this general principle, which 
 came to be regarded as reasonable or "natural" long before the 
 shipping industry entered on its present phase; and will pro- 
 bably be so regarded long after that phase has passed away. It 
 is maintained in great measure even in an eager rate-war for 
 the exclusive or partial occupation of any area of trade: rates 
 may be lowered generally; but a proposal to carry first-class 
 goods at fourth-class rates would be regarded as short-sighted 
 even during the heat of the combat. 
 
FUSIONS AND CONFERENCES OP SHIPPING COMPANIES 437 
 
 But though there is relatively little that is arbitrary in the iii, m, 4 
 classification of goods by a Company or Conference, a somewhat 
 high charge can generally be put with safety on any particular 
 class of traffic, which has not sufficient volume to attract a com- 
 petitive service, and is not suitable for the Tramp. It runs 
 indeed a considerable danger of inviting opposition from an 
 independent Line promoted by shippers, or from an existing 
 Line which is called by them to their aid; if the general level 
 of its rates is much in excess of that needed to cover its costs 
 with good profits. But, in spite of the keenness of modern 
 commercial competition, this danger to it is being diminished. 
 For not only is there a rapid and ceaseless increase in the 
 capital outlay, required for setting up a new Line, or even a 
 branch of an old Line, on a scale sufficient for efiective competi- 
 tion: but further, in spite of occasional wars on a great scale 
 between Conferences, their mutual understandings and alliances 
 have grown almost as fast as the resources under the control of 
 each of them. This fact indeed contributed greatly to that 
 feeling of unquiet among shippers, which evoked the "Royal 
 Commission on Shipping Rings" (1906 — 9)^. 
 
 This association of Conferences is a matter of but little 
 direct concern to the Tramp: for she has no fixed route and 
 presents no good target for their artillery. So they turn their 
 attacks not on her, but on any who make use of her for work 
 which they are ready to undertake: they think it an unfair 
 competition for the Tramp to come in when things are good 
 and drop out again when things are bad. They are not able to 
 eliminate the "fitful tramp" from the regxilar trades: but their 
 weapons are turned against anyone who sets up a regular 
 
 '■ The Report of the Majority of the Commission, § 35, states that "each 
 Conference has its own area; and in certain cases, where several trade routes 
 intersect or adjoin one another, the various Conferences have understandings 
 or agreements with one another to respect each other's spheres of influence. 
 This is especially evident in the trade with India and Ceylon, which is in the 
 hands of a group, or family, of Conferences, related to one another, members of 
 each of them being also members or part members of other Conferences. Such 
 interdependence secures a harmony of action in the working of these various 
 bodies, and it prevents the clash of interests which might ensue, were Conferences 
 free to engage in mutual competition." Also two groups of Conferences, which 
 serve the same area, generally abstain from encroachment on one another, "no 
 doubt from fear of retaliation." 
 
438 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 111,111,4. Line of cargo steamers, wliicli may divert traffic from the 
 Conferences- 
 It is of course possible that the economy and efficiency, 
 which can be attained by a vigorous and unselfish use of mono- 
 polistic power in such a case, may on the whole be to the 
 advantage of the public. The absolute monopolies granted to 
 Eiigland's early Joint Stock Trading Companies have already 
 been recognized as working fpr the general good, so long as the 
 special conditions which had called for them, were still in 
 existence: and the conditional monopolies possessed by some 
 modem shipping Conferences claim to render some important 
 services. No doubt (as was seen in Book II) some wastes of 
 competition are conspicuous in the struggles of, almost every 
 class of producers, and of wholesale and retail dealers: and 
 it is obvious that very far-reaching wastes are likely to be 
 caused by rate-wars between competing Lines of steamers. The 
 public undoubtedly gains something from agreements which 
 keep rates steady, and enable producers and merchants to quote 
 prices, cost of delivery at a distance being included''. 
 
 The leaders of the Conferences claim that these ends are 
 achieved by them, and cannot be achieved otherwise. They 
 claim also that their charges are not in excess of those which 
 are needed to yield fair profits to a well managed company in 
 
 ' These statements are taken eubstantialJy from the evidence, not always 
 very willing, of Mr Byron, representing the South African Conference, whose 
 affairs occupied a large part of the attention of the Commission (see Q. 15,374 
 — 9; 15,470 — 5). He further admitted that "the business man in South Africa 
 has no choice: he must come to the Conference, unless he chooses to charter 
 vessels" on his own account (Q. 15,736 — 7). And yet it was maintained with 
 some persistency that the Conference had no monopoly. Thus Sir Donald Carrie 
 said (Q. 15,016): "The whole truth is that Conference Lines have not any 
 monopoly at all." Mr Byron asserted "emphatically" that the Conferences 
 have not "by virtue of this system of rebates anything like a monopoly.... 
 That lies at the root of [my] argument" (Q. 15,270—1). But he was gradually 
 forced to admit that what he meant was that "there is not a complete and 
 absolute monopoly.. ..There is something of the nature of a monopoly; that 
 goes without saying." In answer to the suggestion that "the very object of 
 the deferred rebate system is to create a monopoly," he says "undoubtedly 
 it has that tendency," and that "the object of it. ..is an actual monopoly" 
 (Q. 15,493 — 8). These quotations illustrate the difficulties inherent in the 
 common elusive uses of the term "monopoly." 
 
 ' But shippers complain that, though the Conferences publish their rates 
 for each class of goods, they seldom publish their olassifioations. 
 
FUSIONS AND CONFERENCES OF SHIPPING COMPANIES 439 
 
 a normal year: and that the means, by which they exclude the iii.m, 5. 
 competition of interlopers, are reasonable in themselves. A 
 judgment of these claims must turn in some measure on the 
 nature of the weapons, with which they combat interlopers. 
 The chief of these has recently been that of "Deferred Rebates" 
 which, as already said (p. 234), raise questions similar to those 
 of the "tying clauses" in boot and other industries. 
 
 5. The uses of Deferred Rebates as a means of in- 
 suring the loyalty of a shipper to a steamship Company or 
 Conference ; and their abuses. 
 
 The system of Rebates or discoimts to those who deal 
 exclusively with a particular company is very old: but the 
 plan of withholding the rebate for a long time, in order to keep 
 the shipper in what he regards as bondage, was begun late in 
 last century and soon became general in the outward trades. 
 For reasons already explained the homeward trades from the 
 East and South generally include so much cargo which is 
 specially suited for Tramps, that regulation of the rates in them 
 is impracticable: but the exceptional lightness of the homeward 
 trade from South Africa made it amenable to regulation. 
 
 A Memorandum, submitted to the Commission on Shipping 
 Rings on behalf of the South African Conference, contended that 
 "the facilities and advantages ofEered by the various lines, 
 which enable shippers and importers to carry on their business 
 with regularity year in and year out, carry with them a moral 
 obligation on the part of shippers to support the regular lines." 
 This obligation is said to be recognized by many shippers: but 
 in order to bring pressure on others, the Conference Lines have 
 set up a "bargain" with their merchant customers, which in 
 effect says: "We will provide you with a regular and sufficient 
 service, if you, by giving us all your business, wiU afEord the 
 demand essential for that supply." 
 
 This contention is not prima facie unreasonable: for it is of 
 course a common practice to make lower charges in some cases 
 to regular than to irregular customers: an annual railway 
 ticket likely to be used for six hundred journeys may be sold 
 for the equivalent of two hundred ordinary tickets, or even less: 
 and shopkeepers at a summer resort may fairly charge rather 
 
440 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, in, 6. higher prices to summer visitors than to permanent residents. 
 But some actions, which are harmless in ordinary cases, may 
 work injuriously when backed by monopolistic strength. And 
 it is an open question whether the principles by which the 
 general obligations of common carriers are governed, should not 
 exclude the right of a company to use its sole possession of facili- 
 ties, which are specially important for some kinds of traffic, as a 
 means of compelling other kinds of traffic to be sent by it. The 
 old notion, that a common carrier had obligations to the public, 
 was associated with the notion that he often has some sort 
 of local monopoly, as has already been urged: and coercive 
 measures by great Lines, have certainly grown with the growth 
 of their monopolistic strength^. 
 
 6. S(nne general inferences. The functions of an au- 
 thoritative Commission of inquiry in compelling publicity; 
 and in promoting measures for the interests of the general 
 public on matters, which cannot be fully understood without 
 expert hioioledge. 
 
 We may pass to some inferences which the Report of the 
 Commission on Shipping Rings, 1909, suggests as to the nature 
 and limits of the profitable intervention of Government in regard 
 to uses of monopolistic power by a great aggregation or con- 
 federation in an industry, which must maintain a large scope 
 for the untrammelled exercise of free initiative. We are to see 
 presently how American experience is pointing towards a larger 
 use of permanent regulative Commissions in regard to industrial 
 aggregations of all kinds, in order to grapple with the ever 
 
 ' The Economist, January 5, 1918, quoted, as recently issued, a manifesto by 
 the Council of the Associated Chambers of Commerce, in which the system of 
 shipping rings was condemned on the grounds, among others, that "it develops 
 into a restraint by coercive means of British manufacturers and merchants: 
 and that, even if not so designed, it tends to the crushing out of competition in 
 ocean sea carriage by British tramp steamers": also that it tends to restrict the 
 formation of new lines; to "maintain artificially high freights"; and to "make 
 agreement with foreign shipping lines to the prejudice of British traders, who 
 are not members of the Conference lines." From another point of view a 
 representative of Manchester warehouses had complained that, though the war 
 had stayed the preference which Conferences had secured to some German 
 export trade, they still caused an immense quantity of Manchester goods to be 
 shipped vid Liverpool or London, which obtained exclusive favours from the 
 Conference. See Economist, Deo. 1, 1917, pp. 871 and 885. 
 
REGULATIVE INFLUENCES OF A ROYAL COMMISSION 441 
 
 increasing power of destructive competition, which is being iii, m, 6. 
 acquired by concentrated capital. But, with some partial ex- 
 ception for railways, Britain has not yet felt a great need for 
 such drastic action: and, from her point of view, exceptional 
 interest attaches to investigations of particular difficulties by 
 the authoritative Commission on Shipping Rings. 
 
 We are told how representatives of the Conferences con- 
 fidently asserted on their behalf that "self-interest is an ade- 
 quate safeguard, and that a Conference could not exist very 
 long" if it were to "use its position for the exclusive use of 
 its shareholders, and to the prejudice of its customers." That 
 is probably true: so extreme a policy would be "suicidal." But 
 the public interest may suffer much from a selfish use of power 
 that is less extreme. A prudent ruler of a conquered province 
 will not adopt such extreme measures as are likely to incite 
 rebellion, or an appeal for external intervention: but he may be 
 glad to draw a goodly revenue for himself, and to cover the 
 expenses of a strong military force against any who might 
 challenge his dominion. A Conference may be tempted in like 
 manner to incur great expense for strategic purposes; and to 
 throw a considerable part of that expense on its customers. 
 If its exclusive hold on the traffic had been absolute and per- 
 manent, it would have set the charge for each service at that 
 level, which would yield the maximum net revenue: and, when 
 it incurred any unforeseen expense, which could not be affected 
 by any alteration in its charges, it would have written that ex- 
 pense off out of the value of its property, and kept its charges 
 unaltered. As things are, its monopoly being conditional and 
 not absolute, it is not likely to have ventured to put its charges 
 up to the highest monopoly levels : but it may on the whole con- 
 clude that its position will be less endangered by raising its 
 charges a little nearer to those levels, than by stinting expendi- 
 ture for the confusion of any assailant whether actual, or merely 
 anticipated. This indeed seems to have actually occurred^- 
 
 ' For instance, shippers represented to the Commission that the number 
 of ships kept up by the South African Line was in excess of the needs of the 
 traflSc; and that the inconvenience to them caused by the removal of the 
 superfluous ships (having of course in view the fact that Tramps would respond 
 quickly, though perhaps not at very low charges, to any unexpected increase of 
 heavy freightage) would be less than that caused by paying the charges, which 
 the Company found necessary in order to cover their outlay with profits. But 
 
442 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, in, 6. The problems of the shipping industry are remarkable alike 
 for their magnitude, and for the multiplicity and complexity of 
 their detail. The carriage of goods a certain distance in a 
 certain time and with a certain amount of careful handling, is 
 a definite thing from a physical point of view; but, from an 
 economic point of view, it varies with the nature of the route 
 to be traversed; with the changing conditions of demand and 
 supply on that route and on the return journey; and some 
 other considerations. It is therefore not suitable for minute 
 Governmental control, and still less for Government imder- 
 taking. But nevertheless Government has distinct functions in 
 regard to it, when in a healthy condition, and still more when 
 it has fallen into malaise of any sort. 
 
 The chief successes of the medical treatment of bodily 
 ailments have been achieved by measures which tend to give free 
 play to the remedial forces of nature. The chief of the remedial 
 forces of nature in regard to human action is knowledge: and 
 nearly all beneficial intervention of authority in social troubles 
 begins with the acquirement and publication, voluntarily or 
 under compulsion, of information, which some of those interested 
 in the conflict are not likely to offer spontaneously. Many 
 exaggerated complaints, when formulated under pressure, and 
 set out in clear light, shrink up even before they have been 
 answered. And, on the other side of the case, upright men are 
 often half-way converted towards removing such just grounds 
 as there may be for complaint against their conduct, by reading 
 a well-informed and well-balanced statement of those grounds; 
 and knowing that an impartial public is forming its judgment 
 on them. In this and many other ways a careful authoritative 
 inquiry, with publication of the evidence taken, goes a long way 
 towards removing sources of social harm; though it may have 
 no legal power of compelling answers from recalcitrant witnesses, 
 and its specific recommendations in regard to authoritative 
 intervention do not carry very far. 
 
 to thia Sir Donald Currie (Q. 15,214 — 8) answered: — "Wo do not know when 
 busy times may come; and, if our tonnage were reduced considerably, wo 
 would not have the steamers there, and somebody else would put on the 
 steamers." He did not attempt to prove that such a result would have been 
 injurious to South Africa, and that therefore she might reasonably be asked 
 to contribute towards the expense of preventing it. 
 
REGULATIVE INFLUENCES OP A ROYAL COMMISSION 443 
 
 Mucli helpful knowledge comes to a Commission of Inquiry iii, m, 6. 
 spontaneously. For there are nearly always two, often more, 
 sets of persons who have intimate technical knowledge of, and 
 strong interest in the subjects investigated by it. Each set 
 puts out its own case vigorously, and spares no effort to bring 
 to light any flaw in statements or arguments that make against 
 it: and thus, so far as the trade interests of any important 
 group of people in the coxmtry are concerned, the Commission 
 may sometimes rest content with keeping a fair field for all 
 combatants, and sifting out the vital from the secondary and 
 even irrelevant issues that may be raised. But the interests of 
 those who can ofier careful, well-informed, and well-organized 
 evidence are often less important in the aggregate than those 
 of the public at large; who seldom have the special knowledge 
 required for ascertaining exactly where lie their interests in the 
 matter under discussion; or the organization required for setting 
 out their case. The Commission is required to take some 
 initiative in regard to the interests of the non-vocal multitude, 
 in order that it may present a well-balanced picture of the whole 
 position. Thus one of the chief services rendered by public 
 inquiries in various countries (especially in regard to such com- 
 plex problems as those connected with conditional monopolies) 
 hes in their presenting the points of view of able men; many of 
 whom have no personal interest in the subject under discussion, 
 while they have yet a familiarity with its general scope, and 
 even with its more important practical details, such as seldom 
 can be attained by any save those whose judgments are apt to 
 be biassed by their own special interests. The main Report 
 often lays chief stress on the questions at issue between those 
 most directly interested in the subject under investigation; and 
 sometimes the indirect interests of the pubhc at large are specially 
 considered in Minority Reports. 
 
 Thus a strong minority of the Commission on Shipping Rings 
 called attention to the fact that the persons immediately in- 
 terested in the policy of the Rings are not those on whom its 
 main effects are likely to fall in the long run. They are "the 
 merchants who buy goods in one country and sell them in 
 another; and they can generally readjust their dealings to suit 
 the rates of freight, and in this way transfer the direct loss from 
 
444 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 111,111,6. excessive rates of freight, or other increase of charge, to the 
 producer or the consumer. . . . The producers and consumers, who 
 are really more interested in the question than the merchants, 
 are afiected only indirectly as a whole, and they have very 
 little power of combination for such a purpose as meeting and 
 counteracting the combination of Shipping Kings^." These 
 remarks point to the conclusion, which the much larger experi- 
 ence of America in such matters tends to support that, where a 
 powerful monopoly is threatened a body of experts should be set 
 to inquire ne quid detrimenti Respvblica cajriat; and to suggest 
 remedies to be enforced by appropriate authority: as to which 
 more wUl be said later on*. 
 
 ' Report, vol. I. p. 97. 
 
 ' Traders often rejoice quietly in the imposition of increased taxation on 
 a thing in which they deal, if they have good reason to believe (1) that the 
 demand for it will not greatly shrink in consequence of an increase in its price; 
 and (2) they are sure that all their competitors will pay the same price: for 
 they then expect to pass on the tax, augmented by profits for themselves on it, 
 to the consumers. Accordingly shippers welcome certainty as regards the rates 
 charged for their cargo, even if the rates are somewhat high: and they regard 
 with satisfaction the promise by a Conference, that so long as loyalty to it ia 
 secured by deferred rebates or other means, the shipowners will never carry 
 cargo on their own account. But that undertaking, though eminently agreeable 
 to the shippers, tends primd facie at all events to increase the costs, which the 
 non-vooal public will pay for the services they need. 
 
 The Majority Report of the Commission on Shipping Kings recommends 
 that " where it appears to the Board of Trade that there are good grounds for 
 believing that important national or imperial interests are aflfeoted" the Board 
 of Trade shall have power to institute a special inquiry; and, if it thinks fit, 
 to present a report on it to Parliament. The Minority Report goes further; 
 and recommends that " the Board of Trade should be free to direct an inquiry 
 ...when it appears that important public interests (including those of consumers 
 and producers) are affected by the action of Shipping Companies," and that it 
 should report to Parliament promptly the main results of such inquiry. 
 
 The Majority give support to the claim that the services, which Liners 
 render and the public need, could not be maintained without monopolistic 
 control. But their reasons are disputed by the Minority with agruments so 
 strong, and based on answers to such searching questions by themselves and 
 some other members of the Commission, as to seem to incline the balance of 
 evidence against that claim. 
 
 It may be added that the South African Conference, partly under pressure 
 from the Union Government, has given up the system of rebates for the time 
 at least; and substituted an arrangement, under which the merchants agree to 
 confine their shipments to the regular Lines engaged in the trade; while the 
 Lines undertake to maintain their services, at uniform rates of freight mutually 
 agreed upon. This arrangement has however been charged by some shippers 
 with effecting abuses similar to those imputed to the system of rebates. 
 
CHAPTER IV 
 
 COMPETITION AND MONOPOLY IN TRANSPORT, 
 CONTINUED 
 
 1. Introductory. m „ i_ 
 
 It has already been observed that, the advantages which a 
 railway company derives from the exclusive occupation of a 
 great thoroughfare have little counterpart in other industries: 
 and for that reason the study of transport industries for the 
 special purposes of this Book has begun' with problems of 
 transport on open courses on land and sea. But incomparably 
 the largest and most instructive experiences, which the world 
 has had of semi-monopolistic power, sufficiently strong to raise 
 problems of public interest, have related to railways. 
 
 The tendency towards combination, or cartellization, which 
 we have seen in the development of shipping companies, is 
 now showing itself increasingly in railway combinations and 
 agreements; and yet the main substance of railway problems 
 resembles that of problems of giant manufacturing businesses, 
 which have not come definitely under the dominion of a cartel: 
 for each railway has still a strong, almost absolute, monopoly of 
 some local traffic. But long distance traffic, especially for goods, 
 is on the increase; and this opens ever new competitive activities; 
 in ever-shifting relations with combination. This in its turn 
 has awakened new jealousy, and evoked authoritative restraint. 
 Thus few important railway problems can be solved by reference 
 to the abstract principles of pure monopoly; but there is no 
 other field of economics in which problems of conditional monopoly 
 are so numerous, so large, and so various. 
 
 The study of railway science has now its chief home in 
 America. Nowhere else are the financial aspects of railways so 
 
446 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, IT, 1. prominent: nowhere else would railways, acting in uncontrolled 
 concert, have so complete a mastery of the whole resources of the 
 country; or so despotic a power of deciding what districts should 
 flourish, and what should languish. But the people have been 
 little inclined to let such giant strength work uncontrolled. 
 Railways have been the chief mark of popular criticism, just and 
 unjust: tyrannical exactions have been met by organized mob- 
 violence: and the thoughtful American has been put on his 
 mettle to consider what part of a railway's freedom to do as it 
 liked with its own was reasonable, and what part threatened 
 commercial and even social stability^. 
 
 For a long while the light thrown on railway problems did 
 little more than make darkness visible: but gradually some 
 leading principles emerged which served as guiding lines through 
 many difficulties. An Interstate Commerce Commission was 
 set up: Massachusetts and other States had Intrastate Com- 
 missions to regulate local traffic. Recently a great number of 
 shrewd minds, with and without special technical knowledge, 
 have considered complex railway problems with care: and the 
 expert American literature on the subject, official and pro- 
 fessional, is of exceptional volume and authority. 
 
 Britain and the United States are alike great industrial 
 countries, with the strength and the weakness that comes from 
 popular government; and thus their administrative problems 
 have a closer kinship with one another than with those of any 
 other great industrial country: for neither of them needs to put 
 military considerations in the forefront of her railway policy; 
 and each of them governs her own Government. 
 
 But the physical conditions of the two are wide apart. They 
 cause goods traffic to predominate over passenger traffic, and 
 long distance traffic to predominate over short in America: and 
 in Britain they reverse these proportions. Again, British rail- 
 ways have paid higher prices for their land than any others; 
 while American railways have obtained much of it gratis, and 
 
 ' I attended a "Granger" (i.e. farmer-in-revolt) meeting in San Francisco 
 in 1875, and one of sooialiBts at Frankfurt a year or two earlier. In both the 
 discourse ran chiefly on "the enemy." But in Frankfurt, the enemy was 
 capital, in San Francisco it was the railways ; though in other respects the two 
 discussions were much alike. 
 
INTRODUCTORY 447 
 
 have often received direct subsidies, chiefly in the form of land, iii, it, i. 
 Again, British railways settled down to quiet policies in the 
 middle of last century; but violent financial struggles for mastery 
 clouded American railway history during most of that century, 
 and have even trespassed on this. For these reasons, it seems 
 best to follow the course of British railway policy in the present 
 chapter, with but little attention to parallel details in American 
 railway history: though, in matters of fundamental principle, 
 guidance must be drawn largely from American sources. 
 
 Next in importance to the railways of America are those of 
 Germany. There is a notable contrast between the financial 
 success of Governmental ownership of railways in Prussia, and 
 its comparative failure in every other part of Germany; as in 
 all other countries in which it has been tried without some 
 exceptional advantage. The chief causes are to be found in 
 geographical conditions^. 
 
 It might have been expected that Prussian love of order 
 would have evolved a uniform rate of charges for a given amount 
 of transport of a given quality over a given distance. But 
 the practical exigencies of traffic in various regions gradually 
 
 ' A great part of the population of Prussia Uvea near the level of the sea, 
 in land so flat aa to require but few tunnels; and not many railway cuttings 
 or embankments. She bought her railways cheaply before the strength of 
 Westphalian coal and iron from Luxemburg, Lorraine, etc., combined with 
 other causes, had enabled the country to rise from relative poverty to wealth. 
 None of these advantages accrued to the other States which own their railways : 
 in some of them railway making met with natural difficulties as great as those 
 which have increased the cost of British railways. And, what is of even more 
 importance; by far the greater part of Germany's external trade, as well as of 
 her own heavy internal trade in coal, passes over Prussian lines to Hamburg 
 or Bremen, or to Russia. In these respects the finance of Prussian railways 
 has a unique advantage. If the whole of the railways of the southern half 
 of Germany had come under an excellent Governmental control, they could 
 not have fared well in the face of Prussian control of the northern half. Some 
 of these considerations are emphasized in Prof. Schumacher's instructive 
 eulogy of Prussian railways at the memorable congress in 1912 of the British 
 Royal Economic Society. He says that "in the lesser German States the 
 nationalization of railways has proved a bad bargain.... In Bavaria, Baden, 
 Wiirtemberg and Saxony they yield only about one half the rate of revenue 
 yielded by the Prussian railways. Wiirtemberg even shows a deficit on its 
 railway working returns" (p. 46). It may be added that the German railway 
 returns, which are reproduced in a H. of C. paper 1913, No. 287, are not easy 
 of interpretation: for the capital accounts of German State railways do not 
 always disclose all the facts : in some cases the railway debt is not even clearly 
 distinguished from the general State debt. 
 
448 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, IT, 1. broke up the simplicity of the original design. Allowance is 
 now made for water competition; for the needs of particular 
 industries, general and local; for competition with routes in 
 which external railways bear a dominant share; and for special 
 rates in favour of the export trade, and the final result is a highly 
 complex table of the freight charges levied on the most com- 
 pletely homogeneous great system of railways in the world. 
 The Prussian Government has set up a number of Councils, in 
 each of which leading business men of a Province can urge con- 
 cessions to particular local interests; and their suggestions are 
 generally adopted. This in Prussia, as well as in Britain and 
 America, monopolistic tendencies are restrained in great measure 
 by indirect competitive tendencies; and, where their course 
 might otherwise run freely, they are curbed and directed by 
 authoritative control, more or less under the influence of general 
 business opinion. We shall return to this class of consideration 
 later on^. 
 
 In Britain the relations between monopolistic, competitive, 
 and authoritative influences have changed with the development 
 of the railway map. In very early stages, most of the traffic 
 of each railway has been free from the competition of other 
 railways; though it may have sufiered a good deal from the 
 competition of other methods of transport. In the next stage, 
 competition among railways has directly increased: but a Uttle 
 later on, that has often fallen into the background; though 
 indirect competition of various kinds has taken its place to some 
 extent. But meanwhile general attention has been called to 
 the evils that might arise from concerted action by all the chief 
 railways serving any one district: and railways have been 
 restrained from aU extreme uses of monopolistic power; if not 
 by actual authoritative edict, yet by the fear of inviting it. 
 
 ^ A good account of the German Advisory Railway Councils is given in the 
 Report of the Board of Trade Railway Conference, 1909 [Cd. 4677], pp. 83—92, 
 and 109 — 112; where they are described as "exercising, if not actual, yet a 
 certain moral pressure on the authorities." They have contributed to the 
 multiplication of special (Auanahme) rates, which in 1906 already covered nearly 
 two thirds of the goods traffic on Prussian railways; so that, in spite of some 
 efforts at simplification, there were nearly a thousand different rate-books in 
 operation {ib. pp. 98 — 105). 
 
INTRODUCTORY 449 
 
 It may be said tliat the British railway industry pioneered in, iv, i. 
 the path of public policy in regard to the authoritative defence 
 of general interests against the abuses of overmastering strength. 
 Its problems are imlike those of any other great country; though 
 those of Japan and New Zealand may develop on somewhat 
 similar lines. For it has no heavy through traffic: and, with 
 a partial exception for coal, it has comparatively little heavy 
 internal traffic. It has been deprived of much specially re- 
 munerative traffic by coasting steamers: and in return it has 
 taken from canals traffic which they might have been able to 
 work more easily than it can. These two considerations are 
 often ignored: but they will be found to explain the chief 
 peculiarities — good and evU — of British railways, and something 
 must be said about them. 
 
 The foundations of modern railway science were firmly laid 
 by Lardner's Railway Economy, 1849. He attributed the com- 
 plexity of its problems mainly to "the variety of the services 
 rendered by a railway, and their remoteness in time from the 
 outlays involved in its construction." But, when he wrote, not 
 very many miles of well made railway line had been at work 
 for more than a single decade: and since his time light single 
 tracks have been displaced by ever heavier double, triple and 
 quadruple tracks: short cuts have been made, sharp corners 
 have been rounded off, and steep inclines have been moderated. 
 Each successive generation has regarded the representative 
 type of railway of its own times as fit to exercise an enduring 
 monopolistic sway within its own region; but in fact new develop- 
 ments have demanded new provisions: broad details are ever 
 changing, though fundamentals remain nearly as they were in 
 18501. 
 
 1 Lardner's work is a fitting companion to Babbage's Economy of Manu- 
 factures, 1832. Each of them set the main principles of an important branch of 
 apphed economics with so much constructive genius, that subsequent study has 
 confirmed them, even more than it has enlarged them; while some of their 
 results are often ignored even now. There are few controversialists on either 
 side of the dominant railway issues of the present time, who might not learn 
 much from Lardner. His work is thoroughly English: but the chief obligations 
 which he records are to analytical studies made in Belgium and France. 
 
 The slight touches of mathematical reasoning which are to be found in early 
 books on railway science, have been greatly developed by Launhardt, Colson, 
 and others. The brilliant work of Edgeworth and Pigou has special claims 
 
 M. I. T. 15 
 
4:50 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, IT, 2. 2. The configuration of Britain and the habits of her 
 people are responsible for the fact that most of her goods 
 traffic consists of small consignments, carried short distances; 
 and therefore at high average costs per " ton-mile." 
 
 Eailways grew out of difficulties of heavy transport (especi- 
 ally when mud was thick) at mines, quarries, docks, etc. The 
 motive power was supplied at first by men or horses; and after- 
 wards by stationary engines: and it was long before railways 
 attempted seriously to compete with inland water traffic, drawn 
 by horses, for the carriage of common products in bulk. They 
 sowed their wild oats in "the forties" ; and during the subsequent 
 seventy years have progressed quietly, doing great things, but 
 making little history. A short account of their early struggles is 
 given in Appendix M, 1 : we may pass at once to the immediate 
 antecedents of present conditions. 
 
 The most profitable part of the work of almost every railway 
 system is its goods traffic: and the most profitable part of that 
 is the carriage of great loads over great distances without break 
 of bulk. For though the charges per "ton-mile" (that is, for 
 carrying a ton the distance of a mile) in such traffic are nearly 
 always exceptionally low, its costs are even lower in proportion. 
 There is little or no shunting; the consumption of coal, and 
 the expenditure of labour are low relatively to the ton-miles 
 accompHshed; and a much larger volume of goods traffic of 
 this kind than of any other can pass over a line in the twenty- 
 four hours. 
 
 The ocean is now a mighty purveyor of such traffic to the 
 railways of North America; and in a less degree of Central 
 
 on English readers. But their route is not followed here: for mathematical 
 analysis cannot easily be applied to conditional monopoly: it is almost con- 
 strained to start with the hypothesis of pure monopoly, and gradually to 
 introduce successive limitations, corresponding to the various limitations and 
 restrictions which are imposed on railways by various circumstances, and 
 especially by the guiding and restraining influences of pubho opinion and 
 authority. On the route taken in the present chapter and the next, railway 
 problems are seen in the first instance as concerned with conditional monopoly; 
 cases, in which monopoly is in effect almost absolute, being treated as excep- 
 tional. Each route for the study has its own advantages : the two should meet 
 at the end; as do the Eastern and the Western routes to Australia. The routo 
 followed in these chapters seoma the most appropriate to the general purposes 
 of Book III. 
 
GEOGRAPHICAL INFLUENCES ON BRITISH RAILWAYS 45] 
 
 Europe. But the like services which it renders to English iii,iv, 2. 
 railways are relatively small: and they are diminishing imder 
 the rapidly growing economy and efficiency of steam coasting 
 traffic. In early days, traffic between the eastern and western 
 coasts of England had gone frequently by canals, rather than 
 by sailing ships; although the canals were narrow and shallow, 
 and had to pass watersheds many hundred feet high, by tedious 
 locks: for delivery by canal boat was often quicker, and more 
 capable of being guaranteed true to time than was delivery 
 by sailing vessel. One of the first achievements of the rela- 
 tively slow and costly paddle steamers of the second quarter of 
 last century was the complete defeat of canals in this trade. 
 For a while the railways made a strong bid against the steam- 
 ships: but the ships increased in speed and economy so much 
 faster than the railways did, that they quickly took over nearly 
 all of that trade: and very little long distance heavy traffic was 
 left for the railways, except that in coal to inland consumers^- 
 
 Meanwhile the number of great industrial and trading 
 centres, from which wholesale and retail dealers can draw 
 supplies, has continually increased, as was noticed in Book II: 
 and the growing changefulness and imperiousness of demand 
 have caused the stocks, which dealers hold, to diminish relatively 
 to the number of different things in them, and in many cases 
 to diminish absolutely. Consequently wholesale dealers occa- 
 sionally, and retail dealers habitually, have found themselves 
 in need of small consignments sent at short notice. Many of 
 these travel as parcels by passenger train; but the remainder 
 are an increasing part of the goods traffic. With ever lessening 
 
 ' It is indeed true that, though London has good aooesa to the sea, yet 
 hall her coal comes now direct by land. But it ia to be remembered that many 
 seams of coal, which were near tidal water, were for that very reason exhausted 
 long ago : and a great part of such coal as can easily reach the sea is exported. 
 If coal has to travel by railway to the sea, and again from the sea to the con- 
 sumer; then, even though the railway journeys be short, the cost of double 
 transhipment is likely to give the advantage to coal sent in wagons direct 
 from the mine to the consumer, or at least to a railway station in his immediate 
 neighbourhood. Gas and electricity companies and other large consumers of 
 coal often seek tidal water in London and elsewhere. But small consumers 
 draw nearly all their supplies from railway stations; the cost of local delivery, 
 though perhaps the lowest attainable under present conditions, being high even 
 for short distances. 
 
452 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 111,17,2. competition as to charges, railway managers have set them- 
 selves to attract traffic by speedy delivery: they have sent off 
 each consignment as soon as it arrived; often even giving it a 
 truck to itself, if there was nothing else going to the same 
 destination, unless it was very small indeed. So they are loath 
 to bring the large wagon into general use; although, when full, 
 it weighs less in proportion to its freight; occupies less space on 
 the line, and is more economical in other ways than a small 
 wagon. And, partly in order to lessen the total time occupied 
 in the journey of a consignment from sender to receiver, the 
 railways perform themselves, and include in their ordinary 
 charges, some services, which elsewhere are left to the indi- 
 viduals concerned or subsidiary transport agencies: this practice 
 causes the charges made on British railways to appear higher, 
 relatively to those in other countries, than they really are. 
 
 These and similar causes have given a peculiar character 
 to English railways, which differ from those of other great 
 industrial countries of Europe somewhat in the same way as 
 those differ from the railways of America. Wherever much 
 long distance heavy traffic must go by railway, plant and 
 charges are adapted mainly to its requirements: and heavy 
 engines draw long trains of large wagons loaded with freight; 
 which pays high charges per ton for each average journey, but 
 very low charges for each ton-mile (that is, for each mile that 
 each ton is carried). An American train often carries more 
 than a thousand tons in fully loaded wagons, holding from 
 thirty to fifty tons, for more than a thousand miles with scarcely 
 any break of bulk. The majority of British goods trains, other 
 than those loaded with coal, are made of small wagons destined 
 to deliver a multitude of consignments, averaging some two or 
 three hundredweight, or even less, at a multitude of stations. 
 
 Hence arise two results, which will occupy our attention 
 a good deal. Competition for traffic between two British 
 routes, whether each be wholly by one railway or made up 
 from portions of two or more, turns more upon the incidental 
 conveniences offered by the several services, and less on the 
 charges made per mile, than is the case in many other countries 
 and especially in America. And secondly, statistical records 
 of the average charge per ton-mile of goods carried, if ever they 
 
ABUNDANT QUICK PASSENGER SERVICE ECONOMIZES TIME 453 
 
 sk'ould be collected for Britain, would show a much higher in, iv, 3. 
 level than those of many other countries: partly on account 
 of the special facilities, to which British railways are forced to 
 devote much money and care ; partly because the heavy charges, 
 which forwarding agents make in other countries for similar 
 work, are apt to be left out of account in international com- 
 parisons. These agents often delay consignments till they 
 have enough for a single destination to enable them to claim 
 a lower rate of charge than that for small consignments. An 
 Englishman generally prefers a prompt service to one that is 
 rather cheaper. Perhaps this preference is sometimes carried 
 unreasonably far: but a fair comparison of two railway systems 
 in regard to efficiency and economy requires that full allowance 
 be made for economy of time^. 
 
 3. Britain's railway map shows the fortuitous results 
 of connjetition ; and her passenger service is very costly : but 
 the economy of time resulting from frequent rapid services 
 on parallel lines is perhxips worth more than its cost. 
 
 We may next consider the rule that density of population 
 shortens the average railway journey; and raises the benefit 
 which the public derive from a great choice of trains, in com- 
 parison with that which they get from low fares and low rates 
 for the transport of goods. At the same time, it enables charges 
 for the cost and upkeep of the permanent way to be divided 
 among a great number of passengers and tons per mile: it 
 therefore allows the direct costs of hauling each passenger and 
 ton of goods a mile to be rather high without lowering the 
 dividends of the line. Advantage has been taken of these 
 conditions throughout the industrial and trading districts of 
 England and Scotland to set up a greater number of trains, 
 and especially of fast trains, than are to be found in any other 
 area of equal size in the world. Nowhere else are there so 
 many pairs of points between which the passenger has a large 
 choice of the time of day at which he wiU start on his journey, 
 and yet travel at an average rate exceeding forty miles an hour. 
 Nowhere else are small packages collected and delivered over 
 
 ' Methods of obtaining economy in money costs, without losing economy of 
 time, are considered below, pp. 490 — 1. 
 
454 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, IV, 3. BO many considerable distances within the twenty-four hours, 
 even at the cost to the railway of sending off wagons with 
 but light loads: nowhere else are so many express fish and 
 milk trains run, though the quick and secure transport of 
 perishable food over long distances has been brought to a high 
 degree of perfection by American railroads. 
 
 The compactness of the industrial districts of England and 
 Scotland, combined with the manifold railway access which 
 each district has to various sea-ports, has made competition for 
 traffic of this kind very eager. In the result there has been 
 a constant tendency to agreements as to charges: and these 
 agreements have been promoted by the intervention of Govern- 
 ment; even while a chief motive of the Legislature was the 
 desire to maintain competition among railways, and to check 
 the movement of the railway system as a whole in the direc- 
 tion of firm monopoly. Parliament has always favoured the 
 fusion of lines which make a continuous whole, and regarded 
 parallel lines with some suspicion; but some parallel lines for 
 which there was no good reason, when they were made, are now 
 fully employed. 
 
 The intensity of some kinds of goods traffic, and of almost 
 all kinds of passenger traffic between chief centres of population 
 has contributed to the concentration of the greater part of 
 Britain's railway system in less than half of her area: and it 
 has been justly observed that the forethought of a strong 
 Government might have effected a somewhat better distribution. 
 But under modern conditions, densely peopled districts exert a 
 preponderating influence on Governments, even of a somewhat 
 absolute character: stress is laid on the fact that trainloads are 
 often very light in districts in which the passenger train mileage 
 in each hundred square miles is very small. It is noteworthy 
 that, the railway map of Prussia, imder by far the most efficient 
 governmental management in the world, shows alternations of 
 dense and sparse networks somewhat similar to those of Eng- 
 land's map : and this is in spite of the fact that many Prussian 
 railways in sparsely peopled districts were made almost ex- 
 clusively for strategic purposes. 
 
 Again, when two considerable railway centres A and B are 
 connected by parallel railways, some waste may be caused by 
 
RAILWAY COSTS MOSTLY FIXED FOR SHORT PERIODS ONLY 455 
 
 running express trains on both routes : and the cessation of such ill, iv, 4. 
 waste is one of the more prominent advantages which are some- 
 times anticipated from a fusion of the two lines, whether in 
 private or Government ownership. But there seems to be no 
 very great waste in such duplication; except in a few cases, in 
 which the trains on both routes are inadequately filled, and run 
 between A and B without stopping. It more frequently happens 
 that some of these express trains stop at one or more important 
 secondary stations on the way. Suppose C to be such a station 
 on one of the lines; then it wiU probably be arranged that a 
 slow train arrives shortly before a quick train stops there; so 
 that passengers from small stations intermediate between A and 
 C travel quickly between C and B. Similarly passengers, start- 
 ing from small stations between B and C, travel quickly between 
 C and A\ 
 
 4. In regard to short periods most of the costs of a 
 railway are "fixed" ; hut large problems of railway policy 
 relate chiefly to long periods, in regard to which much fetver 
 costs are fixed. 
 
 Passing from general considerations relating to the structure 
 of British railways, we may now enter on the large and difficult 
 problem of the relation between costs and charges in the railway 
 industry, regarded as one of conditional monopoly. 
 
 * Parallel lines are sometimes deliberately arranged by a single company. 
 Great Western expresses between London and Exeter have three routes: one 
 through Bath, another through Badminton, and a third through Westbury. It 
 is doubtful whether any waste is involved by the fourth parallel route of the 
 South Western through Salisbury: and North Devon would have suffered much 
 if that route had not been continued to Plymouth through Okehampton. There 
 are no long parallel lines in Britain so near together as those that run on the 
 light and left banks of the Rhine for more than a hundred miles, being in sight 
 of one another for the greater part of the way : they are two of the busiest lines 
 of the great Prussian system. 
 
 The Great Eastern and Great Northern lines are parallel between London and 
 Cambridge. But Cambridge is the focus of many lines; and some Great Northern 
 trains are arranged to arrive at or leave Cambridge at about the same time as 
 Great Eastern expresses; so that Norfolk and other Eastern Counties may have 
 good coimections with Hertfordshire and neighbouring districts. As a rule the 
 two sets of express trains supplement one another: and if their number were 
 much diminished, the small gain in net income to the combined companies, 
 would probably be of less value than the loss of time and convenience to those 
 whose engagements give them occasion to move between London and Cambridge. 
 
456 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, IV, 4. It is true that when once a new railway has a fully equipped 
 double track, it can carry a great deal of traffic without further 
 outlay on its permanent way, and with but little further outlay 
 on buildings : though of course it must increase its rolling stock, 
 and almost every class of its employees. It is true therefore 
 that its costs are less dependent on the extent of its business 
 than are those of a shipping company, which makes use of 
 public docks: and invests nearly all its capital on vessels that 
 speedily deteriorate, even if they are not rendered obsolescent 
 by technical advances. A large ship is no doubt very economical 
 of working, provided a full cargo can be found for it. But the 
 total costs incurred by a railway for a small traffic per mile are 
 generally very great, while those for a dense traffic per mile are 
 generally low : and there is no equally striking contrast between 
 the expenses per ton or passenger mile of a small line of well 
 chosen ships, and those of the most powerful line. It will 
 however be found on examination that tendencies to Increasing 
 Return are strong only at certain stages of a railway expansion: 
 and that similar tendencies are found at corresponding stages 
 of the growth of a business in industries which are not, in any 
 special sense. Increasing Return industries. 
 
 Consider for instance the case of a printer, who is equipped 
 with a varied up-to-date plant and stafE, but is slack of work: 
 the gain of an additional order may be worth to him nearly the 
 full price that he would get for it, after deducting the cost of 
 the materials. And yet, if his normal output doubled, he might 
 probably need almost to double his plant and staff: he would 
 not reap any great additional economies from more highly 
 specialized plant or staff, utilization of waste products, etc.; 
 that is, he would not reap many additional economies of those 
 kinds which are giving the upper hand to a giant firm in steel 
 and some other distinctively Increasing Return industries. 
 Therefore although a particular order may be taken, without 
 allowing for more than out-of-pocket expenses; yet, speakmg 
 generally, orders are to be charged with their appropriate share 
 of the cost of setting up, or it may be enlarging the printer's 
 buildings, plant and staff : and the same is true in great measure 
 of railway work. That is to say there are alternating stages 
 in the evolution of the traffic on a railway. When it is first 
 
RAILWAY COSTS MOSTLY FIXED FOR SHORT PERIODS ONLY 457 
 
 opened, it commonly has an equipment expected to sufl&ce for iii, it, 4. 
 several years, without calling for any very heavy expenditure. 
 It has at first very little traffic ; perhaps hardly sufficient to cover 
 working expenses, without making any contribution to interest 
 on the capital invested. During that stage, every addition to 
 the traffic adds much more to the revenue of the railway than 
 to its costs : and it may be said, without greatly forcing the use 
 of words, the railway is an Increasing Return business. But 
 after a while the traffic begins to outgrow the equipment of the 
 railway; and then no more can be carried efficiently without 
 great outlay: while that development is in process the railway 
 may be described, without greater forcing of the use of words 
 than in the preceding case, as a Dimiuishing Return business: 
 and so on^- 
 
 It may be well to go into some detail in regard to this. 
 Of course it is, generally speaking, no true economy to build 
 a line with steep gradients or sharp curves, or even on a cir- 
 cuitous route, if there is any considerable chance of its being 
 required in the course of a generation to do important work. 
 But nearly all the other outlays, which belong to a first-class 
 railway, may well be avoided when buildiag in a sparsely 
 peopled district. 
 
 A single fine, with few and short sidings, scanty ballast 
 and light rails can be built and equipped cheaply. It may be 
 closed at night; and at a very small station two men can do the 
 whole work, including the signalling. As the traffic increases, 
 the efficiency of the railway can be increased gradually: and 
 
 ' Thia point has been developed by several writers and especially by 
 M. 0. Lorenz in the Harvard Journal of Economics, Feb. 1907 and Feb. 1916. 
 He quotes from President J. J. Hill of the Great Northern Railway, U.S.A., 
 speaking in 1907: "The traflSo increases wonderfully, but the railroad facilities 
 have not been able to keep up the pace. That is why to-day your business in 
 some respects is paralysed, while you cry aloud for transportation help. Long 
 paralysis means slow death. The fact is probably forty per cent, of your business 
 to-day is without any facilities to handle it." 
 
 The fundamental importance of the element of time in all discussions of the 
 lines of division to be drawn between (1) fluctuating operating expenses, (2) con- 
 stant operating expenses, and (3) fixed charges, is explained in great detail, with 
 special reference to American conditions, in W. J. Ripley's excellent Railroads, 
 vol. I., especially pp. 61 — 66. "Everything depends on the length of time under 
 consideration." Compare his long period chart (p. 66) with those for short 
 periods (p. 100). 
 
 15—5 
 
458 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, IT, 5. thus its capital cost can be kept in fairly close relation to the 
 work it has to do, and the income it can earn. But the increase 
 in expense makes some great jumps: as for instance as soon as 
 it has been decided to have two lines instead of one, or three 
 or four instead of two; or to keep the signal-boxes open by 
 night; or to make the permanent way, including the bridges, 
 solid enough to carry heavy locomotives at a great speed. 
 None of those changes can, as a rule, be made piecemeal: 
 and after each of them, the efficiency of the line is so much 
 increased, that it can carry more additional traffic, than it is 
 likely to have for some time, without any appreciable addition 
 to its expenses on account of the permanent way. 
 
 These general considerations are sufficient to show that the 
 permanent way and its equipments are not even approximately, 
 definite entities, made once for all, and "fixed" independently 
 of the traffic. If further evidence were needed, it would be 
 supplied by the fact that in the thirty years 1882 — 1912, the 
 "paid up capital" of British railways increased from 768 milhon 
 pounds to 1335 million pounds; though their aggregate length 
 had increased only from 18,457 miles to 23,441. 
 
 In one sense indeed it is true generally that the density 
 per mile of the traffic of a railway system increases with its 
 length; and that therefore the larger it is the lower the rates 
 at which it can profitably work. For if an extension B is added 
 to a railway A, the traffic on the united lines exceeds the sum 
 of the traffics that there would have been on A and B separately 
 by the traffic between A and B. But this consideration is 
 more than outweighed, in a country already well supplied with 
 railways, by the fact that the natural courses of the chief traffic 
 have been occupied by the earlier lines. 
 
 6. The direct costs of particular passenger services. 
 
 The business of a railway consists of two main branches, 
 goods traffic and passenger traffic. Goods traffic is the more 
 interesting for our purpose; but it is also the more complex. 
 For much of its cost is due to terminal services, which are of 
 a different order from those of mere transport: and while, as 
 a rule, the fare paid by a passenger is of no concern to anyone 
 but himself, much of the trouble connected with charges for 
 
DIRECT COSTS OB" PASSENGER TRAFFIC 459 
 
 goods traffic arises frora the fact that the charge paid by in, iv, 5. 
 producers or traders for the transport of any class of goods is 
 a matter of concern on the one hand to those who desire to use 
 the goods, and on the other to those who ofEer competitive 
 goods from the same, or from different, sources of supply. We 
 will therefore begin with the direct costs of passenger traffic. 
 
 The imit of charge is as a rule (subject to exceptions for 
 season tickets, organized excursions, etc.) a single or double 
 journey for a single person: but the smallest unit of cost of 
 service is that of a passenger wagon^. There is no means of 
 ascertaining beforehand how much dead weight will be carried 
 for each passenger in any train (save in a few cases, such as 
 those of trains which bring every week day the same crowds of 
 workers to go on duty at, say, nine o'clock) ; and the accommo- 
 dation provided is adjusted to the probable demand for it, a 
 large margin being generally allowed for unforeseen contin- 
 gencies. Therefore the direct cost of a passenger must generally 
 be taken to be that fraction of the total cost of hauling a wagon, 
 which corresponds to the average number of those who travel 
 in the same class of carriages with himself, in trains which run 
 under similar conditions to his. This last qualification leads to 
 the next point. 
 
 As it makes scarcely any difference to the cost of a railway 
 whether any carriage in a train, that is made up ready for 
 running, is full or not: so the addition of an extra wagon to 
 a train, which is bound to run, adds to the total costs of the 
 train, nothing but the wear and tear of that wagon, and the 
 consumption of a little extra coal. Therefore speaking generally 
 the wagon unit of cost is to be regarded as a proportional part 
 of the next larger unit of cost, that of a train. 
 
 It used to be held that a fast train cost more than one 
 which made many stoppages on the same route. This was 
 partly because an engine that could travel fast, was very 
 expensive : but improved methods of exact mechanical engineer- 
 ing have reduced this difference; and it is now understood, 
 
 ' It ia true that when some of the wagons contain compartments of more 
 than one class, it is possible to meet slightly increased demand on the part of any 
 class of passengers by substituting a long wagon for a short one. But, for the 
 sake of simplicity, these and similar trifling details will be left out of consideration. 
 
460 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, IV, 5. that a train travelling forty or fifty miles an hour with but 
 very few stoppages, is less costly than one that makes frequent 
 stoppages, and is yet required to attain a good pace between 
 each pair. Therefore the practice of charging additional fares 
 for express trains has declined, especially in Britain; and the 
 direct cost of a passenger train may be taken as varying 
 generally with its total weight and length of journey. But 
 a train which runs at a time, when the line has more traffic 
 than it can conveniently accommodate, may be held not to pay 
 its costs unless it is fairly full : as a rule, the trains that do run 
 at such times can earn large revenue even at low charges; and 
 these opposing influences have led to some curious anomalies^. 
 
 The total charges that belong to the passenger service, in- 
 cluding the transport of such parcels as go by passenger train, 
 consist of the direct costs incurred on current account for pas- 
 sengers, parcels, rolling stock, stations and employees; together 
 with interest on aU outlays for those that are to be charged 
 to capital account: also with appropriate shares of the general 
 costs of signalling; and of the making and maintenance of 
 the main way, and of such sidings as are not exclusively used 
 by the goods traffic. But the distribution of these general 
 costs between the passenger and the goods divisions cannot be 
 brought under any fixed rule. As a starting point it may be 
 supposed that they should be divided roughly in proportion to 
 the direct costs of the two divisions : with some special allowance 
 for costs that are incurred more for one service than another; 
 and especially when one pushes the other aside. For instance 
 passenger trains crowd goods trains off the line at certain hours 
 of the day, while goods trains in return have almost exclusive 
 possession in the centre of the night. 
 
 To pass to some points of detail: — it is often said that the 
 tendency of the age is towards increased subtlety of differentia- 
 tion between various classes of goods that travel on the same 
 line of railway: but, in so far as this is true at all, the cause 
 will generally be found to be some new differentiation in the 
 services required for different things. In passenger traffic on 
 
 * Something is said about them in Appandix M, 2. 
 
DIRECT COSTS OV PASSENGER TBATFIC 461 
 
 the other hand the tendencies of the age are clearly in the iii, iv, 5. 
 opposite direction. In early times indeed everyone had a 
 definite rank: when he travelled he received accommodation 
 according to his rank; and he paid for it proportionately, 
 unless indeed he exacted it without payment. The first English 
 railways went on this plan: those who were unable to pay 
 high charges were forced to travel in great discomfort: and 
 express trains were practically reserved for the gentry, partly 
 because it was thought that quick transport was very costly; 
 until, with the advance of railway technique, it was found better 
 to attract all classes of passengers between principal stations 
 into fast trains. 
 
 Thus one form of differential charge, which was long 
 customary, has practically disappeared from British railways. 
 Meanwhile the amenities of third class travelling have been 
 greatly increased; and it has become necessary to provide first 
 class passengers with so much free space, that the actual cost 
 of the haulage needed for earning a given sum from first class 
 carriages has become greater than for third class; though of 
 course the net earnings on each hundred passengers are greater 
 for the first than for the third class. In several other ways 
 differential charges for passenger traffic have diminished; and 
 an elastic demand has been met by increasing accommodation 
 and specially low fares, even under conditions which made the 
 direct cost of haulage more heavy than usual. 
 
 These considerations tend to show that the reasonableness 
 of the fares charged by a railway cannot be judged even 
 approximately by mere reference to the rates per mile in each 
 class: for the services of one railway may be so much more 
 advantageous to passengers than those of another, that they 
 are really the cheaper, though at higher charges. Speed and 
 frequency of trains, spaciousness and ease of carriages, allow- 
 ances of free luggage, etc. are benefits for which extra fares 
 could be charged reasonably; in the same way that a higher 
 rent may be reasonably charged for one ten-roomed house in 
 which the rooms are large and well appointed, than for another 
 which is also classed as a ten-roomed house but cost much less 
 to build. Again, a line built in a mountainous and difficult 
 district, where traffic is scarce, may charge higher rates for 
 
462 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 til, IT, 6. a service inferior in comfort or efficiency to that of another in 
 a rich, flat, densely peopled district: and yet be in e£Eect the 
 cheaper of the two. 
 
 But so great are the advantages of simplicity and uniformity 
 that, with a few divergences in exceptional cases, the charge of 
 a penny per mile for ordinary third class traffic is universal on 
 British railways; it being understood that, where there are 
 competitive routes, the mileage is reckoned as by the shortest. 
 Thus practical expediency has brought about a rigidity of rule, 
 which would have been resented if imposed on the railways 
 by authority. 
 
 6. The direct costs of particular goods-traffic services. 
 
 As a single passenger is the ordinary unit of charge on his 
 side of railway business, so is a single consignment the unit of 
 charge on its side : and, as in passenger service so in goods service, 
 the direct cost of the appropriate unit of charge, is derived in 
 the first instance from that of a wagon unit (or, in the case of 
 a large consignment, of several such units), which again is 
 generally derived from that of a train unit. And the general 
 costs of service are shared out over particular direct costs on 
 a similar principle, or lack of principle, in the two cases. But 
 there are some broad contrasts between goods and passenger 
 services, from the points of view both of the railways and their 
 customers, on which a little should be said. 
 
 To begin with, there is the consideration that goods traffic 
 bears a closer resemblance to manufactures than passenger 
 traffic does: because the carriage of goods, like the work of 
 a factory, is only one link in a chain of production; whereas 
 a passenger journey is, as a rule, complete in itself. Conse- 
 quently the immediate, though not the ultimate, interest in 
 the freights charged for any kind of goods is generally concen- 
 trated in a relatively small number of people, who trade in those 
 goods as buyers or sellers. But the interest, both immediate 
 and ultimate, in passenger fares is diffused over the whole 
 population; and therefore it seldom gives rise to keen sectional 
 conflicts, such as are found in the relations between those 
 engaged in successive stages of the same long process of pro- 
 duction; especially if they are organized in cartels, or so-called 
 
DIRECT COSTS OP GOODS TRAFFIC 463 
 
 "trusts," and other giant businesses. Accordingly, freight iii, iv, 6. 
 rates are subject to an eager, alert and well informed scrutiny, 
 which is seldom brought to bear on passenger fares: and, as 
 it happens, though discrimination between passengers according 
 to their rank has been rendered impracticable by the obso- 
 lescence of definite lines of social cleavage, the discrimination 
 of goods according to their rank has become a very important 
 matter to the carrier : and it is not very difficult. 
 
 Again, a passenger who desires to travel between two points 
 A and B is concerned only with the charge levied on him: 
 he does not care whether it is greater or less than the charges 
 levied on other people who travel between either point and 
 some third point. But the producers and dealers who live in 
 A are often deeply interested in the relation which the railway 
 charges, levied on the goods which they send to B, bear to 
 those levied on rival goods, which come from G, or D. In 
 fact, there is much truth in the saying of an experienced 
 railway official, that when a trader or a locality complains that 
 railway rates are too high ; what is really meant, is that the rates 
 charged to some competitive person or locaUty are too low. 
 For, as has been already observed, neither producer nor trader is 
 very much affected by a tax or any additional charge laid on 
 him, provided that everybody else, who supplies the same 
 market, is subject to the same burden: the main burden falls 
 on the ultimate consumer, though the businesses of producer 
 and trader may be a little curtailed. 
 
 Again, in a small country such as England, which has 
 sufficient traffic to require its chief lines to be kept open at 
 night, the goods service presents in one respect simpler prob- 
 lems than the passenger service. For the passenger insists on 
 choosing his own times for travelling: and these are, for the 
 greater part, times when the line is crowded (unless the journey 
 is long enough to give time for a fair night's sleep). But the 
 shipper of goods requires nothing more than that they should 
 travel safely, and be delivered without great delay : he does not 
 care whether they go in a fast or slow train, or what stoppages 
 they make by the way. So far from objecting to their travelling 
 by night, he rather prefers it; at all events in a compact 
 industrial district, where goods collected by a railway towards 
 
464 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, IV, 6. the end of a day's work can be generally delivered before noon 
 on the next day. This convenience is partly cause and partly 
 result of the British practice of making up numerous trains, of 
 small wagons, many of which are not nearly full; so that one 
 can be dropped at each considerable station to be unloaded at 
 leisure. The proportion of dead weight to freight in these 
 trains is very high: but they enable work to be done without 
 very much night labour between two working days, which m 
 most other countries is spread over at least twice as long a 
 period. And thus in goods traffic, as in passenger traffic, British 
 railway services rate economy of time to the customer much more 
 highly in comparison with money costs, than other railway services 
 do. Let us pass to another contrast, that between railway and 
 shipping services. 
 
 The special services with their corresponding costs, which 
 steamship lines render to valuable goods, consist chiefly of more 
 rapid transit, with a regular service of ships insuring prompt 
 despatch. These advantages play a relatively small part in 
 railway goods traffic: for distances are short, at all events in 
 small countries, and there are frequent and regular services on 
 main lines for all sorts of traffic. Steamers charge light goods 
 according to volume. Railways do not: they simply put goods 
 that occupy much space in proportion to their weight into a 
 "higher," that is more highly taxed class: machines for instance 
 are in a high class when fully set up, and in a low class when 
 their several parts are closely packed in square cases. 
 
 English railways generally undertake cartage for everything, 
 except minerals and other things, which come in great bulk 
 and are carried at very low rates. Costs are incurred and 
 corresponding charges are made for "terminal" expenses of 
 various kinds, with extras for covering and uncovering, loading 
 and unloading. These costs and charges are not always very 
 heavy absolutely: but they are large relatively to actual costs 
 of haulage, especially in short distance traffic: consequently 
 unless terminal charges of all kinds are separately entered, the 
 total charge per ton-mile must be very high for small distances, 
 and gradually diminish, as the distances increase^. 
 
 ' The direct cost of carrying the same class of goods per ton-mile has been 
 found, other things being equal, to vary generally as the square root of the 
 
DIRECT COSTS OP GOODS TRAFFIC 465 
 
 Accordingly railways in every country arrange that the iii.iv, 6. 
 charge for each consignment per ton-mile shall be greater 
 for small consignments than for large, and for small distances 
 than for large: administrative economy requires the rates of 
 charge to be grouped into several broad classes. The charges for 
 each sort of goods are in some measure adjusted, with general 
 consent, to the average of the total consignments of them which 
 make the same journey, and give scope for making up fairly full 
 wagon-loads, if not train-loads; and again to the costliness of 
 any special wagons needed, and the ratio of their weight to their 
 carrying power; and again to the outlay and care needed for 
 preventing depreciation of the goods and injury by the weather. 
 Account may also be taken of the fact that wagons specialized 
 for one sort of traffic are apt to be expensive, to travel often 
 empty one way; and in some cases, to be idle during a great 
 part of the year. 
 
 To conclude: — a fairly old railway, holding the greater part 
 of the transport of a compact industrial district, is likely to 
 have so completely adjusted its appliances to the traffic, that 
 each of them is well occupied ; and does its work so economically, 
 that any addition to that work would have to carry nearly 
 full costs. In such a case cost of service could automatically 
 become the chief regulator of railway charges; and some 
 American writers are inclined to think that, ere many genera- 
 tions are past, railways will in their own interest cease to concern 
 themselves much about the various values of their services to 
 particular classes of traffic; but will levy nearly the same 
 charges for all services that make equal demands on their plant 
 at equally busy seasons, and require equal direct or "particular" 
 costs. Mr M. 0. Lorenz argues cogently that while value of 
 service is likely to continue long the chief regulator of prices 
 in the sparsely peopled districts of the Southern and Western 
 States of America, cost of service shows signs of taking the first 
 place in the Eastern States^. 
 
 It has already been said that Scientific Management is 
 but one exceptionally vigorous and sanguine embodiment of 
 
 distance. (See Ripley, I.e. i. p. 103.) But this empirical rule might easily be 
 set aside by changes in organization and in technique. 
 ' Quarterly Journal of Economics, Feb. 1916. 
 
466 , COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, IT, 6. the fundamental idea that the progress of the science of busi- 
 ness, as of all other sciences, depends largely on the clearness 
 and precision with which the achievements of one generation 
 are recorded so as to form starting points for those of the next. 
 The trained instinct of a business man of high genius will no 
 doubt often see at a glance a clear way through problems, on 
 which even the most voluminous statistics could give but little 
 guidance. 
 
 But, as was urged above (II, ii, 2), the printed figure remains; 
 and cumulative progressive knowledge based on organized 
 records of observed facts supplies the material on which modem 
 constructive faculty works. Its province is to perceive how the 
 slight and indirect lights, thrown by mere numerical records, 
 can be so utilized, in combination with lights drawn from their 
 sources, as to cause realities to fall in their proper positions rela- 
 tively to one another, and to set on one side hasty inferences 
 from limited observations. 
 
 No doubt untutored critics are apt to be misled by inter- 
 national comparisons, which discuss ton-miles, wagon-miles, 
 and train-miles, on the supposition that each of these terms 
 means nearly the same thing always. But American railways 
 have lived down such difficulties as these; and are txirning to 
 ever better account the publication of the information; which 
 the Interstate Commerce Commission, with full support from 
 public opinion, requires them to publish^. 
 
 Some reference has already been made to various policies 
 for the distribution of the general costs of a railway among the 
 charges for its various services. But we have come to the point 
 at which these complex and thorny matters must be considered 
 more closely. 
 
 ' Something more is said on this subject in Appendix M, 4. The present is 
 not the proper place for investigating the relations between employers and 
 employed in conditional monopolies. But the charges, made by British and 
 Continental railways, cannot be compared fairly without reference to the high 
 wages which British railways pay. An Act, passed in March, 1913, provided 
 that a rise in their charges might be justified on the ground that it was needed 
 to cover outlay on "improvement in the conditions of employment of its labour 
 or clerical staff." 
 
CHAPTER V 
 
 COMPETITION AISfD MONOPOLY IN TRANSPOET, 
 CONTINUED 
 
 1. The distribution of the general costs of a railway iii, y, i. 
 over its various services. 
 
 The present chapter is mainly concerned with the appli- 
 cation to railway problems of the general principles, already 
 discussed, relating to the good and the evil of price-discrimina- 
 tions by semi-monopolistic businesses. This inquiry, especially 
 in so far as it relates to geographical discriminations, runs up 
 into the question of Government control of railways and of their 
 relations to other agencies for internal transport; as to which 
 something is said in Chapter vi. 
 
 In the present chapter, as indeed throughout, reference is 
 made to normal conditions, such as those which existed before 
 the world-war: they were the basis on which earUer drafts of 
 the present Volume were written ; and no account is taken of the 
 abnormal conditions which have arisen during the war, save 
 where an express reference is made to them. 
 
 When price is governed by active and unrestricted com- 
 petitive production, the highest price that the market wiU bear 
 is the equivalent of the cost of production; provided the 
 commodity in question is in fact, or can conveniently be made, 
 the chief product of a well-equipped business. But the case is 
 different, where several products have a joint cost of production, 
 in the strict sense; so that it is almost impossible to produce 
 one without producing the others. For then the division of 
 the costs between them is governed by the relative volumes 
 and intensities of the market demands for them; subject to 
 the condition, that if the processes of production can be so 
 
468 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, T, 1. modified as to vary their relative proportions, then those pro- 
 portions will be modified in accordance to the relative market 
 demands; and prices will be modified accordingly. Thus, before 
 mutton could be brought across the equator in cool chambers, 
 the wool of Australian sheep was developed at the expense of 
 the mutton; though, in breeding British sheep, the first con- 
 sideration was the rapid maturity of a heavy carcase. In 
 such adjustments monopoUstic and competitive policies run on 
 similar lines: what differences there are between the two are 
 relatively unimportant. 
 
 We have seen that manufacturers, traders, and shipping 
 companies, who offer a variety of commodities or services, are 
 seldom able to set a large share of general costs on any com- 
 modity or service, on which well-appointed businesses can 
 conveniently speciaUze: but in regard to all others they have 
 great freedom. Their normal practice is to adopt some 
 distribution of the general charges provisionally: to make 
 slight tentative variations in the distribution — sometimes with 
 reference to particular transient conditions, sometimes with 
 the purpose of improving their permanent policy. A strong 
 monopolist business has a free hand in making such experi- 
 ments : but its action in this respect differs only in degree, not in 
 kind, from that of almost every considerable alert manufacturer 
 and trader. 
 
 Just as independent competitive manufacturers and traders 
 distribute their general costs over various classes of goods, 
 somewhat arbitrarily indeed, but yet ultimately very much on 
 the same plan; so it has been found that "there exists surprising 
 similarity in the methods employed by different railway com- 
 panies in apportioning certain common or overhead expenses. 
 This similarity appears to have been brought about without 
 previous conference and agreement; and is apparently the 
 result of similar conclusions arrived at by men working at the 
 same problem independently of one another." It appears that 
 this agreement, Hable to vary as it is from one country to 
 another, and to change in some degree from decade to decade, 
 is yet sufficiently definite to serve as a basis for "pubhc pohoy 
 expressed in most general terms, leaving the detailed application 
 to administrative action and judgment." Such appear in effect 
 
DISTRIBUTION OF A RAILWAY'S GENERAL COSTS 469 
 
 to be the main principles governing the British Railway Com- iii, v, i. 
 mission and Board of Trade ; as well ' as of the Interstate 
 Commerce Commission, on whose behalf they have been thus 
 formulated^- 
 
 From a purely abstract point of view, it might seem proper 
 to assign to each service its own direct costs, together with 
 a proportionate share of those which belong specially to services 
 of a like kind with itself; and another proportionate share of 
 those which are common to the whole railway. But for 
 practical purposes, account must be taken of the universal 
 custom of putting lower charges on goods that could not be 
 carried at all at rates, which have but little constrictive effect 
 on traffic in more costly goods. Accordingly a charge for any 
 service is not regarded as discriminative, so long as it includes 
 shares of general costs proportionate to the charges which are 
 commonly levied for similar services in regard to goods of the 
 same kind on the railway in question, and on others working 
 under like conditions. Such conclusions are based on a broader 
 foundation of experiment and experience than most of those 
 which are adopted as rules in practical hfe. They are not final 
 of course ; and must in the long run be modified by the assault 
 of experience which is growing slowly in breadth, and fast in 
 organized analysis, record and reasoning : but they hold the field 
 for the time. 
 
 A preliminary difficulty arises from the distinction between 
 the cost of handling freight at its points of departure and 
 arrival; and the cost of moving it when it is in its wagon. The 
 first cost is approximately the same for similar consignments, 
 
 ' By Mr B. H. Meyer at the meeting of the American Economic Associa- 
 tion, in 1913. Professor M. B. Hammond suggests that it matters very little 
 how a merchant or a manufacturer starts his distribution of general costs. 
 He may apportion them "to labour costs, or to the cost of the material; or, 
 even more loosely still, according to floor spaces, or according to the amount of 
 sales or the number of employees." After a while he will get from any starting 
 point to nearly the same conclusion ; since " by carefully comparing the rates 
 of growth of the various departments with the growth of his profits, he is able 
 year by year to correct his former standards of measurement.... In applying 
 the comparative method of determining costs and of fixing charges in accord- 
 ance thereto, it would seem that the Commissioners and the railway officials 
 have been merely pursuing the methods generally known and accepted by 
 most careful business men." {Quarterly Journal of Economics, Nov. 1910, 
 p. 66.) 
 
470 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, V, 1. whether destined for a short or a long journey: the second 
 varies nearly with the length of the journey, but is rather less 
 in proportion for a long journey than for a short. Here it is 
 necessary to recall the contrasts between the charges for large 
 and small consignments, and for long and short distances. 
 
 First, as to the terminal charge: it must cover direct costs, 
 together with a share of general costs; aU being roughly adjusted 
 to the labour of handling done by the servants of the railway, 
 with extras for such special tasks as that of protecting the con- 
 signment from the weather by a waterproof covering. These 
 terminal charges are independent of the distance to be travelled; 
 except in so far as a long journey may call for any precaution, 
 that would be inappropriate for a short one: they are of course 
 at somewhat higher rates for small consignments than for large. 
 
 Secondly, that part of the charge, which relates to moving, 
 covers direct and indirect costs. The direct costs of moving are 
 proportionately higher for short distances than for long. And 
 they are much higher for small consignments than for large: 
 because full truck loads can be sent through to their destination, 
 without further handling; while small consignments must often 
 travel in partly empty wagons, at the expense of much "dead 
 weight"; or else call for much special handling and delay on the 
 route. 
 
 With so great an economy to the railway in performing 
 a large task relatively to that of performing a small one, it is 
 inevitable that there should be some corresponding lowering of 
 proportionate charges in favour of the large tasks: and, as 
 large tasks are generally imdertaken for large capitalists, there 
 appears to be some discrimination against the small man. 
 But in fact it seems certain that the shares of general costs, 
 which are charged in addition to direct costs, often bear a lower 
 proportion to those direct costs in the case of small tasks than 
 of large. 
 
 Hence it might be inferred that the large trader, and not the 
 small, has ground for complaint of discrimination unfavourable 
 to him: but this contention, though plausible, seems to be 
 invalidated by the fact that the charge for the large task gives 
 a less excess over direct costs, and thus contributes less to the 
 net revenue of the railway, than would the aggregate charges 
 
DISTRIBUTION OF A RAILWAY'S GENERAL COSTS 471 
 
 for an equal aggregate of work divided up into small pieces, hi. v, i. 
 Whatever nominal discrimination there be in favour of the 
 small consignment, is therefore not injurious to the railway; 
 and it is generally approved. This illustrates the great diffi- 
 culty of laying down definite rules for deciding whether there 
 is any element of undue discrimination in charges made for 
 services that are similar, but not identical. 
 
 There are some large classes of discrimination as to which 
 judgment is even more difficult. Many of them, which can 
 be defended by plausible arguments, will need a little study: 
 but we may first note, and put aside, distinctly vicious dis- 
 criminations, due to corrupt practices by some railway officials, 
 or to violent action by powerful capitalists: they have done 
 much to excite prejudice against differential charges which are 
 really reasonable. For instance ia the tumultuous develop- 
 ment of American railways in the latter part of last century 
 public anger was roused by the pressure, put by powerful 
 customers on various railways, to grant them concessions out 
 of aU proportion to the economy to be derived from the large 
 size and steady flow of their consignments. Some of these 
 concessions were open, some secret: some were made honestly 
 in the apparent interest of the railway; some were obtained 
 by corrupt payments to particular railway officials, or by other 
 maUgn courses. Such cases are however now rare and relatively 
 unimportant: the sensational chapters in railway history, for 
 which they provided material, are no longer of general interest^- 
 
 * To take extreme cases of pressure put on a railway: — a giant business 
 sometimes made a demand on a railway for exceptionally low rates, supported 
 by a threat to make a branch line to connect its works with a rival trunk line, 
 or even with the sea-board. And a group of financiers, or even a single powerful 
 financier, having large interests in each of many concerns, would give a railway 
 to understand that, if it did not yield a concession to one of those concerns 
 (which perhaps had no access to rival lines), the railway would lose a good part 
 of the traffic of other companies which had access to several lines. Concessions 
 of this kind were seldom secret. 
 
 But others were secret and dishonest. Thus packages consisting mainly of 
 goods, which according to the recognized classification ought to be charged at 
 a high rate per ton, would bo baled as consisting solely of low-rate goods; and 
 the railway would not trouble itself to inquire too closely. Warehousing charges 
 would be omitted, or trucks would be aUowed to be used practically as ware- 
 houses by the agents of a favoured business: while the goods in which a rival 
 business was interested would be habitually delayed; and at critical times even 
 
472 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, V, 2. 2. Discriviinating concessions to particidar industries 
 and trades in regard to charges and services are mostly 
 local ; and they are often much influenced by competition 
 between industrial and trading districts, served by different 
 raihvays. 
 
 It has already been observed that the public at large seldom 
 concern themselves about railway freight charges: and that the 
 alert attention of producers and traders is generally directed to 
 the relative rather than the absolute, amounts of those charges; 
 for, so long as each is sure that all his competitors, far and near, 
 are subject to like charges, he is generally content. In so far 
 therefore as agreements among railways weaken the motives 
 which prompt producers and traders to vigorous action in such 
 matters, they deprive the non-vocal consumer, who bears the 
 ultimate burden of any high rates, of a chief defence; and they 
 thus throw an ever increasing responsibility on public authority 
 to intervene in the general interest. For instance, if the whole 
 of the flour consumed in the North of Scotland came from 
 Glasgow mills, then high railway charges on flour, passing from 
 Glasgow to the North of Scotland, would be of little importance 
 either to the Glasgow millers or to the bakers in North Scotland: 
 the public alone would suffer, and they would scarcely know to 
 what extent they suffered, or how to seek a remedy. Similarly, 
 if a combination among the Glasgow millers kept the price of 
 flour somewhat high relatively to that of wheat (efiective 
 competition from other mills being absent), the local bakers 
 would raise the price of bread either directly, or by a change in 
 quality, and would pass unscathed. The public would suffer: 
 but they are not vocal, unless strongly aroused; and probably 
 they would not be. 
 
 Often however agriculturists, or some other class of pro- 
 ducers or traders in any locality, see that lower rates would give 
 them an advantage in any market, where they are brought Lato 
 competition with producers or traders of another locality, who 
 are not subject to the same set of railway rates: and then 
 
 covered up on side tracks by bo heavy a block of other trucks as to be practically 
 inaccessible. Free passes would be given, not merely to regular business 
 "travellers"; but to others, who had no special claim, but whose interest it was 
 desired to enlist. 
 
VARIETIES OF RAILWAY DISCRIMINATIONS 473 
 
 sufBcieut driving force is supplied to attract attention. If the iii, v, 2. 
 locality afEected is large, and the special interests concerned 
 are strong, the issue becomes one of national importance. A 
 notable instance of this was the complaint made by British 
 agriculturists generally, that the railways carried imported 
 produce from Southampton and other ports, at much lower 
 rates than they themselves were charged when sending their 
 produce to London and other markets^. 
 
 On the whole, controversies in regard to Preferential rates 
 are declining in interest. There is much truth in the statement 
 frequently made that a railway is often prevented from lowering 
 a charge, which would benefit a certain local industry or trade 
 without material loss to the railway; because it fears that such 
 action would invite complaints from some other district, in 
 which a similar concession could not be made without much 
 loss. Since preference in the character of the services rendered 
 
 * These complaints were investigated by a strong Committee of the Board of 
 Agriculture, whose Report [Gd. 2959], 1906, is a chief source of information on 
 the subject of Preferential Rates, so far as this country is concerned. It brought 
 out clearly the tendency of long distance traffic, especially in connection with 
 international trade, to be sent in large quantities direct from a port, or other 
 lading point, to a single market; and in packages so arranged as to travel 
 easily and occupy the least possible space, so that the cost per ton-mile is very 
 much less than that of ordinary local traffic. A little education in railway 
 technique would remove many of the wastes and other troubles involved in such 
 traffic; especially by inducing cooperation among producers in the same locality, 
 so that each one's small consignment might earn the benefit of the low rate for 
 a large consignment: whereas in fact {Seport, p. 32) a grower will often split up 
 his consignment and "send it to different salesmen, in order to find out who 
 gives the best prices." The Report tends to confirm the impression, previously 
 prevalent, that in such complex matters as complaints of harsh treatment or 
 undue preference by a railway, an expert handling of the case is necessary even 
 before a sympathetic tribunal. A shrewd, but untrained, exponent is apt to 
 state his case badly; and, by losing it, to injure others who have grounds of 
 complaint similar to his. The Board of Trade exerts itself to lessen this evil 
 by informal conciliation; by clearing away misunderstandings; and by putting 
 such pressure, as lies within its power, on a railway that seems to be acting 
 harshly. But where recourse to the Railway Commission is necessary, the 
 costs are said to range between £21 and £2000 (i6. p. 28). The Eeport of the 
 Board of Trade Railway Conference, 1909 [Cd. 4677], p. 4, however suggested a 
 scheme under which the Registrar of the Commission might have provisional 
 authority for dealing with small oases by less expensive methods. Statements 
 of the cases for and against the railways respectively will be found in Pratt's 
 Railways and their rates and Waghom's Traders and Railways. A short balanced 
 statement is given by Williams, The economics of railway traruport. 
 
474 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, V, 3. cannot easilj be made the ground of complaint, this considera- 
 tion increases yet further the tendency to compete by improve- 
 ments of service rather than by lowering of charges. Such 
 escape from restraint on competition works for good in many 
 ways; though its benefits are less frequently considered than the 
 increased charges, which it entails. It is one of many causes, 
 which makes the fares and rates for freight on British railways 
 appear higher relatively to those prevalent in most other 
 countries, than they really are. 
 
 For instance, even when railways have no direct contact 
 with one another, or they have deadened competition by agree- 
 ments made for their own convenience, the rivalry in industry 
 or trade of the regions which they serve sometimes introduces 
 rough but invigorating breezes of new contests. Thus Grimsby's 
 connection with the manufacturing districts lies with the Great 
 Central, while that of Hull is mainly controlled by the North 
 Eastern: and, so long as Grimsby was little more than a fishing 
 port, either raUway was in a rather easy monopolistic position. 
 But when the great new dock at Immingham, close to Grimsby, 
 was opened, the two railways roused themselves to new activities'. 
 
 More generally, if two districts, A and B, are in keen com- 
 petition with one another for suppljdng a common market 
 with their special goods; and A has grounds for thinking that 
 B'a railway connections with it are better served than its own, 
 a movement throughout A is speedily organized with the pur- 
 pose of bringing its railway up to the level of that of B. The 
 movement is likely to be successful: for in such a case the 
 interests of the railway and the district are closely united. 
 
 3. The good and evil of the concession of specially 
 favourable railway rates to particular districts, whose 
 geographical positions are somewhat unfavourable. 
 
 In so far as the rival interests of producers or traders in 
 different localities keep the railways, which respectively serve 
 them, alert and progressive, the result is almost wholly good. 
 But complex questions of public interest are raised, when local 
 pressure causes a railway to carry the traffic of a district, which 
 is in eager competition with others, at rates that do not bear 
 • See W. A. Robertson, Combination among railway companiet, pp. 92 — 3. 
 
CAUSES OP CERTAIN LOCAL DISCRIMINATIONS 475 
 
 their full share of its general costs: for it is likely in consequence iii, y, 3. 
 to reduce its facilities or raise its charges for other traffic, in 
 regard to which it has a freer hand. This is, as has already 
 been observed, a consequence of the fact that the railway has 
 not an absolute monopoly, but one conditioned by the pressure 
 of public opinion and public authority. For if its monopoly 
 had been absolute in the districts, which were more specially 
 under its control, it might already have set its charges there at 
 those levels which would yield the maximum net revenues: 
 and in that case it could not improve its position by raising 
 those charges. 
 
 Railways, like every other great economic agency, and 
 sometimes more than any other, take a part in fashioning the 
 geographical distribution of population in general, and of 
 industrial centres in particular. Facilities ofEered by them 
 help some industries to be carried on in country districts; 
 perhaps by independent workers in their own homes; perhaps 
 by giant businesses, equipped with the best appliances, and 
 with special departments for meeting such of their needs as in 
 earlier times would have been met by subsidiary industries. 
 Again industries which, even under modem conditions, gain 
 much from the neighbourhood of allied industries, are enabled 
 by the railways, for good and for evil, to concentrate them- 
 selves in large cities, and to send their goods to be consumed 
 at distances averaging several hundred miles, in some countries, 
 from the point of production. 
 
 In so far as this localization is effected by an even-handed 
 increase of facilities, and lowering of charges for transport, 
 there is strong prima facie reason for believing that it conduces 
 to the public good: for ease of movement, even when no part 
 of a deliberate and far-seeing public policy, is likely to be 
 beneficial, because it develops new opportunities. But the 
 case assumes a different aspect, when account is taken of the 
 interest which every railway, however just its methods and 
 purposes, has in increasing its share of the total services which 
 enter into the production of commodities in general. 
 
 For instance, "railways are giving exceptionally low export 
 rates from the manufacturing districts in the North to London, 
 in order to get the traffic on to their lines from London to the 
 
476 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, T, 3. North, London being thus favoured in competition with other 
 ports nearer to the manufacturing centres^." There is much to 
 be said for such an arrangement: but there are reasons for 
 doubting whether the principle which imderlies it, is one which 
 can be applied extensively without ultimate injury to the 
 public. 
 
 It is obviously to the general interest that sources of supply 
 should grow up as near as possible to centres of consumption; 
 subject to the condition that, where one source has a natural 
 advantage in climate, mineral resources, or deep-set human 
 aptitudes for a particular industry; it may be advantageously 
 developed even at the cost of somewhat large expenditure of 
 labour and material on marketing its products. And it may 
 further be conceded, that when an industry has grown up in 
 a district, under the influence of advantages which have been 
 deprived of their force by changes in technique or other causes; 
 a beneficial railway policy may, temporarily at least, grant to 
 it relatively low transport charges in order to mitigate its 
 misfortune. But in practice it is difficult to afford this relief to 
 a particular group of producers or traders without encouraging 
 the expansion of industry and trade in unsuitable places. 
 
 Care is needed, in the national interest, to preserve the full 
 energy of the Vis medicatrix Naturae, which promotes migrations 
 from districts in which the output of effort and its reward are 
 on the decline, to those in which effort can be of more service. 
 When, for instance, the chief cause of the weakness of any 
 district is its failure to keep pace with more alert, energetic 
 and capable efforts elsewhere; then only harm arises from any 
 check to the stimulus which it might derive from the pressure 
 of competition. In America it has been found that the desire 
 not to charge more than what a weak district will bear, while 
 charging to a strong district nearly all that it will bear, has led 
 to extreme policies of "keeping everyone in business." This 
 plan, though often conducive to high aggregate railway revenues, 
 may be contrary to the public interest: "the final result has 
 oftentimes been that the carriers have entered into arrange- 
 ments, whereby they agree to equalize the advantages of com- 
 
 ' W. A. Robertson, I.e. p. 93. 
 
CAUSES OF CERTAIN LOCAL DISCRIMINATIONS 477 
 
 peting towns, by fixing rates in inverse ratio to the natural iii, v, 3. 
 advantages of these towns^." 
 
 The Interstate Commerce Commission has consistently 
 maintained that its mandate requires it to act on the principle, 
 that "each locality is entitled to the benefit of all its natural 
 advantages." It has been loath to admit such claims as that of 
 Boston for rates to and from the West, approximately equal to 
 those of other ports which have shorter connections with the 
 West. (Boston herself owned so large a share of the railways 
 which wanted to charge but a small part of their general 
 expenses on the traffic with the West, that her wish might have 
 been granted without throwing much of that burden on other 
 shoulders.) 
 
 The task thus undertaken is of the greatest difficulty. The 
 interests of the railways concerned are always ably advocated; 
 and those of particular localities and particular groups of 
 producers or traders commonly are. But those of the general 
 public win not be adequately urged, unless it be by a strong 
 specialized representative of the Government. The British 
 Board of Trade is moving a little in this direction. France 
 has formulated her policy with wonted clearness: the Minister 
 of Public Works, acting with the advice of his Consultative 
 Committee, rejects any rate, which appears to make undue 
 discrimination, or to draw traffic away from any other railway, 
 or to ruin the business of coasting steamers or canal boats; and 
 strives so to adjust the tarifs of competing districts, as to 
 secure to each "the natural advantages of its location." His 
 work is in some degree simplified by the fact that nearly tiie 
 whole of France is divided out into several large triangles, 
 having a common apex in Paris: each of them being in un- 
 challenged occupation of a single railway. But the State has 
 the ultimate reversion of their property; and meanwhile it 
 exercises a very efiective control over their relations with the 
 public: and indeed France is compelled to keep a tight hand on 
 her railways in time of peace, in order to be prepared for war. 
 
 ' Prof. Hammond, in the Quarterly Journal of Economics, Feb. 1911, where 
 a full study of these matters will be found. His series of articles on "Railway 
 Rate Theories" is the authority for several statements that follow as to the 
 action of the Commission. 
 
478 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, V, 3. Prussia has worked on similar lines, in ever closer touch 
 with German railways other than her own. Her Minister of 
 Public Works, with his General Advisory Council, has indeed 
 for his chief aims the advance of national interests ia production 
 and trade; and especially the support of Prussian sea-ports 
 and railways against foreign rivalry. But the claims of each 
 locality for favourable treatment occupy much of the time of 
 the General Coimcil and of nine Local Councils; and they are 
 largely responsible for the great number and complexity of the 
 special {Ausnahme) railway rates of Prussia^. The practical 
 issues connected with these problems are on a much larger 
 scale in America than in any other country: the abuses con- 
 nected with them have been particularly bold; and the investi- 
 gations evoked by them have attracted an unsurpassed amount 
 of thorough scientific investigation on the part of professional 
 students and public officials. America has followed the common 
 practice of making exceptional railway rates to meet the com- 
 petition of water routes: and the great distances which much 
 of her goods traffic must pass, for the purposes of domestic as 
 well as foreign trade, combined with other circumstances, have 
 caused this practice to give a certain twist to much of her rail- 
 way policy. For instance the charges to places which had water 
 communications were often lowered below those to intermediate 
 places. This provoked complaint and was forbidden: but the 
 results were complex, and not altogether satisfactory. Some- 
 thing is said of them in Appendix M, 3. 
 
 It is indeed a grave question whether the practice has not 
 been carried too far. The rules of the Interstate Commerce 
 Commission have formally allowed railway rates to be reduced 
 so far as to meet water competition, though not so far as to 
 extinguish it: but they do not seem to arrange that, if a railway 
 oversteps this limit, it shall be pimished, by being prohibited 
 from raising the rate above the level which it had chosen for 
 its destructive strategy. 
 
 The majority of the British Commission on Inland Water- 
 ways (1906 — 9) expressed a hope that it might be found possible 
 to enact that a railway, which lowered its rates in competition 
 with carriers on an inland waterway, should not raise them 
 ' Sea above, p. 448. 
 
CAUSES OP CERTAIN LOCAL DISCRIMINATIONS 479 
 
 again until it had shown a good case for its action. But, with iii, v, 4. 
 less caution, the Act of 1894 had put difficulties in the way of 
 a railway's restoring an old charge, even if reasonable, when 
 once it had adopted a lower charge. The intention of the Act 
 may have been to restrain any lowering of rates for the pur- 
 poses of a campaign. But in effect it hindered algo reductions 
 which were part of a constructive poHcy in the pubKc interest, 
 and often necessarily tentative: so it did mischief: it was in 
 abeyance during the Civil War and it seems likely to be repealed. 
 This is an instance of the inabiHty of mere legislation to cope 
 with such practical issues, as those concerned with traffic: it can 
 act efficiently only through an administrative body, which can 
 go into the details of each particular case; and even pronounce 
 judgments as to motives. Much railway legislation has worked 
 badly because it resembled the old rule that anyone who killed 
 another should be put to death himseK: in modern times he is 
 acquitted, if he can convince a jury (or other authority) that his 
 motives were only those of legitimate self-defence. Eailway 
 competition with water routes should in like manner be subject 
 to the ordinary rules against monopohstic underselling: any 
 lowering of railway charges should be stayed by administrative 
 authority, when the evidence indicates that its aim was to 
 destroy competition. The question whether it is consistent 
 with the public interest that a railway should be at liberty to 
 "dump" its services at less than full cost price, in order to 
 drive a carrier by water, or any other troublesome competitor, 
 out of business, resembles in many respects such questions, as 
 whether the Standard Oil Company shall be at Uberty to sell 
 its oil in certain districts at a very low price, in order to ex- 
 tinguish local competition, and clear the local markets for its 
 own products at monopoly prices — a class of problems which we 
 are soon to consider. 
 
 4. Improved railway administration, has narrowed the 
 field in which the authoritative regulation of particular 
 rates is required. Estimates of the costs of particular 
 services are relegated to secondary, hut useful work. 
 
 We may now resume the substance of the preceding argu- 
 ments and bring them to a focus. We have seen something 
 
480 COMPETITION AND MONOPOLY IN TRANSPORl 
 
 III, V, 4. of the justification of the general opinion, which has been 
 endorsed by the Interstate Commerce Commission, that railway 
 companies everywhere apportion their general costs in nearly 
 the same way. Indeed this opinion is in harmony with the 
 results of experience in even wider fields; and a somewhat 
 similar distribution of general costs prevails in many industries 
 and trades, which handle several various products, even though 
 there is no monopolistic control of any of them. The broad 
 influences of public opinion, and the ever widening experience, 
 and sense of responsibility of the leaders of the railway industry 
 have done much to bring about this restilt by authoritative 
 regulation in Britain and other countries; each country pro- 
 ceeding on her own lines, but all moving in similar directions. 
 Regulation has become careful in general scheme and in detail, 
 and the force of public opinion behind it has increased: there- 
 fore its action has become ever more important and stronger; 
 and at the same time more subtle and more delicately shaded. 
 Precedent has grown into precedent: decisions have proceeded 
 with ever greater ease, certainty and precision. But yet there 
 is more new work on the anvil now than at almost any previous 
 time: the call for vigorous, but moderate and well considered, 
 action by the regulative authorities increases with their 
 strength^. 
 
 In particular, there is almost imiversal agreement that 
 railway charges cannot be adjusted to particular costs; and that 
 they should not be so adjusted, even if they could. But questions 
 relating to absolute and relative costs continually arise, very 
 often on the initiative of the railways themselves: and organized 
 knowledge, based on systematic studies, is rendering it ever 
 more possible to make fairly confident, though carefully hmited, 
 statements in regard to them. The Interstate Commerce 
 Commission often sets up independent investigations, when 
 
 ' This ia excellently shown in regard to America by Prof. McPheraon who 
 has set out (Railroad freight ratet, pp. 399 — 404) in parallel columns "the com- 
 plaints of 1886" and "the condition at present" in regard to each part of 
 the field. In almost every case the greater part of what was formerly under 
 dispute ia now common ground to all: and attention is given chiefly to points 
 which, though important in their way, could not attain prominence earlier. 
 It is to be hoped that a similar table in parallel columns will be made out in 
 regard to British railways. 
 
DECLINE OF INJURIOUS LOCAL DISCRIMINATIONS 481 
 
 railway representatives defend rates, that have been impugned, iii.v, 4. 
 by arguments based on cost of service. Such cases are apt to 
 occur, (1) where any special service is performed and obligation 
 incurred by a carrier: (2) where a rate complained of is 
 judged as to its reasonableness by comparing the ascertainable 
 costs of transportation of other commodities, whose rates are 
 beheved to be reasonable: (3) where comparison is made with 
 costs on other roads or on other parts of the system; and 
 (4) where comparison is made between rates for car-load lots, 
 and for smaller lots. In particular the Commission insists 
 generally that in the fixing of relative rates on articles strictly 
 competitive, such a relative rate should be fixed for each as 
 corresponds to the difference in cost of service, if that can be 
 ascertained. 
 
 On the whole, the public interest in railway discriminations 
 has somewhat diminished. Those which can be condemned as 
 secret and corrupt, are rare. Those which are based on broad 
 considerations of poUcy, and especially regional discriminations, 
 are changing their form: the part played in them by individual 
 interests is becoming small. And, though local interests have 
 much to say about them, the substantive questions at issue 
 seldorh have much to do with railway technique. 
 
 To conclude: — the task of regulating such discriminations as 
 remain, would be much lighter, if it were not that the motives 
 of two discriminations similar in outward form may be very 
 different: one benign, the other malign. To distinguish between 
 them requires the same judicial and penetrative faculties that 
 are required by judge and jury in combination, in order to 
 decide whether the motive of a certain action was malignant or 
 fraudulent. But it also requires an intimate knowledge of the 
 methods and motives of railway and general business policy. 
 Some discriminations are paternal sacrifices for the benefit of 
 weak industries, from which the railways hope to reap their 
 reward in due time. Some are strategical movements for the 
 capture of traf&c, which otherwise would not come to them; and 
 these occasionally have in the background an evil purpose of 
 destroying competitive routes, in order to strengthen a mono- 
 poly. And these evil motives for discrimination are not only 
 subtly disguised; they are apt to be interwoven with others that 
 
 u. I. X. t6 
 
482 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 ui, V, 4. command respect. Human nature is composite; and the 
 faculties required for conspicuous success in the President of a 
 great American railway, or the head of any other large business, 
 are scarcely ever to be found in a man who does not take a noble 
 delight in seeing things prosper under his hands: even if he be 
 somewhat unscrupulous in his modes of warfare, he is glad when 
 his manoeuvres have a side efiect in "making two blades of 
 grass grow where one grew before." A discrimination which 
 he sets up, in order to give much needed aid to a struggling 
 district, may come to be developed for the sake of the harm it 
 will do to an obnoxious rival: but the original motive con- 
 tinues, to work. When defending his action, he lays stress on 
 that motive: and the half truth, skilfully handled, impedes 
 the search for the other half. Therefore, although the task of 
 specific regulation becomes lighter in many ways; there is no 
 diminution of the need for such automatic control of railway 
 charges as may result from the development of traffic by road, 
 motor and inland waterway in Britain and some other countries: 
 a matter to be considered m the next chapter. 
 
 In America increasing attention is appropriately being paid 
 to the broad question whether railway rates as a whole are 
 higher than is necessary in order to yield a reasonable net 
 return on the capital bond fide invested in railways. A httle 
 is said on this subject in Appendix M, i, 5. 
 
CHAPTER VI 
 
 COMPETITION AND MONOPOLY IN TRANSPORT. 
 CONTINUED 
 
 1. Changing attitudes of the British people and Govern- m, vi, i. 
 ment towards the amalgamation of railways; the line of 
 division between continuous and competitive railways being 
 meanwhile almost blurred out. 
 
 The high profits and the even more exalted expectations of 
 English railways about 1844, when they had mastered their 
 chief difficulties, and had still much virgin soil on which to 
 expand, caused a Parliamentary Committee to advocate their 
 purchase on terms which now seem extravagant^. But exactly 
 at that time the public was becoming convinced that, even if 
 the principle of "protecting" home industries by taxes on im- 
 ports were accepted, the almost incredible folly of the details of 
 the old Protective tarif indicated that the forte of the British 
 Government did not lie in business. Also, as regards railways, 
 people had been offended by the contradictory decisions of 
 Parliamentary Committees; and by the inabiUty or unwilling- 
 ness of Parliament to check the heavy expenditure of money, 
 not always through clean channels, which was required to 
 secure the acceptance of a Railway Bill, even when its proposals 
 were clearly in the public interest. Public opinion increasingly 
 favoured the view that the function of a constitutional govern- 
 ment was to legislate, and perhaps appoint administrative 
 authorities; and that it should not readily engage directly in 
 business undertakings which were within the scope of private 
 enterprise. 
 
 ' A little is said about this project in Appendix M, 1. 
 
484 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, VI, 1. For a time there was hesitation : but gradually it became 
 
 generally recognized that Government cannot exercise effective 
 control in such a case by merely passing laws to be enforced 
 by strict verbal interpretation in a Court of Law. After many 
 experiments it has set up a permanent Railway and Canal 
 Commission; of which the President is an eminent lawyer, 
 whose decision on points of law has been generally accepted: 
 but his colleagues have been men of affairs, with trained instincts 
 for handhng large practical issues. The Commission has seldom 
 been called on to act, unless one or more of the parties concerned 
 in any doubtful matter has been unwilhng to accept a decision 
 reached by the Board of Trade, in regard to it. The Board, in 
 efiect, has decided what provisions shall be made by the railways 
 for insuring public safety. But in other matters it acts as 
 concihator between conflicting interests : it avoids indicating its 
 own conclusion, unless and until its efforts at conciliation have 
 failed; but that conclusion when given is generally accepted, 
 even though it has not by itself the force of law. 
 
 Whether the settlement of a disputed point is attained by 
 the Board without friction, or by the aid of compulsory authority 
 in the background, the scope of the settlement extends in efiect 
 to other railways besides those immediately concerned; and 
 thus has much of the force of a general regulation. Every such 
 general regulation tends to diminish the number of conflicting 
 interests among railways: it often both invites and facilitates 
 agreed action among them. They have thus found them- 
 selves increasingly making common cause in defence of common 
 interests against common troubles; and the way has been pre- 
 pared for the mitigation of competition, and the strengthening 
 of tendencies towards combined action. In short the only pro- 
 vision that exists in Britain for dealing with public interests in 
 large railway issues is somewhat fortuitous in initiative, and 
 amateurish in study, as compared with that called forth by the 
 needs of America. 
 
 The Parhamentary Committee of 1853 seems to have been 
 the first to lay special stress on the danger to be anticipated 
 from the monopolistic tendencies of agreements among railway 
 companies, as distinguished from the simple monopoly of each 
 railway along its special route. Stephenson's celebrated, but 
 
BRITISH RAILWAY FUSIONS 485 
 
 vague, dictum that, " where combination is possible, com- iii, vi, i. 
 petition is impossible" was gradually being developed towards 
 its modem more exact form. Thus developed, it indicates that 
 the tendency towards combination is so strong as to be almost 
 irresistible, when (1) each of the chief businesses concerned is 
 so large as to be beyond the strength of ordinary capitalists; 
 (2) the interest of each tends towards the adoption of about the 
 same policy, in regard to the public; and (3) the interest which 
 each has in conducting an aggressive campaign against others 
 is relatively small. Competition is often weak when these 
 conditions are not completely filled; and when they are, it is 
 suspended. It is indeed full of resource; and, beaten on one 
 front, opens a new campaign on another: but combination is 
 also alert; and, if favoured by circumstances, endeavours to 
 reassert its dominion on that front also: action and reaction 
 continue without cease. 
 
 For instance Parliament had encouraged the fusion of con- 
 secutive lines, and discouraged the fusion of competitive parallel 
 lines: but time blurred the distinction between the two classes. 
 The broad contrast between them may be put thus: The con- 
 solidation of two or more railways that feed one another, and 
 find a market for one another's services, corresponds to the 
 consolidation of blast furnaces with mines on the one hand, and 
 rolling mills on the other. The consolidation of parallel lines 
 corresponds rather more nearly to that of neighbouring rolling 
 mills, or neighbouring blast furnaces. But blast furnaces which 
 do not own mines, run a jisk of being cut short of supplies 
 when most needed; and in the alternating periods of depres- 
 sion they may wish they could use up their products in their 
 own manufacturing works: while neither of two railways, that 
 can feed one another, is likely to be backward in doing so; unless 
 indeed it falls into the hands of a rival that parallels the other^- 
 
 The sharpness of the contrast between consecutive and 
 
 parallel railways has however been blurred by the expansion of 
 
 great railways, which has brought each into competition witn 
 
 its neighbours for some traffic that used to be under single 
 
 • A striking instance of this waa the contest between the Great Western 
 Railway and the South Western for control of the Cornish lines from Plymouth. 
 The Board of Trade compelled the victorious Great Western Railway to allow 
 all reasonable facilities to the South Western: but the upper hand is stiU that 
 of the victor. 
 
486 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, Ti, 1 dominion; and has enabled it to pass traffic to, and receive traffic 
 from, railways, or at least particular branches of them, with 
 which it had not been in contact previously. The London and 
 North Western Railway is still known on the Stock Exchange 
 by its old name of the Birmingham Railway; and it formerly 
 had no competition with, and no inducement to combine with, 
 others that ran to Bristol, Doncaster, etc. But it is now in com- 
 petition with the Great Western for much traffic with Wales, 
 while, in competition with the Great Northern, and to a less 
 extent with other railways, it is indirectly concerned with 
 through traffic between England and Scotland. These fusions 
 of consecutive lines, often directly fostered by Parliament, have 
 greatly diminished the total area in Great Britain, which is 
 dependent on a single railway for most of its commimicatione: 
 and competition has obtained ever widening opportunities for 
 its tendency to stimulate the energy and alertness of railway 
 authorities in consulting the interests of the public. Fusions of 
 consecutive non-competing lines into larger groups of competing 
 lines have indeed been followed by understandings and pooling 
 among those groups: and these greatly reduce the pecuniary gain 
 that any one of them can reap by attracting traffic away from its 
 rival. But the staff of a railway has often a lively interest in so 
 increasing its prestige that the public speak well of it, and give 
 it a preference over rivals which offer somewhat similar accom- 
 modation at the same cost and thus enterprise is sustained. 
 Some of this energizing force would be lost if fusions extended 
 so far that a comparatively small part of the population had the 
 opportunity of comparing the methods of different companies. 
 Of course it would be absolutely lost, if all the railways were 
 owned by the Government: a vital matter which is sometimes 
 overlooked. Such considerations as these might be set aside, 
 if the additional technical economies, to be obtained by further 
 fusions, were very great: but they are certainly less than 
 appears at first sight; and the chief of them can be obtained 
 by less extreme measures^. 
 
 1 Compare II, vm, 6. P.S. Jan. 1921. The Ministry of Transport recently 
 issued a scheme "For the organization of transport undertakings, etc." [Cmd. 
 787] under which railways would bo associated in six groups : and on 8 Deo. 1920 
 the Railway Companies Association published a letter to the Minister of Transport, 
 approving the general lines of the scheme, but suggesting a few ohanges in detail. 
 
BRITISH RAILWAY FUSIONS 487 
 
 2. Many economies, which are commonly regarded as iir, vi, 2 
 appertaining only to railway fusions, can he obtained by 
 partictdoT agreements for cooperation; or for pooling 
 certain classes of traffic, or of wagons. 
 
 Of course amalgamation reduces the work to be done by 
 railway Clearing Houses: but, so far as the central adminis- 
 tration is concerned, it seldom reduces expenditure much. For 
 indeed the large problems of a far-spreading railway are suf- 
 ficient to occupy the energies of an able staff; and some loss 
 of efficiency may result from concentrating the care of an ever 
 increasing number of problems on a single office. Again the 
 multiplication of services on competitive routes is wasteful only 
 when there is not sufficient work to be done by the pa'allel 
 trains: but, as we have seen, such trains are run chiefly at 
 hours at which the traffic on each line is heavy; and many of 
 them would be needed if the two lines were under a single 
 controP- 
 
 Moreover many of the economies, which were supposed in- 
 herent in amalgamation, such as combined action for carting 
 freights, and for establishing numerous receiving offices in 
 populous districts, are now obtained in great measure by mere 
 agreements among railways for cooperative work: these often 
 enable equal conveniences to the public to be attained with 
 less cost than before, or greater conveniences with equal cost. 
 Such are the granting of running powers over a part of its line 
 by one railway to another, which has special need of it; or, in 
 some cases, the leasing of a line to another, with whose general 
 traffic it fits in better than with that of the owner: and again 
 the making and working of secondary extensions on the joint 
 account of two or more great railways. Most of these agree- 
 ments require no sanction: and the tendency towards them is 
 
 1 It is true that a further lengthening of long distance trains would effect 
 some direct economies ; and that most of the platforms at which they would stop 
 are already long. In America the passenger generally leaves his luggage to be 
 sent after him by an express service ; and the distances are great : and therefore 
 very long trains are highly economical. But in England, where distances are 
 short, and the passenger must wait till he secures his own luggage, the case is 
 rather different: for vexatious delays, the economic importance of which is 
 ignored by many writers on railway matters, must be caused by a great further 
 lengthening of trains, unless so vast a staff of porters is kept on hand that their 
 time cannot be well occupied. 
 
488 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, VI, 2 indirectly facilitated by tiie action of the Board of Trade; which 
 is continually urging uniformity as to the equipment of rail- 
 ways, to provisions for safety, to the classification of goods, and 
 other matters^. 
 
 Thus mere cooperation can attain, with little less economy, 
 many of the ends for which fusion is sometimes sought; and 
 without lessening the scope for initiative by independent lines. 
 And if, as often happens, the community of work between two 
 great railways extends only to a particular part of either line, 
 the chief economies of a fusion can be attained by "pooling" 
 the traffic on those two parts. The general plan of such a pool 
 is that the earnings of the traffic in each year are to be thrown 
 into a common fund; each railway being however allowed, in 
 effect, to deduct the direct expenses to which it has been put in 
 "moving" its part of the traffic concerned: the pool is then 
 divided out, without any reference to the share of that traffic 
 which any particular railway has carried, and simply in the 
 fixed proportions agreed on at the formation of the pool. Those 
 proportions are of course based in the main on the shares which 
 the several railways had in carrying that traffic in the years 
 preceding the formation of the pool: and, if the pool is certain 
 to endure, no member of it has a special interest in running 
 more trains, or providing any other accommodation, beyond 
 that which is thought advisable by the others. If it is not per- 
 manent, each member may — as members of cartels habitually 
 do — endeavour to enlarge its own connection; in order that, 
 when the renewal of the pool is imder discussion, it may be 
 in a position to claim a greater share of the traffic". But the 
 
 * Agreements to allow return tickets, sold by one of two associated lines, to 
 be used on the other, do not necessarily come under this head: for the return 
 halves can be collected and exchanged, with payment for any excess either way. 
 But the extension of a similar privilege to season tickets, as to which no such 
 reckoning can be made, is an advance towards constructive cooperation by 
 businesses, whose finances are not connected by any direct bond. 
 
 " Already in 1850 much traffic between England and Scotland was pooled! 
 and many minor agreements of a similar nature were made. Difficulties in 
 regard to obtaining through traffic over other lines without a special agreement, 
 had played some part in this tendency: but they were removed by the Act of 
 \85i, which resulted from the Report of the great Committee of 1853, and 
 enacted that the several companies should give reasonable facilities for traffic 
 on their lines, and accept and forward through traffic from and to other com- 
 
ECONOMIES GAINED BY COOPERATION AND POOLING 489 
 
 scope of such endeavours seldom reaches far, at all events in iii, vi, 3. 
 Britam. 
 
 The chief wastes, at present resulting from divided owner- 
 ship of the means of transport by rail in Britain, seem to be 
 connected with the travelling of empty and half-filled goods 
 wagons, and with the shunting of wagons. No organization can 
 do much to reduce the number of empty wagons on their return 
 to coal-fields; though improved organization of the coal trade, 
 such as has been enforced during the war, may reduce the 
 average length of the journeys of coal wagons, whether full or 
 empty. The war has also brought into prominence the econo- 
 mies that may be effected by a great extension of the common 
 practice of pooling, or "common use" of, the wagons used in 
 certain classes of traffic : and it is to be hoped that the practice 
 will be largely extended in times of peace by arrangement, 
 fortified perhaps by special legislation^. 
 
 The wastes involved in the shunting of wagons are necessarily 
 great, relatively to the amount of transport, in a small, densely 
 peopled country such as Britain: a goods engine often travels 
 further in shunting operations than in actual transport. Some 
 of this waste could be saved by a general pooling of wagons: 
 but^the only thorough remedy appears to be the setting up of 
 shunting stations with overhead gear, by which a wagon can be 
 
 panies' lines, and grant no undue preference. See W. A. Robertson, Combination 
 among railway companies, p. 12. 
 
 ^ The Times Trade Supplement, July, 1916, reported that three groups of 
 companies had made such arrangements. The first consisted of the Great 
 Western, Lancashire and Yorkshire, North Western, Midland, and North 
 Eastern: the second of the Great Central, Great Eastern, and Great Northern; 
 and the third of the Caledonian, Glasgow and South Western, and North British. 
 Over 200,000 wagons Were thus pooled by the first group: they were almost 
 exclusively of simple construction, adapted for general use: provision was made 
 without difficulty for readjusting the balance, if any one railway happened to 
 get either much more or much less than its proper share. The plan of setting up 
 a separate company to own aU the wagons, and charge each railway according 
 to the total use it made of them, has many attractions. Its possible advantages 
 are illustrated by the conveniences, which all concerned have derived from the 
 provision by the Armour Car Liner Company of well equipped refrigerator-cars 
 for perishable food, and of stock-cars for carrying cattle and tending them on the 
 way. It is true that serious charges have been brought against that company of 
 excessive use of its monopolistic power. (See Ripley, I.e. vol. i. p. 194; and a 
 defence of the company in The packers and the people by J. Ogden Armour.) 
 But the company now suggested might be owned, for the greater part, by the 
 railways themselves. 
 
 i6-5 
 
490 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, VI, 2. lifted from one pair of rails and set down on another parallel line; 
 as seems to be done to a considerable extent in Prussia. It is 
 there combined with the use of detachable "bodies," which can 
 be lifted by cranes and transferred from one "chassis" to another: 
 this is commonly done in regard to passengers' luggage when 
 booked through from London to Paris via Calais^. 
 
 Much economy has been effected by united action in regard 
 to the collection and delivery of goods by several railways, having 
 stations in the same town. Some competent authorities have 
 advocated the general adoption in Britain of a plan, that is in 
 favour elsewhere, which hands over the collection and distribu- 
 tion of all minor goods traffic to independent carriers. Such 
 carriers cart for aU railways; they obtain as a rule from each 
 railway the relatively low rates that are charged for wagon-loads. 
 They are thus able to meet a great part of their own expenses 
 out of the difference between those rates and the rates that, 
 without their intervention, their customers would pay for small 
 parcels; and there is much saving of railway work. 
 
 There appears to be solid foundation for the suggestion that 
 a railway, contending with others for the favour of the pubUc 
 generally and traders in particular, hurries forward all goods 
 committed to its charge, even though a couple of days' d^lay 
 might seldom cause considerable inconvenience. This waste 
 could, no doubt, be stopped by State railways, which would 
 naturally tend towards the easy Continental practice of making 
 all small consignments wait till they can be carried conveniently. 
 But that remedy would be less in the public interest than such 
 a combination of the British and Continental methods, as would 
 provide that anyone who had special reasons for prompt service, 
 should mark his consignment accordingly; the railways being free 
 to hold up all other small consignments for (say) a couple of 
 days, in order to make up fairly full wagon-loads. This could 
 be arranged by agreement among the railways themselves; if, 
 
 ' This separation of the body from the chassis plays a prominent part in the 
 suggestive, if too heroic, scheme of Mr Gattie for concentrating as much as 
 possible of the goods traffic of each great railway centre in a single huge station. 
 There would be several floors above ground, chiefly occupied in sorting; and 
 several floors below ground for the accommodation of trains. Through lifts 
 and overhead rails would enable each package to be delivered direct into a 
 wagon on road or rail that would go straight to its destination. 
 
ECONOMIES GAINED BY COOPERATION AND POOLING 491 
 
 as seems probable, such a course should, after investigation, iii, ti, 2. 
 appear advisable. 
 
 Abuses of monopolistic power on the part of railways demand 
 now but little attention from the Railways and Canal Com- 
 mission: and its constitution might perhaps advantageously be 
 altered, so as to fit it better for the work of constructive states- 
 manship: its semi-legal functions are still important, but the 
 new age calls for work of a wider scope. It might devote special 
 attention to opportunities for such constructive cooperation 
 among railways as would increase the economy or efficiency of 
 railway work; while taking care that a fair share of the gains, 
 thus arising, accrue to the public. 
 
 British traditions call on Government to concentrate its 
 chief energies on guarding the public against oppressive action 
 or inaction, on the part of private individuals or corporations. 
 If it undertakes business enterprises, which could be effectively 
 carried out by private agencies, it ceases to be in a position to 
 judge the conduct of such enterprises: while the great amount 
 of its energy which is given to such enterprises tends somewhat 
 to diminish the efficiency with which it discharges its supreme 
 function as guardian of public interest in general. But yet 
 there are some special reasons for direct intervention by the 
 State in the transport industry, based partly on extensions 
 which modem developments of technique have made of familiar 
 reasons for the ownership of roads by the State: these will be 
 considered in the following Sections. 
 
 But first it may be observed that inferences sometimes 
 drawn from the State control of British railways during the 
 world-war, as to the efficiency of permanent ownership and 
 control seem to be misleading. Reference has already been 
 made (above, II, iii, 4) to the beneficial influences which the 
 war has exerted in speeding up general standardization, especially 
 in mechanical industries. It has brought innumerable establish- 
 ments under a strong control. Plant has been kept constantly 
 at work: the Government has been able in its capacity as sole 
 purchaser to arrange that operations shall be so multiplied in 
 number and simplified in character that branches of production, 
 which had previously required the judgment and manual skill 
 of a special trained mechanic, could be handled by an unskilled 
 
492 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, n, 3. adult, and sometimes even by a child. This work has been done 
 under the authority of Government: but nearly the whole of 
 the brains, by which it has been directed, had been developed 
 under the stimulating influences of free enterprise: this vital 
 consideration is often overlooked. 
 
 Unification of railway control under the single authority 
 which directed the production and marketing of most of the 
 more bulky products, which railways handle, has had unique 
 results. It has enabled trains to be long and trucks to be full; 
 and has thus achieved great economies; but in other respects 
 the technique of the industry has remained unchanged. Mean- 
 while the work of administration has remained in the hands of 
 those who had done it before: the credit of its excellent work, 
 and the blame for many of the mistakes that have occurred, 
 accrue to management by private enterprise, and not by the 
 State. There has of course been no account of the total cost 
 of this work: for both rolling stock and permanent way have 
 necessarily been allowed to fall into poor condition: passengers 
 have submitted to discomforts that would not be borne readily 
 in ordinary times; while delays and restrictions of goods traffic 
 have been regarded as inevitable. 
 
 3. Far-reaching intervention by Government in railway 
 affairs is at once relatively easy and urgent. State ownership 
 of railways. 
 
 The dominant characteristic of the railway industry is the 
 exceptional prominence of routine in its administration as well 
 as in its technique. Attention has been drawn to the general 
 rule that, when once a business has outgrown the scope of 
 private ownership and passed into joint stock, a further increase 
 in its size makes relatively little increase in its dependence on 
 mechanical methods of management: this rule applies to rail- 
 ways more strongly than to most other industries. Again, a 
 public authority, when intervening in the railway industry, will 
 receive more assistance from the people themselves than would 
 be possible in almost any other industry. For the people are 
 the purchasers of the services rendered by railways; they can 
 form a fairly good opinion as to whether those services are well 
 
RAILWAYS UNDER GOVERNMENT DISCIPLINE OR OWNERSHIP 493 
 
 performed, and they can set out their grievances simply and iii, vi, 3. 
 clearly. They cannot indeed generally form a direct judgment 
 as to the inherent reasonableness of those charges: but they 
 have fair opportunities for making comparisons with charges 
 for similar services at home and abroad; and even for making 
 some allowance for difEerences in the conditions under which the 
 services are rendered. Moreover railway technique is now very 
 far advanced; and it is, for the greater part, internationalized. 
 Every considerable step forwards, made in any part of the world, 
 is quickly followed everywhere: and even a semi-comatose 
 bureaucratic spirit could not greatly retard progress in a western 
 country, while other countries were advancing rapidly^. 
 
 Again it is a characteristic of railways, as of all transport 
 services which publish their time tables, to keep steadily on 
 their course without paying much heed to fluctuations of general 
 credit and commercial activity. Extra coal trains will be nm 
 in winter, and extra passenger trains in summer: profits wiU 
 increase when general credit is good, and shrink when it is bad: 
 but there is very little change in the work to be done of signal- 
 men, porters, and even shunters and engine-drivers; the aggre- 
 gate employment ofEered on the line, otherwise than in new con- 
 struction, remains nearly constant. Again, though railways are 
 a good deal afiected by the price of coal, there is no other raw 
 material which they purchase largely for working purposes, as 
 distinguished from repairs and additions to plant: and partly for 
 this reason, they have little temptation to vary their charges 
 from year to year in accordance with the general fluctuations of 
 prices; and they could not make such changes from week to week. 
 This natural stability is tacitly assumed as the basis of all dis- 
 cussions regarding the authoritative regulation of railway charges. 
 
 For these, as well as for poUtical and administrative reasons, 
 railways in an autocratic military State are much subject to 
 miHtary discipline; and indeed the chief station-masters are 
 
 ' But lest anyone should think that uniformity and simplicity of charges 
 would rule under State ownership of all railways, reference may again be made 
 to the thousand rate-books of the Prussian railway-system. (See above, p. 448 
 fn.) A good deal of intriguing and discussion must have preceded concessions, 
 which have sometimes caused rates from Frankfurt to Constantinople vid 
 Hamburg to be less than those for goods sent from Frankfurt to Hamburg, for 
 use there {Frankfurt Consular Report for 1909, p. 45). 
 
494 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, Ti, 3, often retired military officers. Sir George S. Gibb lends his 
 high authority to the common observation that "no country 
 has ever adopted State ownership of railways from theoretical 
 considerations. In each and every instance there were some 
 practical reasons, based on military necessities, or concrete and 
 pressing economic conditions, to meet whicL State ownership 
 was accepted, not as a system desirable in itself, but as an 
 expedient which, in the circimistances, was considered to be the 
 best practical solution of difficulties which stood in the way of 
 the satisfactory development of railways^." 
 
 The general position has been summed up by Mr Acworth, 
 whose authority is perhaps greater than that of any other 
 Englishman, who is not himself a great administrator of railways. 
 He says that an exhaustive inquiry would "show that State 
 railway systems very rarely pay their own way;... that State 
 purchase of private undertakings is nearly always a financial 
 failure;... that the private railways have to their credit almost 
 every important invention and improvement; that, if it is 
 a question of efficiency and economic operation, comparing like 
 with like, the companies easily beat the State-owned systems; 
 that it is on the private lines that, once more comparing like 
 with like, the lowest rates and the cheapest fares are to be 
 found." But for all that, he holds that State ownership will 
 come soon. For, owners of railway property know that the 
 State seldom buys a property without paying more for it than 
 it is worth. The higher officials of the railways have no cause 
 for anxiety: most of them will continue with at least as high 
 salaries, and somewhat higher prestige. And the rank and file 
 will be able to bring such pressure to bear at the polls, that 
 political considerations will be apt to weigh in matters, that 
 ought to be decided on technical grounds in the interests of the 
 population as a whole, and protected from bias by the special 
 interests of any one section of the people^. Some developments 
 
 ■ See his address on Railway Nationalizalion delivered to the Royal Economic 
 Society in 1908. It appears that the railways of Switzerland and Belgium were 
 nationalized, in order to prevent their being controlled by foreign holders of 
 their securities. As to Prussian railways, see above, p. 447. 
 
 ' The paper of which the above is a summary, was read by Mr Acworth at 
 the Congress of the Royal Economic Society, 1912, to which reference has already 
 
RAILWAYS UNDER GOVERNMENT DISCIPLINE OR OWNERSHIP 495 
 
 of this matter, which appeared as this chapter was passing in, vi, 3. 
 through the Press, are noted below, Appendix M, 2. 
 
 It is true that the control would probably be vested in 
 a permanent Railway Board, which would act independently 
 in minor matters: but Parliament would hardly be able to 
 avoid passing on to the Government any strong persistent 
 pressure, which might be brought to bear by a million voters, 
 male and female, having a direct interest in a large issue re- 
 lating to their work: and that might be a great evil in itself, 
 and the harbinger of others like to it. The well-to-do classes 
 generally, and the landowning classes in particular, have no 
 doubt used their political power in the past to further their own 
 material interests; and of course some special legislation in the 
 interest of the manual labour classes is to be welcomed as 
 redressing old injustices, and preparing the mass of the people 
 for a larger and higher life than has yet been theirs. But such 
 movements seem to be beneficial and wholesome only when 
 broad. If particular groups of the people look on the polls, as 
 opportunities for advancing their own sectional interests, rather 
 than for rendering an upright and dutiful service to the State, 
 the Mother of all, then the nation as a whole will become less 
 noble, weaker and ultimately poorer: there is some truth in the 
 
 been made. At the same Congress, M. Leroy-Beaulieu showed that the railway 
 recently acquired by the French Govfemment had been worked at a heavy loss; 
 chiefly in consequence of the rigidity and lack of initiative shown by its 
 officials, and the political pressure put on it to find places for many more 
 subordinates than were really required for the service. On the other hand 
 Professor Mahaim, of Li^ge, contended that the acquisition of Belgian railways 
 by the State had conferred such great benefits on the whole people, and especially 
 on the working classes, by low charges and abundant services, as to outweigh its 
 failure to yield a good financial return. Financial statements are obscure: 
 but it appears that they make scarcely any profit beyond what is needed to pay 
 interest on the price of purchase of the original relatively small network of lines: 
 and that they would show a. considerable deficit if they did not charge to 
 capital many things, which private railways rightly charge to income. (See the 
 qualifications in Mr Q. Seebohm Rowntree's eulogy of railway aids to the Belgian 
 people. Land and Labour, pp. 287, 288.) Their services are not of as high quality 
 as those of the British railways : they pay very low wages, beginning with three 
 francs a day : the lie of country has made their cost of construction exceptionally 
 low: they are supplemented by water communications, which leaves them free 
 to give all their strength to remunerative traffic ; and especially to the large and 
 highly remunerative transport of passengers and merchandise from Antwerp, 
 Ostend and other ports to Germany, Switzerland, Austria and Eastern Europe. 
 
496 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, VI, 3. saying that under a democratic constitution, "State railways 
 corrupt politics; and politics corrupt State railways." The fear 
 that political influence may distort the course of promotion, ia 
 one of many causes that tend to make seniority dominant in 
 public offices: and this may be of great importance in railways: 
 for hitherto "exceptional ability has generally risen from the 
 ranks^." 
 
 Almost every extension of Governmental activity brings with 
 it good and evil, both economic and political. The political side 
 is foreign to the main purpose of the present study: but it 
 cannot be wholly ignored. For, when proposals for large changes 
 in the field of economics are prompted partly by political motives, 
 then they are likely to bring about results which will not be 
 satisfactory from the economic point of view, and will perhaps 
 introduce morbid elements into poUtics. These dangers are 
 specially great in the case of developments which have had 
 a chequered history. For the political advocate can select an 
 abundance of strong cases all telling on his side, whichever that 
 may be: and those to whom he presents his side of the shield, 
 often fail to get a view of the other side. Thus when any 
 particular technique has worked through difficulties to success, 
 leaving on its path the wreckage of much brave and able enter- 
 prise; then there is a good opening for the suggestion that the 
 State should annex the benefits arising from it. These sugges- 
 tions are seductive; and but little thought is often given to the 
 risk that the dominant technique may be surpassed by later 
 enterprise, or lose part of its value in consequence of broad 
 changes. Such risks are ever in the mind of the ablest business 
 men; but they are apt to be neglected when economic considera- 
 tions are dominated by political. It is therefore necessary to 
 scrutinize the assumption, which is latent in suggestions for the 
 nationalization of railways, that their present predominance as 
 agencies of transport will remain unimpaired. The following 
 Sections suggest that new developments may possibly diminish 
 the share of the total traffic of a country, which falls to railways; 
 
 ' This statement is made on the authority of Mr Dent, General Manager of 
 the South Eastern and Chatham Railway, p. 162 of the Jubilee Number of The 
 Railway News, I9H, a compendium of information, to which this and the pre- 
 ceding chapters are much indebted. 
 
RAILWAYS UNDER GOVERNMENT DISCIPLINE OR OWNERSHIP 497 
 
 but that they may yet tend on the whole to strengthen rather in, vi, 4. 
 than weaken the case for the nationahzation of railways. 
 
 Simple and imiform as is the business of transport, the 
 opinion held by one generation as to the dominance of a parti- 
 cular method of efEecting it, has sometimes been abandoned by 
 the next. We have seen how the shares of some English canals 
 were selling at several times their normal value, shortly before 
 railways obtained an almost complete victory over them: and 
 not much later (in 1844) Parliament approved terms of purchase 
 of railways, which were indeed never put in operation, but would 
 have proved a grievous burden to the nation if they could have 
 been carried into effect^. And only a few years ago much exulta- 
 tion was shown as to the success of the municipalization of 
 certain tramways, which are now declining in favour relatively 
 to motor vehicles. 
 
 4. Causes and consequences of the present weakness of 
 British canals. Heavy goods traffic is controlled by railways 
 and waterways in a great part of North-western Europe ; 
 but by railways alone in Britain. 
 
 It is conceivable that inventions, which have already been in 
 some measure adumbrated, will enable a "helicopter," or other 
 aircraft, to rise perpendicularly from a small garden, and descend 
 again into it: in that case, railways may lose much of their best 
 passenger traffic, and the dissociation of residentiary districts 
 from centres of industry and trade may be rapidly advanced. 
 No equally sensational change appears likely soon to disturb 
 railway goods traffic: but the advent of motor lorries and other 
 wagons, working easily on modern roads, especially when tar- 
 paved, may perhaps remove the chief obstacles which the con- 
 figuration of England has ofEered to the development of an 
 efficient system of internal water traffic: and this may greatly 
 afiect railway goods traffic for good and for iU. Up to the 
 present, England's industries and trade have been set at a great 
 disadvantage relatively to those of many parts of North-western 
 Europe, as a result of the decadence of her canals. Only a small 
 part of this loss has been covered by the gains, which her rail- 
 ways have derived from carrying traffic that could have gone 
 1 See above, p. 4.83; and Appendix M, 1. 
 
498 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, Ti, 4. better by water : and it will presently be argued that in the long 
 run her railways might gain from organized cooperation with 
 canals, aided by fresh developments of road transport. 
 
 The early phases of the contest of British railways with canals 
 have already been indicated: it was practically decided as soon 
 as locomotives could be made powerful enough to draw heavy 
 goods-trains. Canals might have continued to do good work, if 
 they had been constructed on any general plan. But few long 
 journeys by canal could be made, without passing through hilly 
 country, where numerous locks were required: a lock that will 
 hold a large boat is very expensive; and hilly districts were 
 generally content with provision that sufficed only for small 
 boats. In fact nearly every canal was made chiefly for local 
 traffic. The occasion was one in which a far-seeing strong 
 Government might with advantage have intervened: it might 
 have required that every canal, whose position suited it for use 
 in a national system, should from the first be adapted to barges 
 of considerable size; for the superior economy in horse and man 
 power of moderately large barges was well known. In suitable 
 cases the State might have defrayed part of the expense of a 
 canal, in return for a deferred claim on the income that might 
 ultimately be earned. As things were, the numerous companies, 
 that were responsible for individual canals, seemed perversely 
 to ignore one another's practice: and the strong Royal Com- 
 mission on Canals and Waterways, 1906 — 9, found that some 
 companies had made provision for boats of moderate size by long 
 narrow locks, and others by broad short locks; so that many 
 journeys were possible only for boats that were both short and 
 narrow, and therefore very wasteful of the labour of man and 
 horse. 
 
 Further, nearly all concentrated British industries had sought 
 hilly districts, first for the sake of water power, and afterwards 
 in order to be near coal measures; and therefore few easy tracks 
 could be found for busy canals except along valleys. Side arms, 
 to right and left of a main track, soon met with high ground; to 
 be traversed only through multitudes of locks or through tunnels. 
 Tunnels were often the more economical in the long run; and 
 they were numerous, but caused great delays. Long distance 
 heavy traffic by canal never had a fair chance; and canal work 
 
CAUSES OF PRESENT WEAKNESS OF BRITISH CANALS 499 
 
 in England was seen at its best only in a wide-spreading home of iii, ti, 4. 
 great industries, such as that of which Birmingham is the centre. 
 But the great majority of the Commission were not content 
 with so poor a result. They reported that "numerous industrial 
 establishments have settled on German waterways; and that 
 agricultural co-operative associations have established stores on 
 them for the collection and distribution of goods, especially near 
 Berlin.... Cheapening the transport of coal and other low value 
 traffic has increased the trade, industry and wealth of Germany; 
 and indirectly the revenue derived by the railways from passen- 
 ger traffic and higher class goods.... Had it not been for the im- 
 provement of the waterways, it would have been necessary 
 to spend more money on railways and on goods stations and 
 sidings in districts where the cost of land is high, without 
 probably obtaining an equivalent return in additional traffic." 
 Encouraged by the might of great rivers German canals are 
 being adapted for six hundred ton barges; while those of France 
 are making provision for three hundred ton barges. In both 
 countries the goods traffic by inland waterways is increasing 
 much faster than that by railways^. 
 
 ' French canals are public routes, open to all: and the charges for freight 
 on them are about a farthing a mile generally; but only two- thirds of a farthing 
 on the more frequented lines. In Germany it is intended that the waterways 
 should pay interest on their capital cost; any surplus being devoted to reducing 
 the capital. But German opinion tends to the conclusion that the water-trafSc 
 benefits the railways a little and the country a great deal; because it prevents 
 the railways from being overloaded with traffic that can only bear very low 
 charges, and thus sets them free for more remunerative work: "traffic on 
 waterways has been fostered by light railways and connecting lines, built with 
 State aid for that purpose." (See the Final Beport of the Commission [Cd. 4979]; 
 especially pp. 118 and 122.) Mr F. R. Conder, a pupil of Brunei, told the Select 
 Committee on Canals, 1883, that the British railways would have at least 
 £7,000,000 added to their incomes, if they threw their heavy traffic on canals. 
 See their Report [Q. 2397] : the detailed statistics, on which he founded his esti- 
 mate, are given in its Appendix 12. 
 
 The literature of this subject is large : but special reference may be made to 
 Garden cities and canals; in Appendices to which Sir John Brunner gives weighty 
 counsel based in part on his own experiences. 
 
 The traffic on the canals that connect the great inland seas of North America 
 is enormous, though it gives no good guidance for British conditions : but canal 
 nets in some districts, as for instance in the neighbourhood of Chicago, may 
 develop on lines adapted to the conditions of a small country. Reference may 
 be made to a discussion on Inland Waterways, reported in the American Economic 
 Review, April, 1911. 
 
500 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, VI, 6. England is indeed weak in this respect that, being an island, 
 she has lio opportunities for such large schemes as are open to 
 Continental countries. The six hundred ton barge canal, which 
 has been made on the basis of the river Main from Mainz to 
 Frankfurt, may become a most lucrative investment to Prussia, 
 if ever the scheme to which it belongs is completed. For then 
 six hundred ton trading vessels (to say nothing of submersible 
 and other ships of war) will be able to cross the watershed 
 between the Rhine and the Danube; to carry Prussia's products, 
 iron and manufactures at very low costs to Austria, the Balkan 
 States, the Black Sea and the Mediterranean; and to carry back 
 grain and raw material. But England and, in a less degree, 
 Scotland have some special advantages which may ere long be 
 greatly developed by the aid of modern technique. 
 
 5. The relations of Britain's railways to heavy goods 
 traffic may possibly be considerably modified by her excep- 
 tional facilities for the cooperation of road motors with her 
 canals, and for electric haidage on her canals. 
 
 There are reasons for thinking that the importance of British 
 waterways has been underrated in the past, chiefly because they 
 have lacked adequate auxiliaries. Consequently but httle 
 attention has been paid to the fact that the services rendered 
 by a network of canals are far from being limited to those 
 rendered by railways. They include some of those rendered 
 by public roads, which yield no money revenue; but which are 
 of as much importance to the economic well-being of the country 
 as those of railways. 
 
 Anyone can set up a business at almost any point he chooses 
 on a high road; and can have goods delivered to it and taken 
 from it by carts; which may stand at his door, provided they 
 do not obstruct the free way. In like manner even a man 
 of small means can set up a business by purchasing a plot of 
 land on the bank of a canal; and his goods can be deUvered 
 direct to it and taken direct from it. If his business extends, 
 he can have a bulge made on the canal, which will give him at 
 small expense the benefits of a private dock, or railway siding. 
 On the other hand the stations of a railway must be at con- 
 siderable distances from one another, averaging perhaps three 
 
PROBABLE REVIVAL OF CANALS BY ADVANCING TECHNIQUE 501 
 
 or four miles: and though a strong capitalist can obtain a private iii, vi, 5. 
 siding, he can do this only at so great expense, and under such 
 onerous conditions that very few businesses venture to do so^- 
 
 Again, a canal, that is not much burdened by locks, will 
 carry a continuous stream of traffic in either direction, just as a 
 public high road will; whereas a railway must allow for long 
 intervals between consecutive trains. Therefore the growth 
 of population and traffic will seldom call for a broadening of 
 the canal similar to the substitution of four tracks for two on 
 the railway: and "trains of barges" may carry large loads, even 
 on a canal, that is not adapted to very large barges. 
 
 It is to be noted that the diminutive scale of Britain's 
 geographical features brings many of her industrial centres^ 
 which are not easily to be approached by waterways, into close 
 connection with them by motor traffic. A road, with lines of 
 motors moving in opposite directions, will carry more traffic 
 than a railway can; and motor wagons can pick up and deliver 
 goods much more easily, and under many more conditions, than 
 a railway can. Wherever a road comes near to any part of a 
 busy network of canals, contact can be made between water 
 traffic and road-motor traffic: and since the points, at which 
 goods can be delivered or received, may be ten or twenty times 
 as numerous on a hundred miles of canal as on a hundred miles 
 of railway, nearly the whole area of England may ultimately be 
 in easy contact with canals, at lower charges for heavy traffic 
 than those at present current. The immense capabilities of 
 motor wagons had not been fuUy developed when the Com- 
 mission on Inland Waterways settled to its work: but it now 
 seems clear that their aid may enable a relatively small number 
 of canals to carry a very large traffic economically and con- 
 veniently, provided that effective traction on the canals can be 
 obtained easily. 
 
 Eecent experience shows that this can best be achieved by 
 means of central electrical stations, with wires extending from 
 each over many miles of canals: and for this purpose England 
 
 • The Board of Trade Conference of 1909 arranged a "model private-siding 
 agreement" (Beporl, pp. 7 — 9) : probably few people, without special experience, 
 will anticipate the length, intricacy and troublesomenesa of the provisions and 
 restriotiona, which are required in the interests of the railway and of public safety. 
 
502 COMTETITION AND MONOPOLY IN TRANSPORT 
 
 III, VI, 5. and the Southern half of Scotland have greater facilities than 
 any other area containing a like industrial population^. 
 
 Such traction has the incidental advantage of adaptability 
 to single boats and trains of boats of various sizes: it would 
 reduce to a minimum the wastefulness of the relatively narrow 
 canals, which alone are suitable to the orographical conditions 
 of this country. Electric power could be applied on occasion to 
 work the hfts, which may perhaps supersede locks, at all events 
 in districts in which, as in the English Midlands, the supply of 
 water power sometimes runs short. In any case electricity would 
 be a helpful adjunct to water power. It might be supphed, as 
 in Prussia, to factories near the canal, and increase the beneficial 
 tendency of well-appointed canals to check the intensive con- 
 centration of industry : — a tendency, which threatens to deprive 
 children of opportunities for invigorating play; and to deprive 
 young and old alike of the opportunities, which abundance of 
 open space ofiers for invigorating exercise and refreshing 
 repose. 
 
 Electricity is unrivalled as an agency for transmitting energy 
 from place to place; and, for that and other reasons it is hkely 
 to exert an increasing influence over the structure of transport 
 industries on land and inland water. Also, in its larger develop- 
 ments, it requires way leaves; and is therefore specially beholden 
 to State recognition, and is even in some degree adapted for 
 direct State control. Moreover the six hundred bodies, reported 
 by a Committee of the Board of Trade in 1918 to be generating 
 electricity for public purposes in Britain, employed so many 
 different frequencies that cooperation among them was im- 
 practicable. The Committee therefore recommended that a 
 Central Authority should fix standards for the whole country 
 
 ' This plan ia already largely used in Prussia; the towage being efEeoted by 
 motors running on tracks on the banks. But there appear to be some reasons 
 for thinking that it may be superseded by, or combined with, a plan that has 
 long been in use to enable heavy vessels to make way against the stream of the 
 Danube, which is some places runs at the rate of seven miles an hour. The 
 plan is to let a strong chain lie free at the bottom of the water: a vessel picks 
 it up, passes it round a windlass (which may be worked by steam power or by 
 electricity); and of course drops it at the stem. 
 
PROBABLE REVIVAL OF CANALS BY ADVANCING TECHNIQUE 503 
 
 and set up a separate District Electricity Board in each district m, vi, 5. 
 into wMch the country should be divided for the purpose. The 
 adoption of a scheme of this kind would facilitate, and be 
 benefited by, the use of canal banks as routes for main wires; 
 and as sites for electricity stations; except in cases in which the 
 generating plant could be advantageously set up in a neigh- 
 bouring coal-area. This arrangement might be set on foot at 
 once: the full development of a canal system in association 
 with electricity might gradually go far towards enabling Britain 
 to maintain her high place as a leader of industry, in spite of her 
 great inferiority in natural resources to several other countries. 
 
 Coal is the chief source, other than the qualities of her 
 people, of Britain's economic strength; and her coal is rapidly 
 disappearing: it is said that she possesses only a fortieth part 
 of the coal known, even now, to exist in the world. Slow 
 transit in water consumes less energy than any sort of traffic 
 on land. And, when account is taken of the inevitable waste 
 of force which is involved in shunting a train, whenever it needs 
 to be broken up, an additional argument is supplied in favour 
 of slow canal transport of coal and other heavy goods; among 
 which chief places must be given to some agricultural products 
 and requisites. The cheapest method of obtaining power from 
 coal for widely diffused uses is to generate it in large quantities, 
 so as to be able to utiHze all its by-products (waste smoke being 
 of course eliminated); and to sell it to every class of consumer. 
 Revivified canals would be among the chief consumers of power: 
 they could bring coal by the cheapest means to sites where land 
 was easy to be obtained; and the power which they provided 
 for their own use along their courses, could be made the 
 foundation of electric supply systems for all those parts of the 
 country that are adapted for canal traffic^. 
 
 ' Movements in this direction might be commenced at ones by individual 
 canal companies: but they should be such as would fit in with a comprehensive 
 national scheme, when Government is ready to take that in hand. Specially 
 opportune is the suggestion by Sir R. H. Inglis Palgrave (Quarterly Review, 
 Jan. 1918, p. 146) that financial advances for developing canals, though not 
 fitting for ordinary banks, " would be well within the scope of the British Trade 
 Corporation": for that might properly insist that nothing should be spent on 
 half measures that fell below the minimum indicated by the Commission on 
 Inland Waterways. 
 
504 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, Ti, 5. The Commission on Inland Waterways received evidence as 
 to the delivery of coal from the colliery direct into square steel 
 boxes, floating on the Aire and Calder canal. Each of these 
 "compartments" holds forty tons; and thirty of them make a 
 canal train, which is drawn by a tug: they are put on board ship 
 at Goole. In this very successful venture the chain of traffic 
 is complete without aid from a railway: but it seems to contain 
 the germ of a method by which transport by road motor, rail- 
 way, and canal may be worked into organized unity, with the 
 result of greatly lowering the costs of handling traffic. The 
 method may be seen in the plan on which luggage vans for 
 cross-channel traffic, and many furniture removal vans, are 
 arranged. That is, the receptacle of goods is an independent 
 large box, which could be secured either to a flat railway wagon, 
 or a motor lorry. Of course it could be deposited on the flat 
 bottom of a barge; or it could even be made to float^. 
 
 It has already been noted that Prussian railways have made 
 the " bodies " of some rolling stock detachable from their chassis 
 so that they can be moved by cranes from one truck to another, 
 and thus very greatly diminish the waste of time, and especially 
 of coal, in shunting from one railway track to another. The 
 general adoption of that plan would greatly facilitate the 
 arrangement of through transport of the "bodies" by railway, 
 road motor, and canal, in such proportions as might be most 
 economical, from factory to factory, to merchant's warehouse, 
 or to ship. 
 
 As to the important question of the relative costs of canals 
 and railways the following results seem well estabhshed: — Of 
 course a railway is not forced to follow contour lines as closely 
 as a canal must; and it therefore needs less mileage than a canal 
 does to connect any two points, except in very level country. The 
 cost of production of its bed is, as a general rule, less than that 
 of a canal of equal breadth : but there is scarcely any amount of 
 
 ' In the course of time it might probably be found that agricultural land 
 derived greatly increased value from direct access to a canal, or even to a shallow 
 and narrow dyke that would hold a boat just able to carry such receptacles to a 
 canal, or other waterway. It is well known that the interchange of soils between 
 land where it is too heavy, and land where it is too light, would often add greatly 
 to the fertility of both : but that generally requires long journeys, and its cost 
 hitherto has been prohibitive save in exceptional cases. 
 
PROBABLE REVIVAL OP CANALS BY ADVANCING TECHNIQUE 505 
 
 traffic which a fairly broad and deep canal cannot carry: whereas m, vi, 5. 
 a railway often needs four tracks for its main line, and many 
 tracks in the neighbourhood of stations. The expense of locks 
 (and even of the much more economical Hfts) is sometimes a 
 heavy burden to a canal. But it has little or no need of signalling 
 apparatus: and the buildings, that may be needed on its banks 
 for the development of a large and frequent goods traffic, will 
 mostly serve also as private warehouses. The upkeep of a canal 
 generally costs much less for management, for maintenance and 
 for wages than that of a railway does: canal banks need care; 
 but water does not wear out as railway lines do. The cost of 
 floating stock is much less than that of rolUng stock of equal 
 tonnage: it has much less wear and tear and needs much less 
 power for haulage. It is however true that, under the present 
 conditions of British canals, the labour directly employed La 
 transporting a given quantity of cargo a given distance is greater 
 on them than on a railway: though indeed engine drivers and 
 guards form only a small part of the employees of a railway. 
 
 To sum up and conclude: — The volume of transport, for 
 which accommodation is needed, increases without cessation; 
 and, so great are the difficulties of widening a railway in a 
 crowded district, that it cannot always increase its work, where 
 most needed, save at enormous cost. The quickest trains 
 necessarily stop only in crowded centres; and, in this and other 
 ways, their influence tends towards an ever increasing intensity 
 of centralization of the population. On the other hand canal 
 and road-motor traffic make for decentralization; and in asso- 
 ciation they may relieve railways of much heavy traffic. 
 
 But the revival of canals can be efiected only by the State: 
 much capital wiU be needed for it; the war has deprived national 
 securities of that scarcity-value, which enabled them to be mar- 
 keted at a very low rate of interest; and to that extent it would 
 somewhat prejudice any overtures made by the State for the pur- 
 chase of the railways. But this consideration may probably be of 
 less solid importance than the reflection that organized coopera- 
 tion of traffic by railway, canal and improved road might be 
 easier and more efEective, if the railways (with their plant), 
 together with roads and canal routes, were in a single hand. The 
 
506 COMPETITION AND MONOPOLY IN TRANSPORT 
 
 III, VI, 5. operation of canals like that of roads would be open to all, subject 
 to appropriate conditions, and charges for the use of locks, etc. : 
 those who worked on them, not being State employees, would 
 be under no special temptation to use the franchise for personal 
 gain, instead of as the means by which they could discharge 
 their duty as citizens. These observations have ventured on 
 dangerous ground: but greater risks are taken where no attempt 
 is made to forecast the future, while considering methods of 
 action or inaction that will largely ailect the future, than by 
 straining inadequate eyes in reading such faint indications of 
 the future as can be discerned by them. 
 
 The case for canals has perhaps been prejudiced by com- 
 parisons in their favour based on too exclusive regard to the 
 costs of working them, even when the charges for their use make 
 no attempt to defray the costs of making them: railway charges 
 are expected to cover costs of working and costs of railway 
 building. On the other hand a railway cannot, and a canal can, 
 render innumerable services similar to those rendered by a 
 public highway. The abolition of tolls on highways is now 
 universally recognized as good policy; because the revenue 
 yielded by them would be small in comparison with the excess 
 value of the services rendered by a free road over those rendered 
 by a tolled road : the country would be in a poor way if no roads 
 were made save those, the tolls on which would cover the ex- 
 pense of making them and keeping them in repair. The State 
 has constructive duties in the matter: and it is likely to have 
 important regulative duties, if monopolistic combinations should 
 arise to control through rates by road, canal and railway. This 
 consideration affords a small subsidiary argument in favour of 
 the nationalization of railways^. 
 
 ' While this chapter was passing through the Press, » Committee of the 
 House of Commons on Transport (H. of C. 1918, 136, p. 10) reported that 
 "unification of the railway system is desirable under suitable safeguards, 
 whether the ownership be in public or private hands ; proceeding by any of the 
 following routes: — (1) Further amalgamation of railway companies as a step 
 towards unification; (2) Unification accompanied by private ownership and 
 commercial management. (3) Unification by means of nationalization; followed 
 by (a) Establishment of a government department to manage the railways; or 
 (6) Constitution of a Board of Management not directly represented in Parlia- 
 ment; or (c) Leasing of the system to one or more commercial companies." 
 
CHAPTER VII 
 
 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 1. A review of some general causes of the recent ra^pid m. ™, i. 
 increase of giant businesses, independently of any mono- 
 polistic purposes. The poverty of British statistics ; the 
 wealth of American. 
 
 America has taken the lead in the development and con- 
 trol of vast individual businesses, or Trusts, having monopolistic 
 tendencies: and Germany's Cartels afford the best illustration 
 of the good and evil of sectional associations in industry and 
 trade. Trusts and cartels have so much in common that 
 they caimot with advantage be considered separately: but this 
 chapter and the next are mainly concerned with trusts; while 
 Chapters ix and x are mainly concerned with cartels. As has 
 already been indicated^, trusts are the results partly of hori- 
 zontal, partly of vertical expansion: but cartels are in essence 
 horizontal associations: though they may indeed occasionally 
 expand vertically by coalition throughout successive strata of 
 the same industry, or otherwise. 
 
 It will be well to begin by bringing together some observa- 
 tions made in Books I and 11 which are relevant to our present 
 inquiry. In Book I we saw that massive capitals in the hands 
 of mediaeval potentates, political, military, and ecclesiastical, 
 were mainly used for the support of large establishments belong- 
 ing to their owners; and that the capitals to which the modern 
 methods of production and trade owe their origin, were almost 
 exclusively those of traders. The first prominent uses of capital 
 in the organization of English industry, were seen when "under- 
 
 ^ See pp. 215 — 217, where something is said of curious changes in the meaning 
 of the American term "Trust." 
 
508 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 III, v:i, 1. takers" sought out domestic workers in various parts of the 
 country, who had but little capital of their own; supplied them 
 with material and instructions for its use, and marketed their 
 products. Shortly afterwards the invention of textile and other 
 machinery, suitable for being worked on a large scale by water 
 power, set on foot the direct capitalistic ownership of all the 
 appliances of production, except only the property that every 
 free labourer has in himself. Thenceforward leadership and 
 control came increasingly to those countries, and to those indi- 
 vidual manufacturers in each country, who could iavest capital 
 without stint ia expensive plant. 
 
 Book II was occupied with the causes that have made for 
 the expansion of the busiaess during recent times, in so far as 
 they arise mainly out of the pursuit of increased economy and 
 efficiency in production and marketing. Its general drift was 
 to the efEect that, though technical advances in manufacture, in 
 the transport of goods, and in telegraphic and telephonic com- 
 munication, have caused a continuous increase in the scale of 
 business operations; yet each decade has had its own upper hmit 
 to the size, needed for reaching nearly the maximum economy 
 and efficiency in each branch of industry. This general rule 
 was seen to be liable to several exceptions, one of the most 
 interesting of which is found in the dye industries; where pro- 
 gress consists mainly of innumerable relatively small develop- 
 ments of a few master ideas. For these developments can be 
 effected in large laboratories whose processes are secret; so that 
 increased size creates increased power, which takes automati- 
 cally a somewhat monopolistic form. The new devices could be 
 patented; but secrecy is a more effective check on imitations 
 that are suggested to rivals by a new product; which, not being 
 exact imitations of it, do not infringe its patent. 
 
 Meanwhile there has been a steady tendency towards speciali- 
 zation of work and of plant; and — so far as trade xmion regula- 
 tions allow — to so complete a classification of employees 
 according to their general ability and their specialized skill and 
 aptitudes, that no one works at any job which could be ade- 
 quately performed by one of inferior or less appropriate aptitude: 
 and that every foreman and nearly every superior official has 
 just those responsibilities, which will give fair scope for his 
 
REVIEW OF CAUSES OP INCREASE OF GIANT BUSINESSES 509 
 
 particular faculties. These tendencies have constantly increased iii, vn, i. 
 the size of the Representative business unit — that is, of the unit 
 whose costs of production exercise so great an influence on the 
 amount that will be forthcoming to meet any given market 
 demand, that they play a prominent part in the regulation of 
 price under competitive conditions. Formerly the difficulty of 
 obtaining adequate supplies of capital restrained the expansion 
 of the Representative business within narrow limits: but this 
 restriction has almost disappeared under the influence of the 
 ever-growing volume and fluidity of the resources of that market 
 for the command over capital, which is commonly called the 
 Money-market. 
 
 And yet, in spite of this elasticity, the influence of technical 
 economies on the expansion of the business unit tends to 
 weaken after a certain size has been reached; partly because 
 the specialization of plant, and the substitution of mechanical 
 forces for that of the human hand, increase the standardization 
 of products; especially in those engineering and other industries, 
 which are ever changing most rapidly under the impulse of 
 technical progress. Hence there arises a certain reversion to 
 earUer conditions. The business of the capable merchant could 
 expand rapidly, and almost without Hmit, in times when those 
 industries, which preceded modern manufacture, seldom gave 
 scope to considerable capitals: and in the present age the tasks 
 of marketing ofier ever increasing scope for vast aggregations 
 of capital. These tasks will be found to give the keynote to 
 the present phase of the development of trusts, and of cartels. 
 
 The population of England has been much occupied with 
 large capitalistic production for a far longer time than has 
 that of any other country. The Newcastle Coal Vend antici- 
 pated on a great scale many of the poUcies of German cartels 
 two centuries before they came into existence: and the first 
 monster coal and iron works, dominating a whole country and 
 spreading out their influences far beyond, were founded in 
 Liege by Cockerill, an Englishman. But yet, what seem to be 
 the most characteristic features of the present and coming 
 tendencies towards monopolistic aggregations and federations, 
 are to be sought elsewhere. The total information available as 
 
510 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 III, viT, 1. regards British industrial monopolies is very small in comparison 
 with that relating to American trusts. Scarcely any of it 
 has passed through searching investigation, comparable to that 
 which has revealed many of the cherished secrets of American 
 trusts; and has substituted correct information for that whicli 
 some of them had published. Nor do British trade associations 
 generally rival German cartels in the control of the marketing 
 of particular classes of goods on lines sufficiently firm, and yet 
 elastic, to dominate for good and evil the courses of national 
 industry and trade. 
 
 Trusts in Britain are of course subject to the rather strin- 
 gent regulations as to the publication of their aSairs, which are 
 imposed on all Limited Liability Companies: but it has not 
 been thought necessary to obtain much further official infor- 
 mation about them; and that which they supply is liable to 
 fall short, at critical points, of the requirements of public 
 interests. The causes of this deficiency are not whoUy to be 
 regretted. For many industries, which have sprung up like 
 mushrooms in younger countries, are mainly controlled in 
 Britain by firms, whose traditions go back for several generations, 
 and which are therefore disinclined to sudden changes, and 
 violent courses of strategy: while attempts to make an anti- 
 social use of monopolistic strength in manufacture would gener- 
 ally be frustrated by the arrival of competitive foreign goods in 
 British ports, whence they could be easily distributed over the 
 whole of the small area of the country^. 
 
 British official statistics were cast in a relatively good mould 
 in the middle of last century : but for many decades they followed 
 tradition closely; and they have now much lee- way to make 
 up. An important new departure was made by the Report of 
 the Census of Production in 1907; which goes a long way towards 
 giving the needed information in regard to that year. But it had 
 not the advantages of consecutive records and long experience: 
 
 ^ This statement, which was in print before the war, is left standing. But 
 the Ministry of Reconstruction has appointed a Committee on Trusts, which is 
 receiving much information, partly confidential, on which to base an opinion. 
 This may be the first step towards more vigorous action, should circumstances 
 require it. Confidential bureaucratic inquiries, at their best, are however a 
 poor substitute for published testimony, which invites rebutting evidence from 
 those who are in a position to detect errors or suppressions. 
 
REVIEW OF CAUSES OF INCREASE OF GIANT BUSINESSES 511 
 
 and it was limited in several ways. Tlie gap may be in some m, vu, 2. 
 measure filled, so far as our immediate purpose is concerned, by 
 some American statistics which wUl be found iu Appendix N. 
 
 2. Associations and agreements of various sorts pre- 
 pared the way for the rise of trusts in America. 
 
 We start from the position that nearly the maximum 
 economy of production can often be attained by a well organ- 
 ized business of moderate size: but that the task of marketing 
 e£B.ciently over a large area makes demand for almost unlimited 
 capitalistic resources, unless it is facilitated by association with 
 others engaged in the same industry. Associations for various 
 purposes, some constructive and some mainly strategical, some 
 temporary and some permanent, some overt and some secret, 
 anticipated the rise of trusts in America; and were often the 
 foundations on which trusts were laid. These associations are 
 known as "pools," because they pool some part of the interests 
 of those concerned. Thus the term is now of broader scope, than 
 when we saw it used in connection with agreements among 
 English railways to throw the whole of the receipts for certain 
 portions of their traffic into a common purse, after deducting 
 only the mere direct costs of moving them. In fact it covers as 
 large a variety of consorted arrangements among possible com- 
 petitors as do the elastic terms "Cartel," and "Syndicate"; of 
 which more hereafter. 
 
 Pools might have expanded almost as freely in America as 
 cartels have done in Germany, if they had not been opposed by 
 the Common Law which had come from England with the 
 "Mayflower." For many generations the supply of capital in 
 the country was scanty relatively to the demand, which her vast 
 natural resources made for it: the growing efficiency of English 
 industries, equipped with more expensive plant than a yoimg 
 country could afEord, made Americans anxious to see the rise of 
 corresponding industries at home; and aggregations relatively 
 large, though very small in comparison with present standards, 
 were welcomed for their constructive power. But pools and 
 other combinations for the regulation of prices inherited the 
 jealous suspicions, to which combinations of engrossers and 
 others had been subject in the Middle Ages. 
 
512 TEUSTS AND CARTELS: AMEEICAJST EXPERIENCE 
 
 III, Tii, 2. This is perhaps the explanation of the paradox that the 
 Common Law was habitually invoked for the repression of 
 temporary combinations in restraint of trade; while little 
 attention was paid to the threatening power of permanent 
 growths and fusions of great businesses. That repression was 
 sometimes extreme: and advocacy of yet stronger measures 
 provoked a reaction ; some of the exponents of which proclaimed 
 the sovereign efficacy of absolute free competition with an 
 exaggeration, that rivalled that of the early popularizers of 
 Ricardian economics in England and France. 
 
 But in the last few decades America has developed the 
 Bcientific application of economic doctrines to many practical 
 problems, with great energy and thoroughness. More perhaps 
 than any other country, she has learnt that general propositions 
 in regard to either competition or monopoly are full of snares: 
 and that some of the most injurious uses of monopoly, being 
 themselves extreme forms of competition, are not to be re- 
 strained by the advocacy of free competition. Consequently 
 she is now engaged in leading the world in the very difficult 
 task of restraining such methods of competition, as are aimed at 
 narrowing the basis of competition. Nearly all such methods 
 come within the scope of prohibitions of "unfair" competition: 
 there are many difficulties in the interpretation of the term 
 "unfair" in this coimection, with which a Court of Law can- 
 not deal without aid; but the needful aid can be supplied by 
 the organized systematic studies of ^permanent authoritative 
 Commissions. 
 
 The first critical point was reached when public attention 
 was directed to the "Trust," in the original use of the word, 
 set up in 1882 by Mr Rockefeller and others for controlling the 
 trade in mineral oil and its products. It was formed by an 
 agreement among the shareholders of a number of oil companies 
 to make an irrevocable deposit of their voting power with nine 
 Trustees, who would administer the whole as one concern. The 
 plan had two advantages. The trustees had unhampered power; 
 and yet they evaded the responsibilities, which were imposed 
 by the law relating to "corporations" (that is, joint stock com- 
 panies) on their directors. 
 
 This advantage caused many groups of businesses to be 
 
RESTRAINTS ON COMBINATION PROMPTED GIANT FUSIONS 513 
 
 consolidated into Trusts : but public opinion was strongly iii, vn, 2. 
 moved by the danger that the Trusts might become powerful 
 monopolies. And the attempt to exercise the privileges, while 
 evading the legal responsibilities of corporations, evoked the 
 "Sherman Anti-trust Act" of 1890. It condemned under 
 penalties every attempt to monopolize any part of interstate or 
 foreign commerce; and made contracts in restraint of such 
 trade illegal, whereas before they had only been non-enforce- 
 able: and "Trusts," in the original sense of the term, were 
 dissolved. 
 
 The movement, of which those Trusts were an expression, 
 was temporarily checked, not so much by the Act itself as by a 
 violent collapse of credit, caused by the fear that debts might 
 be repaid in a depreciated currency. But that danger quickly 
 passed: and, the industries of the country being in a substantially 
 sound state, the reaction from the previous gloom resulted ia 
 a great outburst of activity with rapidly rising prices, and an 
 almost unparalleled volume of profits. The public is always apt 
 to exaggerate the importance of a short series of years of high 
 profits; and to estimate the capital value of a business on the 
 assumption that such profits represent permanent prosperity. 
 This general tendency was strengthened by the accident that, 
 just at that time, several giant businesses were being developed 
 with remarkable success by the men of genius, who had created 
 them. The technical economies of production on a very large 
 scale in heavy iron and steel, in mineral oil, in beef products, 
 m agricultural implements, and in some other things were 
 attracting general attention. They were emphasized, and ex- 
 aggerated by constant repetition of cases in which large scale 
 production and dealing had exceptional advantages: and thus, 
 by honest as well as by interested teachings, the general public 
 was prepared for the belief that, if the chief businesses of any 
 kind in any market were united, the net income and the true 
 capital value of the consohdation would much exceed the aggre- 
 gates of those of the original businesses. 
 
 Consequently, the promoters of a consolidation were eager 
 to buy businesses, that might compete with it; or even be used 
 by an opponent as a basis of operations against it. They had 
 little interest in keeping down its total nominal capitalization: 
 
 M. I. T. 17 
 
514 TRUSTiS AjyD CARTELS: AMERICAN EXPERIENCE 
 
 III, VII, 2. for their main aim was to dazzle the investing public with a 
 show of a sufficient domination of the industry concerned, to be 
 able largely to control prices; though of course they made no 
 overt attempt at monopoly. Thus they often bought at high 
 prices establishments, which it was found best to close on account 
 of bad location or inefficient plant. 
 
 They endeavoured to evade decisions of the law-courts which 
 had condemned "Trusts" (in the original use of the term) by 
 puttiag the whole, or at least a working majority, of the shares 
 of the constituent companies into the hands of a small number 
 of men, under the form of a "Holding Company": these men 
 controlled the policy of the whole, and in some cases adminis- 
 tered a part of it. But Holding Companies were declared by the 
 Courts in 1904 to contravene the Sherman Law: and they were 
 dissolved. Thus the campaign against Trusts, in the old sense 
 of the word, seemed to have been brought to a successful issue: 
 but in fact it had merely changed its form. In suitable cases 
 the companies, whose securities had been held by a Holding 
 Company, were fused, in one way or another, into a single giant 
 business. We now leave Trusts in the earlier uses of the term, 
 and consider only giant agglomerations of business. 
 
 An estimate made in 1904 allotted a capital of about seven 
 thousand million dollars to industrial trusts. About half that 
 amount was assigned to "franchise trusts"; that is water, 
 gas, electricity, tramway and other undertakings, which make 
 exceptional use of public highways. The nominal capital of 
 a third group, that of railroads, was about equal to that of 
 the other two together. A fourth group consists of financial 
 businesses: but the power which they wield would not be 
 adequately represented by their capital even if it could be 
 ascertained with tolerable accuracy; while of course much of 
 it consists of holdings in other "trusts" and has therefore been 
 reckoned already^. 
 
 ' A Committee of the House of Representatives in 1913 enumerated over 
 two hundred consolidations, each having some degree of monopolistio strength. 
 An estimate, given in the Report of the U.S. Census of 1900 (voh vn. pp. Ixxv 
 — xcii), indicates a large percentage of failures among the early combinations; 
 and Mr C. N. Fay, an apologist of trusts, gives particulars of " the failure of 
 combination to monopolize," and even to succeed financially, in hia suggestive 
 Big buainess and Oovernment. 
 
 In 1890, the Sherman Law, not having taken effect, the word "trust" was 
 
RESTRAINTS ON COMBINATION PROMPTED GIANT FUSIONS 515 
 
 The large majority of industrial trusts are of course to be iii, vn, 3. 
 found in those manufacturing industries, in which an increased 
 scale of production brings with it increased economies. But in 
 fact they do not owe very much of their power to that advantage: 
 for, with some exception for the steel industries, a capital very 
 much less than that required to dominate the market, will 
 suffice to obtain every important advantage that belongs to 
 production on a large scale. Nearly all the chief trusts in 
 the group, now to be considered, owe more to the economies 
 of marketing on a vast scale than to those of production on a 
 vast scale. But these and similar matters can be presented 
 most vividly by brief sketches of some leading trusts. 
 
 One rule alone is almost universal. It is that each great 
 industrial trust has owed its origin to the exceptional business 
 genius of its founders. In some cases the genius was mainly 
 constructive: in others it was largely strategic and incidentally 
 destructive; sometimes even dishonest. But in general there 
 seems to have been present a notable power of visualizing the 
 future. The Duke of Wellington, speaking before the day of 
 aeroplanes, said that a chief business of his life had been to 
 construct mentally the view of the enemy's position on the 
 other side of intervening hills; and the founders of great trusts 
 have been eminent, even among able business men, for their 
 power of anticipating future relations between productive re- 
 sources and market requirements. 
 
 3. The basis of a firm hut vnsely limited control of 
 monopolistic tendencies in American business is provided by 
 systematic official studies. The experience thus gained gives 
 valvMble guidance as to some urgent problems of British in- 
 dustrial policy. 
 
 It is argued by Americans that the vagueness of the Com- 
 mon Law is on the whole a source of strength. Definite and 
 
 still used in its early sense; and the present writer told the British Association 
 that their future seemed to him doubtful. They were in fact vanishing. But 
 a recent writer has authoritatively condemned that prognostication, under the 
 impression that it applied to "trusts" in the very different present use of the 
 term. 
 
516 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 til, rn, 3. precisely worded Statute Law is adjusted in matters of detail 
 to the circumstances of the time at which it was made; and 
 cannot be readjusted to new conditions without fresh legisla- 
 tion. Common Law, on the other hand, is interpreted by 
 progressive, judicial decision in accordance with the conditions 
 of each generation, in so far as the Supreme Court, under 
 whatever name, feels justified in setting aside inferences drawn 
 from previous judicial decisions: thus the Common Law is 
 constantly being created, while being only interpreted nominally. 
 The faculties required for this work are not specially legal; but 
 they are in great measure trained by the lawyers' close contact 
 with the affairs of business life, and their relations to public 
 interests: while the decisions of the higher tribunals, by which 
 most of this legislation is effected, indicate a statesman's faculty 
 of discovering and conserving the true interests of the public, 
 even when not directly represented in court. The habits of 
 life of Anglo-Saxon peoples fit them in an exceptional degree 
 for alert exercise of the mind, without much special training: 
 but experience has gradually shown that, as the pubUc interests 
 Ln business become larger, while business itself becomes more 
 complex, a chief task of practical sagacity is to discover the 
 directions in which it needs to be supplemented by systematic 
 studies, and to organize those studies. 
 
 Since the operations of transport are to a great extent stan- 
 dardized by natural causes, their poUcies can be subjected to 
 some external control without adding greatly to those restric- 
 tions on the initiative of railway directors and managers, which 
 are imposed by Nature herself. This control is specially appro- 
 priate; because a railway, or group of railways, has something 
 of Governmental power within its own domain; and therefore 
 the work of a Board of Trade or a special Commission in regard 
 to the regulation of railways is fairly homogeneous and relatively 
 simple. 
 
 But industrial monopolies are of very various characters. In 
 many branches of production technique changes rapidly; and 
 the methods and purposes by which particular aggregations 
 or federations seek to control prices, are ever presenting new 
 developments. A great trust starts with expert knowledge of 
 its own business ; it can hire the most expensive expert witnesses 
 
APPROPRIATE CONTROL BASED ON THOROUGH STUDIES 517 
 
 to support the arguments of its highly paid counsel— them- lU, tii,3. 
 selves in some measure experts — on technical points. Against 
 80 strongly fortified a defence little can be done by a relatively 
 small and impecunious business, which thinks itself aggrieved; 
 and still less by the inarticulate public, which may be the chief 
 sufierer in the long run. A complete remedy for this social 
 hurt is not to be had: but a long step towards it was made 
 by America in 1903, when Congress set up the Bureau of 
 Corporations to investigate such cases, to enforce a limited 
 degree of publicity, and to make recommendations^. 
 
 The success of the Bureau of Corporations in checking abuses 
 of monopolistic power by merely publishing the results of its 
 investigation of them, encouraged Congress in 1914 to raise its 
 status, imder the name of the Federal Trade Commission, to a 
 level with that of the Interstate Commerce Commission: and 
 at the same time to pass a second (the Clayton) Anti- trust Act; 
 which strengthened the provisions of the 1890 (Sherman) Anti- 
 trust Act, for the enforcement of which the new Commission 
 was to have a care. That Act declared in general terms several 
 practices to be "unlawful" when, but only when, "the eSect" 
 of any one of them " may be to substantially lessen competition 
 or tend to create a monopoly in any line of commerce." The 
 word "substantially" is perhaps not exactly suited to the pur- 
 pose of the Act: and the use of the term "unfair" competition 
 in other parts of the Act, as well as the interpretations of it 
 by the Courts, recognizes that the mere expansion of an ably 
 managed business must necessarily contract the area, over which 
 the competition of other businesses in the same industry can 
 
 ' It authorized the Bureau to investigate " the organization, conduct of and 
 management" of any appropriate business corporation; "together with such 
 information and data as will enable the President of the United States to make 
 reoommendationa to Congress for legislation for the regulation of such com- 
 merce." This information "or as much thereof as the President may direct, 
 shall be made public." Some of the evils sought to be remedied by its work 
 are indicated in its Report for 1905, by saying: — "Much legislation has been 
 enacted which is futile and often harmful because directed either at the modi- 
 fication of great economic laws, which cannot be modified by statute; or at 
 the treatment of sporadic and sensational facts. Estimates, guesses, prejudices, 
 and limited individual experience have been the bases of action, rather than 
 broad and final conclusions based upon accurate, properly arranged masses of 
 facts." 
 
0l8 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 III, VII, 3. have full play. The Courts have sometimes in effect read in the 
 word "unreasonable" before "competition" in the Act. What 
 is really condemned is destructive competition. One runner may 
 outdo his rivals by greater energy as much as he can: but, if 
 he puts his hand on another's shoulder to pull him back, while 
 pulling himself forward, that is the unfair competition against 
 which the Anti-trust Act is directed. 
 
 The purpose of the Federal Trade Act is to constitute an 
 administrative and semi-judicial body of high standing, which 
 shall continue with enlarged powers the work of the Bureau 
 of Corporations; and collect such information in regard to the 
 operations of giant businesses, as shall enable a good judgment 
 to be formed on the character of the competition, which they 
 wage against less wealthy rivals. It is to investigate any 
 appropriate case; and, after heariog, issue an order directing 
 compliance with the law. If this order is not obeyed, it may 
 apply to the appropriate Federal circuit Court to enforce it; 
 and that must take its findings, if supported by testimony, as 
 conclusive (subject to certain conditions); though of course 
 the findings may be set aside by the Court on a point of law^. 
 
 This slowly matured and vigorous scheme has exceptional 
 interest for Britain. For her attention has been much attracted 
 by the events of the world-war, and by other causes, to the 
 economies and facilities which giant capitals can obtain in 
 production and in marketing. And since Britain's free trade, 
 together with other causes, has in great measure safeguarded 
 her against malign uses of any monopolistic power thus obtained, 
 her people have been increasingly inclined to look with favour 
 at the beneficial results of the massive organization; while taking 
 little thought as to the dangers that might arise from it. In fact 
 "combinations," when they are merely particular forms of con- 
 structive cooperation, often bring with them such great material 
 
 ' It should be observed in passing that the Anti-trust Act applies to com- 
 binations of railways, as well as industrial trusts. But the chief gravamen 
 of the charges under it against railways refers to the hurt which railway fusions 
 may inflict on customers of railways; while industrial trusts are charged with 
 depriving other businesses of reasonable access to markets, in the first instance; 
 and thereby injuring the public ultimately. 
 
APPROPRIATE CONTROL BASED ON THOROUGH STCTDIES 519 
 
 advantages, as almost to hide from view any contraction of the in, vn, 3. 
 field for the creative enterprise of young businesses that they may 
 cause. That evil might probably be rather small, if Britain's 
 financial and military position remained substantially as it was 
 before the war. For, though history records few cases in which 
 constructive cooperation has not after a while degenerated in 
 some degree towards restrictive and even destructive uses of 
 monopolistic power; yet the same brave and free spirit, which 
 has kept British ports open to all products that compete with 
 her own, might have continued to ward off monopolistic 
 pressure. 
 
 But the war has enlarged the range of things of which 
 the country is unwilling to be greatly dependent on external 
 supphes: and it has necessitated so great an increase in the 
 Revenue needed by the Exchequer, as to strengthen the hands 
 of those who desire to levy import duties on many manufactures. 
 Such proposals are sometimes associated with suggestions that 
 combinations for the regulation of prices should be sanctioned 
 and even encouraged by the State. The avowed aims of such 
 a combination are no doubt constructive: it is to be miUtant 
 only in regard to invasions of British territory by powerful 
 foreign producers or traders, singly or in combination. But 
 history shows that men engaged in any industry, which is faced 
 by foreign competition, are inevitably and almost unconsciously 
 impelled to exaggerate any indirect injury that may result to 
 the public from such competition; and recent events suggest 
 that human nature has not changed in this respect. Such men 
 have special knowledge of the industry and trade under dis- 
 cussion: and complacent officials have always been inclined to 
 take the path of least resistance, and accept expert estimates in 
 these matters with but Uttle consideration of the unconscious 
 bias by which such estimates may have been warped. The 
 dangers directly arising from this source are increased, when 
 those, who speak thus with expert authority, are associated for 
 the attainment of any common ends, however beneficial in 
 themselves: for such conditions are specially likely to taint 
 constructive cooperation with some touch of militant restrictive 
 monopoly. The recent courses of German cartels will be found 
 to point in this direction. For the present we are concerned with 
 
520 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 III, VII, 4. American experience to the effect that, if the danger becomes 
 considerable, it can be adequately met only by a special official 
 organization; which differs from an administrative Department 
 of Government in that it concentrates the greater part of its 
 energies on progressive studies, resembling those of a great 
 technical laboratory^. 
 
 4. Actions, which are harmless on a small scale, may 
 become injurious iohen practised on a large scale, especially 
 if their purpose is to obstruct the highway of business. 
 
 Under ordinary circumstances, an individual tradesman, who 
 has taken offence at a customer, may refuse to deal with him: 
 but a conspiracy to drive a man from the neighbourhood, and 
 render his property in it valueless, cannot be justified under 
 ordinary circumstances. The law against malicious boycotting 
 is akin to an anti-trust law: each aims at preserving the right 
 of well-behaved persons to make free use of the common 
 highways of business. 
 
 The law and commonsense alike sanction the meeting of any 
 two people, or the standing of a cart for a time by the curbstone, 
 even in a busy highway. But a large assembly of persons (or 
 a collection of carts) sufficient to hinder the full use of the 
 thoroughfare by others, is broken up by the police: and if the 
 obstruction can be shown to have been deliberately planned 
 with the purpose of injuring some person's business, or otherwise 
 annoying him, it is an offence. Wrong-doing of this kind cannot 
 be directly controlled by Courts of Law, nor can the initiative 
 in complaint against it be left to private action. It must be 
 controlled by the Executive, whose ordinary constable clears 
 the highway by appropriate orders; the magistrate being ready 
 in the back-ground to enforce judgment in any case in which 
 the policeman's orders are resisted. The Federal Trade Com- 
 mission has responsibilities, similar to those of the policeman, 
 in regard to vast highways on which the traffic is immensely 
 complex. Long-continued, organic and scientific study of great 
 
 ' Some exceptional provisions in regard to American export trade are noticed 
 below, in Chapter xn. 
 
ACTIONS HARMLESS ON SMALL SCALE, HURTFUL ON LARGE 521 
 
 masses of detail takes the place of the policeman's simple view in, vn, 4. 
 of the obstructing crowd; and its decisions are authoritative, 
 subject to certain conditions. It is responsible for taking the 
 initiative, and coming to a provisional conclusion as to whether 
 any price discrimination, or exclusive deaUng, is a bond fide 
 constructive business transaction or is a destructive strategical 
 manoeuvre aimed at preventing a rival from making use of the 
 highway of business. The first place among unfair methods of 
 competition, which are denounced by the Anti-trust Laws, is 
 held by price discriminations; the chief variety of which is that 
 of malign local price-cutting. 
 
 A dealer is prima facie free to choose the prices at which he 
 sells his goods. If, for instance, he has two shops, one in the 
 East end of London and the other in the West, he will often ask 
 higher prices in the West than in the East; partly because he 
 cannot sell at high prices in the East, and he cannot pay the 
 high rent of his shop in the West if he charges low prices 
 there: his action rouses no suspicion of mahgn motive. But 
 the Standard Oil Company habitually pursued the consignments 
 of a rival to retailers; and told them that, if they persisted 
 in buying from the rival, it would sell its oil close to them at 
 a price which involved a temporary loss to itself: it thus 
 rendered their trade impossible. It did this so systematically 
 and with such large resources, that many independent refiners 
 sold out to it at a loss; and others, who would have entered 
 the business, refrained. "Size without any predatory power 
 makes a corporation beneficent; but size with this evil endow- 
 ment makes it a menace to freedom. ...The prospect that a 
 trust will resort to predatory practices terrorizes the rival in 
 advance, and prevents him from appearing^." 
 
 The duty of the State in this matter is not to hinder the 
 action of the great forces of economic evolution; even when 
 they involve the destruction of old businesses, which have no 
 other fault than that of being unable to turn those forces to 
 good account. Its protective intervention is not called for on 
 behalf of incompetent competitors with the trust: but it is 
 called for when the trust sets itself to destroy a rival, who is 
 
 ' Clark, The control of trusts, p. 123. As to some discrimination in retail 
 trade, see Appendix J, 3. 
 
 17—5 
 
522 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 III, VII, 4. prepared to sell things of good quality at lower prices than the 
 trust is charging for them elsewhere. The greater the imme- 
 diate sacrifice which the trust is willing to make in order to 
 drive such a rival ofi the highway, the greater is the prima 
 facie reason for thinking that the interests of the public require 
 that the rival should have a fair chance of developing his 
 business, and attaining economies of production on a large scale, 
 with fresh enterprise. The case is only prima facie: for in- 
 stance, the purpose of the rival may be to blackmail the trust: 
 and the task of investigation is therefore both difficult and 
 delicate; but it is not impracticable^. 
 
 Discriminating prices are commonly associated with the 
 "dumping" of certain goods, especially by countries with high 
 protective tarifs, in foreign markets. But, as will be seen later 
 on, the chief purpose of such dumping is to maintain prices 
 in the home market: the desire to destroy rivals in foreign 
 countries plays a much smaller part in such dumping than is 
 commonly supposed. On the other hand, the intimate financial 
 association of some American railways with particular powerful 
 trusts has caused price-discriminations, aided by discriminating 
 railway charges, to attain a portentous power of destroying 
 inconvenient rivals. Many are the devices, by which the laws 
 against price-discrimination with a monopolistic purpose are 
 evaded; but the Interstate Commerce Commission and the 
 Federal Trade Commission, working in unison, seem likely to 
 repress most of them ere long: and indeed monopolistic strategy 
 of this kind is so definite that it can hardly evade the pursuit of 
 painstaking, capable investigation, well supported by authority; 
 though it has relatively little to fear from those milder and less 
 penetrating forms of bureaucratic control, which have hitherto 
 sufficed for most of Britain's needs^. 
 
 ' The nature of the task will be illustrated by the notes on individual trusts 
 contained in the following chapter. 
 
 " It may be added that Canada is hostile towards monopolies: her plan for 
 controlling them is less' systematic than that of the United States, but more 
 systematic than that of Britain. Subject to unimportant restrictions, any six 
 full citizens may apply to a judge; state in writing that they believe a certain 
 combine to exert an influence injurious to public interests, and ask for an 
 investigation. The judge is then bound to give them a hearing; and if he 
 thinks a primd facie case has been made out, he writes to that effect to the 
 
PRICE POLICIES OF FAR-SEEING TRUSTS 523 
 
 5. Relations in which the prices charged by far-seeing m, vn, 5. 
 trusts, when not engaged in campaigns against rivals, stand 
 to the probable costs of "independents." 
 
 Before passing to the consideration of particular trusts, it 
 may be well to say a little in continuation of earlier discussions 
 as to the relations between cost of production and the price 
 which a far-seeing trust will place upon its goods, in the absence 
 of any strong incitement to destructive strategy. It has already 
 been observed that a conditional monopoly must take account 
 of the cost of production which its competitors must meet: but 
 the particular forms of conditional monopoly, which belong to 
 a modern trust and its relations to "independents," are so 
 definite that there may be an advantage in returning to the 
 subject. 
 
 The reports of the Industrial Commission appointed in 1898 
 to inquire into the conditions of American labour were, till 
 recently, the chief authority asi to the conditions of American 
 trusts. It reached the following important conclusion: — "The 
 testimony of substantially aU of the construction men is to the 
 effect that, unless a combination has some monopoly of the raw 
 material, or is protected by a patent, or possibly has succeeded 
 in developing some very popular style or trade-mark or brand, 
 any attempt to put prices at above competition rates wiU result 
 eventually in failure, although it may be temporarily successful." 
 It finds that a short-sighted policy looks at the proportion of 
 the total output of a certain commodity which is controlled by 
 a trust: if that be large (and there are many trusts which 
 
 Registrar of Boards of Investigation, who must appoint a Board for the purpose. 
 It is to consist of three persons; one nominated on the recommendation of 
 either side to the question; and a third nominated by those two. Their report 
 is published in the Canada Gazette: if unfavourable, it may lead to the with- 
 drawal of any tarif protection which the offenders have had, or to revocation of 
 patents; together with a fine which is increased with each day (after a certain 
 interval) during which the grievance is maintained. 
 
 Somewhat similar provisions are included in the Australian Industries Pre- 
 servation Act 1906—10: and in 1912 an Australian Interstate Commission of 
 three members was set up, whose extensive duties included various steps for 
 dealing with combinations that tended to restrain trade or commerce by unfair 
 competition, or to the detriment of the public. New Zealand has moved in the 
 same direction: and South Africa has done the like in regard to the Meat and 
 Shipping trades. 
 
524 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 III, vn, 5. control about two- thirds of it), there is a temptation to argue 
 that the trust can regulate prices without much attention to 
 cost of production. The argument is valid for short periods, but 
 only for those^. 
 
 For a far-sighted trust's policy looks rather away from the 
 ephemeral relations between the output under its control and 
 that of the independents: its main business is with the poten- 
 tialities of independent output in the future. If concerned with 
 minerals, it cares little for minute calculations of outputs of 
 mines already opened: it cares much for estimates of the coat of 
 opening out new mines within striking range. It cares little 
 to know what part of the plant owned by the independents is 
 nearly obsolete: it cares much to know what are the difficulties 
 in the way of starting rival works of equal efficiency with its 
 own, not necessarily for all parts of its work, but for some of the 
 more lucrative. It takes account of the fact that, now more than 
 ever, a powerful capitalist often lilies to push his way even into 
 an industry with which he is not personally familiar, but in 
 which he knows that high profits can be reaped. Such a man, 
 in conjunction with associates who have the requisite technical 
 knowledge and administrative faculty, and who have sought 
 out him, or have been sought out by him, may be able to put 
 up a plant that will be as well or better organized than that of 
 the trust, because it will incorporate the most advanced ideas 
 from the first. Accordingly a well-managed trust reflects that, 
 if it puts its prices so high as to hold out the prospect of good 
 profits to new rivals, after fighting through the campaign of 
 underselling which it is prepared to arrange, the rivals will 
 appear. That is to say, it adjusts its price rather closely to 
 the cost of production including profits, on which a new-comer 
 in an ordinary competitive market would base his calculations. 
 But it adds to this something for the insurance against extra 
 risk which a new-comer into its market would expect to face. 
 
 It may seem that this cost of production is of a difierent 
 kind from that which the producer in a competitive market 
 needs to watch. But that suggestion goes too far: the diSerence 
 between the two cases is mainly one of degree. It is true that, 
 in a competitive market a producer's connection has no firm 
 
 ' Report, vol. xm. pp. xvii, xviii, and xxi. 
 
PRICE POLICIES OP FAR-SEEING TRUSTS 525 
 
 hold of a long life. He must give himself to holding his own in, vu, 5. 
 against existing rivals ; and it is not generally worth his while 
 to spend much care on the efiects which his action may have 
 on the appearance of new rivals: for they are sure to appear 
 in any case. 
 
 In this matter his position differs from that of even a con- 
 ditional monopolist. But he also has his far-seeing strategy as 
 well as his tactics for passing occasions: and his strategy has to 
 do with the costs of whole processes of production. The prudent 
 leader of a great trust will remember that, though there are 
 very many men competent to manage a small business, there 
 are not many who can manage a large one ; and that only a small 
 percentage of those, who are competent for the affairs of a large 
 business, can rise to the high peak of the management of a huge 
 trust. There is always "plenty of room at the top": and, if 
 the highest post is very high, the difficulty of finding adequate 
 successors to the few intellectual giants who have built the lofty 
 edifice is almost insuperable. Youths of exceptional faculty are 
 often found in lowly work of various kinds in large businesses 
 as well as small. But, as soon as they become conscious of 
 their strength, they are likely to be attracted by the chance of 
 developing their own powers of initiative; and the lower posts 
 in a vast business seldom offer as much scope for that, as do 
 those of a small business, in which, on occasion, a subordinate 
 may be called to do what he can at a task which has been 
 supposed to be beyond his powers. It has been justly said that 
 small businesses are the nurseries for the best brains in large 
 businesses. 
 
 The trust must therefore reckon with the possibility that it 
 will not continue for long to have as large a share of the best 
 business genius of the country as it had, when it first achieved 
 its semi-monopolistic power. Its capital may enable it to 
 outbid aU others when a new important patent is to be sold: 
 but the weaker successors of the strong men who have created 
 its success may fail to appreciate, and even to welcome, the 
 genius of men who are stronger than themselves. It seems 
 probable that the combative phase of monopoly, introduced 
 by some industrial trusts, may pass away more quickly than 
 earlier phases in times of less rapid evolution. Probability is a 
 
526 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 HI, VII, 5. chief guide in all matters: it is the only guide in regard to 
 matters, as to which the present age can find no close precedent 
 in the past, and cannot expect to yield close precedents to the 
 future. Thus there are many reasons why a trust should not 
 make use of its semi -monopolistic power to put its price much 
 above the level at which an independent business could produce, 
 if not hampered by the pressure of the great giant: the policy 
 of destroying independent rivals in order that it may raise its 
 price is not so much to its own interest, as appears at first sight. 
 But this consideration may have little weight with bold 
 enterprising men, who value success for the proof of power 
 which it gives, almost as much as for the wealth which it brings. 
 And, since many monopolies owe much to the partial exclusion 
 of foreign competitive products by a protective tarif, there 
 seems much force in the suggestion that, when a commodity 
 protected by a duty comes under the control of a combination, 
 the duty on it should be revoked^. 
 
 • Franoia Walker, Causes of trusts and some remedies for them, p. 23, referring 
 to the precedent set by Canada; see above, p. 523 fn. 
 
CHAPTER VIII 
 
 TRUSTS AND CARTELS: AMERICAN EXPERIENCE, 
 CONTINUED 
 
 1. The United States Steel Corporation is a unique in, vm, i. 
 aggregation of many giant businesses ; but it leads, rather 
 than controls, the steel industry. 
 
 We may next consider some illustrations of a general rule, 
 whicli has already been partly indicated. It is that an aggre- 
 gation so powerful, as to be a representative "trust" in the 
 present use of the term, is likely to be under no great tempta- 
 tion to have recourse to those exceptionally cruel and malign 
 forms of competition, which have frequently been used by a 
 business on its way to obtaining the dominant position in an 
 industry. Moreover, when such a dominance has been long set 
 up, the leaders of the business are likely to be well advanced in 
 years; to be sensitive to public opinion; and, above all, to have 
 learnt that, though a triumphant pleasure attaches to the attain- 
 ment of great riches, their possession does not insure the full 
 fruition of life. A man may have used fierce, and possibly even 
 soinewhat unscrupulous, methods of combat, while still un- 
 certain of success; and yet, when he has fully attained great 
 wealth and power, may perhaps use these chiefly as means by 
 which he can earn the respect of others and of himself. Instances 
 of this, while not rare in old countries, are specially conspicuous 
 in America: and they appear to be contributory causes of the 
 tendency of some trusts, which have had troubled courses in 
 early days, to take on a milder character, and to act with more 
 careful regard to the interests of the pubhc, when they have 
 once attained almost irresistible power. But unfortunately the 
 peaceful position thus attained depends in great measure on 
 personal and other conditions, which are liable to change: and 
 
528 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 III, viii, 1. America is in no way relaxing her energetic and ttorougli 
 studies: they are pioneering the way for the rest of the world 
 by examining the responsibihty of the State in regard to the 
 powers for evil, as well as for good, which modem conditions 
 have put into the hands of monopohstic aggregations and asso- 
 ciations. The facts which follow in this chapter, are not in any 
 sense consecutive or even fully representative history: they are 
 selected merely as particular illustrations of broad tendencies. 
 
 It has already been observed (above, II, m) that an excep- 
 tional combination of causes has promoted consoUdation ia 
 the heavy steel industries. For the metal can pass through 
 many stages without ever getting cold: waste gases can be used 
 to generate horse-power to be applied directly, or through 
 electricity; and high chemical and other technical sldll can 
 find large scope in the supreme direction of many massive 
 processes. Rolling mills, engine shops, etc., can often find 
 occupation in slack times by enlarging and repairing their own 
 plant, and that of the furnaces, and above all of the mines: and 
 rails or plates, which happen to have been made unmarketable 
 by slight flaws, can yet be turned to account in posts of no great 
 responsibility about the mines, the furnaces, etc. Thus a busi- 
 ness, which owns the necessary supplies of coal and iron ore, is 
 in a very strong position: and one, that lacks these advantages, 
 is likely, after falling into difficulties, to be willing to accept 
 terms of purchase that will yield a profit to another business, 
 which is fully equipped. 
 
 These conditions, as we shall see in the next chapter, have 
 contributed towards the formation of the German Steel-works 
 Union; which is the most far-reaching, though not the most 
 firmly established of all cartels: and their tendency to create a 
 giant consolidation in America has been strengthened by other 
 causes. For, though it is true that a capital of some twenty 
 million pounds suffices at present for the equipment of a single 
 set of fully efficient steel works; yet a fusion of many works 
 in different parts of the Continent of America is able to make 
 considerable savings by sending each order to be filled at that 
 works, which is best adapted for it by situation, special appli- 
 ances, and freedom from other engagements, etc. 
 
THE UNITED STATES STEEL CORPORATION 529 
 
 Already in 1900 considerable progress towards such expan- in, vm, i. 
 sion and fusion had been made by the Carnegie Company; which 
 owned much of the best iron ore and coal for coking purposes 
 in America. In 1900 disturbances were threatened by proposed 
 extensions downwards of some of the higher stage steel busi- 
 nesses; and by plans of Carnegie for making a railway of his 
 own to carry much of his traffic, and by other developments. 
 This brought powerful financial interests into the field, and with 
 them came the notion of monopolistic advantage: it had not 
 previously appeared as a motive for expansion: but gradually 
 rose to a level with the pursuit of technical efficiency. 
 
 Stress was laid on the inevitable rise in the value of the iron 
 and coal properties owned by the companies, which were to be 
 amalgamated; and, partly for this reason, the favourable terms, 
 which Carnegie claimed, were conceded to him. Ultimately 
 nearly all the principal steel businesses were fused into the 
 United States Steel Corporation, with a total capitalization so 
 much in excess of the market values of the constituent com- 
 panies, that the promoters were able to take, as their own re- 
 muneration, cash and securities, which were worth at the time 
 some sixty million dollars and soon rose much in value. 
 
 This amalgamation created an epoch, first by the methods 
 of its capitaUzation; and secondly by the admission, practically 
 involved, that the additional economies of administration to be 
 obtained by an increase in the size of an individual establish- 
 ment, gradually dwindle as the size increases. 
 
 The second point may be takep first. Several himdred 
 separate properties were included in the great amalgamation: 
 and in order to keep the subsidiary companies efficient, con- 
 siderable autonomy was conceded to each of them. But, lest 
 each should regard the others as competitors rather than allies, 
 an elaborate profit-sharing plan was set up, purporting to 
 interest the President and the other officers of each in the 
 profits of all the others. And meanwhile the activity of each 
 was stimulated by setting before it the ambition to show results 
 as good as, or better than, those of any other doing like work 
 under like conditions. 
 
 The market values of the various companies incorporated 
 reached a total of eight hundred million dollars; which, ac- 
 
530 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 iii.vm, 1. cording to the investigations of the Bureau of Corporations, 
 exceeded the total value of their tangible properties by only 
 one hundred million: but the total capitalization of the United 
 States Steel Corporation in 1901 (including underlying bonds, 
 etc.) was fourteen hundred million^. The greater part of this 
 excess is apparently due to the valuation of the ore properties; 
 which the constituent companies had reckoned at one hundred 
 million, and the Corporation at seven hundred million: this 
 may indeed fairly be regarded as an instance of the common 
 practice of promoters of a fusion, under which Preferred stock 
 is issued to the fuU amount of the visible properties of the 
 several businesses. Equal amounts of Common stock, given to 
 purchasers of Preferred, are understood to represent the good- 
 will of the businesses fused; together with the value of the 
 additional earning power, which the fusion is expected to derive 
 from its new economies, and its monopohstic advantages. This 
 practice of capitalizing good- will is not altogether unreasonable; 
 but it has been the cause of many abuses*. 
 
 The values of the ores owned by the Steel Corporation have 
 risen greatly since 1901: its chief businesses have been ex- 
 cellently managed: and, even before the great war, its securities 
 rose sufficiently to make this high capitalization appear not very 
 unreasonable. But of course it owes much to the Protective 
 tarif, which enables it to sell some of its goods at higher prices 
 than those at which similar European products could otherwise 
 have been obtained. 
 
 It has not attempted Jo regulate prices independently: but 
 has taken counsel with its chief competitors as to the prices 
 wliich the market wiU bear. Its lead has generally been 
 wiUingly followed; and indeed there are some who think that 
 its statesmanlike policy has been even more advantageous to 
 some of its rivals than to itself: certainly its business has not 
 grown as fast as some of theirs have. At least nine-tenths of the 
 total steel output of the country appear to be now represented at 
 the conferences, held under its lead, at which schedules of prices 
 and other matters are arranged. 
 
 ' See the Report of the Bureau of Corporation on the Steel Industry, vol. L 
 1911, pp. 106—169 and 373—382. 
 ^ See above, pp. 335 — 6. 
 
THE UNITED STATES STEEL CORPORATION 531 
 
 The position is however not free from anxiety from the iii.vm.i. 
 national point of view. Ere long nearly the whole of the iron 
 ores in the country may have been explored, and be owned by 
 a few giant businesses, acting more or less steadily in concert. 
 The great Trading Companies of yore worked for some time 
 bravely and steadfastly for their own profit, and the prosperity 
 of the coimtry; but, as time went on, the places of active 
 Venturers, strong in their self-restraint, were filled by weaker 
 men, inert and greedy of gain. No such extreme deterioration 
 is indeed likely under modem conditions: but there may be 
 increasing need for vigilant study, on the lines set out for the 
 Federal Trade Commission, of the action of what may become 
 in effect a monopoly many times more powerful than any yet 
 known. For it would have "its feet firmly planted on the 
 ground": that is, it would in great measure control those re- 
 sources, supplied by Nature, without which no rival to it could 
 make headway. Even incomplete monopolies, thus planted, 
 are likely to be more solid and durable than apparently stronger 
 monopolies if based on superiority in manufacturing technique, 
 or in business ability, or in financial strength; or even in all 
 three together. 
 
 This class of consideration applies to several other American 
 industries, in which there has as yet been either no monopoly or 
 only a local monopoly. For instance, the Reports of the Bureau 
 of Corporations on the Lumber industry, indicate growing 
 tendencies to local concentration of ownership of timber. Timber 
 lands are already becoming rather scarpe; and a powerful financial 
 movement to concentrate these concentrations might develop a 
 dangerous monopoly of timber. Further, lands, that have been 
 denuded of timber, are commonly sold at low prices; and, if 
 bought up by strong capitalists, might introduce a hitherto 
 unknown tendency to gigantic oivnerships of agricultural land^. 
 
 Again, the Bureau of Corporations has called attention to the 
 danger that the chief sources of water power may be exploited 
 
 * On the other hand the Industrial Commiasion itself suggested "combina- 
 tion under proper supervision " as a remedy for the waste of national resources 
 involved in the use of fine anthracite coal for purposes for which inferior coal 
 would suffice. An individual coal owner cannot materially affect the price of 
 coal in the winter; and he will suffer, if he has not kept his men together in 
 the summer while others have done so. But a single corporation, owning the 
 
532 TEDSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 III, VIII, 2. by a few strong capitalists. It is true that its price must in 
 the long run be governed by the price of power generated by 
 coal: but the great excess of the cost of such power over that 
 of power obtained from water on a large scale, may yield a 
 monopolistic revenue, which properly belongs to the State, and 
 needs to be jealously controlled. 
 
 2. Tlie power of exceptional constructive ability, com- 
 bined with astute destructive strategy, is illustrated by the 
 history of the Standard Oil Company : its financial strength 
 has gradually overshadowed a considerable part of American 
 business. 
 
 Attention has already been called (III, vii, 2) to the facts 
 (1) that the Standard Oil Company was the first to constitute 
 a "trust," in the original sense of the term; (it then represented 
 an association of businesses, efEective for strategic purposes, but 
 yet evading the prohibitions of monopoly, which the law-courts 
 had based on the Common Law); and (2) that its remorseless 
 underselling of rivals, with less capital than its own, who were 
 making good supplies at reasonable prices in particular localities, 
 was a chief cause of the stringent legislation against local price 
 discriminations. But the Company has never had any approach 
 to a monopoly of the sources of supply of mineral oil: its mono- 
 polistic power has resembled that of a railway, whose network 
 practically covers a great district; while it is able to evade any 
 regulations that may require it to give facilities for the traffic 
 of other companies to pass over its lines. 
 
 It began with a comparatively small group of lines of 
 pipe, and could do little without the aid of railways. But it 
 ofEered very large business to some of them: it played ofi 
 one against another with great ability, not disdaining corrupt 
 influences; and it was thus enabled to induce some of them to 
 carry oil for it more cheaply than for its rivals. It hampered 
 those opponents not merely by selling at specially low prices in 
 their neighbourhood; but also by paying for a time very high 
 
 whole field, might do better for the couutry by refusing to work much in the 
 summer; and allowing some scarcity of coal in the winter to raise its price suf- 
 ficiently to cover the cost of attracting miners back in the late autumn; when the 
 demand for labour in agriculture, building, etc. was slackening. 
 
THE, STANDARD OIL COMPANY 533 
 
 prices for crude oil from any wells, from which a rival had iii, vm, 2. 
 expected to derive his supplies. It worked on these plans, in 
 so far as not estopped bj the law-courts, with great ability and 
 persistence, and in many fields of enterprise: insomuch that, 
 though it had a capital of only a million dollars in 1870, it was 
 paying forty million dollars in dividends in 1907i. 
 
 Again it took a leading part in the use of bogus independent 
 companies and fighting brands; which it used to destroy rivals 
 in places where its monopoly was threatened: meanwhile it 
 maintained high prices where it was exempt from competition. 
 A bogus company, reaUy owned by the Standard Oil Company, 
 would offer good oil at a low price in the neighbourhood of an 
 obnoxious rival : it would search out his customers, retaining a 
 stafE of spies for the purpose, and offer oil to them at exceptional 
 rates. Even where there was no urgent fear of competition, a 
 similar company, representing itseK as an opponent of mono- 
 poly, would turn a prevalent anti-trust sentiment to the account 
 of the great trust. "Fighting brands," which it seems to have 
 been the fijst to use, are somewhat analogous to the fleet of 
 "fighting ships," maintained by the Hamburg American 
 Company to underbid obnoxious rivals^. These brands differed 
 in no essential from those in ordinary use: but they could be 
 offered for militant purposes at low prices, without affording 
 ground for a charge of "local price cutting"; for they were 
 not sold at higher prices anywhere. 
 
 The Company was indeed dissolved by a Federal Court in 
 1912; which ordered that the shares of all its constituent 
 companies should be divided among its shareholders in pro- 
 portion to their holdings in it. But nine strong men hold 
 
 ^ It showed great foresight, and was quick "to buy up lands along the route 
 which a rival line was to follow, or to secure rights of way of its own access 
 across such routes,. ..or to enlist the support of railroads in refusing to a rival 
 rights of way across its tracks" {Report of tlie Bureau of Corporations on the 
 Petroleum Industry, 1907, vol. i. pp. 21, 24, 25). The State of New Jersey has 
 attracted undertakings desiring to evade the laws, which many other States have 
 made for the protection of the public : and registration in that State has helped 
 the Standard Oil Company in restricting facilities to others for use of the rights, 
 which they might have demanded from its pipe lines, as "common carriers" 
 (see the same Report, vol. i. chs. V, vi: and vol. n. ohs. x — xii, summarized on 
 p. 6G8). 
 
 ^ See above, p. 435 fn. 
 
534 TRUSTS AND CARTELS: AMERICAN .EXPERIENCE 
 
 III, VIII, 3. between them most of these new shares; and, if they contmue 
 to work together, the policy of all the constituent companies 
 may remain as before. Probably cautious counsels will prevail, 
 at least for a time: and when those nine men pass away, the 
 dissolution of the Company, which is at present merely nominal, 
 may become real^. 
 
 3. Monopolistic control in the tobacco industry effects 
 great economies inmarJceting : the huge profits of the Tobacco 
 trust tempted it, and enabled it, to use strong measures for 
 the suppression of interlopers. 
 
 The tobacco industry has no high technique which calls for 
 the ceaseless energies of a multitude of inventors: but each 
 manufacturing business spends much on pressing its products 
 on tho' notice of retailers and of the public. For these and 
 other reasons, many statesmen have thought that a Govern- 
 mental monopoly of tobacco could be more easily and success- 
 fully worked than any other: and that it could be made to yield 
 a higher net revenue than could be got from customs and excise 
 duties on it; at all events in countries with land frontiers over 
 which petty smuggling of tobacco cannot be completely stopped. 
 Such monopolies have not been very successful; because their 
 task is really more difficult than it seems: and Government 
 officials have not the energy, the alertness, and the special 
 faculties of fine discernment, which have enabled the managers 
 of the American Tobacco Company to amass vast wealth, from 
 a partial monopoly of tobacco obtained by able management 
 and strategic marketing^. 
 
 Many giant businesses have owed their first successes to 
 the possession of important patents; and, in spite of its simple 
 technique, the tobacco industry has ofiered some scope for 
 patents. In 1884, when cigarettes were coming into general 
 
 * W. H. Vanderbilt, a. man of like mental structure with them, but of more 
 purely constructive purpose, said of them: — "I never came in contact with any 
 class of men as smart as they are.. ..I don't believe that, by any legislative 
 enactment or anything else, you can Iceep such men down. They will be on 
 the top all the time." Quoted by Miss TarbeU, History of the Standard Oil 
 Company, Appendix 59. 
 
 ' An instructive study of the causes of the small measure of success attained 
 by Government tobacco monopolies is given by Madsden, The Stale as a manu- 
 facturer and trader. 
 
THE TOBACCO TRUST 536 
 
 favour, a cigarette machine was produced which multiplied iii,viii,3. 
 fifty-fold the output of an operative. Successive improvements 
 on that machine set up strong competition among the leading 
 American manufacturers for important patents; and by 1890 
 nearly the whole of the trade in cigarettes was in the hands of 
 five firms; each of which spent lavishly on advertisements tiU 
 1900, when they amalgamated. The new trust extended its 
 operations into other branches of the tobacco business: it 
 adopted the ordinary evU devices of bogus independent com- 
 panies and "fighting brands"; and by 1910 it had acquired 
 four-fifths of the whole tobacco trade, cigars alone excepted. 
 Its expenses were relatively low in buying, in advertisiug and 
 in premiums to middlemen; and "its rates of profit were 
 ordinarily more than double those of its competitors^." 
 
 It should be added that the Supreme Court dissolved the 
 trust in 1911; and divided up its property and busiuess among 
 seven "successor" companies. The securities of these com- 
 panies continued to be held chiefly by those who had held the 
 securities of the trust; as had happened when the OH trust was 
 dissolved. But the sequel has been difierent. The successor 
 tobacco companies compete with one another in considerable 
 measure: and they spend more on advertising in various forms, 
 and on other expenses of marketing than the trust needed to 
 do. Therefore their net profits are less in the aggregate than 
 
 ' iJeyort of (he Bureau of Corporations on the tobacco industry. Part III, 
 1915, p. 3. The leading firm in the amalgamaticn "was valued at 8250,000 in 
 1885. Without other additions than surplus earnings.. .the par ralue of the 
 securities to the end of 1908 amounted to nearly $39,000,000; or 156 times the 
 capital value of the business in 1885.. ..These enormous profits. ..rest upon the 
 monopolistic advantages obtained in this industry through concentration of 
 control" {lb. Part II, 1911, p. 38). It is well known that the American Tobacco 
 Company's invasion of the British market led to the amalgamation in 1901 of 
 thirteen of the largest British tobacco businesses, under the name of "The 
 Imperial Tobacco Company " ; that the two trusts fought hard for a year ; then 
 came to a working agreement, and finally set up the British-American Tobacco 
 Company to export to countries other than Britain and America. In 1902 the 
 British Company had offered large bonuses to dealers who undertook not to sell 
 American goods for a term of years. The American Company replied by an 
 arrangement that all profits on American sales in Britain, together with £200,000 
 for each of four years would be distributed to their customers, without requiring 
 a boycott of other manufacturers {lb. Part I, pp. 169; and 469, 470). These 
 figures suggest the need that may arise even in Britain for the authoritative 
 defence of independent producers against monopolists. 
 
536 TKUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 III, vui,4. were those of the trust, and from their point of view there is 
 great waste. From the public point of view there is some 
 waste: but the diversion of profits from the owners of the trust 
 to middlemen, is not so much to be regretted as it would be 
 in the case of an industry, the leadership of which calls for 
 inventive and constructive abihty of the highest order in 
 almost unlimited quantities: on the whole, the dissolution of 
 this trust seems to have been a gain. We now pass to problems 
 similar to those raised by Deferred rebates in the shipping 
 
 industry. 
 
 t 
 
 4, Insistoice on exclusive dealing, and other tying con- 
 tracts, are generally harmless on a small scale: but, when 
 used as aids towards moiiopoly, they may he mischievous. 
 
 The Tobacco Trust at one time refused to supply any dealer 
 who handled competitive goods. Regular dealers seldom saw 
 their way to abandon the whole of its products in favour of a 
 relatively small producer; even though he ofiered a few things, 
 which had great attractions to consumers and promised high 
 rates of profit to dealers. Partly because rival tobacco could 
 be retailed as an adjunct to various businesses, the trust did not 
 push this expedient very far: but the International Harvester 
 Company even insisted on the dealer's keeping in stock a "full 
 line " of all the company's machines suitable to his business^. 
 
 Similarly the Electric Supply Company refused to sell 
 those of its products, on which patents still ran, to anyone who 
 did not buy exclusively from it other products, the patents 
 on which had expired. Complaints against similar action by 
 patentees of machinery for use in the boot and shoe industries 
 have been numerous in America; and more recently in Britam. 
 
 The conditions of British industries seldom call for strong 
 authoritative intervention in such matters: but they have 
 attracted much attention in Canada and Austraha. Even in 
 Britain an Act of 1907 prohibits conditions, which prevent any- 
 
 ' See the Report on it by the Bureau of Corporations, 1913, pp. 304—10. The 
 Economist of 7 September, 1918, reports that it has recently been dissolved by 
 the Supreme Court, on the ground that it was so large as to make the restriction 
 of competition direct and substantial. This decision, being independent ofany 
 proof of actual exercise of the power of restriction, may have far-reaching con- 
 sequences. 
 
EXCLUSIVE DEALING AS AN INSTRUMENT OP MONOPOLY 537 
 
 one, who obtains or leases a patented thing, from using any in,vm,5. 
 article supplied by a third person. This law can be enforced 
 easily; though the larger undertakings involved in the American 
 laws of 1914 could not be thoroughly enforced without the aid 
 of a strong permanent Bureau or Commission to search out 
 the facts needed to decide whether any exclusive, or "tying," 
 contract tends "substantially to lessen competition or to create 
 a monopoly " ; and thus to set out a case on which a law-court 
 can pass judgment. For the question at issue is not whether 
 the actions to be restrained are wrong in themselves; but 
 whether they are "unfair" methods of competition when used 
 by powerful capitalists for the destruction of weaker rivals^. 
 
 Unfair competition in this technical sense is not to be 
 classed with criminal practices. But the feverish pursuit of 
 wealth may induce men, capable of great work, to drift into 
 distinctly criminal courses*. 
 
 5, Difficulties in the way of forecasting the future of 
 trusts ; especially in regard to their influence on the stability 
 of industry and trade. 
 
 The future of an individual life can be in great measure 
 predicted from an observation of its earher stages; because 
 human nature is relatively constant and our knowledge of it 
 has been accumulated through many centuries. But the 
 future of an economic tendency is more dii&cult of prediction; 
 because it will be governed by conditions which have not yet 
 
 ^ Speaking generally any vessel may steam down a river at such a rate as 
 is convenient to itself. But if big ships, in competition with small craft, are 
 charged with raising a high wash on purpose to injure their rivals, questions are 
 suggested, which cannot be decided without technical guidance. 
 
 Attention is called to the British Act of 1907 in an excellent compendium 
 relating to Trust laws and unfair competition, published by the Bureau of 
 Corporations, 1915. 
 
 * The National Cash Kegister Company, whose technical achievements are in 
 the first rank, has been convicted for malicious libels in regard to competitors; 
 and for causing its agents to injure internal parts of rival machines when in 
 actual use, and similar practices. In such cases the Bureau of Corporations has 
 rendered good service in obtaining evidence which could not be got without 
 great expense by the relatively impecunious competitors of the trust. If the 
 trust had beUeved that those machines were not worth the prices charged for 
 them, it would not have cared to injure them secretly. More details on this 
 subject wUl be found in Seager's Principles of Economics. 
 
538 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 iii.Tm.s. come into sight: certain influences, which are likely to take 
 part in governing the future of trusts, may however be observed. 
 Note has already been made of the dependence of trusts 
 on a supply of business ability of so high and rare an order, 
 that very few men of any one generation, even in America, 
 have given evidence of possessing it. There may have been a 
 considerable number, who have possessed it, but have not had 
 access to positions in which it might be turned to account. 
 The opportimities for such men are no doubt increasing in 
 some directions: but in others they are being contracted; and 
 the growth of tmsts is likely to prove hostile to them. The 
 momentum of a huge business, imparted to it by men of high 
 creative genius, will carry it a considerable way: for routine, 
 well set up, and supplemented by technical studies may give 
 fairly good results under the guidance of men of high ability, 
 even if lacking creative genius: and the supply of such men is 
 not Hkely ever to run short. But the vaster a business, the 
 greater is the danger that it will be dominated by routine when 
 the men of energy and genius, who made it, have passed away^. 
 It may indeed be urged that any tendency towards 
 quiescence, that may be shown by an old trust, is not without 
 compensating advantages from the public point of view; partly 
 because it makes in some degree for 'the stability of industry. 
 Again stress is laid on the facts that the recent advances of tech- 
 nique have gone so far as to insure to mankind a mighty com- 
 mand over the forces of Nature, even though technical progress 
 should slacken a little: and that progress depends increasingly 
 on professional students with eyes turned partly towards con- 
 crete results; as well as on those employed by great businesses to 
 work on laboratory lines for the solution of definite practical 
 problems. It is argued that enlightened heads of a great trust, 
 even if somewhat inert themselves, are likely in t,he coming 
 age to devote corporate funds without stint to such purposes: 
 and thus constructive work will proceed. Meanwhile intimate 
 
 ' When a great combination is ejEfeoted " initial suooeas is due to the ability 
 and prestige of the leaders. As time goes on new leaders must be found. But 
 nepotism is likely to appear in the established management" (Taussig, Principles 
 of Economics, eh. 63, § 4). Several other authorities have laid stress on the 
 dangers which old trusts are liliely to run from nepotism. 
 
DOUBTFUL INFLUENCES OF TRUSTS ON STABILITY 539 
 
 comparisons of the work of similar establishments in the same iii.vm.s. 
 trust will aid the departmental managers, as well as the central 
 control, to turn to good account any zeal for progress that 
 they may possess; and national and international congresses 
 of technical experts will tend in the same direction. All this 
 may be true: and yet it seems probable that the total con- 
 structive activities of the nation will be neither as vigorous 
 nor as freely exercised, as they would have been if nearly 
 every establishment, large enough to avail itself of the full 
 economies of massive production, had been under independent 
 control. 
 
 Again it is true that the economies in marketing, belonging 
 to a trust with almost undisputed sway, make net contributions 
 to aggregate national wealth; the importance of which is not to 
 be entirely ignored, merely on the ground that they fall chiefly 
 to the share of those who are already rich. Moreover a trust, 
 whose dominion is not threatened, generally promotes steadiness 
 both of output and prices, so far as it conveniently can. For 
 it is inclined to that policy by the magnitude of its invest- 
 ments; by the broad interests, which its chief proprietors com- 
 monly have in the stability of general business; and by that 
 relative immobility which attaches to its gigantic organization. 
 Accordingly no small motive suffices to set it on sudden change : 
 and for the same reasons, it is at once more inclined, and mote 
 able, to oppose any assault on its dominion by violent measures, 
 which convulse its own industry and disturb many others: 
 though of course, even when the dominion of a particular trust 
 is not threatened, command of its securities may be abused in 
 a stock-exchange campaign, in which some of its chief pro- 
 prietors hope to gain more by the furtherance of great strategic 
 schemes, than they can lose by a temporary depreciation in the 
 value of their holdings of that trust^. 
 
 ' A striking instance is that of the Amalgamated Copper Company ; which is 
 commonly called a trust, though it had no monopoly. The guarded account 
 of it given by the Industrial Commission (Final Report, 1902, pp. 230 — 5), 
 contrasts with the vehement statements and suggestions collected from news- 
 papers of an earlier date in Moody's The truth about the trusts (pp. 1 — 42) : and 
 with the still more penetrating and outspoken acootmt in T. W. Lawson's 
 frenzied Finance. Even with the aid of the Federal Trade Commission, a long 
 time must elapse before the history of such scandals is sufficiently certain to 
 
540 TRUSTS AND CARTELS: AMERICAN EXPERIENCE 
 
 III, vin,6. There is therefore no reason for surprise in the fact that 
 several studies of the history of trusts claim to show that they 
 make for increased stability in the general conditions of industry 
 and trade. So great have been the changes in the structure 
 of industry, and in the control of monopolistic power by State 
 agencies, in the two decades over which the effective history 
 of trusts extends, that the past gives but little guidance even as 
 to the near future: but a little may be said about it^. 
 
 6. A great part of the railways and the chief mamtr 
 facturing and mining businesses of America are largely 
 under the control, for good and evil, of a comparatively 
 small number of powerful financiers. 
 
 The influences of interlocking directorates within the field of 
 American railways were noted at the end of Chapter vi. Many 
 
 afford the basis for definite general conclusions. The Industrial Commission 
 truly said that " when the great supplies of nature come under the operation of 
 gigantic forces, in adapting them to the uses of man, the best good of all 
 legitimate interests requires publicity of resources and methods, and such 
 Governmental supervision as may tend to preserve an equilibrium, and prevent 
 demoralization and disaster." It may be added that the famous French 
 "Secretain" attempt to manipulate the price of copper, late in last century, 
 belongs not to the history of trusts, but to that of giant speculation in organized 
 markets: a good account of it is given by M. Jannet, Lt capilai, le ep&ulatum 
 et la finance au XIX siede, pp. 320 — 331. 
 
 ' The period investigated by the Industrial Commission, chiefly 1830 — 1900, 
 included some changes of an almost convulsive character : they were connected 
 chiefly with the suppression of pools, of trusts of the old kind, and of controlling 
 companies; together with the general prominence of simple giant aggregations. 
 An indirect effect of that prominence was a great increase in the quantity of 
 stock-exchange securities that had a national, and even an international market: 
 for where a small corporation was absorbed in a great trust, its property became 
 at once part of a concern, whose affairs were recorded in central price lists. 
 Many of the new trusts had not then "been tested by a period of depression 
 with the consequent liquidation and reorganization": and "the methods of 
 conducting the business of industrials are more secret than those in the manage- 
 ment of railroads." This remark is taken from a special report on "securities 
 of industrial combinations and railroads" under the able direction of Professors 
 Jenks and Kemmerer (Report of the Commission, voL xm. p. 917). It sets out 
 a number of statistical charts representing stock-exchange histories of many 
 trusts and several railroads. The charts support the common opinion that up to 
 1900, at all events, trusts exercised a distinctly disturbing influence on the 
 general courses of business. But subsequent history lends more support to the 
 notion that, for good and for evil, the influence of trusts in the future will make 
 for quiescence rather than for strenuous movement. 
 
CONTROL OF TEUSTS AND RAILWAYS BY FINANCIAL GROUPS 541 
 
 great organizers of railways have accumulated fortunes, wMch iii,vni,6. 
 have overflowed into the general funds of the stock-exchange. 
 The Standard Oil group controls several banks; and it has a 
 dominating influence on many railways and industrial trusts. 
 And the great financial houses, with that of Morgan at their 
 head, hold a very large part of those securities, which carry 
 effective voting power over leading railroads, trusts, and other 
 large businesses. Insurance companies, and others, which hold 
 securities giving voting power, are used by financial magnates 
 to serve the purpose of financial campaigns. A committee of 
 the House of Eepresentatives, 1913, found by a majority that in 
 efiect there existed a "Money Trust"; not indeed consolidated, 
 but held together by mutual understandings and communi- 
 ties of interest. Their conclusion has not met with general 
 assent: but there is cause for thought in the fact that they 
 reached it^. 
 
 This predominance in American business of a few scores of 
 wealthy men, themselves largely under the influence of a small 
 number of powerful individuals or groups, has modified the 
 attitude of trusts and other great businesses to one another; 
 and has tended on the whole towards increased quiescence and 
 serenity in the broad courses of industry and trade. For a 
 disturbance in any part of the whole field is likely to injure 
 interests in which some of the chief leaders are concerned; and 
 such men are often disinclined by age and the multitude of 
 their large concerns for entering on arduous campaigns. The 
 irruption of an ambitious genius of the first order, such as 
 Harriman, may disturb the quiet at any time: but the general 
 tendency is towards broad pacific understandings; similar to 
 those of narrower scope, which preceded the pools of earher 
 times, and have survived them. Thus the wastes of furious 
 competition, and the strain of anxiety lest some imexpected 
 move should largely falsify business expectations, have become 
 less than formerly. 
 
 1 A broad view of the alliances of the chief financial powers in America in 
 1904 is given by Moody, Tlie truth about the trusts, pp. 490 — 493, and frontispiece. 
 The faUure of the great International Mercantile Marine Company, organized 
 by Mr Pierpont Morgan, illustrates the risk that even a great genius runs, 
 when he makes a large venture in a diflSoult field, of which he has no intimate 
 knowledge. 
 
542 TRUSTS AND CARTELS : AMERICAN EXPERIENCE 
 
 III, Tin, 6. This gain has however been purchased at a heavy price. 
 The defences of public interests in America against monopoly 
 have rested, partly on the growing efficiency of authoritative 
 regulation, but stiU more on the growing abundance of free 
 capital. Advocates of the trusts were themselves prominent 
 in the contention, that if a conditional monopoly put its prices 
 above the levels at which a well equipped independent company 
 could afford to produce, the capital required for such a company 
 would be quickly provided. But the growing harmony among 
 the dominating financial interests has raised a fear that the 
 grip of monopoly will be tightened steadily, though quietly; 
 and that the camaraderie among the great financial powers will 
 put effective, but unobtrusive, obstacles in the way of any new 
 enterprise that threatens an unwelcome intrusion into the 
 dominion of any of the great financial groups. This fear 
 has so impressed Congress that the 1914 (Clayton) Anti-trust 
 Act includes several stringent provisions against interlockmg 
 directorates generally; with special reference to direct alliances 
 among banks, and between railroads and other businesses. 
 Experience only can show whether these regulations can be 
 made effective without considerable hurt to legitimate interests; 
 though it is true that initiation of proceedings under the Act 
 will be reserved in the main for Boards, who will bring an ex- 
 ceptional expert knowledge to the matter. They will know 
 what not to do, as well as what to do : and they will be able to 
 furnish any Court, with which a decision may rest, with technical 
 guidance of the highest order^- 
 
 ' Section 8 of the Clayton Act provides (with due notice) that no one shall 
 be at the same time director in more than one company (other than financial 
 or carrying) whose total capital exceeds a million doUara. It also makes a 
 similar provision as regards banks; but the limit of capital is raised from one 
 to five million dollars: "trust companies," which accept deposits of securities 
 belonging to various concerns, and pool the dividends, so as to reduce the 
 risks on particular holdings, are reckoned with banks. Section 10 prohibits 
 u carrier company from interlocking directorates with any business whose 
 annual dealings with it exceed fifty thousand dollars. And Section 7 provides 
 that no corporation engaged in commerce shall hold or use stock of another 
 such corporation in such a way as "to restrain commerce. ..or tend to create 
 a monopoly." Their several rdles in regard to these regulations are assigned to 
 the Federal Trade Commission, the Interstate Commerce Commission, and the 
 Federal Reserve Board. 
 
 Britain has so far escaped the necessity of making provision of a like elaborate 
 
CONTROL OF TRUSTS AND RAILWAYS BY FINANCLAL GROUPS 543 
 
 It will be noted that these regulations, though contained in III, vm, 6. 
 an Anti-trust law, are really directed against tendencies, which 
 extend beyond the sphere of monopohstic aggregations and 
 spread over a large part of the field of financial and other 
 understandings and associations. We are thus brought to those 
 problems in which the chief place belongs to Germany, as that 
 of monopolistic aggregations belongs to America. It will be 
 found that each of these two apparently diverse sets of problems 
 is moving in the direction of the other. 
 
 The central fact emerging from American experience is that 
 investigations in regard to antisocial policies of trusts and 
 cartels can be efficiently made only by a strong stafE of men 
 who give their whole time to the work. In such work there is 
 but little use for the special faculties of the lawyer. He has 
 an important rdle to play; but it comes at a late stage, and 
 consists in securing that legal rights and equities are duly 
 observed. Of course the initiative might be taken by individuals 
 who conceive themselves to be aggrieved; but they seldom have 
 the time, the faculties or the knowledge required for the work. 
 They are apt to lay undue stress on matters which specially 
 concern them, and to pass by the larger issues which are of 
 national concern: and they are often afraid to attack powerful 
 interests, whose hostility might destroy them. 
 
 kind: but Canada haa gone a little way in the same direction. As already ob- 
 Berred (above, pp. 522, 523 fn.) she has arranged that, on the initiative of any 
 six persons, suggesting the existence of a combination injurious to the public, 
 there shall be appointed a Board of Investigation, consisting of one of the com- 
 plainants, a representative of the combination and an independent chairman. 
 This simple contrivance may be of good service in regard to elementary difGoul- 
 ties. But it aims mainly at finding a reasonable compromise in contentions 
 between individuals: and would be of but little use in the defence of public 
 interest against powerful assaults by obscure routes, such as those which 
 occupy the attention of the Federal Commission. In this respect, Britain's 
 industrial problems are more nearly akin to those of the United States tlian to 
 those of Canada. 
 
CHAPTEE IX 
 TRUSTS AJSTD CARTELS: GERMAN EXPERIENCE 
 
 III, II, 1. 1. Germany's leadership in the evolution of cartels. 
 
 Mediaeval gilds devoted much of tlieir energies to the 
 regulation of production and prices: but for the greater part 
 their origin was in social affinities rather than in the strategy 
 of the market-place; and the same is true of many modern 
 combinations. In all old countries, and especially in (Jermany, 
 professional, trade, and industrial associations found much to do 
 in making life more pleasant, and business transactions more 
 simple and more genial, before they set themselves elaborately 
 to bring competition imder the yoke, to regiilate it, and to 
 diminish its wastes^. 
 
 It was noted in Book I that, though the industrial civiliza- 
 tion of Germany is of much earlier origin than that of England, 
 yet several centuries of war and internal discord had stripped 
 
 ' The various stages of this evolution are shown in the Bandbuch der 
 Wirthschaftskunde DeutscJUands, edited by Dr Stegemann, 1904, vol. iv. pp. 474— 
 730. The section on Karlelle und Konvenlionen is part of an exhaustive ohaptei 
 on Organisation und Einrichiungen der Industrie. 
 
 Prof. Sohmoller {Vollcswirtschaflslehre, vol. i. p. 449) says that from 1750 
 to 1870 men saw only the bad side of associations, "which had their origin 
 in older technical, social, and commercial conditions; and hindered rising talents 
 from building new enterprises on a larger scale and with more complete 
 technique." Men quickly learnt that businesses of modem type were bound 
 to conquer: and "the last word of economic wisdom seemed to be that com- 
 petition should be developed; and that every combination of traders and of 
 producers should be restrained or prohibited." But in Germany since 1879 a 
 movement set in for the promotion of gild-like combinations {InnungsverhSfiden) 
 in provincial and national affairs: and similar combinations were set up in 
 the great industries, with local and central organizations with their "general 
 secretaries; chief offices; special newspapers, tending to influence the press, 
 Chambers of Commerce, Parliaments and Governments; and great public 
 meetings." 
 
GERMANY'S LEADERSHIP IN THE EVOLUTION OF CARTELS 545 
 
 her bare of capital and enterprise : so that the impact of English in, n, i. 
 methods in the middle of last centm-y gave her a shock com- 
 parable to that of a new country, which is being suddenly 
 developed by immigrants from a leading centre of industry. 
 But in the first half of that century her universities had 
 developed a supply of mental motor force, which enabled her 
 to turn the lessons of her teacher to a new account, and thus 
 fitted her people for a new type of leadership. Hardship had 
 prepared them to work steadfastly for relatively low earnings: 
 and discipline, both military and bureaucratic, had inclined them 
 to rate the advantages of a secure salary very high, and to rate 
 rather low those of opportunities for independent enterprise of 
 a somewhat hazardous nature; while the tedium of long meetings 
 for the discussion of other people's afiairs is less burdensome to 
 them than to the impatient Anglo-Saxon. 
 
 Above all, their business men of various grades work longer 
 hours than are usual in Britain. Many of them take a long 
 break in the middle of the day; and then work on tiU eight in 
 the evening with more fully renewed vigour than is generally 
 to be got by the short break, common in Britain. Their plan 
 has many disadvantages especially in regard to the amenities of 
 family life: but it contributes to the force of assiduity. 
 
 Endowed with these quaUties, they have developed large 
 organization with such a perfection of detail and so logical a 
 consistency, that the record of German cartels will make a 
 classical chapter in economic history; even though they may fail 
 to attain their chief objects, and may give place to an ordered 
 system of aggregations similar to that which is being evolved 
 in America : a result which is perhaps not improbable. 
 
 In this, as in other matters, national character and national 
 institutions have acted and reacted on each other. American 
 impatience of routine (abetted indeed by the jealousy with 
 which individual States regarded Federal intrusion in their 
 afiairs) had caused American Company Laws to be inefficient 
 and chaotic: and some troubles which have led up to the 
 stringent American action against the abuses of trusts, would 
 have been stopped by the Company Law of Britain. The yet 
 more stringent German Company Law gave some feeling of 
 security amid the tumultuous movements of cartels and giant 
 
 M. I. T, i8 
 
546 TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 III, II, 1. businesses: it has not been fully justified by events; but it has 
 promoted the evolution of German business on lines congenial to 
 the temper of her people. 
 
 The steadfastness, patience, and amenity to discipline of 
 the Germans inclined them to seek the sheltered haven of a 
 cartel, in spite of the partial loss of freedom, and the troublesome 
 negotiations involved in it: but they might not have rushed 
 quickly to that haven, if the methods and circumstances of 
 industry had continued to move with as slow and measured 
 steps, as they had done during the first half, and even the 
 third quarter of last century. The sudden uprising of German 
 business from relative quiescence to the strenuous activity, which 
 had belonged chiefly to English-speaking peoples, introduced a 
 new sense of insecurity: and that in turn enhanced the charms 
 of a promise of even partial shelter from the turmoil^. 
 
 The scale of operations rapidly increased. But every new 
 expansion of cartel activity opened out new difficulties and new 
 troubles. Some interests were advanced, and some depressed, 
 by every large development: and the stronger the cartels be- 
 came, the louder and more eager were the complaints of those 
 who were injured by them, or even feared that they might be 
 injured. So, early in this century, the German Government 
 took the matter in hand: and in 1903 an official debate was 
 commenced, which is sometimes described as the Kartellen- 
 Enquete. It was organized by the Ministry of the Interior; 
 which sent to each debate representatives of its own : and invited 
 some representatives of the cartel or cartels, whose conduct was 
 chiefly under discussion, and of businesses that were specially 
 affected by it. It invited also several leading economists, who 
 addressed themselves, for the greater part, to questions con- 
 nected with the interests of the working classes and the pubho 
 generally. 
 
 ' Consul-General Oppenheimer of Frankfort, subsequently British Com- 
 mercial Attache at Berlin, has sent a series of reports on German conditions 
 which are specially instructive to the economist. He says {Report for 1904, 
 p. 64) that it "has been oflScially recognized in the Prussian Diet that com- 
 mercial combinations had become an economic necessity of self-defence, 
 because industry was being ruined by its own exaggerated competition: for 
 with the keenness of a comparatively young industry, orders, even if practi- 
 cally unprofitable, were accepted all over Germany to swell the figures of the 
 turnover of the individual firm." 
 
GERMANY'S LEADERSHIP IN THE EVOLUTION OP CARTELS 547 
 
 The debates seem to have been organized with remark- iii, ix, 2, 
 able ability, and they brought out a good deal of useful in- 
 formation: but they are not comparable in efficiency with the 
 prolonged, systematic study by trained experts, armed with 
 compulsory powers of interrogation and inspection of docu- 
 ments, which has brought to light many of the secret policies 
 of American trusts. No one gave any information which he 
 desired to withhold: not all, that was given in debate, was 
 published: the debates were inconclusive; and they ceased 
 abruptly^. 
 
 2. Cartels, whose scope is limited to the regidation of 
 prices in regard to standardized products. 
 
 Before passing to the more complex policies of cartels which 
 aspire to regulate production as a means towards influencing 
 prices, a little may be said of those understandings and com- 
 binations among traders, which are confined to the direct 
 regulation of prices: the simplest instances of these are in retail 
 trade. A giant business often enforces a fixed schedule of prices 
 for its goods on wholesale dealers; and indirectly, if not directly, 
 on retail dealers. Or the initiative against the retail sale of 
 such goods at a low rate of profit may come from the retailers. 
 They in effect form themselves into a cartel, and will buy only 
 of such producers as will not allow their goods to be sold retail 
 below the price fixed by the cartel. This practice if pursued 
 in moderation is capable of defence; as has been indirectly 
 suggested above: but when carried to excess it may overload a 
 
 ' The oflSoial report of them is published under the title Eoniradilctorische 
 Verhandlungen iiber Deutsche Karlelle. A brief abstract of such parts of them 
 as relate to export bounties by cartels is given in the so-called "Fiscal Blue 
 Books" of 1903^t; [Cd. 1761] and [Cd. 2337]. 
 
 When the debates opened, tiie chief expert representative of the Ministry of 
 the Interior was Dr Volcker: a man of great ability and so much special know- 
 ledge, that the cartels seem to have regarded him as properly belonging to them. 
 In the middle of the great debate on steel cartels, which forms the centre of the 
 whole discussion, he changed sides. In the first half of that debate he appears 
 as the representative of the Government; but in the second he appears as 
 director of the mighty Steel- works-union {SiaMwerksverband); and a little later 
 he gave a tart reply to Professor Wagner's suggestion that it might possibly 
 be necessary to "apply a certain compulsion to speak out, as in England" 
 (Konlradikloriache Verhandlungen, voL iv. pp. 252—4). 
 
548 TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 III, II, 2. retail trade with more retail stores than can earn good profits 
 on each turnover, since that has been brought low^. 
 
 It were useless to try to regulate permanently the prices of 
 harvest products, such as wheat or cotton: for Nature wiU have 
 her own way as to the chief movements of such prices. It is 
 true that combined action by farmers in keeping back grain 
 after harvest may affect prices a h'ttle; and such movements 
 may conceivably become rather more important in the future. 
 Again, a temporary artificial rise may be eSected by powerful 
 speculators: but, as we saw (above, II, v), they are almost sure 
 to lose in the long run; unless the rise is based on exceptional 
 information as to harvests, etc. and merely anticipates a rise 
 which would have come to pass a little later without their 
 eSorts. Speaking generally, far-reaching regulative combina- 
 tions are confined to things, the production of which is mainly 
 in the hands of capitahst undertakers, and is not violently 
 disturbed by the caprice of Nature. 
 
 And there is a further limitation of the scope of regulative 
 associations. The things, of which the prices are to be regulated, 
 must be defined. This is generally done by the use of technical 
 trade terms: but at the back of these there is an imphcit 
 reference list to some standardization by mechanical, chemical, 
 or other tests. The prices definitely agreed on from time to 
 time may refer primarily to certain prominent varieties, leaving 
 the prices of other varieties of the same kind to be deduced from 
 these standard prices by adding or subtracting a given percentage^. 
 
 1 See above, pp. 280 and 300. 
 
 ' As Prof. Brentano says: "Cartels can exist only in branches of production 
 which supply great quantities of goods of fixed typos; res, quae pondere, numero, 
 mensurd consistunt" {Siiddeutsche MonatsTiefte, April, 1904, p. 259). 
 
 It may however be arranged that goods bearing certain brands in great repute 
 shall be priced somewhat higher than others: or again that goods, which are 
 nominally of the standard class, but are in fact less desirable, should be priced 
 rather low. For instance, it is possible to agree as to the minimum first class 
 cabin fares between two ports, for ships offering the average of personal comfort 
 and speed of journey; and to allow specially slow lines to carry nominally first 
 class passengers at lower fares. Again, complex price-lists can be fixed for 
 different varieties of steel girders and iron pipes. The Westphalian Coal Syndicate 
 publishes price-Usts for several sorts and qualities of coal ; and, in spite of this 
 classification, purchasers show preferences for particular mines, in which they 
 believe that the general rules as to uniformity of size and freedom from dirt are 
 carefully observed. 
 
REGULATION BY CARTELS OP PRICES OF STANDARD PRODUCTS 549 
 
 It is almost impossible to arrange a uniform price-list for iii, n, 2. 
 carpets or curtain stuffs into which wool of difierent qualities, 
 cotton, jute, and other materials are worked in varying pro- 
 portions and with incessant changes in fabric as well as in 
 pattern. There is no room for cartellization of such things as 
 biscuits, or ladies' hats, in which versatility is demanded as 
 well as high quality. 
 
 Of course nearly all standardized commodities are raw 
 materials or half-finished products, or implements, suitable for 
 purchase by people who look to make a profit by turning them 
 to account in their own business; and who therefore are likely 
 to meet the danger of oppressive action on the part of a com- 
 bination, in control of things which they need to buy, by a 
 counter-federation of their own. That is apt in its turn to 
 stimulate the growth of similar federations on the part of traders 
 or producers who need to buy some of their products ; and so on 
 till the end of the chain that stretches upward to the ultimate 
 consumer, and downward to the producer of raw material: the 
 chain reaches far in the steel industries^- 
 
 The conditions, which favour standardization, are nearly the 
 same as those, which increase the violence of unregulated com- 
 petition, and thus supply a strong motive force in favour of 
 regulation: for they involve generally the use of elaborate and 
 expensive plants and therefore heavy fixed expenses, and 
 therefore a great divergence between total cost of production 
 and prime cost. When these conditions are present, some self- 
 willed producers and reckless weak producers are tempted to 
 pour their goods on the market, even when it will absorb no 
 more except at a very low price. This fact increases at once 
 the difficulties of price regulation by cartels and the desire of 
 many producers for it. 
 
 ' According to an official return {see Riesser, The great German Banks, p. 169), 
 there were in 1905 about 385 domestic cartels, distributed thus: coal 19; iron G2; 
 other metals 11; chemicals 46; textiles 31; bricks 132; earth and atone 25; 
 food 17; the rest being scattered: about 12,000 works participated directly in 
 these concerns. It is obvious that the number of cartels in an industry is not 
 a measure of the total strength of the cartel movement: the brick-making 
 industry for instance owes its large number mainly to the fact that the interest 
 of each of them extends only over a small area. The number of cartels seems 
 to have increased in the following decade. 
 
550 TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 III, II, 2. Some of the most important cartels have indeed been in 
 mineral industries: for mineral products are, as a rule, easily 
 standardized; and combination is generally easy, because large 
 capital is needed for each mine, and the number of firms which 
 must be brought together in order to make an efiective combi- 
 nation is not very greats- 
 Experience shows that whenever discipUne has to be called 
 to the aid of honoirrable understanding at all, it must be 
 thorough. For its task is difficult. The more successful a 
 cartel is in obtaining better prices for the producer than he 
 could get without it, the stronger is the inducement to outsiders 
 to force their way into its market; and the stronger is the 
 temptation to its members to evade their agreement, and 
 attract more than their share of the custom by indirect con- 
 
 ' This rule is subject to some important exceptions. When a new mining 
 industry grows up spontaneously and without the aid of imported capital, 
 shallow veins alone are worked; shafts are inexpensive, and there is no great 
 economy in large production. But, when the shafts become deep, only large 
 mines can give a good return. Further, when it becomes clear to the capitalist 
 mineowners of a great industrial district that new and more distant mines must 
 be opened up, they take time by the forelock and buy large areas of mineral 
 property while land is still to be had cheaply. Thus the approaching exhaustion 
 of the coal in the Ruhr basin has set wealthy ironmasters to develop the basin 
 of the Lippe : and this migration of coal mining has added another to the many 
 causes that are putting the heavy iron industries of Germany under the control 
 of a few great capitalists. 
 
 ' The. Outsiders get the benefit of high prices fixed by the cartel, making 
 use perhaps of some of the workers whom members of the cartel have been 
 forced to discharge: and therefore the cartel has seldom much chance of suc- 
 cess unless it controls from sixty to ninety per cent, of the production in its 
 district. The devices, by which a member of the association can evade a mere 
 rule as to prices, are numerous. Perhaps he takes a receipt for the full ofiBcial 
 price, though in fact he has accepted a lower one. Or he bills the goods as 
 being of a lower quality or less in quantity than they really are: or. which 
 is much the same thing, he makes no charge at all for certain consignments; or 
 he renders extra services without being paid for them: or he gives long credit, 
 and that to customers whose position is dubious. Rumour is sure to assert that 
 such things are done, whether they are or not: and the rumour often brings 
 about its own accomplishment. A pushing buyer plays oS one seller against 
 another, hinting to each that others are not strictly true to the agreement. 
 For instance a business, which had sent a great deal of freight by each of two 
 American railroads, has been known suddenly to give all to one of them, in 
 order to make the other believe that it has just secured secret rebates from the 
 charges agreed upon between the two lines; though in fact it has received none. 
 Thus it obtained rebates from the second line, which thought itself betrayed. 
 
REGULATION BY CARTELS OP PRICES OF STANDARD PRODUCTS 551 
 
 We may pass by simple agreements as to division of terri- in, n, 2. 
 tory, for they presuppose considerable monopolistic power; and 
 though they have had some success in transport industries and 
 a few others, their problems are not germane to this chapter^. 
 
 An efiective lasting control of price at an unnatural level does 
 not seem to have been ever obtained by a cartel or other federa- 
 tion, unless provision has been made for determining how much 
 of the products, in which aU are interested, shall be put on the 
 market at any time; and how much of this total shall be allotted 
 to each member of the combination as his quota. 
 
 This provision has been developed with many varieties of 
 detail. In some cases each member is allowed to exceed his 
 quota on paying a proportionate fine to the common fund. He 
 is generally allowed to produce as much as he likes, in addition 
 to his quota, for sale in foreign countries; and in some cases 
 in such home markets as are beyond the range of the combina- 
 tion. Such an agreement is more difficult to make than one 
 with regard to prices; but provided it embraces most of the 
 convenient sources of supply, it is rather more stable; because 
 it does not offer so large scope for evasions. Its advantages are 
 so great, that it is becoming the dominant form of industrial 
 federation in Germany: though time has revealed weak points 
 in it; some of the most important of them being such as were 
 not foreseen, and perhaps could not easily have been foreseen. 
 It was brought far towards its present masterful position by the 
 Westphalian coke cartel: but a good deal remained to be done 
 by the great Westphalian coal cartel, which speedily adopted 
 and improved it, thus becoming what is technically called a 
 "Syndicate." We may trace the orderly evolution of the 
 methods of German cartels by reference to this leading cartel, 
 and some of its chief followers. 
 
 ' Eacli producer is likely to consider his legitimate sphere of influence to be 
 very extensive: and he can often trespass on his neighbours' spheres by indirect 
 means. Again, external competition causes trouble: the interest, that each 
 man has in meeting it, varies with the locality in which it chiefly appears; and 
 there are heartburnings, whether the expense of the battle is left to those who 
 are more immediately interested, or is borne by a common fund. 
 
 International agreements for the division of the markets of the world among 
 the producers of different countries have had some success, especially in regard 
 to steel rails; they presuppose the existence of strong national associations. 
 
552 TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 III, ir, 3. 3. The Wcstjyhalian coal cartel, or Syndicate, affords 
 the leading instance of an organized control of the output 
 and marketing, as well as of the prices, of the products of a 
 great industry. Its policy has contributed to the growth of 
 " mixed " coal and steel companies at the expense of "pure " 
 coal mines and steel works. 
 
 The Westphalian coal cartel is the most powerful in the 
 world: (the next in power to it is the Steel- works cartel; 
 which is its chief ally and has an even larger range of influence, 
 but is not so firmly knit, as we shall see). It has always been 
 considered to be "good" in the special sense that it strives 
 strenuously to avoid violent fluctuations of prices; and does 
 not sacrifice this aim to that of raising them high above cost 
 of production. Its organization is skilful. Supreme power rests 
 with the general assembly of its members, with voting powers 
 roughly proportional to their output. The general assembly 
 keeps matters of principle in its own hands: but it delegates 
 the arrangements of details to an Advisory Council and an 
 Executive Committee: and it arranges that the majority of the 
 members of the sub-committees, who decide thorny questions 
 connected with the distribution of quotas, shall not be members 
 of its own body. It may be well to describe its working in 
 general terms, since its leadership has been followed so far as 
 practicable by other cartels, which have set up Syndicates. It 
 will be best to refer to them here as Syndicates. 
 
 Every purchaser must apply to the Bureau of the Syndicate. 
 In some cases he may specify the producer, or "brand," which 
 he prefers; and that producer is directed to forward the goods 
 to him, payment being received by the Bureau. But, as a rule 
 the source of supply is selected by the Bureau; which takes 
 account of the suitability of each firm for an order, of the extent 
 to which its quota is stiU not filled up, and of its geographical 
 position relatively to the purchaser. This plan secures a Uttle 
 technical economy, and great economy in advertising and hunt- 
 ing for orders, and in transport. It enables the Syndicate to 
 keep a control over the output and the marketing, so thorough 
 as often to constitute a local monopoly: for it is able to inflict 
 serious losses on any outsider that ventures into its domain. 
 
COAL CARTEL'S CONTROL OB" OUTPUT AND MARKETING 553 
 
 The Bureau can sell cheaply where it thinks fit; for the firm iii, iz, 3. 
 which fills up any particular order has no more interest in the 
 price than any other member: the whole receipts of the Syndi- 
 cate, after deducting outlay for strategic and administrative 
 purposes, are divided among the members in proportion to their 
 authorized production. Thus each firm retains for itself the 
 gains arising from the economy and efficiency of its manage- 
 ment, except as regards marketing^. 
 
 If the concentration of marketing could be attained by 
 methods that are free from cumbrous negotiations and efiort, 
 it would be a great social gain: for marketing is not wholly 
 constructive work; and, the less energy is devoted to it, the 
 better for general well-being. But the machinery of a Syndicate 
 is complex: and it is said that a producer, who desires to be re- 
 lieved of the main burden of marketing, can often get it done 
 more cheaply by dealers than by a Syndicate; at all events 
 if account is taken of the indirect hiadrances which Syndicate 
 dealings involve. Also, those things, which a Syndicate can 
 market, are necessarily such as are in large demand and to 
 some extent standardized; and therefore they are rather easily 
 marketed. But, after all deductions under these heads have 
 been made, something must be set to the credit of cartels, on 
 accotmt of their elimination of wastes in the competition 
 between goods of somewhat similar character, which the 
 purchaser cannot judge at sight: the wastes in the marketing 
 of coal for domestic use in England are deplorable. A much 
 larger deduction must be made on account of the tendency, 
 inherent in human nature, to apply to antisocial uses any 
 power of control, whether monopolistic or not, that had been 
 acquired mainly for worthy purposes^. 
 
 1 For details, see Walker, Combinations in the Qerman Goal Industry, Part m. 
 oh. I. 
 
 ^ Leaving larger matters for later discussion, instances may be given of small 
 tyrannies. A site near coal mines (A) had been chosen for the erection of 
 iron works (E): the supply of good coal at rather low price, on which reliance 
 had been made, continued till A joined the coal Syndicate; after which B was 
 supplied by the Syndicate with inferior coals at a higher price. Somewhat 
 later the manager of B visited some Belgian works, and found that they were 
 being supplied by the Syndicate with coals taken from A, and delivered at a 
 price so much below the current German price, that the Belgian works gained 
 
 1 8-5 
 
554 TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 III, IX, 3. The coal cartel originally befriended steel works which had 
 no coal of their own: for it compelled "mixed" steel works, 
 as a condition of membership, to accoimt to it for all the coal 
 which they brought away from their mines: coal consumed in 
 working the mines themselves is always exempt. This meant 
 that such mixed works paid a full share of the expenses of the 
 Syndicate on the coal used in their steel works: so that the 
 steel works, which had no coal mines, obtained their coal about 
 as cheaply as the mixed works did. But the mixed works 
 rebelled: membership of the coal cartel was of little use to 
 them because they seldom wanted to sell their coal: so they 
 preferred to become, or remain, independent. After a time some 
 of them began to sell coal in considerable quantities, especially 
 when the steel trade was rather dull : and the technical advances, 
 which enabled waste gases of blasting furnaces to be used for 
 the whole of the operations of complex iron works, tended to 
 increase the coal which mixed works could advantageously put 
 on the market. 
 
 This result went so far towards defeating the chief purpose 
 of the Syndicate, that it invited back the mixed works by allow- 
 ing them the same privileges in regard to their own coal, when 
 used in their steel works, as had always been allowed on that 
 used in working the coal mines. This action of the Syndicate 
 put the pure coal mines and the pure steel works at a disad- 
 vantage, in spite of their greater care in the management of 
 details, relatively to the mixed works. So, instead of thwarting 
 the cartel, the mixed works set themselves to dominate it and 
 use it for their own purposes. They used the heat and power, 
 derived from their waste gases, for making heavy products; some 
 of which were sold ready for use. Others were sold to higher 
 stage steel works at lower prices than those works could make 
 them, after paying for the coal needed in making them; and 
 a few were worked up on their own premises into fine finished 
 products. 
 
 by selling to France the coal which it drew from its own coal minoa and using 
 only that from A. (Oppenheimer's Beporl for 1905, p. 33.) 
 
 Early in 1907 the Syndicate prepared itself to deliver brown ooal briquettes: 
 and then prohibited any of its customers from buying such briquettes from any 
 other source under penalty of 50 pf. per ton on all supplies of coal, coke, and bri- 
 quettes drawn from it. (Oppenheimer's Reporl for 1906, published in 1907, p. S\.\ 
 
COAL CARTEL'S CONTROL OF OUTPUT AND MARKETING 555 
 
 It is trae that similar changes were taking place on a in, n, 3. 
 vast scale in America, which was of about an equal age in this 
 respect with Germany; and, on a smaller scale, in Britain. 
 But the exceptional rapidity, with which the older and weaker 
 firms were supplanted in Germany by giants, was in great 
 measure due to the influence of the coal and other cartels. For 
 the mixed businesses, growing fast, and aiming at yet faster 
 growth, were prepared to pay relatively high prices in order to 
 secure increased "participations," or "quotas," from each cartel, 
 with which they were connected, when a new division was 
 arranged; so they bought up coal mines wherever possible; 
 especially such as were already members of the Syndicate, in 
 order to annex their participations^. 
 
 Thus an artificial stimulus was given to that flow of capital 
 into the steel industry which would in any case have resulted 
 from the notoriety of the power of its newly acquired technique. 
 Ambitious men did not wait for the gradual expansion of 
 demand that was to be expected from improved conditions; but 
 enlarged their plant quickly in order to be able to claim larger 
 quotas later on. Meanwhile the "pure" coal mines foxmd that, 
 though the market for coal was expanding fast, and the cartel 
 was rapidly extending its sales, they were prevented from 
 producing any more than before; because of the rapid increase 
 in the quotas assigned to giant mixed works. That increase 
 went so far, that the cartel was compelled to force largely 
 increased sales abroad, at prices below those at which it entered 
 the coal in its own accounts; thus causing a deficit in the 
 accounts, which had to be covered by what was in effect a levy 
 on all the works, including those whose output was thus forcibly 
 restricted. 
 
 Henceforward the centre of interest passes from the coal 
 cartel to steel cartels. But the coal cartel has a solid position; 
 and it may possibly continue to have great power of a character 
 similar to that which it has now, when the problems of steel 
 
 ' Their right to do this was sustained by the law courts: though the cartel 
 had denied it. Each member of the cartel used to be allowed to increase his 
 participation by 1000 tons for each additional shaft sunk: but in 1904 that 
 privilege was withdrawn: so recourse was had to buying mines that were 
 weakly held. 
 
TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 cartels, which have been changing rapidly during recent years, 
 may perhaps be very different from those of to-day: for its 
 dominion over a large area is secured by the heavy cost of 
 bringing coal from a distance. But an extreme use of its partial 
 monopolistic power would lead to increased encroachments on 
 its province by brown coal, the uses of which have made recent 
 technical progress; by coal from other German sources; and, 
 near the Rhine, Elbe and Weser, and the shores of the Baltic and 
 North Sea, by British coal. Also the State owns the railways, 
 whose services are essential to the Syndicate; and as they are 
 also chief purchasers of its products, the State has exercised a 
 considerable influence over its policy. Thus the cartel, in spite 
 of its strength, has not had much opportunity for offence: and 
 it has not desired to ofiend. 
 
 4. Causes tJiat specially favoured the advance of giant 
 businesses in German steel industries: phases of their 
 cartelUzation. 
 
 Thirty years ago Germany's output of steel was not very 
 great; but now it exceeds that of Britain in about the same 
 ratio as her population does; though in a considerably less ratio 
 than does her area, and consequently than the demand for it 
 by her railways, bridges, etc. This advance has been sometimes 
 attributed in large measure to the beneficial influences of her 
 cartels and her trade policy. It is in fact less than it seems at 
 first sight. For, speaking generally, her exports of steel products 
 are of much lower value per ton than those of Britain; a notable 
 exception being in her exports of electrical plant. Her exports 
 of steel manufactures are much less per head of the population 
 than are those of Britain: and Britain's imports of machinery 
 come mainly not from her but from America^. But such as it 
 is the advance seems to be amply explained by four well-known 
 
 ' Ships, among tho highest grade products, are not counted in such statistics. 
 Britain is the chief producer and the chief exporter of them. Germany imports 
 more than three times as much of thera as she exports: though her exports of 
 steel include some sent by her to Holland to build vessels for German use. 
 Those who advocate the Germanization of Britain's economic policies, habitually 
 omit Britain's sales of ships; they compare the exports of the two countries 
 as aggregates, and not per head of the population; and measure steel exports by 
 weight and not by value; and thus obtain three illusory advantages in argu- 
 ment. 
 
CARTELLIZATION OF HEAVY STEEL INDUSTBIES 557 
 
 causes. The first is that superiority of German educational iii, «, 4. 
 methods over British as a preparation for the work of modern 
 business, of which much has already been said. The pecond is 
 the fact that, while British supplies of ore have been rapidly 
 dwindling and becoming more difficult of access, Germany ob- 
 tained ever easier access to rich stores of iron ore in Dorraine, 
 Luxemburg, and the adjacent territory of France^. The third 
 is that these ores, though not well adapted to older methods 
 of steel production, are eminently adapted to methods invented 
 by the Englishman, Thomas. The abundant phospho^fus in 
 these ores, is now turned to account in the production of heat, 
 and of power which is available for the purposes not only of 
 smelting works themselves, but of any rolling mills and other 
 "higher stage" steel works that are associated with them. 
 
 The direct effect of this economy in promoting the expan- 
 sion of German steel industries has been generally recognised: 
 but insufficient attention has been given to its indirect efl'ect 
 in accelerating the suppression of obsolete plants: and this, is 
 the fourths cause. The proportion of up-to-date to antiquated 
 plants is always greatest in an energetic and rich countny, 
 which has but recently found its way to utilize large natural 
 resources. Many of the British steel plants which were ^t 
 work before the German steel industry became prominent^, 
 were in the hands of men who had inherited the material, but 
 not the intellectual resources of those who had set them up: 
 and family traditions hindered the infusion of energetic new 
 blood. 
 
 In Germany, on the other hand, the control of steel , 
 businesses, partly because they were new, was mainly in the 
 hands of men, who had been nurtured in frugal habits, and 
 expected to work for eight or ten hours a day, and for three 
 hundred days in the year, very much as had those who created 
 the British steel industry two generations earlier. And the 
 direction of new supplies was in the hands of energetic financiers, 
 some of whom were eminently endowed with the high Semitic 
 faculty of going straight to the roots of large business problems. 
 
 * Of the iron ore production of the German Zollverein in 1911 nearly 
 18 million came from Alsace Lorraine, and 6 million from Luxemburg; but 
 only 6 million from Old Germany. 
 
TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 j 
 The Germkn banks have surpassed even those of America in 
 
 the jpromptitude and energy with which they faced the risks of 
 turning a large flow of capital into an enterprise, before men 
 of less keen intellect had discovered that it is one of those to 
 which the futxire belongs. The influence of the banks, acting 
 partly m. concert with cartels, has favoured giant businesses in 
 the steel industry: and the supersession of small businesses by 
 large hias brought more economy and less indirect harm in 
 the hekvy steel industry than in any other, except that of 
 transpj!)rt. 
 
 We have seen how the coal cartel ultimately became the 
 ally, <i)r rather the servant of the strong; though its policy was 
 always moderate and free from harshness: but the first great 
 cartel in the steel industry, that for heavy "half finished" 
 products — the Halbzeug-Verband — showed little mercy to pure 
 roUi'Qg mills and other works that needed those products: and 
 the, "higher" cartels, which these mills formed among them- 
 selves, were even harsher in their treatment of makers of the 
 stiM lighter steel goods who bought their products. In each 
 stage of production men rejoiced that a cartel helped them to 
 raise their prices against the home consumer, but each group 
 cijaved a freer market in which to buy its material. The smelting 
 fiirnaces could buy nearly everything that they needed, except 
 aoal, without any artificial rise in its price; and could sell at 
 prices raised both by protective taxes and cartel manipulation. 
 ;But other works, confined to a single stage or perhaps to two 
 or three, had to strive on the one hand, to prevent tarif and 
 cartel from pressing heavily against them when buying; and 
 on the other, to get as much help as possible from tarif and 
 cartel in their endeavour to sell at good prices in the home 
 market. Complaints that the export prices of rails, girders etc. 
 were lower than prices charged at home for the blocks from which 
 they were made, were among the causes which prompted 
 Professor Wagner in the official debate on cartels to suggest 
 that "if the whole industry is gripped by cartels, trusts and. 
 giant businesses, then arises the final claim that the whole 
 be nationalized^." 
 
 ' KontradiHorische Verhandlungen, voL m. p. 425. Wagner implied that 
 this condition was already reached in America: but, as haa been noted above, 
 
CARTELLIZATION OF HEAVY STEEL INDUSTRIES 559 
 
 It is admitted that German financiers are prompt to support iii, n, 5. 
 industries that have great capacity for profitable development; 
 and that this enrichment of the wealthy enables them to offer 
 better employment to industrial and domestic workers than 
 they otherwise could: but the chief advantages of German 
 methods can be obtained without losing those of British methods. 
 
 5. The Steelworks Union is a "general" cartel, designed 
 to harmonize the interests of the various stages of the steel 
 industry, in regard to production and marlceting, and to the 
 bounty conferred by the Protective tarif. 
 
 It is obvious that there are many secondary functions of 
 cartels (such as the promotion of technical studies, the orgaixi- 
 zation of appropriate information as to distant markets, the 
 collecting of debts under certain conditions) which can be more 
 economically, if not more efficiently performed by a single 
 powerful cartel representing many branches of a great industry, 
 than by several cartels, each working for only one branch. 
 But at present we are concerned chiefly with the two dominant 
 aims of a cartel — that of maintaining prices at fully remunera- 
 tive levels; and that of mitigating the sharpness of price-fluctu- 
 ations in regard to the particular products for which the cartel 
 is responsible. We have now to consider the difficulties which 
 arise in the relations between a cartel in a single stage of an 
 industry, and cartels or individual producers in other stages. 
 Suppose that the price of a finished product is falling rapidly 
 
 Congress is caring for the interests of small men: and practices making for 
 monopoly, which are common in Germany, are forbidden in America. Two 
 days were given to the Halbzeug-Verband; and one day was occupied by a 
 bitter controversy between the manufacturers of wire nails and the cartel, 
 which supplied the rods used in making them. Consul Oppenheimer (Report 
 for 1902, pp. 26 — 7) says that the cartel of wire nail manufacturers made in 
 six months a profit of £60,000 in the home market, and suffered a loss of 
 £43,000 in the foreign market: and it was strengthened in this oppression of 
 the home consumer by an agreement with the wire rod cartel to supply no 
 material to a manufacturer of tacks who did not belong to his own cartel. 
 Cartels fight cartels: but they can make common cause against the helpless 
 home consumer. 
 
 As to the export prices of girders etc. in comparison with the home prices of 
 the blocks from which they were made, see Heymann, Die gemischien Werke im 
 Deutachen Orosaeiaenindustrie, 1904, p. 215. 
 
560 TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 III, II, 5. through the action of general causes, over which local cartels 
 have little control: then a cartel, which hinders the fall in prices 
 of any raw or half-finished material needed for that product, 
 increases thereby the loss, which the fall of the price of the 
 finished product inflicts on its producers. Therefore this action 
 of a cartel in any one stage of a large industry tends to be 
 injurious to producers in later, or so-caUed "higher" stages: and 
 the conflict between them commonly results in the formation of 
 cartels in those higher stages. The stronger position in such a 
 conflict is occasionally that of the higher stage cartel: but if, as 
 often happens, the lower stage cartel controls some material 
 whose sources of supply are limited, it is the master. Innumer- 
 able conflicts of this kind have been waged in Germany and 
 elsewhere, without seeming to point to any general conclusion. 
 
 But in recent years Nature, in association with human 
 counsels, has gone a long way towards two kindred and yet 
 partially opposed solutions of the difiiculty in those industries in 
 which the trouble was greatest. The first remedy is a breaking 
 away from cartel influence by powerful capitalists: they find 
 their advantage in working through several stages of a great 
 industry, so that each department of a large business gets its 
 material from a lower stage department of the same business, 
 without any external interference as to the price at which the 
 material is entered: these huge "mixed" businesses tend to 
 ignore and frustrate the efforts of single stage cartels. 
 
 A second remedy in the form of a "general" cartel, which 
 should embrace all classes of steel works except the very finest, 
 had long been discussed as the ideal solution. The difliculties 
 in its way were very great. Perhaps no combination of patience 
 and organizing genius less than that of Germany could have 
 overcome them even partially: but the need was pressing in 
 order to allay home discords: and Germany was characteristic- 
 ally eager to organize a mihtary array that might speak in the 
 gate on even terms with the United States Steel Corporation. 
 So, a scheme was ultimately developed, which went far towards 
 realizing this ideal aim. It was found impossible to control 
 under a single rule the higher, finer and more various stages 
 of the industry. But nearly all the "heavy" steel works of 
 Western Germany came together in 1904 to form a "Steelworks 
 
CONSOLIDATION OF INTERESTS BY STEELWORKS UNION 561 
 
 Union," which should completely control the output and market- in, ix. 5. 
 ing of their simplest ("A") heavy steel products; and should 
 control the output of those next in order (the "B" products)^. 
 
 Such a federation has advantages over a trust, in that it 
 leaves freedom of internal administration to the individual 
 works: but it is less ef&cient technically. For as Herr Jutzi 
 says, a trust "can arrange division of labour in every detail: it 
 can diminish or estop one establishment whose condition is 
 unfavourable, and enlarge another to make up: and it can 
 produce the goods in demand in those places which are most 
 suitable for the purpose, account being taken of geographical, 
 technical and business conditions." But if a Syndicate goes 
 far in such directions, it rouses internal discord; and charges 
 of favouritism and interested motives are brought against its 
 management^, 
 
 • The reasons for going so far, and no further, are thus set out in the answers 
 given by the Union to interrogatories of the Ministry of the Interior, and 
 published in the Konlradiktorische Verhandlungen, vol. iv. pp. 500 — 560. It is 
 able to control marketing as well as output for "A" products (including not only 
 blooms, blocks etc., but also rails, girders, sleepers etc.) because they come only 
 from a small number of great mixed works "whose financial and technical 
 conditions are much alike." It has also controlled the output of "B" goods, 
 on which a little further work has been expended, such as sheets, railway axles, 
 wheels etc., though its few attempts to conduct their marketing have not pros- 
 pered, and therefore its direct influence over them does not reach very far. If 
 it did not control their output, its mastery of A products would be weakened: 
 for "as most of the associated works produce them also, they would have been 
 able to devote themselves to making B products in case of a decline in the 
 market for A products : and thus to invite over-production and increase depres- 
 sion of prices." It endeavours "so to arrange its prices that they will return 
 suitable {angemessene) profits to its members {seinen Werken); but so that its 
 customers shall not be injured and rendered incapable of continuing work." 
 Having referred to the fact that the peculiar character of the iron ores, to 
 which Westphalia had access, had caused a sudden and excessive influx of 
 capital which had caused violent fluctuations, it stated that "it opposes a 
 broadening of the range, or an increase in the size of the businesses during the 
 period for which its contract runs. ..and it strives for the greatest possible simplifi- 
 cation of the work done by the individual steel-works owner." It appears not 
 to have succeeded in the first of these two aims. But its efforts towards the 
 second constitute its chief claim to contribute to the technical economy and 
 efficiency of the steel industry. They have not however reached very far: and 
 the Kartell-Rundschau, 1910, p. 638, quoted by Dr Tosdal in the Quarterly Journal 
 of Economics, Feb. 1917, says that the partial utilization of equipment remains 
 as before. 
 
 ' See Die deutsche Monlanindustrie auf dem Wege zum Trust by W. Jutzi, 
 leitender Handelsredakteur der Kolnischen Zeitung, 1905, p. 43. 
 
562 TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 III, II, 5. It allows a customer to specify, as far as is practicable, any 
 particular brand that he prefers; and the higher price, which is 
 conceded to a brand that is in great demand, is said to act as 
 a stimulus to improvement in quality. Of course the stimulus 
 to economy and efficiency in administration is little impaired 
 by the discipline of the Union; but a new trade-mark cannot 
 easily attract attention, when overshadowed by it. Its own 
 direct marketing costs are of course very low: the A products 
 of every country are marketed cheaply, because they are 
 standardized and sold in large quantities. But there are 
 numerous minor cartels and dealers' unions below it, each of 
 which has its own expenses and charges. The Union has a seat, 
 without a vote, in each dealers' union with which it is associated; 
 and it reserves the right to veto the wholesale prices set by 
 such an association^. 
 
 Meanwhile there has been a continued increase in the fusions 
 among coal mines, among steel works, and among businesses 
 that own both. It seems that in 1910 two-thirds of the whole 
 Westphalian output of coal was controlled by ten fusions, which 
 also controlled nearly one-half of the production of the Steel- 
 Union^. 
 
 The Union does not confine its action to mere regulation of 
 output and prices. It has also some constructive cooperative 
 functions: it takes part in organizing international exhibitions, 
 and it obtains information as to foreign markets pertinent to 
 the industry. It is also a convenient centre for arrangements, 
 such as those, under which the many different shapes and sizes 
 of plates required for ship-building are distributed among various 
 firms; so that each can find fairly steady employment for a 
 limited number of roUs. 
 
 But complaints are made that it is too heavy a body to move 
 quickly. Its great weight increases the anxiety which is felt 
 on each occasion when its contracts come for renewal; for doubts 
 then arise as to the willingness of the great mixed businesses, 
 
 ' "The wholesalers also assign to each retailer his definitely prescrihed 
 territory; so that from the Syndicate to the consumer competition has heen 
 practically eliminated." See Report of the Federal Trade Commission on Co- 
 operation in American Export Trade, 1916, p. 13. It includes a number of 
 instructive answers from American Consuls in various countries as to cartels, etc. 
 
 ' Dawson, Indualrial Germany, p. 95. 
 
CONSOLIDATION OF INTERESTS BY STEELWORKS UNION 563 
 
 which are its masters, to be content with their already large in, ix, 5. 
 privileges. If it fails, the structure of the German associated 
 coal, iron and steel industries will probably approach very near 
 to that of the American^. 
 
 There seems to be no certainty as to its length of life. But 
 during the war, in 1915, when there was considerable anxiety 
 as to its renewal, a project was launched for a yet mightier 
 StaJdbund, which was to extend its control to stages higher 
 even than B goods. 
 
 Before leaving the Steelworks Union a little may be said 
 about its efforts so to adjust prices for the various stages of pro- 
 duction, that each branch of the steel industry may have a fair 
 portion of the bounty, which the Protective tarif allots to steel 
 producers at the cost of German steel consumers, and in a less 
 degree of other German industries that produce largely for ex- 
 port. This practice is the chief instance of a policy that seems 
 to be just in principle ; and it is weU executed. 
 
 It is clear that, if any steel manufacturer buys his material 
 at a price, which the cartel controlling that material has set 
 higher for home than for export, he is likely to have difficulty 
 when competing in foreign markets with others who have 
 bought similar material, whether of German origin or' not, at 
 lower prices. A great part of the time of the Kartell-Enquete 
 was occupied with complaints that German manufacturers of 
 tmplates and of wire were driven out of neutral markets by 
 British manufacturers, who obtained their material from Ger- 
 many for ten shillings a ton less than was charged to themselves. 
 The steel cartels were specially harsh in such matters; for they 
 
 ' The Report of the Federal Commission already quoted contains (Part II, 
 p. 16) an observation from the American Consul at Berlin, which may perhaps 
 contain a touch of irony: — "The introduction of reinforced concrete came at the 
 time of increasing building activity : the cement trust took advantage of it. . .and 
 practically captured the entire building construction market and bridge work by 
 substituting concrete at a much lower figure than steel girders could be purchased 
 from the Verband. About two years too late, the Verband opened an office 
 for competition against the concrete firms and reduced prices. If this had 
 been done sooner, the triumphant entry of concrete construction might have 
 been retarded for some years." That is to say, its lethargy alone prevented 
 it from inflicting a grievous injury on the public in the interest of the steel 
 industry. 
 
564 TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 III, IX, 5. had long before obtained redress from the coal cartel, for the 
 smaller hardship that they were compelled to pay more for 
 (German) coal than foreign competitors, who also used German 
 coal. The coal cartel faced this difficulty, recognizing that the 
 export of products, in making which coal had been consumed, 
 obtained a vent for German coal as surely as if it had been sold 
 abroad by aid of a special export price. Steel works which 
 bought their coal paid in the first instance the full home price for 
 it: some of the steel was sold at home, some abroad. The coal 
 cartel wished them to have the coal used for the exported steel 
 cheaply: and so it returned them a "refund" on a percentage of 
 their coal, equal to the percentage of their product which they 
 exported^. 
 
 But some steel cartels were slow in giving similar refunds 
 tc those who used their products in higher stage work for 
 export: and even when that practice had become general, it 
 was carried out with little system and much friction, till the 
 Steelworks Union took the matter in hand. It made great 
 improvements: but even as late as 1908, German manufacturers, 
 tendering for a gasometer to be built at Copenhagen, were 
 undersold by British competitors making use of German steel 
 obtained at low export prices: so the Union changed its 
 policy. It no longer made uniform reductions on the export of 
 any one class of steel to all countries: but kept those reduc- 
 tions small for exports to Britain and Belgium; while keeping 
 them large for countries which do not generally export steel 
 goods^. 
 
 * HeiT C. Kirdorf on behalf of the Coal Syndicate protests against the 
 common use of the term "bounty" to describe what is merely a drawback 
 or rebate — Ruckverguiung or Nachlass {Schriften dea Social-Vereins, No. 110, 
 p. 282). The Protective duty gives a bounty to the German producer at the cost 
 of all German users: when that share of the cost is returned to a German user 
 for exportation, it only leaves him where he would have been, if no bounty had 
 been given to the producer of coal from whom he bought. 
 
 * For this purpose the Union insisted that no export price should be quoted 
 by any authority other than itself: thus greatly increasing at once its own 
 labours, its own authority, and tho difficulty of producers in conducting export 
 trade. This worked so badly that in 1909 the Centre party in the Reichstag 
 proposed a law, to the effect that pure rolling mills etc. which exported part of 
 their produce, should be granted certificates for the duty-free import of such 
 raw material as was represented in their exported goods. But this, like the 
 rather earlier petition of pure rolling mills for a general remission of the 
 
CONSOLIDATION OF INTERESTS BY STEELWORKS UNION 565 
 
 The steel industry has pioneered the cartel organization of iii, n, 5. 
 numerous varieties of manufactured products, far in advance of 
 other industries: and it is the main representative of that task. 
 But it contains only a small part of the associations which 
 pursue (under various names) policies more or less akin to that 
 of the Steelworks Union and its subsidiary cartels. Many of 
 them find great difficulty in arranging modifications of their 
 standard prices to meet the variations in the qualities, sizes, 
 or shapes of similar products coming from different sources: 
 but perseverance and ingenuity have conquered in a notable 
 manner. In the case of one set of goods produced by artistic 
 specialists, an expert appraiser was called ia to set the price on 
 each article. 
 
 duties on raw iron, scrap iron, and half-finished goods, came to nought. (See 
 Sir F. Oppenheimer's Report, 1909, pp. 119 and 117.) 
 
 The suggestion of the Centre party was on the same lines as the existing 
 fiscal rule, under which the exporter of grain receives a permit to import a 
 corresponding quantity of grain duty-free. That rule has indeed been much 
 abused; partly in consequence of the permits being transferable, and available 
 for grains at frontiers other than those at which the exports, that gave rise to 
 them, left the country. But this does not seem to have been the ground on 
 which the Centre party's suggestion was opposed. 
 
CHAPTER X 
 
 TRUSTS AND CARTELS: GERMAN EXPERIENCE, 
 CONTINUED 
 
 HI ,1, 1. 1. Monopolistic tendencies of some German giant busi- 
 nesses in association with cartels and banks. 
 
 A partial solidification of tlie various branches of the 
 American steel industry was initiated by the foundation of the 
 United States Steel Corporation: but it has been broadened 
 by the interpermeation of financial interests with those of the 
 steel industry. The chief financial powers in America have 
 indeed had their origin in industry and trade, but more especially 
 in industry, during the memory of living men; and American 
 industrialists for the present control finance, perhaps as much 
 as they are controlled by it. 
 
 But Germany, though younger than Britain, is older than 
 America in this respect: and the rise of some German in- 
 dustrialists to a high place in the ranks of finance has gone 
 together with an ever closer interweaving of broad financial 
 counsels in the control of particular industrial interests. In 
 both countries the cooperation of financiers and industrialists 
 of wide experience and far reaching faculty has led to the 
 development of policies, each of which aims at making for the 
 larger and more permanent interests of those on whose behalf 
 it is contrived; and with no further hurt to the rest of the 
 people than seems to be involved in a well-ordered pursuit of 
 that particular aim. This limitation is indeed of considerable 
 importance from the point of view of the student of social well- 
 being : but it may stand over for the present. 
 
 Fortune is said to favour great legions. Perhaps the reason 
 is that a strong army, weU led, will recover from the effects 
 of ill fortunes, and forget them; while good fortune is likely 
 
INFLUENCES OF BANKS ON INDUSTRIAL ORGANIZATION 567 
 
 to bring its success to a climax, and thus become prominent, iii, i, l 
 A weak army, weakly led, makes little use of good fortune : and 
 ill fortune, which may probably have accompanied its final 
 disaster, is not overlooked by the historian. Similarly the 
 powers of finance everywhere help a strong business to rise to 
 great undertakings; while they are shy of assistance to a weak 
 business, when in distress. In Germany the connection between 
 business success and financial aid is especially close, as we saw 
 when discussing the financial basis of business organization 
 (above, II, ix, i) : and banks are alert and forward in associating 
 themselves with the strongest industrial enterprises. Thus it 
 has come to pass naturally that a large majority of the great 
 German banks have been interested in the Steelworks Union; 
 while a few have sided with the pure rolling mills^. 
 
 Each of the great banks has representatives on several other 
 banks and on a vast number of industrial enterprises. For 
 instance the main purpose of Georg von Siemens, the founder 
 of the Deutscher Bank, was to "foster and facilitate commercial 
 relations between Germany and other countries^." Accordingly 
 it took a leading part in fusing industrial and bankLag interests: 
 and in the hands of Herr von Gwinner, it developed the practice 
 of iavitiag leading industriaUsts to its councils; though indeed 
 they do not exercise much influence on banking policy. But 
 representatives of banks have exercised, for two generations 
 at least, a strong control on industrial businesses which they 
 support: and they "have always taken special care... to provide 
 for the disposal of the products of the industrial companies in 
 question to suitable industrial enterprises on which the banks 
 were able to exercise some influence^." 
 
 • This statement by Riesser, I.e. p. 179, is representative of the "connection 
 of the German great banks and their concentration" with "the economic 
 development of Germany"; to quote from his title page. For instance, when 
 the management of the great Phoenix steel works hesitated to join the Union, 
 the powerful Schaaffhausen'soher Bank, which had taken a great part in founding 
 that and other important steel works, compelled it to enter the Union {ib. 
 p. 516). 
 
 * Details of its plans are given by Riesser, I.e. pp. 420 — 440 and 472 — 481; 
 similar statements in regard to other great banks are also given by him. 
 
 ' Riesser, p. 376. He gives (pp. 897—920) details of some six or seven 
 hundred representatives of important joint stock companies who have seats on 
 
668 TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 ui,x, 1. These tendencies have very little kinship with cartellization: 
 they correspond rather to a strain of character which is specially 
 American; though they are developed with an intricacy of 
 detail, which is appropriate to the German temper, with its 
 faculty for quiet mental activity throughout long hours. And 
 indeed we see here yet another reason for thinking that German 
 tendencies towards cartellization are likely to yield place to 
 those that are more distinctively American, as regards the larger 
 affairs of industry and trade; though the activities of relatively 
 small cartels in particular branches of industry and marketing 
 show no signs of weakening^. 
 
 The steel industries are a unique group; because practically 
 the whole of the plant, as well as the material of every steel 
 business, consists of steel products: and it is not probable that 
 any other group of industries will exemplify as large and coherent 
 an illustration of semi-monopolistic cartel organization as it has 
 already done. Perhaps the wooUen (and worsted) industry, and 
 the cotton industry come next to it in width of range. In 1913 
 there were 55 textile cartels in Germany. Not much progress 
 had been made by attempts to weld them into broad groups; 
 but plans had been proposed for "the formation of a central 
 national organization for the whole German textile industry, 
 including trade associations as well as cartels... and for the 
 organization of a special credit institution for the textile in- 
 dustry, similar to the German agricultural banks^." 
 
 one or other of the great German banks. And the Federal Commission, I.e. 
 Part I, p. 62, presents in a great chart the direct and indirect connection of the 
 Deutscher Bank with German and foreign concerns, many of which are dominat- 
 ing factors in important cartels. 
 
 ' See Riesser's accoimt of the Influences of capitalistic concentration in the 
 mining and metallurgical industries {I.e. pp. 725 — 749) : he gives special attention 
 to the widely ramified interests of the great iron and coal magnates, Herr Thyssen 
 and Herr Stinnes. 
 
 The interpermeation of the interests of German banks is shown by his lists 
 (pp. 642 — 6) of the banks which constitute the five great groups, each of which 
 is led by one of the great Berlin banks; the Deutscher Bank being at the head. 
 Their total capital (including surplus) was over a hundred million pounds in 
 
 1908. These tendencies seem to have been strengthened, temporarily at least, 
 during the world-war; but it would be premature to express any opinion on the 
 solidity of the new strength. 
 
 ' Report of the Federal Trade Commission on Cooperation in the American 
 Export Trade, Part I, p. 260, based on statements in the KarteJl-Bundschav 
 
 1909, and 1915. 
 
INFORMAL ALLIANCES OF GIANT BUSINESSES 5l 
 
 2. The tendency of some of those industries, which em- in, x, ; 
 lady the best results of German genius, to domination by a 
 few giant businesses, ivith mutual understandings, while 
 avoiding formal ea/rtellization. 
 
 This tendency to domination by one or two giant firms is of 
 course most clearly marked in those industries which embody 
 the chief triumphs of the German creative genius; notably the 
 electrical and the chemical industries. In 1900 the electrical 
 industry was led by Siemens and Halske, and by the General 
 Electrical Company (known now throughout the world as 
 "A. E, G.," these being the initials of its German name): but 
 beside these two there were twenty-six others of some im- 
 portance. The twenty-eight companies were clustered in seven 
 groups, supported by seventy banks. But fusions and com- 
 munities of interests proceeded apace: and now the two leading 
 concerns hold four-fifths of the electrical business of Germany 
 ia their own hands. Also they frequently obtain controlling 
 interests in electric lighting and power works; which are their 
 chief customers. The two act in concert on many occasions, 
 especially in external trade: thus they have organized a 
 special bank (Elektro-Treuband) for financing electrical under- 
 takings. In 1912 the Siemens group gained financial control 
 of the Bergmann Electrical Co.; but preserved its independent 
 form, and claimed to allow it autonomy, on the ground that the 
 health of the entire German electrical industry depends upon 
 sharp competition among two or three large concerns, which 
 encourages invention, and develops technical and commercial 
 organization in the competing plants^. 
 
 The German dyestufi iadustries again are too confident in 
 
 ' This statement is derived from the Report of the Federal Commission, I.e. 
 Part I, p. 278. It gives a chart representing many scores of connections of the 
 A. E. G., through its leading officers and members of its Board. The Siemens 
 group does not lag far behind. 
 
 These industries have the advantages of making standardized products that 
 are required by the hundred thousand, or even milhon. Their plant is expensive; 
 but it works for the greater part cheaply, when once set up. Thus only power- 
 ful capitalists can compete: and as failure by any product to work well might 
 occasion much inconvenience, purchasers are apt to require well-known trade- 
 marks. These technical advantages enforce the suggestions made by repre- 
 sentatives of the giant businesses on the direction of electricity-using companies 
 street railways etc. in favour of those businesses. 
 
670 TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 III, X, 3. their magnificent teclinical mastery to care much for cartel 
 organization. Every business has had its own patents and its 
 own secrets; and the strongest have clustered together mainly 
 in two groups, the Badischfe, and the Hochst-Casella^. 
 
 Another great instance of the German tendency towards 
 trusts is the growth of the German Metal Buying Combination. 
 It had its origin in the London firm of Merton, in association 
 with some members of the Cohen family. As it progressed, 
 its headquarters were transferred to Frankfort: and its world- 
 wide associations before the war constituted a most powerful 
 community of interests^. 
 
 3. The increasing responsibilities of cartels to their 
 several industries, a/nd to labour. 
 
 It would be unreasonable to lay much stress on the fact 
 that the two great industries, in which German leadership is 
 most conspicuous, owe httle or nothing to the methods of 
 cartellization. Those methods may possibly be beneficial to 
 ordinary industries, and yet unsuitable to those that are ex- 
 ceptionally strong: systematic instruction is not shown to be 
 misdirected by the fact that it is likely to hinder rather than 
 help a pupil of genius : he goes best by his own way. 
 
 Nor should great importance be attached to the extravagant 
 and even suicidal policies, that have been occasionally adopted 
 by inexperienced cartels, which have generally worked on a 
 
 ' Tlie Board of Trade Journal, July 4, 1918, gave some details of this process. 
 At that time nearly aU the products of the chief businesses in the chemical 
 industry were pooled: but a few specialities were reserved, temporarily at least, 
 by individual firms. The dividends had recently averaged about 20 per cent.; 
 and much capital had been written off. The Chairman of the Bradford Dyers' 
 Association said early in the year that "the German colour and chemical 
 works, and many auxiliary businesses are now embraced in one huge organiza- 
 tion, with a working capital approaching £m.50"; while a good deal more is 
 being obtained. The German Government assisted, of course with a view to 
 military exigencies. 
 
 * The Imperial War Conference, in a Report [Cd. 9177] issued in October, 
 1918, gave an account of recent developments of the Frankfort Metallbank and 
 MetaUurgische Gesellsohaft. It attributed their prodigious power partly to 
 subtle financial intrigues; and partly to "the high development of scientiBo 
 training and industrial research in Germany"; and recommended that certain 
 measures, partly temporary, should be taken by which German control over the 
 non-ferrous metallic reserves of the empire should be restrained. 
 
RESPONSIBILITIES OF CARTELS: THEIR RELATIONS TO LABOUR 571 
 
 small scale. An increase in the volume and the complexity iii, 1,3. 
 of those affairs, for which a cartel is responsible, intensifies the 
 gravity of the issues to be decided at meetings of the Council; 
 and increases therefore the inclination of the larger capitalists to 
 give time and thought to controlling the meetings. The Council 
 of a mighty Syndicate generally bring to bear powerful minds, 
 a fine sense of proportion and a wide purview: and they have 
 access to inside information as to many branches of industry and 
 trade. Their characters incline them to prefer large deferred 
 gains to the smaller immediate advantages, at which weaker 
 men grasp : and their large command over capital makes it easy 
 to follow a waiting policy. 
 
 But yet it is doubtful whether the weight of the task to 
 which they are committed will not increase faster than their 
 strength, fast as that grows. The Westphalian Coal Syndicate 
 and the Steelworks Syndicate have already taken powers to 
 handle and convey coal and iron respectively, and thus they 
 may probably soon be considerable employers of labour; while 
 the Coal Syndicate, if it acts on its new power of purchasing 
 coal mines, will have taken a long step towards becoming a 
 trust. Again, the Steelworks Union, and some syndicates, which 
 are responsible for marketing several kinds of products, have 
 been compelled to prescribe the kind which individual firms 
 must produce, whenever it happens that demands for the dif- 
 ferent kinds are moving unevenly. Again the assignment of 
 their total contingents to the several members, when a fixed 
 rule would give no good result, forces the leaders to take on 
 themselves some of the responsibilities of collective ownership. 
 Thus new difficulties grow at least as fast as old difficulties are 
 overcome: and the tendency of some cartels to attain monopo- 
 listic power was becoming more prominent before the war. It is 
 notable that much assent was given at the Encjuete to Professor 
 Brentano's exclamation: "if we are to have a monopoly, we 
 should at all events prefer it to be a State-monopoly^," 
 
 ' Kontradihtoriache Verhandlungen, iv. 233 and 245. Another trouble is 
 instanced by the complaint of some vigorous young members of the Cement 
 cartel that, if they had been allowed to push their own brands, they would have 
 obtained a strong hold on the market; but, under cartel management, consumers 
 do not become familiar with their brands. Therefore any apportionment of 
 contingents based on the special rer|iiest9 made for their brands is unfair: and 
 
572 TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 III, X, 3. Meanwhile there is some sort of an understanding that the 
 weaker firms will not be entirely suppressed. The leaders state 
 indeed, with unquestioned sincerity, that they do not make it 
 their policy to put prices so high as to enable ill-managed firms 
 to survive : but they are not altogether free agents in the matter. 
 During the war there has of course been no disposition 
 to disturb existing arrangements: but not long ago there were 
 many rumours of internal conflicts, which seemed to threaten 
 the lives of the Coal and Steel Syndicates; their place being 
 taken by "a vast trust, arranged by the few leading concerns 
 of the mixed type; which would thus end by being American- 
 ized, after a process of evolution through an essentially German 
 system of syndication^." 
 
 "Labour" was not able to speak for itself at the official 
 Inquiry into Cartels: but in 1905 two m.emorable meetings 
 were held of the great German association for social studies 
 (Verein fiir Socialpolitik). The first, opened by Professor 
 Brentano, was on "the condition of labour in private giant 
 businesses": the second, opened by Professor SchmoUer, was 
 on "the relation of the cartels to the State." Prof. Brentano 
 contended that, as the law does not recognize collective agree- 
 
 if, on the other hand, the contingents are proportioned to the potential output 
 of the firms, a premium is given to the creation of superfluous plant, followed 
 by neglect in its management. 
 
 ' Oppenheimer's Eeport, 1910, p. 157. In his last Report (1914, p. 11) he 
 indicates clearly the inherent tendency of Syndication combined with a Pro- 
 tective tarif, to promote disastrous fluctuations of output and prices, in spite of 
 a genuine endeavour to diminish them. Thus during a slump in an industry, 
 a feeling grows that a Syndicate is needed to take charge : and that often causes 
 reckless extensions, in order to justify high figures of participation. The same 
 desire induced some makers of drawn wire, during a recent boom, "in their 
 anxiety to be able to show a large clientele, to seU their manufactured articles 
 even below the cost of their raw material (rolled wire); as was expected, a 
 syndicate of drawn wire is now (June, 1914) being actively negotiated. But 
 even syndicates already in existence are often powerless to prevent their mem- 
 bers from engaging upon such boom extensions, though everybody knows that 
 no syndicate is started without demands for fantastic figures of participation: 
 they can levy a fine upon over-production (and during a boom such a fine 
 is gladly paid), but sometimes the industrial constellation forces their hands: 
 they encourage extensions by taking an indemnified delivery of the over- 
 production.'' He gives recent instances of suoh action by the Coal and the Eaw 
 Iron Syndicate : and explains in some detail its evil results. 
 
RESPONSIBILITIES OF CARTELS: THEIR RELATIONS TO LABOUR 573 
 
 ments by operatives, the giant business stands as a unit against iii, i, 3. 
 an unorganized crowd of individuals; and "the conditions of 
 work are settled by the one-sided decision of the employer." 
 Another speaker enlarged this argument by referring to the 
 informal increase of the autocratic power, which resulted when 
 the giants acted as a unit in a cartel: the great coal cartel was 
 already urged to put a stop to "that competition of employers 
 of labour which results in the pushing up of wages" (In-die- 
 Hohe-treiben der Lohne). 
 
 It was argued that, if a single business has a quarrel with 
 its employees, it can generally arrange that the work, which 
 would have been allotted to it, shall be taken over by another 
 member of the cartel; while the contingent of the first is made ' 
 
 up, in some measure at least, at a later date. It was also urged 
 that the power of employers, thus concentrated by cartel 
 organization, tends to render the ordinary strike inefiective : the 
 workers are therefore forced to look more and more to political 
 action, associated with "demonstration-strikes" for a mitigation 
 of their evUs. 
 
 Much stress had been laid during the official debate on the 
 statement that cartels exercise no direct influence on rates of 
 wages: but it is obvious that their meetings facilitate or- 
 ganized strategical policy in wage conflicts. And, when Herr 
 Kirdorf, the head of the Coal Syndicate, repeated that state- 
 ment during the Social-Verein's debate on Prof. Schmoller's 
 motion, the answer of labour came promptly that a recent 
 meeting of the Council of that Syndicate "was closely followed 
 by a nearly uniform reduction of wages throughout its dis- 
 tricti." 
 
 1 See Schriflen des Vereins fiir SocialpolUih, No. 116 (a.d. 1906), pp. 135 — 
 150, 169, 187, 411. A miners' representative (ib. p. 192) referred to a recent 
 strike as partially successful: but later on, in the debate on Prof. Schmoller's 
 initiative, he added (ib. p. 412) that the operatives had less chance of success 
 in combat with a cartel than with a giant business. It is urged as a ground 
 for confidence as to the future relations between cartels and labour, that 
 the position of the operative has improved more on the average in those in- 
 dustries, in which cartels are prominent, than in others: but this is not a, 
 secure ground. For the most prominent cartels are naturally in industries, 
 which the genius of the German people and their special advantages have 
 enlarged and made prosperous. Making high profits, the employers can afford 
 to pay hii^h wages. As they use advanced labour-saving machinery, which 
 
574 TRUSTS AND CARTELS: GERMAN EXPERIENCE 
 
 III, 1, 4. 4. Functions of the State in relation to cartels. 
 
 The German Government has persistently upheld the right 
 of businesses to combine with one another at their wiU, even 
 though their tendencies be clearly monopolistic: but it has 
 also held itself bound to intervene, when necessary, in order 
 to prevent the power thus obtained from being used to the 
 detriment of the public. It has twice made approaches to the 
 coal industry with the purpose of influencing the policy of the 
 Westphalian Coal Syndicate: and many writers advocate a 
 vigorous extension of State ownership of coal mines. But mine- 
 owners affirm that those, which it possesses, are badly managed; 
 and miners declare that its mines are bad employers of labour^. 
 
 In spite of recent geographical and scientific discoveries, 
 Prussia's deposits of potash constitute an important partial 
 monopoly. If they were owned by a single company, with 
 sole regard to its own profit, the price would probably be set 
 so much above cost of production as to yield a huge monopoly 
 
 often represents a value of several hundred pounds per employee, it is worth 
 their while to pay wages high enough to attract the most highly skilled and 
 resourceful artisans for the more responsible posts; and indeed for such work 
 the most highly paid labour is generally the cheapest. Even their unskilled 
 labour must often be well paid, though for another reason: for these growing 
 industries demand more labour than the neighbourhood can supply, and recruits 
 have to be attracted from great distances. But still they pay wages much below 
 those prevailing in Britain. 
 
 * In 1904 the Prussian Government set the Dresdener Bank to buy secretly 
 for it a controlling majority of the shares of the great Hibemia coal mine: but, 
 suspicion having been aroused, other great banks manoeuvred in various ways 
 (which were upheld by the Supreme Court on appeal), to prevent this; and the 
 Government was left with a large minority holding of the shares. It owns 
 many mines in the Saar district: and later on it endeavoured in vain to use 
 this aa a lever for entering the Westphalian Coal Syndicate with a large voting 
 power. Herr Gothein, an active member of the Kartellen-Enquete, a mine- 
 owner, and a leading authority on the general conditions of Germany, argues 
 {Die Veretaailichung des Kohleribergbaues, 1905) that State ownership is im- 
 practicable; though it would rescue the country from great dangers, if ideally 
 managed. On another side, Dr KoUmann gives a brilliant picture of an ideal 
 Deutschcr Stahlwerksveriand which might organize the whole of the industry, 
 and become a national organ for research. 
 
 But employees are Ukely to pay more attention to such stories as that re- 
 corded by The Economist (21 May, 1910) of a lock-out in the German building 
 trade; which lasted so long that some employers abandoned it: whereon the 
 Stahlwerksverband was invoked to bring them to order by refusing to supply 
 them with girders, etc. Tliey were thus forced to continue the lock-out. 
 
THE STATE IN EELATION TO CARTELS 575 
 
 revenue, at the expense of stinting German agriculture's supply iii, x, 4. 
 of a much needed fertilizer. Private owners tend to exercise 
 their influence in the cartel in that direction: but, partly by 
 legislation, and partly by means of its large holdings of the 
 deposit, the Government compels the price for domestic sales to 
 be kept rather low ; while leaving the cartel free to put the price 
 for exportation where it will. In this single case a cartel's 
 export price is above its home price^. 
 
 Again, shipping on the Khine and other inland waters has 
 been threatened with a general syndicalization; partly under the 
 influence of coal and steel magnates, who already have large 
 fleets: so the three Governments of Prussia, Baden and Bavaria 
 have obtained controlling interests in such shipping. 
 
 Nowhere, and certainly not in Germany, is there any doubt 
 as to the high public services which trade organizations can 
 render to the moral and material well-being of their members 
 and of the general public: and SchmoUer, in his opening ad- 
 dress, recently mentioned, said that Germans rejoice in their 
 development of the principles of association (Genossenschaft); 
 they are therefore pfoud of their cartels; and yet prouder of 
 the great men who founded them: — men who "had the widest 
 outlook, the highest persistence and invention; and also the 
 greatest tact and commonsense....The best of them were not 
 mere money-makers: but on a level with the best generals and 
 statesmen in talent, in character, and in achievement." But 
 nevertheless the conclusions, for which his long address pre- 
 pared the way, are not altogether favourable to cartels. "The 
 setting up of cartels implies a revolution of the constitution of 
 German economy. The raising of prices in many directions 
 injures all consumers, all not cartellized industries." For these 
 and other reasons he developed a plan by which the whole 
 afiairs of the cartels would be within the knowledge of a 
 department of the State. The State should intervene to pre- 
 vent unfair prices, with special reference to export prices: and 
 it should override decisions which excluded or which punished 
 
 ' The cartel has done good work in explaining to agriculturalists the usee o{ 
 potash: but it has difficulties with some of its weaker members. Its story is 
 well told by Dr Tosdal in the Quarterly Journal of Economics, Nov. 1913. See 
 also Dawson, Induslrial Gerrrumy, pp. 124 — 7. 
 
576 TRUSTS AND CABTELS: GERMAN EXPERIENCE 
 
 III, X, 4. members harshly. It should compel the adoption of "com- 
 promises between organized sellers and buyers. This holds 
 especially for settlements of the rates of wages^." 
 
 German opinion seems inclined to advocate publicity as 
 a hurt-less remedy for social hurts. But it is content with 
 ' general profession: it lacks concentrated resolution and in- 
 sistence. It seems to appreciate, even less than British public 
 opinion does, the urgency of that class of questions which the 
 American Bureau of Corporations, matured as the Federal 
 Commission, has pursued with untiring energy. It has not 
 yet learnt that though monopolistic powers in certain directions 
 are necessary results of modern conditions, they are apt to 
 cause grave evils unless controlled: while for obtaining efEective 
 control, even autocratic power is of Httle use, unless based on 
 organized, long continued, authoritative studies. 
 
 The Kartellen-Enquete was a imique concession by the 
 Government to a growing feeling of anxiety that giant businesses 
 would master cartels, and thereby master the State, unless the 
 State awoke to the dangers and diiTiculties of the situation. 
 But, as we have seen, it was brought to an abrupt and unsatis- 
 factory conclusion; which was thought to be partly caused 
 by unwillingness on the part of the Syndicates to respond to 
 questions which penetrated below the thin stratum of official 
 inquiries. So long as the general opinion of a great people 
 I acquiesced quietly in such subordination of public to private 
 ' interests, its example could not afford good guidance. There 
 are strong reasons for thinking that the exploiting of the masses 
 of the people by the dominant classes, through the agency of 
 cartels, made an important contribution to the discontent which 
 broke into violence after the war. 
 
 ' Schriften dea Vereinaf&r Socialpolitik, No. 116, pp. 254, 270, 271, and 431. 
 
CHAPTER XI 
 
 AGGREGATION, FEDERATION, AND COOPERATION 
 IN BRITAIN'S INDUSTRY AND TRADE 
 
 1. Introductory : a glance hacTcwards. in, xi, i. 
 
 Several excellent accounts have recently appeared of aggre- 
 gations and federations in British industry and trade: and, partly 
 for that reason, no details in regard to them wilL be given here, 
 except by way of illustration^. The purpose of th^ and the 
 following chapters is to apply the instruction, which seems to 
 be allorded by recent experiences, especially in America and 
 Germany, to problems of Britain's present and near future: and 
 to suggest that the strong individuality of the British race may 
 find its highest development imder the guidance of the spirit of 
 constructive cooperation. It is true that giant businesses alone 
 are capable of some of the chief tasks of industry in the present 
 age. But, where their presence is not demanded by technical 
 considerations, the immediate increase of strength, which would 
 
 ' It may suiEce to name (1) Maogregor, Industrial Combination, 1906; 
 (2) Maorosty, The trust movement in British industries, 1907; (most of the 
 businesses described in it however have had no considerable monopolistic ten- 
 dencies; and belong to the class which are described in the present work merely 
 as "giant businesses"); (3) Levy, Monopoly and Competition, a study in English 
 industrial organization: a careful piece of work published in Germany in 1909; 
 English translation, 1911; (4) Carter, The tendency towards industrial combi- 
 nation, 1913, a reasoned record of facts reaching nearly up to the world-war. The 
 American Industrial Commission had published in 1901 a good short account of 
 "Industrial Combinations in England" in its Report, vol. xvm. pp. 1 — 74. 
 
 The history of British giant businesses generally, as well as of distinctly 
 monopolistic aggregations and federations (so far as they desire to take the public 
 into their confidence) can be read from year to year in the spacious records of 
 their proceedings, which they cause to be inserted at high charges in appropriate 
 journals : files of The Economist are specially helpful in this matter. 
 
 An excellent terse survey of aggregations and federations in British Industry 
 is given in the Report on Cooperation in the American Export Trade by the Federal 
 Trade Commission, 1916, vol. i., especially p. 88. 
 
 M. I. T. 19 
 
578 AGGREGATION, FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 III, II, 1. result from a rapid enlargement of their sway, might be pur- 
 chased at too great a price: the value of that free individuahty, 
 which has made Britain great, is apt to be underrated in a hasty 
 view. All praise must be given to the constructive work of 
 German cartels: but it can be dissociated from their restrictive 
 and mihtant poKcies. "Cooperation" in the special use of the 
 term, which is familiar to British workmen, is but one outcome 
 of that fortitude in purpose, tempered by the spirit of good 
 fellowship, which has spread the British race over a great part 
 of the world: constructive cooperation in the larger affairs of in- 
 dustry and trade is both reqxiired and facilitated by the character 
 of Britain's industries and her geographical configuration. 
 
 Before looking forward, let us take a glance backwards. We 
 have seen that monopoHes of early times were seldom without 
 plausible motive, and often did excellent work in their youth: 
 but they were apt to outlive the strength and high purpose of 
 their founders, and to become obstructive as well as incompetent 
 in their old age. Moreover the Tudors granted them recklessly 
 to eager courtiers; and thus was set on foot that intense hatred 
 of monopoly among England's people, which was destined to 
 exercise a great influence on her later history. Hatred was 
 mingled with contempt ia the eighteenth century; when the 
 great Joiat Stock and Registered Companies, which had done 
 good service in the past, became for the greater part inert, effete, 
 and even corrupt. In the first quarter of the nineteenth century 
 the very unwise and rather selfish use, which British landlords 
 made of their monopolistic control of Parliament to raise their 
 own rents at the expense of the food of the people, intensified 
 this hatred of monopoly still further. And lastly the advantages, 
 which a country may derive from perfect freedom of enterprise 
 in industry and in trade were emphasized, and even exaggerated, 
 by observation of the vast increase of the country's economic 
 strength in the second and third quarters of the century, when 
 Protective duties were gradually abolished. 
 
 During much of this time business was chiefly in the hands 
 of self-sufficing, self-made men; who were often crude, but 
 always vigorous. They worked harder than any other set of 
 business men in the world; and their superiority in strength 
 
A GLANCE BACKWARDS 579 
 
 over competitors was continually increased by their growing iii, xi, i. 
 command of the economies of production on a scale that was 
 relatively large then, though small in comparison with that 
 which prevails now. England's flocks of sheep had contributed 
 to set up her woollen industries by aid of an automatic organi- 
 zation of industries and trades, more highly developed than any 
 other that had been spread over an equally wide area: and 
 had prepared the way for the automatic organization on an even 
 larger basis of her cotton industries. 
 
 Thus many diverse influences, some of them partly accidental, 
 combined to give British manufacturers and merchants the upper 
 hand over those of other countries in the third quarter of last 
 century: and this success engendered easy-going habits of life 
 and work among many of the sons and grandsons of those whose 
 strenuous, if sometimes imcouth, energy had revolutionized in- 
 dustry and trade. In the next two decades some signs of weak- 
 ness became evident: but in- the present generation there has 
 appeared a firm resolve to reconsider British methods in relation 
 to the problems of the new age; and to the solutions of those 
 problems which were being worked out in America, Germany 
 and other countries. 
 
 Of course suggestions, derived from the experiences of any 
 one country, cannot safely be applied to the problems of another, 
 until accoimt has been taken of the degree in which each ex- 
 perience depends on circumstances that are not to be found 
 in the other. Thus, on the one hand, attention needs to be 
 directed to the opportunities for stringent monopolistic control 
 of the machinery of industry, and of prices, which America de- 
 rives from geographical causes, and — though to a much less ex- 
 tent — ^from her Protective tarif; and which Germany derives 
 from her Protective tarif. And, on the other hand, it must not 
 be forgotten that Germany's strong, though harsh, military- 
 biu^eaucratic organization has enabled her Government to inter- 
 vene with a firm strength and security, that are not to be found 
 in the interventions of the Government of a democratic country: 
 while America, conscious of this dif&cidty, has studied the pro- 
 blems of monopoly with unrivalled thoroughness. Her conditions 
 have given to these problems a breadth and intensity far in 
 excess of any that have appeared elsewhere: and her methods 
 
580 AGGREGATION, FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 III, II, 2. are not suitable for adoption without reserve in other countries. 
 But they have been developed with so much energy, and so 
 much sincerity and openness, that they seem to offer guidance 
 of high value to Britain in view of the recent revival of some 
 broad monopohstic tendencies. For the two peoples are akin 
 not only in race, but also in openness of character and directness 
 of action; and the same principles of Common Law apply to the 
 regulation of monopolies in both. 
 
 2. The strong individuality, which created Britain's 
 industrial leadership, is still her most important asset But 
 it needs increasingly to he supplemented by readiness to co- 
 operate with others in large affairs ; while the supersession 
 of small businesses by large in many industries is inevitable. 
 
 As we have seen, the industrial faculties of England de- 
 veloped tardily, and owed much to the guidance of Dutch 
 teachers who had learnt much from City States: even the enter- 
 prise of her navigators lagged long behind that of the Portu- 
 guese. But gradually she became, first a rival, and then a leader 
 of the strongest: partly because the ocean defended her from 
 the military violence that crippled Holland; but mainly because 
 her people had never been either inclined or compelled to look 
 to authority for instructions. Each man settled his own affairs, 
 subject to but little discipline save that of custom. And since 
 the shackles of custom were not felt, they merely narrowed the 
 range of action of individuality: they did not destroy it. So 
 individuaUty accomplished great things, with ever-enlarging 
 scope: and as the ages passed, a great part of the world came 
 under British influence; Scotchmen joining with Englishmen, 
 and often leading them. 
 
 He, who respects his own individuality, is unUkely to be a 
 tyrant: he may be wanting in tact, and in quickness to assimilate 
 that which is good and helpful in the temper and habits of 
 others. But he is sure to be frank, and likely to respect the 
 individuality of others: refusing to be regimented, he is un- 
 likely to regiment others. Thus individuality and resolution, 
 combined with toleration, have made the British Empire great 
 and coherent. 
 
 But such toleration is not inconsistent with an excessive 
 
INDIVIDUALITY CREATES: AGGREGATION UTILIZES 581 
 
 respect for one's own judgment and faculty: and, though con- iii,xi,2. 
 fidence in one's own resources may be an almost unmixed good 
 in matters that are within their reach, it may be a source of 
 some weakness in larger matters. That is to say the specially 
 British qualities which made Britain great, when business was 
 on a relatively small scale, may not suffice for her need now: for 
 industry and trade are growing in breadth and depth at a rate 
 unprecedented, even in the age which is sometimes described as 
 that of the "Industrial Eevolution." 
 
 As late as the middle of the last century the capital, required 
 to enable a business to command the most efficient and econo- 
 mical methods of production then known, was relatively small: 
 and specialization on a rather narrow range of work was 
 facilitated by that quiet organization of industry which tends 
 to grow up, almost inevitably, where the technique of produc- 
 tion and the character of the goods produced do not change 
 very rapidly. Thus, it was reasonable to attribute a great part 
 of Britain's industrial strength to small growing businesses : any 
 loss that might arise from slight imperfections in their plant fell 
 mainly on themselves; while the energy and elasticity, which 
 they contributed to industry, accrued in large measure to the 
 whole country. 
 
 But when the energetic creator of a business of moderate 
 size died, he often left it liable to payments to members of his 
 family, who could not take part in developing it. Thus its 
 resources were straitened; and its owners perhaps lacked the 
 energy, the initiative, and the delight in hard work by which 
 it had been created: but yet they had a just pride in the family 
 name; and they were reluctant to turn it into a joint stock com- 
 pany, in order to attract new capital. It was therefore apt to lose 
 creative force, even if the branch of industry, to which it be- 
 longed, retained nearly the same technique as had prevailed ia 
 the preceding generation: while, if its plant needed to be organic- 
 ally changed in order to maintain relative efficiency, its continued 
 existence might even be a hindrance to progress. Instances of 
 this kind have been so numerous, that a new tradition is in 
 danger of growing up, to the effect that a small business must be 
 out of place in the new age : for that belongs to large businesses. 
 
 This tradition in its exaggerated form is repeated parrot- 
 
582 AGGREGATION, FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 III, XI, 2. wise: and it is all the more mischievous, because there is 
 much important truth at the back of it. If an old business is 
 small, it is rather likely to be a stagnant business: but an 
 enterprising man, who sees his way to fitting the work of a 
 smaU business into the large frame of national industry, may 
 render as high service to the country now as ever. The ex- 
 pansion of technique has taken many branches of industry 
 beyond his reach: and it is likely to take more, with ever 
 increasing speed. But, on the other hand, it is enlarging 
 rapidly the whole area of industry; and it is developing new 
 ways in which the deliberate cooperative standardization of 
 products (especially such as are component parts of larger 
 products) may outdo old-fashioned stagnant custom in the 
 opportunities offered for narrowly specialized work. 
 
 The present group of chapters will be much occupied with 
 this class of consideration; because there is reason for thinking 
 that the advantages which some other countries, and especially 
 Germany, have derived from a semi-mihtary organization of 
 industry are not in fact as great as may appear at first sight; 
 and because immediate material gains, obtained at the expense 
 of a diminution of the spirit of free enterprise, may prove to 
 have been too dearly bought, even from a merely material point 
 of view. 
 
 It is true that the new age, with its rapidly rising standard 
 of education for the working classes, is greatly enlarging the 
 field from which to recruit men fitted to originate new ideas, 
 and to face the risks involved in putting them into execution. 
 It is true that America owes a great part of her industrial 
 prowess to men who began life in low station. And it is true 
 that the Jewish race, especially in Germany, supplies an almost 
 inexhaustible reservoir on which to draw for new methods of 
 making profit, most of which inevitably make for the good of 
 the nation. But yet a nation cannot fail to become poorer in 
 character, and perhaps even in material wealth, if comparatively 
 few of her people have larger opportunities for resource in new 
 construction, and for courage in taking risks, than commonly 
 fall to the lot of an official in a great Company or in the service 
 of Government. 
 
 We ought therefore to cherish strong individuality as a 
 
INDIVIDUALITY CREATES: AGGREGATION UTILIZES 583 
 
 priceless national asset: but at the same time to recognize that, 111,21,2. 
 like other noble qualities, it is liable to be misapplied; and that 
 it may even degenerate into a morbid desire for secrecy and 
 isolation. It has indeed sometimes been charged — though ap- 
 parently without adequate cause — with being responsible for an 
 unreasoning disinclination, which is occasionally found among 
 certain classes of British business men, to unite their efforts in 
 tasks, that are needed for the proper development of industry 
 but are too large for a single business. 
 
 The adage "an Englishman's home is his castle" represents 
 a side of national character that was developed in centuries of 
 successful struggle against the semi-military despotism, from 
 which nations subject to the invasion of great Continental 
 armies could not escape; and has been a chief foundation of 
 the British Empire. But, in so far as it induces a manufacturer 
 or trader to shun associated action, on the ground that it would 
 enable his associates to penetrate into the secrets of his business, 
 it may be a source of national weakness rather than strength. 
 What each gains by his secrecy is less, in many cases, than what 
 he might gain by a liberal policy of give and take with his asso- 
 ciates. There is however some ground for doubting whether 
 this secrecy is caused, as much as is sometimes suggested, by 
 jealousy. Perhaps a more potent and general cause is a certain 
 lack of imagination; which has long been noted as a character- 
 istic of those whose minds have not been expanded by an 
 adventurous life, or by some high intellectual ambition. This 
 is indeed yet another penalty which the country must pay for 
 having neglected so to broaden national education as to bring 
 the student into direct touch with the large real problems of 
 the modern world. 
 
 Those Enghsh manufacturers, who pioneered the methods of 
 modem industry, had little education: but they went early to 
 work, and were in direct touch with realities throughout their 
 lives. In the modem age, they spend long years at school, 
 and perhaps at College; and if ultimately they become officials 
 in a giant business, they may never get very close to realities. 
 But if they enter a business of moderate size, even after the 
 freshness of early youth has passed, their real education is likely 
 to reach far. If the heads of such businesses are eager to learn, 
 
584 AGGREGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 III, XI, 3. and willing that their experiences should be helpful to others; 
 they will greatly increase their chance of holding their own, in 
 spite of the fact that giant businesses can afford to make larger 
 and more frequent experiments than they can. Strong in- 
 dividuality, resolution and directness of purpose may enable a 
 multitude of British businesses of moderate size to hold their 
 own against powerful aggregations in aU those industries, in 
 which no over-mastering technical advantage belongs to massive, 
 continuous production: provided these quahties are united 
 with frank willingness to learn from others; and to cooperate 
 genially with others in matters in which unfettered association 
 has large opportunities. 
 
 That combination of individual liberty with orderly co- 
 operation, which is characteristic of the British people, is not 
 indeed specially prominent in industries, in which technical 
 influences make most strongly for integration, such as will be 
 considered in the present chapter: but they will come to the 
 front in Chapter xn. In Chapter xiii they will again fall partly 
 into the back-ground under the influence of the ever increasing 
 temptation, which modem conditions offer, to enter into sec- 
 tional bombinations foi: getting the upper hand in matters of 
 bargaining. But at the end we shaU reach new movements, 
 which give scope for aU that is best and most characteristic of 
 the race. 
 
 3. Movement towards aggregation in the British coal 
 industry. 
 
 Our first illustrations are naturally taken from the coal 
 and iron industries: though these are no longer distinctively 
 British^. 
 
 Coal and iron are indissolubly connected: iron — or, as we 
 rather say, now, steel — industries are rivalled only by transport 
 industries in their use of coal : and coal mines are large consumers 
 of iron products; insomuch that, especially under the rule of 
 German cartels, steel works often find some outlet for their spare 
 energies during a general depression of industry, in improving 
 and developing the plant of their mines. In so far as this in- 
 fluence reaches, it tends to stabilize employment and prices; and 
 * See aboye, pp. 60, 61. 
 
MOVEMENTS TOWARDS AGGREGATION IN THE COAL INDUSTRY 585 
 
 is a benefit to the nation as well as to individual businesses, iii, xi, 3. 
 that pursue a far-seeing policy in such matters. 
 
 The Westphalian Coal Syndicate pioneered the route by 
 which the steel and other dominant cartels made their way to 
 power: and it may be well to diverge from the main course of 
 our argument to consider some curious episodes in the history of 
 British coal, before passing to the steel industry, which in Britain 
 as elsewhere shows the problems of aggregation, and federation 
 in their fullest developments. Germans themselves admit that 
 the fundamental ideas not only of their simple cartels, but also 
 of their Syndicates, were anticipated by more than a century in 
 the Newcastle Coal Vend. Its power was based on having good 
 access to the sea for the products of exceptionally rich mines^. 
 
 Later on, in 1897, Sir George Eliot suggested the formation 
 of a giant company to purchase all the British coal mines, except 
 those owned by iron-masters; and to work them as a unit. He 
 laid stress on the undoubtedly inordinate wastes involved then, 
 as now, in marketing coal competitively; and in necessarily 
 
 ' See above, p. 509. The English coal trade has nearly always been full 
 of episode. It was regulated now in the interests of the naval strength of the 
 country, now of operatives, now of consumers; and monopolies were granted 
 on condition of paying a tax and selling in London not above specified prices. 
 Engrossing was prohibited. Meanwhile combinations among coalowners, traders, 
 and shipowners were constantly starting into life. At last the concentration 
 of the greater part of the then unprecedented demand of London for the coal, 
 which could be brought cheaply by sea from Newcastle, bore fruit in the forma- 
 tion of the Vend in 1771 (even earlier, according to the H. of 0. Committee of 
 1830). A central committee watched the market, and decided at the beginning 
 of each mqnth how much should be offered at Newcastle for sale in London. 
 Exports to the Continent seem not to have been controlled. A start was made 
 with 800,000 Newcastle chaldrons (about 2,000,000 tons) as a nominal basis; 
 and there was assigned to each colKery a quota on this basis. Say the nominal 
 quota of a colliery was 20,000 chaldrons: if then for any particular month the 
 Vend was fixed at 60,000 chaldrons, it would be entitled to a fortieth of this, 
 i.e. to 1500 for that month. Each colliery fixed its own prices in Newcastle 
 for the year at whatever level it chose : but it might not change during the year. 
 The shippers selected their own coal, and sold at what prices they chose. A 
 series of commissions of inquiry pointed increasingly to the belief that the 
 London consumers' best protection lay in the growing competition of other 
 coal-fields; and this was justified by events. The pretence of the Vend to 
 steady prices was not seriously regarded. It sold cheaply abroad : its coal could 
 sometimes be had in Petrograd at half the London price. Its story has been 
 told many times. Its close similarity to the modern cartel is emphasized in 
 Cohn's Qeschichte dea Verkehr-wesens; while its picturesque side is best seen in 
 Macpherson's Aniuda. 
 
 19—5 
 
586 AGGREGATION, FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 III, XI, 3. leaving coal unworked near the boundaries of adjacent mines. 
 A high limit was to be assigned to the profits which the trust 
 could divide without the sanction of the Board of Trade. The 
 project received much favour: it was abandoned mainly on 
 account of difficulties in detail. But amalgamations have long 
 been in progress in South Wales; where the steam coal is of 
 such excellence as to have a high monopoly value, especially for 
 naval use^. 
 
 Stress has sometimes been laid on the apparent paradox 
 that, while many German cartels owe much of their strength 
 to Protective duties on competitive imports, the strongest 
 German cartel is concerned with coal, which has no such Pro- 
 tection. But in fact coal is defended by its bulk: and the 
 prices of coal along the banks of the Ehine and the Elbe are 
 governed, not by the fiat of the Westphalian Syndicate, but by 
 the prices of British coal, iucluding the low cost of bringing it 
 by sea and river. Its case is in some measure representative of 
 salt and cement — two other products of the earth, which contain 
 but small value in considerable bulk^. 
 
 1 See The British Coal Trade by Prof. H. S. Jevons, pp. 317 to 334. A large 
 and suggestive chart of the various fusions, and communities of interest of the 
 Cambrian Coal Combine, before its recent extensions, is given in the Federal 
 Trade Commission's Report on Cooperation in American Export Trade, vol. i. 
 p. 344. Sir George Eliot's scheme was commended by Prof. Brentano at the 
 KarteUen-EnquSte {Kontradiktorische Verhandlungen, vol. i. p. 749). The diffi- 
 culties that have opposed the formation of effective permanent associations in the 
 British coal trade in recent years are set out by Carter, I.e. pp. 223 — 240. 
 
 ^ The Portland Cement Manufacturers' Association has something approach- 
 ing a monopoly for the finer sort of cement. But its common sorts can be made 
 so cheaply in so many districts, and its cost of carriage is so heavy, that many 
 scattered works for producing them long maintained some partial local mono- 
 poly. The movement for amalgamation however continued and was nearly 
 completed during the war. Its large resources are however used constructively 
 rather than combatively. It educates the public in the uses of cement, and 
 small producers in the technique of their work. Compare above, p. 571 fn. 
 
 Salt is the only important material, other than coal, of which Britain has 
 u predominant supply. It has given rise to a good many semi-monopolistic 
 ventures in heavy chemical industries, based on it; some of which have not 
 prospered. The success of the great firm of Brunner and Mond appears to 
 reflect high technical skill and business abUity, combined with a moderate and 
 steadfast policy. 
 
RELATIONS OF VARIOUS STAGES OF THE STEEL INDUSTRY 587 
 
 4. Plasticity of structure throughout the steel industry, in, xi, 4. 
 Conflicts and harmonies of interest among its several stages. 
 
 The steel industry is so manysided and various, and yet its 
 several stages and branches are so closely associated, that their 
 mutual relations afiord, in Britain as elsewhere, an epitome of 
 almost every kind of amicable association and combative com- 
 bination. They call for strong faculties, careful study and alert 
 action. No nation has imdisputed preemiuence in them. 
 
 If an engineering firm anywhere needs a cutting tool 
 that will bear an extremely high temperature, he must buy it 
 from Sheffield: and yet the tungsten used ia it has come chiefly 
 from Germany; though Germany owns little of the ore from 
 which tungsten is made, and nearly halt the known supplies 
 of that ore are in the British Empire. Again, German cutlery 
 made largely in standardized shapes, which are struck out in 
 the rough by powerful machinery, can be sold for common uses 
 in Sheffield itself; and this result is partly due to British 
 adherence to old tradition: but yet Sheffield skOl makes fine 
 cutlery of such excellent quality that none can surpass it: 
 perhaps none can equal it. Sheffield is the home of some of 
 the most delicate of British steel industries; and also of those 
 which are beyond the range of any but a mammoth business: 
 and Sheffield is in all these respects an epitome of Britain^. 
 
 It has already been observed that the steel industries are 
 of exceptional interest, because they constitute a group, each 
 member of which is a chief customer, and often the only cus- 
 tomer of several other groups. If a cartel ia any one stage pur- 
 sues a restrictive policy, the hurt thence arising may spread far 
 and wide: but its first, and often its chief, effects are likely to be 
 felt in the stage of steel production immediately above it, and 
 — in some cases — in the stage immediately below it. Partly, 
 for these reasons, a steel business can extend vertically upwards 
 or downwards without passing into a different "atmosphere" of 
 technique: much of the additional plant, that it will require, is 
 likely to differ only in detail from some which it has been already 
 using, and perhaps even making. And, with exception for the 
 first stages of the industry, nearly every class of employee that 
 
 ' See above, p. 213. 
 
588 AGGREGATION. FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 III, XI, 4. is needed in the new extension is already on hand. These first 
 stages have in effect become one in relation to some of the larger 
 problems of the future: for the economy resulting from their 
 fusion must gradually overbear all resistance. And yet a man, 
 who has inherited a fairly good business in any one of them, 
 cannot be blamed very severely if he is somewhat slow to realize 
 fully how much it belongs to the past. 
 
 This is no doubt an extreme case: but other stages of the 
 steel industries afford similar, though less striking instances of 
 the increasing need which the present age creates not only for 
 a broad view, but for a longsighted view of business problems. 
 Courage is misappUed when it struggles against the inevitable; 
 as happens sometimes when British iron-masters remodel old 
 works, although they cannot be brought up to the level of modern 
 technique without being recast by aid of additional capital, and 
 on a larger scale. In this connection our attention is called to 
 the fact that "the United States Steel Corporation, which alone 
 controls an output of iron and steel greater than the whole 
 production of the United Kingdom"; and the vast Thyssen 
 Company of Germany, are abandoning the practice of recon- 
 structing a works that has fallen behind. They allow it to plod 
 on, while they set up new works of the most advanced model 
 to take its place: when that is ready, the old is dismantled, and 
 either reconstructed entirely, or abandoned^. 
 
 Somewhat similar cases occur in other industries: the small 
 miller long fought bravely but hopelessly against the giant flour 
 mill; and the small dyer against the giant dye works: but their 
 contests were as hopeless as that of the hand loom weaver in 
 contest with the power loom. And yet their fate may have been 
 in some measure better than his; for in many industries, when 
 the small employer abandons his own works he may hope that he 
 will be ere long "found as a high official of large limited concerns. 
 ...He may not have the hope of large profits: but he undoubt- 
 edly has great uses, in his readiness to adopt and try new things 
 — in the application of his inventive genius, and in the practical 
 knowledge that he himself acquires, through actually working 
 
 ' Report of a Committee on the position of the iron and steel trades after the 
 war [Cd. 9071], 1918, p. 20. This is one of a series, as to which some general 
 remarks will be found on pp. 601 — 2. 
 
RELATIONS OF VARIOUS STAGES OF THE STEEL INDUSTRY 589 
 
 in his own shops and in daily contact with his own men. It is in, n, 5. 
 to be noted that many of the men at the head of great works 
 to-day, in the capacity of directors, have only a theoretic know- 
 ledge of the works they direct, as compared with the practical 
 knowledge which their fathers and grandfathers had before 
 them^." This is one of several ways in which the individuahty 
 of the small business man remains an important asset. More- 
 over, there are good grounds for rejoicing in the fact that the 
 progress of technique, while pushing him out of the main track of 
 many industries, continually opens to him new opportunities, if 
 he will apply energy and resource to developing some speciality^. 
 
 5. Illustrations drawn from the steel indtistry of the 
 national interest in the standardization of products, the 
 intensive specialization of businesses, aiid the maintenance 
 of open markets. 
 
 The advantages, which a business derives from vertical 
 expansion, are chiefly in regard to the organization of its work, 
 and to the economies of marketing. As a rule it obtains few 
 additional economies on the technical side of production: for 
 there results little or no increase in the resources of plant and 
 skill which it commands for any particular task. But it can 
 so adjust the output of its lower stages to the requirements 
 for material of the upper stages, that scarcely anything needs 
 to be bought except for the lowest stage; and scarcely anything 
 needs to be marketed except from the highest stages: while in 
 the special case of a steel business, as has already been ob- 
 served, it is often possible to shift temporarily some labour and 
 some plant from work for one stage to work for another. In 
 any case the higher stages can rely on the quality of the 
 material supplied from the lower, and on its adaptability to their 
 wants; especially if "planning" and "routing" are organized 
 scientifically^- A steel busiuess may even transfer some plant and 
 some skiU permanently from working for one stage to working 
 for another; when the adjustment between successive stages 
 is upset by changes in the proportions of its various products. 
 
 If the business is sufficiently large to contain several sets 
 
 1 Report on the Engineering trades after the war, 1918 [Cd. 9073]. 
 
 2 See above, pp. 244: — 9. ' See above, pp. 369—375. 
 
590 AGGREGATION, IfEDERATlON, COOPERATION : BRITAIN'S PROBLEMS 
 
 III, XI, 5. of organizing brains of the highest quality, each stage may 
 attain to the highest efficiency. But such conditions are very 
 rare: and, on the whole, the elasticity of national energy seems 
 likely to be better advanced when each stage occupies the whole 
 attention of a strong enterprising business. When the total 
 stock of brains of the highest originating and constructive 
 faculty in a business is not very large, the interests of the busi- 
 ness and the country are likely to be best served, if its whole 
 energies are concentrated on a range of tasks not too large and 
 diverse to be completely grasped by one set of minds. 
 
 Variations in process and in product can then be tried 
 without stint, even though a successful issue will efiect only a 
 small percentage of economy: and new ideas, at first crude, 
 may germinate and develop, tiU they become important ad- 
 ditions to economic strength. So vital to Britain's prosperity 
 is the maintenance of full freedom for horizontal, rather than 
 vertical expansion, that the country has a deep interest in 
 defending the home market for everything, that a manu- 
 facturer may desire td purchase, against an artificial manipu- 
 lation of its prices by a cartel. 
 
 Britain's open markets supply the shipbuilder with reason- 
 able security as to his purchases: and so important is that 
 advantage that, as we have seen, Germany exempts steel for 
 ship-building from import duties. Lord Furness tells us, indeed, 
 that "the shipbuilding firms on the [British] coast buy many 
 details in this country cheaper than they can themselves pro- 
 duce them, and yet the manufacturers of these details make 
 very substantial profits. This they do of course by specialized 
 production and concentrated management." Engines and boilers 
 are built by each firm to the requirements of various classes of 
 ships. "Bach builder has some points of excellence, which in 
 combination would... tend to place British construction on a 
 higher plane in the markets of the world. Each has an ex- 
 pensive staff producing designs and patterns identical with 
 those of its competitors^." 
 
 ' From an address delivered in 1908, see Appendix II to Levy's Monopoly 
 and Competition. Progressive standardization in the steel industries is deaoribed 
 above, II, iii, 4. 
 
TECHNICAL AND SOCIAL BENEFITS OP SPECIALIZATION IN STE EL 591 
 
 Standardization of parts can of course be carried very much m, xi, 5. 
 further than can that of the whole of a great complex, such as 
 a ship. But the extent, to which a shipbuilder can rely on a 
 prompt supply at reasonable prices of various classes of material 
 or component parts that he needs, depends in a measure on 
 the standardization of the general type to which he is working. 
 This standardization had been carried far in individual works, 
 before the war, of course chiefly in regard to cargo vessels. The 
 North-east Coast Institution of Engineers and Shipbuilders has 
 been engaged on a genuine task of constructive cooperation while 
 drawing up a "guidance specification": and, of course, in any 
 type of engine, where the general design is similar, the habitual 
 adoption of such a specification would greatly diminish costs^. 
 
 The lack of cooperative standardization in British industry 
 is conspicuous in regard to locomotives. Every considerable 
 railway has its own models, though the materials are to some 
 extent standardized; and it makes nearly all its own engiaes; 
 partly because a railway is able to borrow money for extensions 
 at exceptionally low rates^. 
 
 Passing to another aspect of the problem it may be remarked 
 that the electrical industry owes much of its progress to a few 
 giant businesses; but there seems reason to think that con- 
 structive cooperation in regard to standard details and other 
 matters might hasten the specialization of the numerous works 
 engaged in it in Britain now*. Similar constructive cooperation 
 
 * This paragraph ig reproduced in substance from The Report of the Com- 
 mittee on shipping and shipbuilding industries, p. 33 ; where it is urged that the 
 Government should appoint a Standards Committee of Shipowners, Shipbuilders, 
 and Marine Engineers to carry the work further. It is recognized that local 
 and other variations in the work to be done will require the number of standard 
 types to be considerable. 
 
 * See above, pp. 322 — 3. The Committee on the Engineering trades reports 
 [Cd. 9073], p. 12, that it would be well that "the railway companies should 
 themselves agree upon a limited number of types for their own use, and pro- 
 duce them to a limited quantity in their own workshops, giving to the manu- 
 facturers in this country a reasonable share, at competitive prices, of the types 
 required: and tLus obtaining a reliable check on their own cost of production." 
 The unification of railway control, whether under Government or otherwise, 
 would stay the wastes that are caused at present by the lack of standardization: 
 but it would increase the need for large independent locomotive works, in order 
 to provide some check on the wastes and ineptitude of a huge organization, which 
 has nothing to gain by alert and economic methods of work. 
 
 " The Committee on the Electrical trades reports [Cd. 9072], p. 8, strongly 
 
592 AGGEEGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 III, XI, 5. has done much, and may do very much more, in developing 
 agreements as to standardization, which will enable firms of 
 moderate size to specialize on the production in vast quantities 
 of particular component parts of machines in large use by 
 manufacturers, or in yet larger use by the public. A suggestion 
 has indeed been made that some of the munition plants, set up 
 by the Government during the war, should be sold on easy terms, 
 subject to the condition that they should continue intensive, 
 variously specialized work, similar to that for which they were 
 set up. Such, for instance, might be "the manufacture of ball- 
 bearings, piston rings and spinning spindles.... A motor-car 
 manufacturer can buy, cheaper than he can produce them him- 
 self, his yearly output of, say, 1000 engines of three or four sizes 
 from a specialist producing ten or twenty thousand of the same 
 sizes for ten or twenty car manufacturers. Or take a machine- 
 tool manufacturer, producing a collection of 500 machines of 
 various designs in a year, who has hitherto been in the habit 
 of making all their levers, pulleys, gear, and hand wheels. He 
 may have some automatic or semi-automatic machines for pro- 
 ducing these goods, but a specialist producing such parts for 
 the trade can supply a superior article at a lower price^." 
 
 Specialization of this kind is generally effected automatically: 
 but we are told of a notable recent case in the machiae-tool 
 trade, in which it has been dehberately organized. Ten firms 
 have agreed that, while setting up a common selling agency, 
 they shall retain individual independence, on the understanding 
 that each will limit its production to a single type of machines. 
 This plan seems likely to prove of great national benefit, if 
 generally adopted, with due provisions against excessive mono- 
 poly prices. Under a Protective tarif the economy resulting 
 from the specialization would probably not suffice to prevent 
 the plan from working against the general interest^. 
 
 in favour of the "amalgamation..., or the development of the practice of associa- 
 tion for common purposes" in order to obtain this end. It does not however 
 seem necessary that this association should extend much beyond the organized 
 study and development of standards. 
 
 * See the Times Engineering Supplement, January, 1917. 
 
 * The following details of the plan are given in the Times Engineerijig 
 Supplement for June, 1917: — "the two Birmingham firms will concentrate on 
 the production of light radial drilling machines, certain sizes of m illin g machines, 
 and capstan lathes. The Manchester firms will provide grinding machines (the 
 
TECHNICAL AND SOCIAL BENEFITS OF SPECIALIZATION IN STEEL 593 
 
 The experience of the State in organized specialization of in, xi, 5. 
 work during the world-war is helpful, in spite of the exceptional 
 conditions under which it has been obtained. On the financial 
 side indeed little can be inferred from it: for the State being 
 sole producer and sole purchaser has had no expenses of mar- 
 keting, and little reason to consider whether its products might 
 be left on its hands. Necessity has ruled: and the future value 
 of its factories has not needed to be estimated by skilled account- 
 ants in order to make up scientific cost valuations for its output. 
 But its experiences on the technical side are suggestive. 
 
 Its new works have been scattered wide over the land, partly 
 in order to tap new sources of supply of labour suitable for 
 repetition work. The fact, that it did not find much need for 
 gigantic individual establishments, tends to support the opinion 
 that standardization, specialization and thorough organization, 
 whether automatic or deliberately contrived, may enable a mul- 
 titude of businesses of moderate size to attain nearly every im- 
 portant efficiency and economy that appear at first sight to 
 belong exclusively to giant businesses. But that inference 
 might carry too far, unless full account were taken of the con- 
 centrated power of study and experimentation on a vast scale, 
 which lies at the back of orders given to the munition factories. 
 
 Thus again we are brought to the fact that thought, initiative 
 and knowledge are the most powerful implements of production. 
 In relatively small work, such as that of chemical dyes and 
 optical glass, the main responsibility for them may well rest 
 with a few giant firms: but in larger work they belong to the 
 world as a whole. No one country can make great advances 
 in it in secret: alert rivals are soon able to select the best 
 points in any new departure, and perhaps to improve on some 
 of them. And yet a country, that is content to wait upon the 
 new knowledge acquired by others, will always lag somewhat 
 behind; and her products will hardly obtain fuU credit, even 
 when in fact they are made according to the most advanced 
 technique. For this reason, among others, it seems that the 
 
 work of one firm), millmg machines, and boring mills. The Halifax shops will 
 produce heavy radial drilling machines and the lighter sizes of slotting and 
 planing machines, while the Scottish firms will manufacture the lighter lathes 
 and heavy slotting, planing, and other machines." See also above, II, iv, 4. 
 
594 AGGREGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 III, XI, 5. growth of a considerable number of great firms in all teavy 
 industries, and especially in heavy steel industries, is to be 
 welcomed: the present age offers ever increasing scope for large 
 experiments, of vital importance to progress, which cannot 
 easily be arranged cooperatively; while yet they involve out- 
 lay and financial risks too heavy to be borne by any but a giant 
 business. 
 
 To conclude: — such a growth will of course tend to impair 
 the supply of that individual initiative, which is by far the most 
 important element of national wealth: but that tendency may 
 be relatively shght, if an open field be kept for small businesses 
 in appropriate industries. An important means to that end is 
 constructive cooperation in every fitting matter, and especially 
 in such standardization as will enable the small man to work 
 for an open market. Of course the standardization must be on 
 broad hues; partly because an exceptionally laige part of British 
 manufactures is designed to be sold to peoples of widely differing 
 habits and requirements: and partly because some element of 
 variety is an end in itself in regard to many things designed 
 for personal use; while it dominates nearly all that aim at 
 artistic distinction. 
 
 Moreover the causes, which have impelled American and 
 German steel industries towards extreme aggregation, are at 
 work in Britain. The recent Committees on the iron and steel 
 trades, and on the engineering trades, recommend severally 
 "that British iron and steel manufacturers should be urged to 
 form combinations for the purpose of laying down large and 
 well-designed new units"; and "that in the interests of the 
 country the engineering manufacturers be encouraged to work 
 together in larger units, either by amalgamation or by joint 
 pooling of resources, by speciaUzation of production, and by 
 organization of export sales, and for the purchase of raw 
 materials." There seem to be solid grounds for these recom- 
 mendations, at aU events in regard to some branches of the steel 
 industry. It will be urged later on that many developments 
 thus indicated, are measures of constructive cooperation, free 
 from any suspicion of danger to pubhc interests; though others 
 are in some danger of being perverted to antisocial purposes. 
 They are thus representative of British temper: which is not 
 
EXCEPTIONAL CONDITIONS OF COTTON THREAD INDUSTRY 595 
 
 addicted to militant aggression, but yet sometimes drifts in in, xi, 6. 
 that direction under the pressure of circumstances, and without 
 that deliberate harsh purpose which has been prominent in 
 some German cartels; for indeed self-analysis is not always 
 congenial to the British business man. 
 
 6. A monopolistic tendency in a branch of a great 
 industry, the highways of which are in general free to all 
 comers. 
 
 In the chief branches of the larger textile industries each 
 considerable factory contains several similar groups of rooms; 
 so that it might be spUt up into several factories with little loss 
 of technical efficiency: though there would of course be relative 
 losses in the costs of management, of buildkig, of power (unless 
 power were obtained from central electrical works) and in other 
 ways. Three chief processes indeed — that of wool-combing for 
 making worsteds, and those of dyeing and finishing — cannot be 
 thus subdivided: so they are generally remitted to specialized 
 businesses and these have some opportujiities for semi-monopo- 
 Ustic policies; as to which something more will be said a Kttle 
 later. 
 
 The cotton industry generally offers no special allurements 
 to monopolistic enterprise: but yet Coats' business, entirely 
 British, has an exceptional claim to be regarded as having 
 cosmopoUtan domiaion. Its strength is based in great measure 
 on Lancashire's advantages, both on the physical and the human 
 side, for the apparently very simple tasks of making fine cotton 
 yarn and converting it into thread: she combines indeed an 
 admirable climate for the purpose, and unique manual skill and 
 organization'^- 
 
 The simple art of making cotton yarn into a thread strong 
 enough to take the place of silk and linen threads seems to 
 have been set up early in the eighteenth century near Paisley. 
 It quickly spread among humble foUc; and, early in last cen- 
 tury, two considerable firms were set up there to carry on the 
 business: they soon imited their forces, and they gradually 
 absorbed nearly all their competitors. The great combination 
 thus formed seems to have been managed with abihty and 
 ' This subject will be further considered in the nest chapter. 
 
596 AGGREGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 III, XI, 6. moderation. Its trade-marks have immense value; because as 
 has already been noted, the mischief done by using inferior 
 sewing thread would often be immeasurably greater than the 
 price of good thread; and the ordinary purchaser cannot judge 
 its quality by inspection. It has definite working alliances with 
 the only other great British thread business, — the English Sew- 
 ing Cotton Company, — with the Fine Cotton Spinners' and 
 Doublers' Association; and with the powerful American Thread 
 Company. The "Thread Combine" thus formed is the outcome 
 of consolidations of several groups of firms of moderate size, 
 dominated in great measure by the giant businesses of Coats. 
 It makes no immoderate use of its monopolistic power: but yet 
 some of the measures by which it fortifies its monopoly are 
 perhaps more harmful than appears at first sight: and we may 
 pause a little to consider them^. 
 
 Its home trade is very much smaller than its foreign trade; 
 and it can use either part to assist the other financially and 
 otherwise. It has factories in several countries; and in others 
 it sometimes puts a stop to troublesome competition by a threat 
 to set up factories of its own. Its excellent organization of 
 production and marketing enables it to make vast profits, while 
 selling at prices that leave no very large margin above the costs of 
 a rival. It might then be supposed to be above the temptation to 
 resort to any expedient which is open to criticism^. 
 
 '■ See p. 403. The two great firms of Coats and Clark were fused early in 
 last century: and other firms were subsequently absorbed; though many of 
 them continued to work in partial independence. The task of marketing is 
 committed to a powerful Selling Agency. It even undertakes the marketing 
 of the English Sewing Cotton Company, whose products are similar to its own, 
 though not generally in direct competition with them. The products of Lister 
 and Co., though different in kind, appeal to the same retailers; and are also 
 marketed by it. 
 
 ' It commonly divides thirty per cent, on its ordinary shares : nearly half of 
 its capital is in preferred shares at the almost unprecedented rate of twenty 
 per cent. In defence of this result of course it might plead, that some other 
 businesses are in effect yielding dividends on their original capital at very high 
 rates : but have avoided the appearance of doing it, by enlarging their nominal 
 capital. Its practice of retaining, on various sorts of threads, the names of 
 many firms which have been absorbed by it, causes some consumers to suppose 
 that they have a choice among the products of many competitive firms; and 
 are thus protected. The Committee on Trusts, early in 1920 criticised its methods 
 severely. Its vigorous answer suggests that further investigation may be in- 
 structive. 
 
EXCEPTIONAL CONDITIONS OP COTTON THREAD INDUSTRY 597 
 
 But in fact it makes use of a modified form of that "tying in, xi, 6. 
 clause," which has been a prominent and most evil weapon of 
 monopolistic power in America; and has been vigorously com- 
 bated in the interests of the public. Coats' well-earned repu- 
 tation for thorough and honest work has caused consumers to 
 prefer its goods to others at equal prices: and therefore a firm 
 which has not yet convinced the public that its goods are 
 thoroughly to be trusted, is compelled to offer them at a rather 
 lower price ; being of course content with a lower rate of profits 
 than that which is earned by Coats' goods. If the yoimg firm 
 could prove to the public that its goods are, at all events, so 
 nearly on a level with Coats' products, that they are worth 
 having when sold at a rather lower rate of profit, then it could 
 gradually obtain a place in the market. But Coats refuse to 
 supply any dealer who gives such a firm the chance of doing 
 that; and this action seems to infringe the spirit of the Common 
 Law, which prohibits the entrance to the highway of business 
 from beiQg blocked by a giant aggregation^- 
 
 The name of Coats has dominated this mighty growth: but 
 its case is exceptional. Nearly all the great aggregations in 
 the textile industries have grown out of understandings, passing 
 into federations, and ending ia fusion. This general tendency 
 has already been noted as especially strong in such industries 
 as those of combing wool, and bleaching, dyeing and finishing 
 textile materials^. For each such operation requires generally 
 but little time in the hands of a highly expert staff, equipped 
 with large technical appliances: the market value of an expen- 
 
 * The Drapers' Chamber of Trade ia said to insist on uniformity of retail 
 prices. Perhaps they are right so far as their own interests are concerned; 
 in spite of the fact that their profits on handling thread are naturally low 
 relatively to those on most other branches of their trade. But the huge profits 
 of the Coats' aggregation owe nothing to technical economies of massive pro- 
 duction; and the Drapers' rule, which in effect obstructs the entrance to the 
 industrial highway of firms, who might supply good thread made by the best 
 appliances, being content with a lower rate of profits than that of Coats', ia 
 primd facie opposed to the public interest. 
 
 " See above, p. 232. But mere fusion, without thorough organization and 
 strong centralized control, may bring disaster: as is shown by the strange 
 story of the early days of the Calico Printers' Association. A strong Com- 
 mittee investigated its affairs; and made recommendations for its re-organiza- 
 tion, which form a classical document. See Macrosty, I.e. pp. 144 — 152 and 
 360 — 387. More recently its career has been fairly successful. Its Chairman, 
 
598 AGGREGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 III, XI, 6. sive material is much affected by the efficiency with which it 
 is performed; and textUe manufactuxers gain by paying to a 
 central Association a price that may yield it a high profit, while 
 being less than their own cost for doing the work themselves 
 less efficiently. The tasks are too various to be easily brought 
 under a standard price list by a federation: so they afford ex- 
 ceptionally favourable fields for giant amalgamations. 
 
 speaking on 15 September 1920, claimed that its powerful organization had 
 obtained good results, especially in marketing at great distanoea. But he added 
 that "the recent merging of the two principal firms of English colour makers 
 into one highly capitalized corporation... was to the advantage of neither the 
 colour-making nor the colour-consuming trades.. ..Our objection has from the 
 first been that any scheme aiming finally at the concentration of the dye-making 
 works of the country into one monopolistic enterprise would, in practice, dis- 
 organize the working mechanism and esprit de corps of the firms amalgamated- 
 it would increase the overhead working costs, stifle that healthy rivalry which is 
 one of the main inducements to economical, efficient, and progressive working, 
 and furnish the opportunity for price inflation irrespective of manufacturing 
 costs. We are glad to note that our view is gaining a wider public recognition 
 that the foundations of dye manufacture must be broadened if the maximum of 
 efficiency in production is to be secured." 
 
CHAPTER XII 
 
 AGGREGATION, FEDERATION, AND COOPERATION IN 
 BRITISH INDUSTRY AND TRADE, CONTINUED 
 
 1. Some British textile industries have developed efficient in, xii, i. 
 standardization and specialization almost automatically. 
 
 The broadest, and in some respects most efficient forms of 
 constructive cooperation are seen in a great industrial district 
 where numerous specialized branches of industry have been 
 welded almost automatically into an organic whole. 
 
 The preceding chapter was mainly occupied with the sources 
 of the strength of some giant British businesses. The present 
 chapter and the next will be chiefly devoted to various forms of 
 cooperation, in which there is some constructive purpose; though 
 the desire to get the better of others in buying or selling plays 
 a considerable part La many of them, and develops a strong and 
 even antisocial temper in a few of them. Associations for the 
 purpose of marketing are known to be specially prone to such 
 morbid development: and it is important to insist that they 
 nearly always do some important constructive work; and often 
 do no other. The last chapter will indicate the general bearings 
 of the present work as a whole on the methods by which existing 
 institutions may best be modified and applied for the har- 
 monious development of the faculties of the people, and of their 
 material advantages. 
 
 It will be weU now to call to mind the facts that (1) the 
 partial standardization effected by custom has effected much 
 automatic organization of industry: (2) this organization in- 
 cluded specialization, which in large measure dispensed with 
 
600 AGGREGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 iii.xn, 1. the necessity of any complex arrangements in each individual 
 busiaess, siace the external economies, which even a small 
 business thus obtained, were generally far more important to 
 it than those which the largest business in the world could 
 obtaiQ by its own efforts: (3) recent developments of standardi- 
 zation have greatly increased the security with which a business 
 can rely on getting whatever partly finished materials it needs, 
 provided the market for them is open: (4) German experience 
 shows that the organization of a cartel is possible only in in- 
 dustries whose products are in great measure standardized; 
 and that the fear that the prices of materials, which a business 
 needs, may be artificially raised by cartels inclines it to extend 
 its operations vertically, even when that course would not other- 
 wise appear desirable^. 
 
 Britain was indeed the chief home of the automatic co- 
 operation of many industries; as it was also of the reasoned 
 analysis of the "natural" tendency to such division and organi- 
 zation of labour as is needed to make it collectively efficient. 
 "Observe the accommodation" says Adam Smith "of the most 
 common artificer or day labourer; and you will find that the 
 number of workers, who have contributed to it, amounts to 
 many thousands^." In the present age industry is so complex 
 and products are so subtle, that "hundreds of thousands" may 
 be substituted for "thousands." And it may be added that 
 almost every branch of industry in a western country depends 
 directly or indirectly on hundreds, if not thousands of other 
 branches, at home or abroad, for various parts of its plant and 
 material. In one sense the whole world, in so far as it is in 
 touch with western trade, is a single workshop: in a much 
 fuller sense every compact industrial district is one. 
 
 The modern methods of massive manufacture were pioneered 
 by the textile industries, chiefly using wool as their material: 
 and their advances in automatic organization in England, 
 especially during the seventeenth and eighteenth centuries, 
 have already been studied*. We may now turn to Lancashire, 
 
 ' References in connection with these four points are: — (1) pp. 196 — 200; 
 (2) p. 167; (3) pp. 221—234; (4) pp. 547—549; and 557, 558. 
 * Wealth of Nations, Book i. oh. i. 
 ^ Above, I, m, 5 and Appendix C, 4. 
 
AUTOMATIC ORGANIZATION OF LANCASHIRE'S INDUSTRIES 601 
 
 where may be seen perhaps the best present instance of con- iii.xn, i. 
 centrated organization mainly automatic. Nature had favoured 
 Lancashire with good access to the sea, to coal and to iron; 
 and also with a climate remarkably suited to the great cotton 
 industry. Moreover the character of the population fitted them 
 to develop the engineering industries. Thus makers and users 
 of textile, and especially cotton, machinery have had nearly 
 all the advantages of concentrated effort that could belong to 
 a population of more than a million persons in a single com- 
 posite business; while avoiding the cumbrous network of 
 organization that would be required by it. Therefore dealers 
 of various kinds flock to Manchester from all quarters of the 
 globe; and they are able, by aid of motor cars, to enter into 
 direct contact with makers of innumerable specialities spread 
 over an area of some two hundred square miles^. 
 
 It is generally recognized that the chief economy in pro- 
 duction, as distinguished from marketing, that can be effected 
 by a cartel or other association of producers, is that of so 
 parcelling out the demand for various sorts of the same class 
 of product that each business can specialize its plant on a 
 narrow range of work, and yet keep it running with but little 
 interruption. This specialization is however thoroughly effected 
 without conscious effort in the Lancashire cotton industry; 
 and especially in those branches of it, which are mainly in the 
 hands of a multitude of independent businesses of moderate 
 size. As is well known, fine spinning, coarse spinniag, and 
 weaving are localized separately. Individual firms frequently 
 specialise on a narrow range of counts for spinning. Blackburn, 
 Preston, Nelson and Oldham are centres of four different classes 
 of staple cotton cloths, and so on*. 
 
 ' As is set out more fuUy above, p. 286; see also p. 50. 
 
 " Fuller details are given by Chapman, Lancashire Cotton Industry. See 
 also the Report of a Departmental Committee, appointed by the Board of Trade, 
 to consider the position of the textile industries after the war [Cd. 9070], 1918; 
 pp. 49, 50. 
 
 That Committee is one of several appointed during the pressure of the war, 
 which cover between them the greater part of the chief industries of the coimtry. 
 They are of the very highest authority on the technical matters, with which 
 they are severally concerned: and of exceptional value to economists. But, 
 when regarded from the broader point of view of the collective interests of the 
 nation, they necessarily lack the safeguards which would have been supphed if 
 
602 AGGREGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 in, XII, 1. It has often been remarked that, when any branch of an 
 industry is greatly in advance of foreign competitors, it has 
 nearly as full opportunity to organize itself deliberately, and 
 ultimately to pursue a monopolistic policy, as if it were 
 privileged by a Protective tarif: the case of high-class wall 
 papers is in point. But automatic organization has predomi- 
 nated in the British textiles, and especially in the cotton industry 
 which "by reason of its magnitude and the extent to which 
 specialization has been carried, is probably the most efficient 
 distributing organization in the world": though it is admitted 
 that the alertness, assiduity and knowledge of foreign languages 
 possessed by Germans have given them a large place in this 
 British task. It is admitted also that the minor textile in- 
 dustries often adopt wasteful methods of marketing: and would 
 gain by the adoption of "some form of combined representation, 
 or cooperative selling^." 
 
 Trusting almost exclusively to automatic organization the 
 British cotton industry has surpassed all its rivals in size and 
 
 the ordinary practice in times of peace had been possible during the war. For 
 then the doors would have been open to duly quaUfied witnesses, who might 
 desire to offer supplementary or rebutting evidence to some that had already 
 been given (see above, p. 443). That practice seems to be the only thorough 
 safeguard against such developments of bureaucratic control, sometimes under 
 the influence of particular sectional interests, as are specially dangerous in a 
 democratic country, such as Britain is rapidly becoming. A partial safeguard — 
 the best perhaps that was possible during the war — was provided by a strong 
 "Committee on industrial and commercial policy after the war," on which the 
 several special committees were represented; thus providing for the harmonious 
 treatment of their several interests. But those interests in the aggregate are 
 but a part of the interests of the nation as a whole. It often happens that national 
 interests receive more careful attention in Minority Reports (or Reservations) 
 than in Majority Reports : for the Majority of a Commission or a Committee are 
 generally chosen for their special laiowledge of the matter in question : and they 
 are therefore not always in a position to be wholly impartial. 
 
 ^ The marketing of cotton goods generally is highly specialized. The 
 "shipper" concerns himself with external trade: "he not only forms con- 
 nections in various parts of the world for distributing his yams or goods; but 
 he finances and conducts these goods through their various processes." That is, 
 he buys goods, has them inspected, and sends them out to be dyed and finished 
 on commission. The majority of shippers specialize on markets: as for instance 
 the Eastern, the South American, or the Levant. Yam and grey cloth are now 
 increasingly intrusted to special agents; who represent a number of mills and 
 thus "enable the producer to devote his time almost entirely to works manage- 
 ment and purely industrial questions." (See the Report on Textiles after the 
 War, pp. 117 and 50.) 
 
AUTOMATIC ORGANIZATION OB" LANCASHIRE'S INDUSTRIES 603 
 
 in efficiency. In fact, in those finer goods, which owe most to iii,xii,2. 
 skill and admit of the highest rates of remuneration to labour, 
 it is without a rival. Nor are the woollen and worsted industries 
 of Yorkshire very much behind the cotton of Lancashire: they 
 have indeed many strong rivals in the coarser quahties, and they 
 often follow the lead of Paris in fashion goods; but the most 
 highly valued cloths for men's attire can be made only in Britain. 
 The high automatic organization of these industries, as of the 
 cotton industries, is in great measure due to the fact that their 
 plant is made in their own districts, with constant intercommu- 
 nication of ideas between machine makers and machine users. 
 Nearly the whole of it is of British invention, and sought for by 
 rival industries in other countries. On the other hand the silk 
 industry, for which the damp British climate is not well suited, 
 is on too smaU a scale, to be well organized automatically. Its 
 machinery is said to lag rather behind the best practice of some 
 other countries; and it is inclined therefore to look for artificial 
 aid. Nearly the same may be said of several other minor textile 
 industries^. 
 
 2. Constructive cooperation among hindred businesses, 
 whether independent, or in single ownership and under 
 central control. 
 
 We have seen several reasons for thinking that a giant 
 business in strong hands may do more for the advancement of 
 technique, than is usually done by a number of small businesses 
 with an equal aggregate output; but that on the other hand 
 the giant business does, as a rule, comparatively little to edu- 
 cate high creative faculty: and that, though it has exceptional 
 facihties for marketing, much of the most highly organized and 
 effective marketing in the world is an almost automatic result 
 of the work of a multitude of producers, with only moderate 
 capitals, but aided by merchants and other dealers of various 
 sorts. In the present Section, we are to consider some kinds 
 of associated action, which claim, in eiiect, to unite some of 
 the advantages of these two tendencies of industry: after- 
 
 ' The relations between standardization and specialization in textile and in 
 boot and shoe industries have been discussed from another point of view above, 
 pp. 229—234. 
 
604 ACM3REGATI0N. FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 III, XII, 2. wards we shall pass to methods of associated marketing by 
 businesses which preserve complete independence as regards 
 production; but unite their forces in various degrees for various 
 purposes of marketing, some of which are militant and re- 
 strictive. 
 
 We may begiu with an instance of pxire constructive co- 
 operation, without any apparent drift to use it as a means of 
 maintaining prices at higher levels, than would otherwise prevail. 
 The British Pottery Manufacturers' Association has among its 
 purposes "to deal with the quality, supply, purchase, and control 
 of raw materials and stores, where desirable, in the interests of 
 the members; to deal with aU questions relative to cost and 
 conditions of transport; to consider means of facilitating the 
 extension of export trade; to bring about closer cooperation with 
 the technical arts, and designs sections of the pottery schools; 
 to promote general propaganda, and to undertake advertisiog in 
 connexion with the industry; to consider the best means of 
 encouraging and utilizing improvements, inventions, and patents 
 for the general good and advancement of the industry; to deal 
 with all matters connected with more economical production, 
 including costing; to watch national and local legislation afiect- 
 ing the industry.... Experts are to be appointed, and assistance 
 given to members in overcoming the technical difficulties which 
 constantly arise in so complex an industry; and the Federation 
 has power to purchase, work, and exploit any patents, secret 
 processes, or other improvements in the general interests of the 
 members^." 
 
 Cooperative action in this instance does not seem to involve 
 centralized control: but it must be admitted that the greater 
 part of such action derives its chief coherent force from a cash 
 nexus; in the form either of association for the regulation of 
 prices, or of consolidated ownership. And yet mere associations 
 for the regulation of prices seldom have much constructive in- 
 fluence: their main energies are given to preventing sales of 
 
 ' "To give effect to this extensive scheme, the following Committees, besides 
 General Purposes and Advisory Committees, are being set up : — Wages and Con- 
 ciliation; Supply and Purchasing; Oven, Kiln, and Saggar; Transportation; 
 Advertising and Propaganda; Machinery and Milling; Arts and Designs; General 
 Research; Patents, Inventions, and Improvements; and Commercial Intelligence 
 and Statistical." From the Trade Supplement to the Times, December, 1918. 
 
VARIETIES OF COOPERATION AMONG KINDRED BUSINESSES 605 
 
 certain classes of goods at prices which they regard as unsatis- in, m, 2. 
 factory; and they work, not so much for an increase of national 
 wealth as for a distribution of it specially favourable to them- 
 selves. 
 
 When the importance of "the personal element" on business 
 organization was under discussion, attention was called to the 
 far-reaching influence of a single masterful mind, making itself 
 felt through well-chosen chiefs of departments^. But industry, 
 in passing from the nineteenth to the twentieth century, entered 
 on a phase, in which its aggregations became too massive to be 
 easily mastered by a single man, even in a country as open to 
 new developments as is the United States: and Mr Carnegie, 
 a dominant example of such a mastery, handed over his heavy 
 burden to the United States Steel Corporation. There is less 
 cohesion in the British steel industry; and other industries will 
 afford illustrations better suited to our purpose^. 
 
 The Bradford Dyers' Association is fairly representative. Its 
 business is that of dyeing on commission the products of those 
 textile industries of which Bradford is the centre: so its policy 
 is not troubled by problems of marketing. It cannot indeed 
 claim very much of one economy, which is important in the work 
 of some similar associations — that of saving cross freights by 
 directing each customer to the factory most suitable for his 
 purpose: but this is a small point. It gives each of its members 
 freedom and responsibility in the management of details; while 
 it coUects into its own body a strong force of high business 
 faculty for organizing the whole and for directing the broad 
 policy of each branch. In regard to technical matters, it dele- 
 gates all difficult questions to a capable scientific staff. It pro- 
 vides a uniform system of costing for all the branches; and it 
 buys in large quantities well and cheaply by means of a strong 
 special staff. This may be taken as a fair representative of 
 the methods of industrial associations, whose main purpose is 
 cdnstructive^. 
 
 ^ See above, pp. 362 — 364, especially the footnote on p. 364. 
 ' Notable fusions in the British steel industry are associated with the namea 
 of Armstrong; Viokers; John Brown; Dorman and Long; Palmer and others. 
 ' Constructive cooperation in the improvement of methods takes many 
 
606 AGGREGATION, FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 III, XII, 2. But all such Associations have to face a dilemma : on the one 
 hand, if the stafE of each business, or department owned by it, 
 are paid fixed salaries, they may be found lacking in energetic 
 enterprise; and the case is not much better if their remuneration 
 varies a little with the net profits of the Association. If on the 
 other hand, accounts are kept of the profits made on their own 
 work, and their salaries are varied in accordance with those 
 profits; no direct incentive is given to energetic cooperation 
 for the efficiency and prosperity of the whole. A solution of 
 this difficulty seems to have been found in the plan of the 
 CaUco Printers' Association; under which the "commission," or 
 other bonus, allotted to each business, is made to depend not 
 simply on the net profit shown by its own working during the 
 year; but on that in conjunction with the net profit of the 
 Association as a whole. This plan claims to encourage alert 
 enterprise, while discouraging any poHcy of a branch, which 
 might be detrimental to other branches. Uniform costing 
 accounts can be made a means of indicating relative inefficiency, 
 and stimulating enterprise; especially when several businesses 
 in the Association are engaged on the same kind of work. For 
 a statement of either the minimum, or the average, cost of each 
 process, circulated by the Central Control among the members 
 will stimulate any, whose costs are rather high, to amend their 
 ways. 
 
 Closely akin to this device is the cooperative dissemination 
 throughout all members of an Association, by the Central Con- 
 trol or otherwise, of information as to improved methods, and 
 even distinct inventions, that have been worked out by any of 
 its members. In so far as this community of property in pro- 
 gress merely brings to the more backward members a practical 
 
 forms. Thus skilled technical staffs are kept for this purpose by The British Port- 
 land Cement Manufacturers ; by The United Alkali Company ; by Lever Brothers, 
 and by many others, in whose work science plays an important role. And similar 
 provision is made, where the work is mainly meohanioal. Thus the Fine Cottou 
 Spinners' and Doublers' Association keeps special experts for dealing with every 
 part of a cotton spinning mill, who are too expensive to be employed by a single 
 firm ; but are in effect available for all. The Bedstead Makers' Federation induces 
 its members to assist one another's works by communications for the purposes 
 of comparing, criticizing and improving: and so on. This constructive work 
 must be recognized as socially beneficial, even in those cases in which it is com- 
 bined with an antisocial price policy. 
 
VARIETIES OP COOPERATION AMONG KINDRED BUSINESSES 607 
 
 acquaintance with the best technique that prevails in the iii, xii,2. 
 industry concerned, its effects are wholly good. But though the 
 heads of an independent business may be w illin g to spend toil- 
 some days and anxious nights ia developing an idea, which holds 
 out some promise of greatly raising its status : yet the same men 
 may be rather supine in such matters, if they know that the 
 honour and reward, which may result from their exertions, will 
 belong to the Association as a whole. In short, an Association 
 is an admirable agent for the dissemination of knowledge of 
 technique, and even for its advancement, in so far as that can 
 be done by "team-work": but the spread of Associations over 
 a country might dry up many of the sources of truly original 
 invention. This danger is partly avoided by arrangements 
 which seem to be adopted by the Cable Makers' Association: any 
 member, who makes a distinct advance in technique, is allowed 
 to have the sole benefit of it for a time; or, as an alternative, 
 other members (but no businesses outside the Association) are 
 permitted to use it on terms advantageous to the inventor. It 
 is possible that German competition, as well as German sugges- 
 tion, is in some small measure responsible for some developments 
 such as that of "The Sheffield Cutlery Trades' Technical 
 Society." Electrical manufacturers in their private capacity, 
 and through their Association, are furthering the development 
 of the sciences, in which they are specially interested, by educa- 
 tional endowments and otherwise; and so on. 
 
 As time goes on, such Associations may probably develop 
 many-sided constructive functions in regard to technique; espe- 
 cially in connection with the applications of "Scientific Method" 
 to broad problems of standardization, and costing. Here Ameri- 
 can guidance comes to the front; and indicates that no correct 
 measure of costs can be got by mere inspection of a particular 
 operation performed under given conditions, taken in connection 
 with the rate of payment of the operatives concerned. That 
 measure is well enough for the short run; but, in the long 
 run, the cost of the operation to the employer wiU be in great 
 measure governed by its cost to the employee; that is, by the 
 fatigue caused by it. To make such studies much time and 
 thought on the part of able men are needed; and the results are 
 a valuable property to the whole industry concerned. There- 
 
608 AGGREGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 111,111,2. fore they may best be undertaken by an Association; and the 
 broader the scope of that Association the better^. 
 
 Similar considerations emphasize the importance of a great 
 design to set up a single vast "Association for scientific research 
 in relation to cotton and the cotton industry"; which may be 
 the forerunner of far-reaching changes in Britain's industrial 
 structure. For it aims directly and exclusively at enabling the 
 country to do a large part of her work better and less wastefuUy 
 than she otherwise would do: it has no design of enabling one 
 section of the nation to get the better of others in bargaining^. 
 
 Throughout this volume reference has frequently been made 
 to the need of associated action in regard to the applications of 
 science to industry. The dye industries stand at the head of 
 this account: glass and metal industries come not far behind. 
 There are a few occasions on which the State may properly 
 intervene directly; and the aid which it has given to the 
 formation of the colossal "British DyestufEs Corporation" seems 
 a strong instance of this: but in more leisured times careful 
 study will need to be paid to some questions connected with such 
 a poUcy. For if public assistance is given to a private corpora- 
 tion in acquiring special knowledge, which has a high pecuniary 
 
 ^ Here reference may be made to Efficiency Methods by McKillop, recently 
 published, which gives, in compressed form, an account of scientific management 
 suitable to English conditions. 
 
 * Although it is not yet fully set up, a little may be said about its scheme. 
 Stress is laid on the facts that England's lead in the industry resulted from con- 
 centrated original thought, making use of what little aid could be got from the 
 science of the time : but that latterly scarcely any great creative idea has appeared 
 in the industry; though the progress of science has suggested many questions, 
 the solution of which might render great service. A thorough study of such 
 questions would involve very great expense: and, without neglecting the aid 
 that can be got from Universities and other national resources, a fitting scope is 
 offered for large scientific enterprise on the part of the British Cotton industry, 
 including "growers, spinners, manufacturers, dyers, bleachers, printers, finishers 
 and merchants." It is to collect reports of appropriate scientific work through- 
 out the world; and to set out the results in forms adapted for use by the in- 
 dustry. It is gradually to develop its own Research Institute: and it is to 
 foster solid methods of education in the cotton districts. It is to be strictly 
 "cooperative," in that all will contribute for the general good. None will seek 
 any exclusive advantage for himself; and its purview is so broad, that it may 
 probably develop (with whatever aid can be got from academic laboratories) 
 a full study of the mechanical, physiological, and psychological elements ol 
 strain in every important operation of the industry. See also p. 597 n. 
 
VARIETIES OF COOPERATION AMONG KINDRED BUSINESSES 609 
 
 value, some provision must be made for securing that all, wto iii,xii,3. 
 desire it, shall obtain access to that knowledge on reasonable 
 conditions. This matter is difficult, because competitive in- 
 dustries in other countries might endeavour by various means 
 to obtain it for their own use, without giving anything in return: 
 and yet no sufficient provision for the avoidance of undue dis- 
 crimination would be afforded by the rule that the corporation 
 should be prepared to absorb any considerable business that 
 desired to have access to its results. 
 
 This is indeed but one side of a difficulty, which the world 
 has ia part outgrown, and may outgrow altogether. Even now 
 science is so far cosmopolitan, that progress, made anywhere, 
 quickly becomes the basis of new advances everywhere. And it 
 is possible that scientffic industries might advance all the more 
 rapidly, if an international agreement were reached to the efEect 
 that every State should endow research for the purposes of 
 industry, in proportion to its industrial strength: and provide 
 that aU knowledge to which its aid contributes, shall become 
 public at once. A league of all nations for such purposes might 
 aid in the building up of a wide international comity^. 
 
 3. Some minor functions of producers' associations. 
 
 Automatic organization is stiU the chief origin of standardi- 
 zation of product, speciahzation of task, and the advancement of 
 knowledge in relation to industry; and indeed its action becomes 
 ever stronger and more rapid. But yet its influence is being 
 increasingly overshadowed by those of far-reaching forethought 
 and carefully planned organization. A good instance for our 
 present purpose is that of cost-accounts. 
 
 Truly scientific cost-accoimts are indeed not yet in sight: no 
 near approach to them can be made by any sHght effort; and 
 they are not likely to be attained save by several generations of 
 hard work. But the rate of progress has been much increased 
 
 1 In regard to public institutions for this purpose in Britain reference may 
 be made (partly on the basis of Benn's Trade as a Science, p. 132) to the 
 National Physical Laboratory, the Leather Sellers' College, the Imperial College 
 at Kensington, and the proposed Institute of Technical Optics at Clerkenwell. 
 Staffordshire has her Design and Industries Association, and Manchester her 
 School of Technology; Leeds and Bradford make special provision for the 
 Woollen Industries; and so on. This incomplete list may probably be more than 
 doubled in a few years. See also above, pp. 99 — 102, and 131 — 135. 
 
610 AGGREGATION, FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 III, XII, 3. by the prominence, which the financial unity of many semi- 
 independent businesses imder a central control has given to 
 flagrant diversities among the methods of cost-reckoning, that 
 are to be found even in similar businesses^. 
 
 Another direction in which producers' associations are likely 
 to work for the public good is that of reducing unreasonable 
 additions by traders to the prices which producers receive. Many 
 of the services rendered by middlemen are of vital importance, 
 and are fully worth the costs incurred for them: but ia some 
 cases, the number of middlemen is in excess of the real require- 
 ments of their work: and they earn goodly incomes by large 
 additions to the prices of comparatively small quantities of 
 goods that pass through their hands. Then there is need for a 
 remedy; and none can apply it so well or so thoroughly as an 
 association of producers : but this power gives large opportunities 
 for action, which benefits particular sections of the nation at the 
 expense of others; and thus is often the more dangerous to 
 public welfare, the more attractive it is to those who wield it: 
 to this matter we now pass^. 
 
 1 This ia an instance of the rule that the progress of knowledge must generally 
 wait on an extension of conscious ignorance. (See above, II, xi, 1; also Ap- 
 pendix A, 1.) The Ministry of Munitions has had unusual opportunities for 
 comparing, contrasting, and improving the methods of cost-accounts. 
 
 It is well known that no method of cost-accoimts can be perfectly adapted to 
 aU industries nor even to all businesses in the same industry. But the advantages 
 of uniformity in this matter are so great that it might be well to set up officially 
 several standard methods, indicated perhaps by the letters A, B, C, etc. Each 
 such method might have several minor variations, properly numbered in regard 
 to specific points: the chief of these might be the methods of distribution of 
 particular items of general, or overhead, costs among particular products. Such 
 an order having been set up by Government or by other means, investigations 
 for the purpose of assessing income tax etc. would be facilitated by a statement 
 of the particular standard method employed, and of any minor variations as to 
 specific points. The Industrial Reconstruction Council has already issued an 
 able and helpful paper by Mr M. Webster Jenkinson on Tlis Workers' Interest in 
 Costing : and the Federation of British Industries is rendering excellent service 
 to the country by its work towards a consistent system of cost-accounts for 
 general use. 
 
 ^ It is known for instance that the prices, which makers of wall-papers 
 receive from merchants, have sometimes been doubled before they reach the 
 decorators; and doubled again when sold to the public. Of course wall-papers 
 come in varying degrees under the class of fashion and fancy goods, in regard 
 to which the profit on the turnover must be very high (see above, pp. 281 — 2). 
 The enormous additions, which are made to the prices of fish received by the 
 fishermen, are sometimes attributed to effective combinations among a larger 
 
PRODUCERS' ASSOCIATIONS FOR CONSTRUCTIVE MARKETING 611 
 
 4. Associations of producers for constructive worJc in ni,xii,4. 
 marheting; especially in connection with export trade. 
 
 The business of marketing in the present age differs from 
 that of earlier times chiefly in matters of detail: though the 
 business of production has been for the greater part so revolu- 
 tionized as to be almost unintelligible to an able industrialist, 
 even of the eighteenth century, if he could come to life again. 
 But the slowness of progress of marketing has increased its ap- 
 parent relative "importance," when that is measured by the 
 amoimt of occupation which it affords to the population. The 
 new age has set mechanical power to do most of the hard work of 
 production. But the burden of marketing must stiU be borne 
 mainly by men: and the present tendency of associated effort 
 to become broader, and to reach further, in marketing, than in 
 makiug, is in great measure the result of natural causes^. 
 
 So compelling are the present developments of technique, 
 and the intensity of international competition, that prudence, 
 as well as courage, calls for freedom for all kinds of association 
 that can render important services, even though they are liable 
 to be turned to evU accoimt. But the larger that freedom, the 
 more urgent are the duties of students to examine, and of 
 Authority to control probable abuses of the opportunities offered 
 by it: and these abuses are more closely connected generally 
 with the operations of marketing, than of production. This need 
 for caution seems to be recognized in the guarded statement 
 of the Committee on commercial and iudustrial policy after 
 the war, that "It is very desirable that in all important British 
 
 number of intermediariea than the trade reaUy requires. The time is not ripe 
 for agreements among fishermen to sell only to traders, who would undertake to 
 keep prices to retaOers and to the public at reasonable amounts : but such tasks 
 may not prove too heavy for a later age. Reference may again be made to some 
 details of marketing discussed in Appendix J. 
 
 '■ The chief influences of modem technique on the methods of marketing 
 liave come through the printing press, through rapid transport, and through 
 long distance communications by telegraph and telephone. 
 
 It is true that in earlier times a large part of the population spent some time 
 in marketing; but nearly every small trader made most of the things which 
 he sold; and was in fact a producer rather than a trader. That habit has few 
 survivals now: few traders produce any considerable part of what they sell. 
 A generation ago the baker differed from most other shopkeepers in selling chiefly 
 his own products : but even he is now often merely a trader, selling wares made 
 in a huge factory. 
 
612 AGGREGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 III, III, 4. industries there should exist strong, comprehensive, and well 
 organized associations, which should be clearing-houses of in- 
 formation of common interest, and should be competent to voice 
 the opinions and the needs of their respective trades as a whole^," 
 Some of these purposes are served fairly well by Chambera 
 of Commerce, especially such as represent the homes of definitely 
 localized industries: and larger problems of industry find theii 
 place among the manifold affairs of Chambers, when meeting in 
 Association. But there yet remain great gaps in the work to 
 be done: and accordingly the "Federation of British industries" 
 has set itself to promote the formation of representative Asso- 
 ciations for particular industries; "to collect them and their 
 leading members into a central federation for dealing with 
 matters of common interest to aU industries, and for mutual 
 support"; to allot to each industry or trade a duly propor- 
 tionate "voice in the discussion and decision of questions of 
 common interest"; and thus to give elective "assistance in the 
 promotion and development of British trade." The groups, 
 which it represents, include the greater part of the adult popu- 
 lation, but they do not include all. Nearly every group and 
 sub-group, included in it, has direct interests in promoting 
 the importation of some products, and is apt to be more or less 
 jealous of the importation of others: but that considerable part 
 of the adult population, which is not included, has seldom any 
 direct reason for such jealousy: and yet the chief burden of the 
 wastes caused by jealousies among the various groups of pro- 
 ducers and traders falls ultimately on that large non- vocal group'. 
 
 Britain's industries have a larger concern than those of any 
 other country in external trade: and a special interest attaches 
 to the work of Associations of her producers for organizing the 
 direct sale of their goods through their own agents. The work 
 is primarily constructive; though it may develop militant ten- 
 dencies to meet the competition of rival exporters from other 
 industrial countries. 
 
 » [Cd. 9035], 1918, p. 35. 
 
 ' The Eederation aims at developing the efficiency of each group; at smooth- 
 ing away any frictions that may arise among groups, or perhaps sub-groups; 
 at supplying to Government wise and weU-balanoed advice in regard to its choice 
 of representatives of particular groups ; and in other ways of national importance. 
 
PEODUCERS' ASSOCIATIONS FOR CONSTRUCTIVE MARKETING 613 
 
 Not long ago Britain's exports, like those of other countries, iii, m, 4. 
 were in the main sold at chief ports, or other cities, to local 
 traders, who raarketed them in detail: and her imports were 
 bought chiefly at similar centres. But now improvements in 
 the internal communications of even backward countries enable 
 an enterprising British or German merchant, or an agent of a * 
 
 manufacturing business, to penetrate far into the interior. So 
 energetic are the tentacles of trade which each great industrial 
 country is throwing out, that no one can long hold his own if 
 he neglects opportunities that are thus open to all: and there- 
 fore the importer must seek to sell his goods ever nearer to the 
 ultimate consumer; and the importer must seek to buy his raw 
 products ever nearer to the original producer. Meanwhile ia- 
 ternational competition develops in backward countries, as well 
 as in those where competition has always been active; and the 
 trader must be increasingly alert to meet rivals who bring to 
 bear in the competition a more thoroughly organized energy and 
 a larger capitalistic force than were often met in earUer times. 
 He mUst even be on his guard against obHque strategy^. 
 
 Accordingly America's Federal Trade Commission suggests 
 that cooperation in her export trade is needed to meet the com- 
 petition organized by the six hundred German cartels; and by 
 associations of manufacturers in various British industries de- 
 signed "to handle their business in certain important markets, 
 and to carry on an aggressive campaign for its extension.... It is 
 against such organizations as these, uniting powerful groups of 
 foreign concerns, backed by great banks and aided by railway 
 and ship lines, and assisted by foreign Governments, that 
 hundreds of comparatively small manufacturers and producers 
 must compete if they engage in export trade^." Therefore the 
 
 ^ This may be illustrated by an extreme instance. When the great war 
 broke out, a German advertising agency had bought the sole control of the 
 advertising space in eighty-one principal Italian newspapers ; together with the 
 right to veto, without reason given, any announcement in the news columns 
 which might be disagreeable to it. Such warfare cannot be met by an indi- 
 vidual producer or trader: but it may be in great measure met ultimately by 
 organized efEorts on the part of all industrial countries; and then all of them 
 will be a little poorer than it the warfare had never begun. (See Times, Trade 
 Supplement, September, 1918, p. 136.) 
 
 ' Report on cooperation in American Export Trade, Part I, pp. 5, 6. See also 
 an article on " Export problems and American foreign trade policy," by WiUiam 
 Notz, in The Journal of Political Economy, February, 1918. 
 
614 AGGREGATION, FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 iii,xn,4. Commission, while repressing all competition within the United 
 States, which "restrains trade, substantially lessens competition, 
 or tends to create a monopoly"; yet recognizes that a strict 
 enforcement of this principle on American traders might be op- 
 pressive, when they meet the assaults of German and other com- 
 * petitors, whose methods are unrestrained. It therefore proposes 
 
 "to allow American firms to cooperate for export and to permit 
 the use of certain methods abroad, which are legal in foreign 
 countries, but are not permitted in the United States." It 
 urges that the tasks required in the export trade are often too 
 heavy to be borne by individual producers; whUe merchants 
 may lack the technical knowledge and special interest needed 
 for making the most of goods that lie outside of the ordinary 
 course of trade. Cooperative organizations "can afford to 
 advertise, to study foreign demands and customs, to make 
 demonstrations, — to collect credit information, and to extend 
 credit^." 
 
 These considerations tend to show that, if a business desires 
 to extend its export trade, and is for any reason not content 
 with the services rendered to it by merchants, it has a strong 
 claim to be allowed to unite with others in hke position in a 
 Federation for the purpose; and that a relatively free hand may 
 be allowed to the Federation. 
 
 An agent appointed to control the export trade of a giant 
 business in a large market has some exceptional advantages. 
 He can have a thorough technical knowledge both of the goods 
 which he handles, and of the requirements and tastes of local 
 traders and consumers in regard to them. He can recommend 
 that certain goods be ofEered, temporarily at least, at prices that 
 
 * Accordingly Congress passed in 1918 an Act ordaining that existing laws 
 " shall not be construed as declaring to be illegal an association entered into for 
 the sole purpose of engaging in export trade,"... provided its effect "is not in 
 restraint of trade within the United States, and is not in restraint of the export 
 trade of any domestic competitor of such association.. .and does not intention- 
 ally enhance or depress prices within the United States of commodities of the 
 class exported by it, or substantially lessen competition." It orders that when 
 the Commission "has reason to believe that any association violates the Act, it 
 shall require its officers to appear before the Commission; and, after investi- 
 gation, to issue appropriate recommendations." If they are not adopted, the 
 matter is to be referred to the Attorney-General for " such action thereon as he 
 may think proper." These details are given, because they suggest lines on which 
 Britain may find it advisable to move in the near future. 
 
PRODUCERS' ASSOCIATIONS FOR CONSTRUCTIVE MARKETING 615 
 
 do little more than cover costs; on the ground that, though they iii,xii,4. 
 have not yet attracted the attention of his market, they are 
 likely to obtain a strong position there, when their use has be- 
 come familiar: and so on. But even a giant business cannot 
 afiord to have a strong representative in every overseas market. 
 
 A great association of producers may however maintain a 
 number of competent agents; though they indeed will not 
 always have an intimate knowledge of each of the various pro- 
 ducts committed to them. But, much friction is caused when 
 an agent of an association is found to have sold a larger propor- 
 tion of goods supplied by one member of it, than of similar goods 
 supplied by another. Even the tireless assiduity of German 
 cartels has not fully overcome this difficulty, except in regard 
 to simple half-products, so completely standardized, that a 
 Syndicate can become the owner of the whole output of its 
 members; and, after selling that in different markets at such 
 prices as seem best to it, can divide out the net proceeds pro 
 rata. 
 
 But several partial solutions of the difficulty are now on trial. 
 For instance, in the Engineering industry, some small companies 
 have been set up by particular groups of manufacturers, for the 
 purpose of pushing some of their wares in particular countries; 
 the selection being so made that none of the goods handled by 
 any one are competitive: each manufacturer can give his own 
 instructions as to the prices to be asked for the goods. The 
 home manufacturer has to give credit: the companies "have not 
 adopted the system of merchant houses of paying for the goods^." 
 
 A bold extension of this plan appears in the setting up of 
 a vast central Association, which is to appoint an "Agent-in- 
 Charge" of each important overseas district: he is to assign to 
 particular agents under his control the care for certain products 
 of particular members of the Association; subject to the con- 
 dition that no one agent is responsible for two products which 
 compete with one another. On that plan each manufacturer 
 can issue what instructions he likes as to his own goods^. 
 
 '■ Report on the engineering trades [Cd. 9073], p. 19. 
 
 * Tliis is the plan of the "British Manufacturers' Corporation," recently 
 founded by Sir Charles Mandleberg. "The Agent-in-Charge in each country 
 must necessarily be British, and possessed of commercial experience and 
 
616 AGGREGATION, FEDEEATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 iii,xn,5. Meanwhile trade between Britain and her overseas kindred 
 is being fostered by "Trade Commissioners," each of whom has 
 the duty of keeping British producers and exporters in touch 
 with the conditions of that part of the Empire, to which he is 
 assigned. This important work has a broader, but perhaps less 
 penetrating and thorough influence, than the intensive methods 
 which we have been considering^. 
 
 5. The strength of the semi-automatic organization of 
 export trade by independent merchants: functions of hanh 
 in relation to the trade. 
 
 Large as are the tasks which may be accomplished by 
 Associations of manufacturers, or other producers in developing 
 export trade, room will probably continue to be found for the 
 services of the merchant in organizing and financing it: the 
 merchant may have done in the past much that should have 
 been done by the producer; but there seems some danger that 
 the pendulum, which has swimg too far in one direction, may 
 swing too far in the opposite. 
 
 knowledge of the language and trading customs acquired by previous residence. 
 Of high commercial standing, hia position and prestige would give him influence 
 in checking chicanery, securing the best selling agents for exclusively Britiah 
 goods, commanding the best legal services for members of the Corporation, and 
 obtaining advanced news of likely trade openings." He would have a con- 
 siderable staff: and he "would recommend and appoint selling agents for 
 members when desired, either for single firms, groups, or combinations, so 
 arranging that competing firms would not be represented by the same agent. 
 After appointment, selling agents and manufacturers would conduct their busi- 
 ness direct, the Agent-in-Charge only intervening in emergencies, power of 
 attorney being given to him to act in disputes." Thus every manufacturer 
 "would be put into a position for getting into direct touch with his foreign cus- 
 tomers. He would get to know their precise needs on the one hand, and, on the 
 other, he would be able to put before them his entire range of products." While 
 these remarks were passing through the press, it was announced that this 
 Corporation had been fused with the Federation of British Industries; see above, 
 p. 012. 
 
 ' "A Trade Commissioner stationed in any Dominion or Colony, and re- 
 sponsible for a particular area, has to make himself fully conversant with:— 
 ( 1 ) The Business Houses trading in his area, as well as the local manufacturers 
 and public bodies. (2) The quantity and value that the country purchases of 
 articles which the British manufacturer and merchant can supply. (3) The 
 tariff and customs regulations for goods entering the country. (4) The foreign 
 goods competing with British, their method of sale, their character and price. 
 (5) Freights and charges and the comparative rates between British ports and 
 foreign ports serving his area." (The Board of Trade Journal, April, 1918.) 
 
STRONG POSITION OF MERCHANTS IN GENERAL TRADE 617 
 
 A great merchant is likely to be a man of larger capacity 111,111,5. 
 than is generally to be found among salaried officers of a corpo- 
 ration. The variety of his operations gives opportiinity for a 
 broad study of character and conditions, and is of especial use 
 in the difficult and important task of deciding where credit may 
 safely be given: while the knowledge, obtained in each class 
 of his many-sided dealings, serves him in others. He works 
 for gain: but he generally benefits his country. His personal 
 coimections, as well as his patriotism, incline him to give pre- 
 ference to home goods, other things being nearly equal. If 
 British producers fall in any respect behind their competitors, 
 it is in their own interest, and that of the country, that they 
 should be warned to bestir themselves. There are nearly always 
 some producers who are capable: the merchant is specially able 
 to select them; and, by so doing, he advances the industry to 
 which they belong: an alert and wise use of his discretion may 
 in the long run be of even greater benefit to his country than 
 to himself. No doubt he sometimes selects products of some 
 country other than his own, as the best suited for his purpose: 
 but he is not very lilfely to do that, unless the corresponding 
 industry in his own country is either not yet fuUy developed, or 
 somewhat somnolent, and in need of a hint to amend its ways. 
 It is however true that a special agent may be expected to send 
 home some account of the reasons for any preference shown 
 to rival goods; and a merchant seldom does as much. 
 
 It is to be remembered that the modern age calls increas- 
 ingly for the concentration of thought, as well as of plant, on 
 relatively narrow ranges of thorough specialized work : and there 
 is therefore a certain presumption in favour of the relegation 
 by the producer to the merchant of as much of the work of 
 marketing as possible. Any reverse movement at the present 
 time needs to be supported by very strong arguments; and it 
 is to be noted that both German cartels and American giant 
 businesses delegate as much of the work of detailed marketing 
 as is practicable to semi-independent corporations or dealers: 
 also .that the merchants that act for German cartels are often 
 liiemselves cartellized. Also the multiplication of Associations 
 of business men must increase the time which they divert from 
 action to talking and hearing others talk: it often happens that 
 
 20 — 5 
 
618 AGGREGATION, FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 in, XII, 5. the least progressive of them find most leisure for talk, and 
 exercise an undue influence thereby. The British habit of con- 
 centrating the day's work into a few hours of high strain in- 
 creases the evil, that arises everywhere from frequent attendance 
 at meetings, which must necessarily be long^. 
 
 It is to be noted also that the merchant supplies a part 
 of the capital, needed to "carry" produce on its way to the 
 ultimate purchaser: and that he has special facilities for sup- 
 plementing his own resources. It is true that the producers 
 as well as the merchants can draw command over capital from 
 Lombard Street for the purpose of financing some classes of 
 their export trade: but that course is not always available in 
 regard to goods sent to a producer's agents in distant lands for 
 sale there^. 
 
 On the whole we may perhaps conclude that there are many 
 cases, in which agents of a producers' association may market 
 abroad particular classes of goods with more intimate technical 
 knowledge, and perhaps with more assiduity than are generally 
 to be found in the independent merchant: but that yet the 
 advancement of a country's export trade must in the main 
 depend on his judgment and enterprise. 
 
 British banks serve the common interest by drawing com- 
 mand over capital from branches in residentiary districts, and 
 
 ' In one important case this delegation has led to an increase of concen- 
 tration. For the United States Steel Corporation, having set up a huge corpo- 
 ration, "Steel Products," to market its products, went further, to invite inde- 
 pendent steel works to use its services. They have generally adopted this 
 suggestion; and nearly the whole of America's steel output is sold through a 
 single channel. The immediate economy and efficiency of the plan are obvious; 
 but time alone can sliow whether it is free from latent disadvantage. 
 
 As to German practice, the Report on Cooperation in the American export 
 trade (Part I, pp. 98 — 114 and Part II, pp. 3 — 89) is exceptionally full of sug- 
 gestive information. In many oases the merchants, or associations of merchants, 
 through whom the sales are effected, are so tied down by regulations as to the 
 additions made by them to the prices at which the cartels hand over goods to 
 them that they may almost be regarded as agents of the cartels. 
 
 * Of course a merchant, who stocks goods on a large scale, may sometimes set 
 his own brand on them : but producers admit that he tends to steady the market 
 by absorbing goods, when other demands are slack; while he can deliver more 
 quickly than the manufacturers can do unless they keep large stocks themselves. 
 Again he sends them larger and more regular orders than they might otherwise 
 obtain, and saves them a vast amount of detailed work, which might hinder the 
 application of their energies to that work which specially belongs to them. 
 
STRONG POSITION OF MERCHANTS IN GENERAL TRADE 619 
 
 lending it out in manufacturing districts; and the requirements iii.in, 5. 
 of the export trade reinforce suggestions already made (see above, 
 II, IX), in regard to the interests which the public has in the 
 extension of the scope of work of British banks. While those 
 services, to which they devote most of their strength, are of 
 unapproached excellence, they make little attempt to rival 
 German, or even American banks in the direct furtherance of 
 the larger ventures of industry. By limiting their operations 
 to a multitude of relatively small risks, they are enabled to 
 base their advances chiefly on capital deposited with them; and 
 therefore to return extremely high dividends on relatively small 
 paid-up capitals. There are therefore some strong arguments, 
 both of equity and of national advantage, in favour of the exer- 
 tion of a slight pressure on them, by legislation or otherwise, 
 tending to increase the ratio which their paid-up capitals bear 
 to their total liabilities. They could then, with safety to them- 
 selves and their depositors, undertake a rather greater share 
 than they do now of the larger responsibilities of the country's 
 business abroad, as well as at home, while they would still 
 cover so great a part of their liabilities by fluid assets, as to be 
 certain of the ability to meet promptly further larger demands 
 that might be made on them. 
 
 Like many German and other great banks, they might thus 
 be inclined to hold on their directorates, or in their employ- 
 ment, a considerable number of men in the early prime of hfe. 
 Each would select such as had direct knowledge of those matters 
 of industry or trade, to which it was devoting special attention; 
 and would require them to give at all events the greater part 
 of their time to the work, in return for commensurate remunera- 
 tion by salary or otherwise^. 
 
 ' Sir Charfea Addis, in a notable article in the Edinburgh Review, July, 1918, 
 points out that a mere technical expert would not be in place on the Board : but 
 should advise financiers on the technical side of a project. He indicates that 
 some German banks are burdened by imdigested securities through having 
 neglected this caution. 
 
 He remarks that the London floating loan market averages £m.300 of bills 
 under discount, together with £m.lOO lodged by bUl brokers with banks as 
 security against loans : and that the variety, extent and elasticity of its resources 
 are mthout a parallel elsewhere. And yet it is over-susceptible : because too large v 
 a part of those resources belong to its customers, and too little to its owners. ^ 
 
CHAPTER XITI 
 
 AGGREGATION, FEDERATION, AND COOPERATION IN 
 BRITISH INDUSTRY AND TRADE, CONTINUED 
 
 III, XIII, 1. 1. The regulation of prices hy associations of producers. 
 
 It has already been argued (above, II, n, 4) that there is 
 little fundamental difference between sellers' monopolies, and 
 buyers' monopolies: that in many cases a mere change of wording 
 wiU enable what is commonly regarded as a sellers' monopoly 
 to appear as a buyers' monopoly; and that, even where thia 
 cannot be done, there is no general principle by which it can 
 be decided whether a sellers' or a buyers' monopoly is likely 
 to be the stronger. A federation of producing businesses is 
 often a monopolistic seller of products; and, though more rarely, 
 a monopolistic buyer of materials or of plant^. 
 
 These considerations suggest that many of the most im- 
 portant applications of the principles, to be discussed in this 
 chapter, relate to the "marketing" of labour and of employment, 
 rather than of material goods: but their study must be post- 
 poned to another occasion; because the various elements, and 
 especially the "human" elements, which enter into them, are 
 large and various. It may however be well to note at once that 
 the class-selfishness to which some capitalist-producers are 
 tempted when they see the way to raising prices by associated 
 
 ' It may appear as a monopolistic buyer of skilled labour of a certain sort: 
 but when the labour required in an industry is of a highly specialized kind, 
 while the plant available is more than adequate for the existing stock of that 
 labour, an association of workers may have the upper hand as a monopoly of 
 sellers. If the bargain be regarded as one for the purchase of employment, 
 instead of for the sale of labour, the workers become the buyers; but the essential 
 features of their monopoly are unchanged. 
 
TRANSITION TO POLICIES OF PRICE-REGULATION 621 
 
 action against other producers, and ultimately against the iii, xm, i. 
 general public, sometimes does more harm through its indirect 
 than through its direct results. For trades unionists often 
 understand the matter better than the public does; and in con- 
 sequence are less willing than they otherwise might be to forego 
 a strategic advantage in response to a plea that it would cause 
 more hurt to the nation than benefit to themselves. Conversely, 
 employers' associations for the regulation of wages have some- 
 times been turned to account for antisocial regulation of prices. 
 Concerted action, on the lines of the Whitley Report, as to 
 which a little will be said soon, will probably work for good in 
 these matters, though it is not without its dangers. 
 
 The main principles of cartel-like associations have been 
 discussed in Chapters ix and x; and what has to be said now, 
 turns chiefly on difEerences between the German and the British 
 peoples in character and in methods of organization. British 
 associations, or cartels, are less under the influence of mihtary 
 discipline, and generally less harsh in their methods than 
 German: but, as we shall see, their task is increased by the 
 presence of many old firms with inherited plant and traditions. 
 
 The relatively mild policy of British steel Associations gave 
 great freedom to each business to choose its own lines of develop- 
 ment. While such powerful and enterprising businesses as those 
 of Armstrong and Vickers were content to buy the steel on which 
 they worked, there was no over-mastering advantage in deep 
 vertical expansion similar to that, which threw the dominion of 
 the German steel industry into the hands of a relatively small 
 group of giant capitalists; since none others could reach out to 
 such expansion : so that cartel policy inevitably strengthened the 
 strong relatively to the weak. But, human nature being what 
 it is, association which is knitted tightly together in constructive 
 work, often develops common militant action; and in this case 
 it is liable to be turned towards restrictive combination of the 
 harsh German tjrpe. 
 
 Britain's control of the tin-plate industry is no doubt the 
 result of several causes : but the chief of these has been that those 
 engaged in it could make sure of obtaining the steel bars needed 
 by them at reasonable prices. Associations to regulate these 
 
622 AGGREGATION, FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 iii,xm, 1. prices were not indeed absent: but they were not tyrannical; 
 and indeed they could not raise prices much above those in the 
 world market, as importation was free. So the German tin-plate 
 industry which probably might have kept on at about even pace 
 with the British, if the price of steel bars had hot been raised 
 against it by a cartel, was left far behind^. 
 
 Larger questions are opened up when we come to the relations 
 between the steel industries and the shipbuilding industries. 
 The steel industries are reasonably jealous of any appearance 
 of monopolistic discrimination in the freight charges by railways 
 or shipping companies, which seem to favour foreign customers; 
 who might divert traffic from them; they complain sorely when 
 rather higher charges are maintained for home producers, who 
 have no alternative course by which to escape*. Reciprocally, 
 shipbuilders complain that "the Steel market is largely con- 
 trolled by the Steelmakers' Associations, which regulate both 
 prices and area of supply": they say that though "the Combmes 
 have not hitherto been able to exercise any very great influence 
 in raising prices, owing to the existence or imminence of foreign 
 competition," yet "in certain specific cases combines have taken 
 full advantage of their position, when foreign competition was 
 excluded": the last five words are noteworthy'. 
 
 In fact though numerous verdicts in favour of faciUties for 
 regulating prices by combination can be obtained from particular 
 industries, so long as each is thinking chiefly of the prices which 
 it receives; such verdicts cover only a part of the ground. What 
 one branch of industry gains by such regulation is apt to be 
 more than lost by another branch which buys from it, except 
 in so far as the loss can be shifted on ultimate consumers: and 
 they are indeed often the main losers. 
 
 • See Jones, The tinplate industry, cha. vn and ix: also Levy, Monopoly 
 and Competition, p. 205. Experiments in the vertical fusion of steel-bar and 
 tin-plate making have not prospered ; partly perhaps because German steel-bar 
 makers were selUug cheaply abroad bars for which German tin-plate makers had 
 to pay high prices. 
 
 ' See Beport on iron and steel trades, pp. 34 — 6; and Report on engineering 
 trades, p. 31. 
 
 ' Report on shipping and shipbuilding industries, p. 26; and Report on 
 engineering trades, p. 31. 
 
CONSUMER DEFENCELESS AGAINST NETWORK OF CARTELS 623 
 
 2. When marhets are perfectly open, the interests of the iii.xm.s. 
 general public are defended in great measure hy the alert 
 watching of producers in each stage of industry against 
 undue raising of the prices of their plant or material : hut 
 this defence is impaired when the price in each stage is 
 arranged by a combination of producers in it. 
 
 Associations of producers are liable to develop price policies, 
 of which the chief purpose is to stay dissensions in the group 
 affected, and to introduce harmony and good-will where sharp 
 competition formerly prevailed. Concord is indeed obtained 
 within a section of the nation: but generally at the expense of 
 injuries to the nation at large, and particularly to other sections 
 of it, which far outweigh the good achieved by concord within 
 that section. But these evil results are less conspicuous, and 
 much less prominently advertised than are its immediate 
 benefits: and so the public is apt to be misled. It may be ad- 
 mitted that, if the businesses, according to whose needs the 
 prices are set, are alert and equipped with the best plant, skill, 
 and organization, the public interests are not Ukely to be much 
 hurt; and they may even be advanced. But it often happens 
 that the costs of production, including normal profits, which 
 are to be covered are those of businesses which lag somewhat 
 behind: and, here Britain appears at a disadvantage relatively 
 to some other countries. For the great age of her industries 
 puts difficulties in the way of their rapid reorganization. 
 
 In America and Germany many industries are controlled 
 by relatively smaU numbers- of powerful capitalists; most of 
 whom are intent on large ambitions, and have Uttle interest in 
 inherited plant or traditions. They desire to make great gains 
 by great transactions; and the cost of production, which they 
 have in mind, is nearly always that of an alert business, equipped 
 with modern appliances, and making for great aggregate gains 
 by large output at rather low costs per unit: thus a complaint 
 by a quiescent business that it cannot work at such costs may 
 receive but scant attention. Those who are weak, through fault 
 or misfortune, are left to go to the wall; or they are bought out, 
 and their works are recast, or abandoned. In Germany the 
 alert and aU-pervading influences of the great banks make for 
 good in these directions. 
 
624 AGGREGATION, FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 iii,iin,2. But in Britain an association of producers often depends in 
 great measure on the adherence of worthy firms, that reckon 
 costs of production on the basis of good solid work or well-tried 
 methods and with well-tried plant. They are content to sell 
 generally at, or near, old high prices to those with whom they 
 have an established connection; and in case of pressure they 
 sell at forced prices, subject to no rule: but their support is 
 desired by a projected association: partly because they may be 
 a source of trouble if left outside. The path of least resistance 
 is to take their costs as normal costs: with the result that alert 
 members of the association claim credit for not pushing prices 
 above normal costs, while inly rejoicing at the great excess of 
 those prices over their own costs. No doubt an association, 
 working on these lines, has little defence against strong attack: 
 but it is likely to be vocal, and to show some ingenuity in 
 proving that it is threatened by unfair competition, especially 
 if that comes from overseas; and can be convicted of selling 
 occasionally at very low prices^. 
 
 The manufacturer or trader is indeed strongly interested 
 in obtaining materials, plant or product on terms, at least 
 as low as those paid by competitors who sell in the same 
 market: for, as a general rule, he loses the whole of any extra 
 prices which he pays above those paid by most of his com- 
 petitors; and he gains the whole of any lowering of prices which 
 accrues to him alone. Hence it may be inferred that, so long 
 as enterprise is entirely unshackled, the nation need not 
 actively exert itself in regard to the prices of such materials 
 and plant; since those, who have the most knowledge of such 
 matters, are also those most deeply interested in obtaining 
 
 ^ The fact that provision must be made for the needs of businesses whose 
 plant and energy are not of the best is well known, and it seems never to be 
 denied; though frank, open statements on the subject are rare. 
 
 The National Association of British and Irish Millers was however told 
 publicly in 1901 that "in arranging for fixed prices, it will be seen that the 
 worst equipped and most unfavourably situated mills must be considered, and 
 must of course make a profit : therefore the larger mills must of course work at 
 such a margin of profit as shall, and indeed does, invite outside competition." 
 To meet this some millers have "invoiced and charged flour at the price of the 
 grade below " that to which it really belonged. ( Quoted by Macrosty, I.e. p. 220.) 
 If it had been possible to absorb the new competition, this clear avowal might 
 not have been made: and the Association would have been able still to plundep 
 the public. 
 
CONSUMER DEFENCELESS AGAINST NETWORK OF CARTELS 625 
 
 them on favourable terms; and most alert to oppose any un- iii,xiii,2. 
 favourable change. 
 
 But this inference is not valid when the price of the material 
 or plant in question is controlled by a cartel, that covers the 
 market in which any set of producers are interested. Of course 
 an artificial rise in that price might go so far, that the consequent 
 rise in the cost of finished products of the industry would materi- 
 ally curtail their sale; and, in such a case, nearly all those in the 
 industry would be alert to oppose the rise. But the increase 
 by, say, a tenth in the cost of a particular material or implement 
 needed by the industry will often cause only a very minute 
 increase in the total costs of its output, and therefore wiU not 
 greatly afEect the volimie of its sales: and, in that case, the 
 public may derive scarcely any defence from the opposition of 
 producers in a late stage of the industry to an artificial rise of 
 price in an earlier stage. In fact such producers have often 
 argued publicly in this manner: "What each of us wants, is 
 to know that his competitors wiU not get anything needed for 
 their work at a lower price than he does : for, in that case, we can 
 all safely pass on any moderate increase in costs, with profits, to 
 the consumer: let us then make no trouble about a moderate 
 uniform increase of price in regard to this or that secondary 
 plant or material that we need." For instance, makers of gal- 
 vanized sheets for roofing, care very little what price they pay 
 for their steel, so long as they know that all other makers pay 
 the same; and that they have nothing much to fear from the 
 competition of slates, tUes, felt or other roofing materials. In 
 fact they watch changes in the prices of such materials with 
 more attention than they do the price of steel, when that is fixed 
 by general agreement: that is to say, their own interests do 
 not lead them to be active in protecting the ultimate purchasers 
 of finished steel products against an artificial increase in the 
 price charged by a cartel of heavy steel producers. Thus one 
 small cause of increase in the cost of the finished product 
 passes without resistance; and, if it stood by itself, it might 
 do but little harm. But similar causes bring about other small 
 increases in the cost of the finished product: and ultimately 
 ^h.e public is liable to silver much from an accumulation of 
 
626 AGGREGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 III, xm, 3. small burdens, no one of which by itself would be a matter of 
 serious concern to it^. 
 
 3. Cartel policies of exclusive dealing are of ten fortified 
 by deferred rebates. 
 
 Attention has already been called to the severity of the 
 device for developing the monopolistic power of Coats' business, 
 which consisted in refusing to sell to any trader, who handled 
 similar goods at prices somewhat less in excess of costs of pro- 
 duction than those fixed by Coats: in effect that apparently 
 mild rule closed the entrance of the highway of business to any 
 firm, which desired to estabUsh a connection in the trade. 
 Several British cartels have adopted the same device, with con- 
 siderable success. But others have had recourse to that un- 
 compromising policy of exclusive dealing, fortified by deferred 
 rebates, which we have seen evoking drastic repression in 
 America. It no doubt closely resembles in form the scheme by 
 which the South African and other shipping trades have been 
 partially monopolized: but, when applied to manufactures, it 
 lacks generally the extenuating circumstances, which are found 
 in fast-liner traffic. It aims of course at securing the control 
 of a trader's custom by allowing a high Rebate or discoimt on 
 the normal high charges of an association : and by deferring pay- 
 ment for some years; with the intimation that it will be forfeited, 
 if the recipient meanwhile buys from anyone who is not a 
 member of the association^. 
 
 ' In the export trade, where British producers compete chiefly with those of 
 other industrial countries, an artificial rise in freights for exportation is of 
 relatively small concern to the merchants, who pay it in the first instance. 
 The producers and consumers are more nearly concerned: but they are seldom 
 in a position to take action in the matter. Some similar maladjustments have 
 been noted, above, pp. 443, 444. 
 
 ' This practice has been adopted by several associations, whose products are 
 needed for building houses and cottages, including several sorts of steel products. 
 Its fiercest application in Britain has been made by an offshoot of the notorious 
 American Shoe Machinery Company (see above, pp. 233 — 4; and 536 — 7): and 
 the British Court of Chancery decided in 1907 tliat the leaser of machinery 
 under this clause, binding him to use it to its "full capacity," may not cease 
 to use it, when it ceases to be efficient for his purpose: he must go on working 
 
EXCLUSIVE DEALING FORTIFIED BY DEFERRED REBATES 627 
 
 An alert, well equipped producer may be able to earn good iii,xiii,4. 
 profits by sales at prices lower than those, which the association 
 is thus induced to fix; and traders, if free, would welcome his 
 supply. But they are not free; save in the very rare case in 
 which this producer is able to supply all their wants: for, if 
 they buy one class of thing from him, they lose their rebates on 
 all their purchases. Therefore such producers cannot sell unless 
 they submit to the edict of an association: and that is liable to 
 be managed partly in the interests of its less energetic members, 
 and to allot to others quotas of production too small to keep 
 their advanced plant in full work. Thus, the public pay more 
 than is necessary for their goods; though independent energy 
 and enterprise meet but a scanty reward. A sectional associa- 
 tion may gain by such means: but there is a net loss: and if 
 every section adopted them, every section would be poorer. 
 That is to say such policy is antisocial^. 
 
 4. A combination in a British mamifacturing industry, 
 even when not protected by a tarif, may yet he able to raise 
 prices artificially by the equivalent of double costs of trans- 
 port between Britain and other countries. 
 
 We have now to consider the extent of the defence, which 
 the British people derive from the free importation of manu- 
 factures, against the raising of prices unduly by associations at 
 home. Of course, freedom of entry into Britain does not imply 
 free carriage for the goods that come to her: nor free carriage 
 for the goods, by which she effects payments for such parts of 
 them as are not covered by obligations of other countries to her. 
 In this matter large allowances must be made for the services 
 of her shipping industry; for interest on her exported capital; 
 
 it even though it has been superseded by better machinery and has become 
 incapable of being worked at a profit. This may be good law; but, if so, law 
 provides inadequate protection to public interests. 
 
 ^ Cases are known in which an association makes itself responsible for 
 paying profits on twice the plant, which would suffice to produce all the, goods 
 that it can market at the artificially high prices, which are required to enable 
 its less alert members to work at a profit. This evil is often a little reduced in 
 fact, though it is made more obvious, when badly equipped firms are allowed to 
 lie idle; and yet receive, at the expense of the pubUc, profits on the full quota 
 which have been assigned to them. 
 
628 AGGREGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 iii,xni,5. and for some other matters that are independent of the par- 
 ticular imports concerned: but, that being done, any increase 
 in her imports must be covered by a corresponding increase of 
 her exports in order to pay for them. All her exports of any 
 importance, except coal, are manufactures in the production of 
 which she has no advantage, other than the abundance of her 
 capital and the energies of her people: and, for various reasons, 
 she does not pay, and she ought not to pay, for a great part of 
 her imports by the exportation of coal^. 
 
 Therefore almost every increase in Britain's importation of 
 manufactures has to be covered by an increase in her exporta- 
 tion of other manufactures; and every such change involves 
 double costs of transport; those of her own increased exports, 
 and those of the imports which come in return for them. Thus 
 there is a prima facie case for thinking that British manufac- 
 ture A, which fears the importation of rival products, paid for 
 (together with double costs of transport) by the exports of 
 another manufacture B, is somewhat lacking in alertness and 
 energy. 
 
 This prima facie case is indeed subject to various excep- 
 tions, arising out of particular conditions of industry, and with 
 one that is common to most branches of industry. We need 
 concern ourselves here with this alone. It arises from the facts 
 that B products may probably be offered for sale abroad at 
 lower net prices (after allowing, that is, for cost of carriage) 
 than are exacted at home : and that A products may similarly be 
 offered in Britain at lower net prices than are charged for them 
 in the country of their origin: we pass to consider this point. 
 
 6. TJie policy of dumping. The claim of combinations 
 to stabilize home industry. 
 
 It is customary to sell abroad at lower net prices (that is, at 
 lower prices after deducting all costs) than at home: and it 
 
 ' Coal is not "produced" by man: he merely takes it out of nature's limited 
 store houses. The position which Britain will hold in the world some centuries 
 hence will depend largely on the care with which she has husbanded her stores 
 of it : any generation which exports it, in order to pay for those manufactures, 
 in the production of which Britain should hold her own, will inflict an injury 
 on coming generations. 
 
THE POLICY OF DUMPING 629 
 
 is suggested that this tendency implies attitudes of producers iii,iin,5. 
 and traders towards foreign competitors, somewhat difierent 
 from their attitudes towards their own countrymen. There is 
 no doubt a good deal of truth in this suggestion. But indeed 
 the tendency has broad roots in the fact that almost every one 
 is inclined to allay conflict in a market, which he regards as 
 belonging to him in "particular"; while he is often inclined, and 
 sometimes compelled to adopt a different policy, when pushing 
 his way into a market on which he has no special hold^. 
 
 In a sense the home market of any national iadustry is its 
 "particular": and an association of businesses in it is Hkely to 
 arrange prices in it somewhat on the plan of a cartel, even though 
 it has no very firm cohesion. Its members are likely to agree 
 not to press sales in the home market; when it is so unreceptive 
 that it wiU not take more of their produce at prices, that cover 
 or nearly cover fuU costs of production: with the understanding 
 that those producers, who cannot conveniently hold their hands 
 for a while, shall sell abroad at whatever prices they can get. 
 From these small beginnings there are sometimes developed 
 large policies of systematic "dumping" of a considerable part 
 of the output of an industry in foreign markets, and especially 
 in any that are regarded with jealousy. Early in last century, 
 as has already been noted-, Britain was the chief offender in 
 this direction: and the lapse of several generations was needed 
 to undo the hurt, which she thereby caused to her own reputa- 
 tion. In recent times Germany has been the chief offender; 
 and the present inquiry may be continued with reference to her 
 pohcy in this matter. We need not concern ourselves with 
 the suggestions, that the exceptional energy, with which she 
 has developed this commercial policy, is a necessary part of her 
 
 ' See above, pp. 182; and 400 — 402. The case was put by a witness before 
 the Industrial Commission {Report xni. p. 493) thus: — "Business that is at my 
 door I think belongs to me, but I am willing to make a sacrifice to get a foreign 
 market, because by that very process I reduce my cost at home. By a foreign 
 market I mean a market outside of my natural territory. I would say the 
 Chicago merchants sold for less money in Omaha than they did in Peoria, 
 because they are either competing with St Paul on one side or St Louis on the 
 other; and I would say that they sold for less money in Denver than in Omaha, 
 and for even less in San Francisco than in Denver." 
 
 2 Above, p. 157; and below, pp. 781—2. 
 
630 AGGREGATION, FEDERATION, COOPERATION : BRITAIN'S PROBLEMS 
 
 iii,xui,5. militant policy: and that she "dumps" in order to prevent the 
 rise of rival industries in other countries. For in fact very 
 little of the cheap selling abroad by cartels in the steel in- 
 dustry, and others of which Germany has no monopoly, has this 
 excuse — whatever it may be worth. 
 
 Of course a policy of dumping can always be stopped by 
 special import duties on dumped wares, if it is worth while: and 
 there seem to be a few cases in which it may be worth while. 
 But some caution is needed in this matter: for that remedy is 
 likely to be advocated with energy, and with the advantages 
 derived from intimate knowledge of details, by individuals, and 
 by associations, who desire to keep prices in the home market 
 high enough to yield profits to businesses that are not very 
 alert, and still use plant that is not up to date. Moreover it 
 appears that some of those, who are prominent in emphasizing 
 the case against artificially cheapened imports into Britain, are 
 themselves inclined to sell abroad at very low prices, in order to 
 maintain very high prices at home. There is indeed something 
 to be said for declining to protect a British industry even against 
 artificially cheap imports, if it carries far the practice of lowering 
 its own export prices relatively to its home prices: and in any 
 case care must be taken lest provisions made for the purpose of 
 repressing malignant forms of underselling be so worded, as to 
 condemn methods of trading which are practised on occasion 
 by honourable British firms. This danger is likely, if ignored, 
 to lower the reputation of the country for fair dealing. 
 
 The Report of the Engineering Committee already quoted has 
 that danger clearly in view: and recommends the adoption of 
 legislation similar to that of America, which orders that selling 
 at low prices — that is, at prices less than those prevailing else- 
 where — be prohibited, not absolutely, but only "Provided that 
 such act or acts be done with the intent of destroying or injuring 
 an industry in the United States, or of preventing the estab- 
 Hshment of an industry in the United States, or of restraining 
 or monopolizing any part of trade or commerce in the United 
 Statesi." 
 
 * [Cd. 9073], pp. 27, 28. Some claims for Protection against the dumping oi 
 foreign goods in Britain imply a moral indignation against the practice. It is, 
 
CLAIMS 01" COMBINATIONS TO STABILIZE INDUSTRY 631 
 
 We may now pass to consider the claim that the effect of iii.xm.s. 
 cartel policy in general, and especially the policy of selling at 
 very low prices abroad, tends to stabilize industry. It may be 
 admitted to have some force in regard to any depressions of 
 credit, industry and trade that happen to be localized in a 
 particular country. For then sales at home may be almost im- 
 possible save at extremely low prices; and an extension of sales 
 abroad wUl tend to turn the Foreign Exchanges in the favour 
 of the distressed country; at the same time that they faciUtate 
 the maintenance of some moderate degree of employment at 
 home. On such an occasion, however, every one has always 
 been eager to sell abroad cheaply; and there has been little need 
 for organized action in the matter. 
 
 But in the last few generations there have been very few 
 cases, and none of very serious importance, in which a single 
 country has been struck by a severe dislocation of credit, in- 
 dustry and trade; while the rest of the western world remained 
 almost undisturbed. Almost every recent wave of high or low 
 commercial activity has spread, not very unevenly, over all 
 countries in which large scale capitalistic production has pre- 
 vailed. When the Steelworks Union for instance has the 
 greatest need for disposing of surplus steel, the British market 
 is not likely to absorb much except at very low prices. 
 
 Also the policy of maintaining rather high home prices for 
 steel products when general credit is bad, obstructs the recovery 
 of credit. For when the deepest depression has passed, busi- 
 nesses of all kinds begin to consider repairs and extensions of 
 plant, for which opportunity was lacking in the preceding period 
 of expanding credit and of work at high pressure; and there is, 
 in consequence, a new demand for steel products : this in its turn 
 sets retail and other businesses on increased work. The policy 
 of the Steel Union tends to delay this revival: and thereby it 
 has probably done more to increase the evils of industrial fluc- 
 tuations than aU its other efiorts have done to diminish them. 
 Its constructive efiorts have been excellently seconded by the 
 
 therefore, of interest to note that "The Chairman of an important Metal Asso- 
 ciation stated" to the Commission on Trusts (see its Report, § 8) "that he 
 would not agree that British firms dumped in the aggregate much more than 
 loieign firms." 
 
632 AGGREGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 III, 1111,5. close association of Germany's great banks with industry: and, if 
 the policy of selling abroad at much lower prices than at home 
 worked efEectively for the stabilization of industry and trade, 
 she would have suffered less from commercial depressions, when 
 under the influence of her cartel policy than Britain has done 
 during the same time. But in fact the opposite seems to have 
 been the case. 
 
 The matter has not been fully examined. But we know that 
 Germany has been struck by every recent storm of bad credit 
 that has struck other countries; and that in 1901 she suffered 
 very much more than others did. Also we know that industries, 
 which are under the control of an ambitious cartel, are frequently 
 disturbed, even while the sky generally is clear, by rumours that 
 some of its leading members are threatening to desert it. The 
 firmly-based coal cartel has itself been shaken by such rumours: 
 the Steel Union has seldom been free from them; and an inves- 
 tigation of the prices of heavy steel products by Dr Vogelstein 
 for the nine years ending in 1903, showed that every one of them 
 had fluctuated in Germany as much as, or more than, in England^ 
 
 Thus, whUe large acknowledgment is due to the ability, with 
 which the Steel Union strives to distribute the benefit of Pro- 
 tective duties among the various sections of the Steel industry; 
 aU that can with certainty be said in its favour is that its 
 breadth of view has lessened the evUs, which would otherwise 
 have been caused by the tendency of cartels to press the interests 
 of particular sections of the nation against those of the nation 
 as a whole. In that respect British associations have some- 
 thing to learn from it^. 
 
 '■ Schriflen des Social-V eareina. No. 106, p. 128. This statement seems to be 
 supported by a comparison of Sauerbeck's records of price movements in Britain, 
 with those shown in Dh Bewegung der Waarenpreiee in DeutsMand von 1815 bis 
 1902. See also above, p. 672 fn. It has already been noted (p. 572 fn.) that 
 the rumours of a coming syndicate set up violent expansions of plant in order 
 to justify high figures of participation. Some observations on the influences 
 exerted by German and British policies in regard to steel on the well-being of 
 the operatives concerned will be found in Appendix 0. 
 
 ' Thus The Report of the Engineering Trades, already quoted, says (pp. 9, 10) 
 " Whereas the manufacturers are in the habit of quoting a reduced price for steel 
 for direct export (the margin has been as much as 20/i. per ton), such steel manu- 
 facturers refuse to make any rebate to English engineering manufacturers, even 
 when it is proved to their satisfaction that the goods to be manufactured from 
 that steel were, in fact, for export purposes." 
 
CLAIMS OF COMBINATIONS TO STABILIZE INDUSTRY 633 
 
 On the whole it may be concluded that the restrictive iii,xin,5. 
 methods of German cartels have no claim for imitation on the 
 grovmd that they make for the stabiUty of industry. But this 
 does not imply that it is beyond the power of associated action 
 to work in that direction. For instance, many a ship has earned 
 net more than its full cost in a single year; while in some other 
 years its earnings have not covered its expenses: and the 
 consequent violent variation in the values of ships and in the 
 demand for new ships is a chief cause of instabihty in the steel 
 industry. Consequently a suggestion has been made that ship- 
 owners, shipbuilders, marine engineers, and aU combined should 
 endeavour to promote shipbuilding on falling markets. Such 
 action by an association would be in a high degree construc- 
 tive^. 
 
 PoUcies which are appropriate to a miUtary and partially 
 autocratic Government, such as was that of Germany before 
 the war, are likely to be unsuitable for a democratic Anglo- 
 Saxon coimtry. A strong democracy has a great respect for 
 law: and therefore, although its Government is often some- 
 what inefficient in business administration, it can rely on full 
 justice being done by Courts of Law in a suit, in which the 
 interests of both parties to a contest are set out clearly by 
 able and well-instructed advocates. That is likely to be the 
 case when the issue is between the claims of two powerful 
 private interests. But when a large pubUc interest is at 
 variance with the interest of the nation as a whole. Counsel 
 for the nation find generally that their cUents are not able to 
 supply them with information as fuU, as penetrating, and as 
 technically thorough, as that which comes easily to the hand of 
 a private interest whose concerns are in question. In fact a 
 democratic Government is at a distinct disadvantage in this and 
 
 ' See Report on tTie shipping and shipbuilding industries [Cd. 9902], p. 30. 
 Mr E. J. Benn, Trade as a Science, oh. ix., suggests a good model constitution 
 of a Trade Association, and its District Committees with special reference to the 
 export trade, to scientific research, to educating labour in the objects of its 
 industry, and to educating employers to a proper understanding of the labour 
 point of view. It should receive recognition, and perhaps financial aid from 
 Government, subject to certain conditions; one of which is that it does not 
 attempt to regulate prices within the home market. This scheme is developed 
 in his The trade of tomorrow. 
 
634 AGGREGATION, FEDERATION, COOPERATION: BRITAIN'S PROBLEMS 
 
 III, xiir, 5. other respects relatively to a capable autocratic Government, 
 well served by a congenial bureaucracy. (See below, pp. 850 — 1.) 
 Bureaucratic methods are alien from the genius of democracy: 
 and, though the British Government has been compelled by the 
 emergency of war to make large uses of them, it is to be hoped 
 that it will return to the wholesome method of taking the 
 nation into its counsels by full publicity as soon as possible. 
 It can turn the balance in its favour by organizing the know- 
 ledge, that is necessary to enable it to present the case of the 
 nation on fairly even terms with the case of a private interest: 
 and, by making public the knowledge it thus acquires, it can 
 bring public opinion along with it. By Commissions of inquiry, 
 sitting with open doors, and similar means, it can enable the 
 people to appreciate its actions and its motives: it can thus 
 gain more strength for itself and for the nation than is possible 
 by intervening in industrial procedure in any other way^. 
 
 The Report of the Committee on Trusts recommends that 
 means be provided for the investigation of businesses or com- 
 binations of businesses, "which have for their purpose or 
 effect the regulation of the prices or output of commodities 
 or services, produced or rendered in the United Kingdom, or 
 imported into the United Kingdom, or the delimitation of 
 markets in respect thereof, or the regulation of transport rates 
 and services, in so far as they tend to the creation of monopolies 
 or to the restraint of trade." Annual reports by the Board 
 of Trade, which is to have direction of the matter, are to be 
 provided "whereby the fullest information as to the activities of 
 Trade Associations may be made available to the public, and 
 complaints may be promptly and thoroughly investigated, so 
 that doubts and suspicions may be dispelled, or, on the other 
 hand, the true facts ascertained as to evils for which a remedy 
 is required." The Committee express the opinion "that it will 
 
 ' Some peril seems to be threatened by suggestions such as the following, 
 made in the generally excellent Report on the Engineering trades (p. 26) in 
 regard to trade combinations: — "No secrecy should be allowed. All trade com- 
 binations should register their terms at some Government Department such as 
 the Board of Trade.. ..The terms should not become pubho property: but their 
 registration would.. .enable the Board of Trade to take any steps that might be 
 necessary in the event of such combinations being harmful to trade or pre- 
 judicial to the consumer." 
 
CLAIMS OF COMBINATIONS TO STABILIZE INDUSTRY 635 
 
 be found necessary ultimately to establish further machinery iii.xm.s. 
 for promptly and efiectively dealing with such abuses as the 
 Tribunal of Investigation may discover^." 
 
 •■ Such a Tribunal is to be set up in oaaea in which a preliminary inquiry 
 made by the Board of Trade gives inadequate results. It is to have "a person 
 of legal qualifications as permanent chairman, and frogi two to seven other 
 members selected by him from time to time from a panel appointed for the 
 purpose by the President of the Board of Trade after considering nominations 
 made by representative trade organizations, including the Cooperative Movement 
 and Trade Unions, which Tribunal shall have power, on the application of the 
 Board of Trade, to make orders for further information on the matters in hand." 
 
 This plan seems excellent in many respects, provided the branch of the Board 
 of Trade which is responsible for the work is as strong a body as the Federal 
 Commission. If so, the able men, who give their whole lives to the task will 
 be in a good position for ascertaining what information should be required : and 
 then it would be sufficient perhaps to provide for an appeal to an ordinary Court 
 of Law. For when the case of the nation is presented to such a Court, by 
 counsel instructed by such a body as the Federal Commission, there seems to 
 be a gain on the balance in obtaining a judgment on the purely legal aspects of 
 any matter of contention, from a Court, which approaches the matter with an 
 open mind. In so far as the problem is one of business rather than law, a 
 lawyer, as such, has no special authority. 
 
 The Report is brief: but much information is added in important papers by 
 Mr Percy Ashley; and by the Secretary, Mr Hilton. Sir John Macdonell adds 
 an authoritative and much needed statement as to the law relating to com- 
 binations. 
 
CHAPTER XIV 
 
 THE DECLINE OF EXCLUSIVE CLASS ADVANTAGES 
 IN INDUSTRY 
 
 HI, iiT, 1. 1. The spread of education, and technical cha/nges which 
 lessen the strain of physical work, are mitigating many of 
 the disadvantages under which the ma/nual labour classes lie. 
 
 The industrial sectionalism, with which we have so far been 
 concerned, is based on varieties of occupation: and so rapidly 
 do capital and labour — whether mental or mainly manual — 
 migrate from one occupation to another, that time itself brings 
 some remedy and some retribution for any harsh or unwise 
 action on the part of those engaged in a particular occupation. 
 But the case is difEerent with the semi-monopolistic advantages 
 which the upper strata of industry have always possessed over 
 the lower. These advantages have indeed changed their form 
 considerably: for at one time they were in great measure 
 LQcidental to the superior political position of freemen over 
 serfs and others of lower degree; while now, in Britain at all 
 events, there are scarcely any exclusive political privileges. 
 But meanwhile the scopes of industrial technique and business 
 relations widened so much, that the superior education and 
 larger outlook of the well-to-do classes became of increasing 
 importance in all but the simplest forms of business; and on 
 the whole the division between the "upper" and "lower" 
 classes in industries seemed to grow broader during the second 
 and third quarters of last century. 
 
 More recently however an opposite tendency has set in. 
 The movement towards the better education of the people at 
 large, which had been gradually growing, received a great 
 impetus from the Education Act of 1870; and it has proceeded 
 so fast and steadily that the more alert of the working classes 
 
INFLUENCES OF ADVANCE IN EDUCATION AND TECHNIQUE 637 
 
 now stand on nearly as high an intellectual level as do the in.xiv.i. 
 great majority of the middle classes. 
 
 MeanwhUe the hours of manual labour have been shortened, 
 and excessive strain on muscles has been lessened by the 
 increased use of steam power, and its distribution by electricity. 
 Perhaps the percentage of artisans who are so tired at the end 
 of the day's work as to be disinclined to use their minds actively, 
 is not a tenth as great as it was a century ago; and meanwhile 
 the abundance and cheapness of periodical and other literature, 
 adapted to their requirements, and even specially devoted to 
 their interests, have increased very fast. In the result some 
 leaders of the working classes are able to hold their own in 
 discussions of grave problems of politics, as weU as of industry, 
 with the foremost men of the time^- 
 
 The influences of school education may be developed or 
 impaired by those of the home; and the full effects of improved 
 schools cannot show themselves tUl they have been at work for 
 at least two generations. Partly for this reason, occupational 
 status still goes much by inheritance. A large majority of the 
 sons of unskilled labourers, of artisans, of men in the upper 
 grades of office work, of employers, and of professional men are 
 in occupations which have about the same social prestige, and 
 yield similar incomes to those of which they heard most in their 
 childhood^. 
 
 This result may be partly due to the fact, that even now an 
 average middle class family with an income of two or three 
 
 1 Working class leaders have an advantage in this matter over many men of 
 at least equal capacity in other ranks of hfe, in the fact that they have attained 
 leadership mainly by their power of expressing clearly and forcibly their views 
 on matters of large general interest. Moreover they are the selected representa- 
 tives of classes much larger numerically than are those of the well-to-do: and 
 are therefore likely to have at least as large an average of high natural abiUty. 
 It appears that they put the oases of their clients before Commissions of Inquiry 
 at least as efiectively as do the representatives of employers (I feel justified in 
 saying that this was the general impression of the members of the Royal Com- 
 mission on Labour, 1891 — i, who had exceptional opportunities of forming a 
 judgment). 
 
 ' No doubt a lad who has tme business genius has at least as good opportuni- 
 ties for developing it in the actual work of production or trade as elsewhere; but 
 such u. lad rises quickly to wealth: and he is apt to be regarded ultimately as 
 evidence of social inequaUties, whereas in fact his history points the other way 
 (see above, pp. 358—361). 
 
638 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 III, XIV, 1. hundred pounds is likely to spend more of it on the dignities 
 and amenities of Ufe, and less on food and drink and other direct 
 sources of enjoyment, than does an average working class family 
 whose aggregate incomes reach to about the same amount. The 
 minor amenities and conveniences, thus acquired, serve as a 
 passport to the consideration of an employer who is filling a 
 position in his clerical staff, from which a rise to important duties 
 may come rapidly to anyone who proves himseK capable. Mean- 
 while the universahty of education has deprived the lower order 
 of office work of a claim to be held superior to that of the skilled 
 artisan; and yet tradition has caused the word of command in 
 the counting house to be expressed in gentler form than in the 
 works themselves. Though a very small thing in itself, the 
 irritation, which has been expressed increasingly during recent 
 years by manual operatives against this distinction is a striking 
 sign of the times^. 
 
 The preferential advantages, possessed by those bom of well- 
 to-do parents in regard to the higher posts of industry, have 
 in effect something of the nature of monopoly: but they are 
 not based on any exclusive compact. They are thus in contrast 
 with such trade-union regulations as restrict particular classes 
 of work to those, who have acquired their skiU in it under the 
 auspices of the appropriate craft. Some of these exclusive regu- 
 lations appear to be justified by special conditions : but speaking 
 generally, they are not on the same footing, as is often alleged, 
 with those which prohibit anyone to give medical advice in re- 
 turn for payment, imless he is duly authorized to do so. For the 
 patient cannot, as a rule, form a good opinion as to the quality 
 of the advice given him; while the employer, or manager of a 
 
 1 Of course the serfdom of Mediaeval England was a survival of times when 
 the ruling classes were in effect officers of a nation in arms : and the terse military 
 words of command extended into domestic life. So long as "manufacturer" was 
 really a, man who " works-with-his-own-hands," there was no broad line of 
 division between him and those who worked alongside him; though on occasion 
 they might be subject to furious physical violence. But machinery made the 
 ordinary manufacturing unit so large, that the employer did best for his output, 
 by working at it only with his mind: and the separation which thus arose 
 between him and his "hands" was imperceptibly increased by the noise of 
 machinery. The noise of battle demands short sharp words of command: and 
 noise has been a contributory cause to similar methods in the factory itself; 
 while the quiet of the counting house is conducive to quiet and easy ■■speech. 
 
INFLUENCES OF ADVANCE IN EDUCATION AND TECHNIQUE 639 
 
 cooperative business, can form a good opinion as to the quality iii, xiv, 2. 
 of the work done for him by an artisan. Therefore the cases for 
 partial monopolies by trade unions and by the medical profession 
 are not on like footing; though it is true that trade-union dis- 
 cipline works for good in some respects, and that the discipline 
 of the medical profession might be pushed to antisocial extremes. 
 
 2. Real and apparent divergencies of interest among the 
 manual labour classes ; for some of which a remedy is sought 
 in collective bargaining for particidar tasJcs. 
 
 Trade imions have in some cases systematized a practice 
 which has prevailed in many workshops, without any formal 
 organization : it is to censure, and in some cases penalize, anyone 
 who appears to them to injure the collective interests of the 
 workers by doing more than his share of the work: the work in 
 sight is regarded as a "work-fund" to be distributed as equally 
 as may be. The practice is of older date than the introduction of 
 mechanical processes : but it has been inevitably fostered by them. 
 
 When hand work was dominant, an artisan could gain dis- 
 tinction and reward by work that approached in character to 
 that of an artist. For that reason he seldom worked fast: and 
 his comrades could not complain that he absorbed more than his 
 share of the work that was to be had. 
 
 But in the modem machine work, and especially in repetition 
 work, output is apt to be judged by quantity; subject to the con- 
 dition that its accuracy and finish be sufficient for the purpose 
 in view: and the capable mechanic earns distinction and money 
 by giving his machine every opportunity to do its utmost. He 
 is alert to tend its wants, to keep everything in the right place; 
 and thus to secure that it is seldom idle, and never makes bad 
 work. He makes the machine diKgent: and the reward of its 
 diligence goes partly to the operative, and partly to the employer 
 who has secured his services. But his comrades look askance. 
 Excellence of handicraft does not reduce the stock of work to be 
 done: but large quantity of output maybe obnoxious, because it 
 invites a reduction of piece-work price; and because it uses up 
 more than they regard as one man's share of the work on hand. 
 
 No doubt there are exceptional conditions under wliich slack- 
 ness of employment in a narrow range of work may be percept- 
 
640 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTEY 
 
 III, XIV, 2. ibly increased by exceptional activity on the part of particular 
 workers. But tte notion that the condition of the working 
 classes generally can be improved, if each group of them refrains 
 as much as it can from using up the "work-fund" at its disposal, 
 is the chief cause of the most bitterly antisocial poHcies into 
 which the working classes have ever strayed. No doubt the chief 
 immediate sufferers are as a rule particular employers or groups 
 of employers: but, such stinting of production is most common 
 in industries that make goods for general consumption, or else 
 machinery (including ships and locomotives) to be used in in- 
 creasing the supply of such goods: and therefore in the long run 
 the working classes, as a body, are themselves the chief sufferers 
 from it. Any section of industry that adopts the practice is hkely 
 to lower considerably the purchasing power of the wages of other 
 workers^. 
 
 The exceptional degree in which British artisans lent them- 
 selves during the later part of the century to antisocial practices 
 in regard to stinting of work generally, and refusing to manage 
 more than one semi-automatic machine at a time, stands out 
 in strange contrast to the general nobility and generosity of 
 their character: for that appears not to be surpassed, even if 
 it is equalled, among the corresponding classes of any other 
 
 ' MiiSCOuceptionB on this subject are still prevalent. But Mill well obsenred : 
 "What constitutes the means of payment for commodities is simply com- 
 modities. Each person's means of paying for the productions of other people 
 consist of those which he himself possesses. All sellers are inevitably, and by 
 the meaning of the word, buyers. Could we suddenly double the productive 
 powers of the country, we should double the supply of commodities in every 
 market; but we should, by the same stroke, double the purchasing power. 
 Everybody would bring a double demand as well as supply; everybody would be 
 able to buy twice as much, because everyone would have twice as much to offer 
 in exchange." This matter is considered in my Principles of Economics, VI, xm. 
 
 It would be wrong to suggest that so astute a vrriter as Mr G. H. D. Cole sup- 
 poses that there is any sort of work-fund : or that so public-spirited an enthusiast, 
 as he has shown himself, would purposely mislead his less skilled followers. 
 But it is to be feared that some of them may be encouraged in defence of anti- 
 social practices by his observation that "a big hourly or daily output (in a 
 general shop) does produce unemployment, because it prevents ' the nursing of 
 work.'... The adoption of 'scientific' systems of payment, which give the worker 
 an inducement to 'go all out' irrespective of the volume of work available, un- 
 doubtedly tends to increase the amount of temporary unemployment, and tliis 
 is one of the most serious criticisms that can be levelled against it." (The pay- 
 ment of wages, pp. 75 — 6.) 
 
DIVERGENT INTERESTS AMONG MANUAL LABOUR CLASSES 641 
 
 country. The explanation of the paradox seems to be that iii,xiv,2. 
 this evU side of trade-union policy was developed at a time when 
 Britain's machine industries were so far ahead of those of any 
 other country that they had little to fear from external competi- 
 tion; while iQ other countries the necessity of making the most of 
 the relatively imperfect appliances, in order to make way against 
 British competition, was so urgent and so prominent that vested 
 interests in the sectional control of machinery had little chance 
 of being developed. But the fathers have eaten sour grapes and 
 the children's teeth are set on edge; there is now scarcely any 
 industrial plant in Britain, which has not its equal in America 
 or some other country; and such remnants, as still exist, of un- 
 reasonable refusals on the part of her artisans to get the most 
 that is possible out of her plant, tend to make her position as a 
 leader of industry lower than it otherwise would be: and, since 
 Britain's working classes are the chief consumers of the products 
 of her machine industries, each group of her artisans is likely to 
 lose by antisocial practices on the part of other groups more 
 than it can gain by its own^. 
 
 The latent good in many men was brought out by the nation's 
 great emergency in the recent war: what success Government 
 munition and other works had, seems to have been in large 
 
 ' Reference to this matter has already been made; above, pp. 103, 136 — 7. 
 The extremist case of this sectional selfishness which has come under my notice 
 is that of a glass worker in the Midlands, who boasted that his local union had 
 mastered the wage problem. No member might apprentice more than one son 
 to the industry: no one else might enter at all. Consequently the supply of 
 labour decreased absolutely, and not merely in reference to the population; and 
 wages had been forced up to £1 a day — a rate much more exceptional then than 
 now. It was objected that the industry must necessarily migrate : he answered : — 
 " Scarcely in my time ; the fixed plant cannot be lightly abandoned. If it migrates, 
 I will follow it: two or three weeks' wages will cover the expenses of moving." 
 This "Achilles' heel" of Britain's industries attracts as much attention abroad 
 as it does at home. For instance, an American writer, quoted in The Economist 
 of April 26, 1919, remarks: "In England men are thoroughly wedded to the 
 system of restricted output. In New York one man will run three gear-cutting 
 machines, but an English working man will run only one." During the war cases 
 are recorded of boys, straight from a Board School, put on to a simple operation, 
 who averaged £4. 15«. in a normal week, and without strain, earned at the same 
 prices at which men had refused to earn more than £2. 10s. : and women earned 
 £6 — £10 where men had loitered down to £4 — £5. Those instances are given in 
 an instructive article by Sir Lynden Macassey in the Edinburgh Review, April, 
 1919, p. 333. 
 
642 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTEr 
 
 III, XIV, 2. measure due to its power of compelling antisocial practices to 
 be set aside in work for it; and to the hearty willingness of the 
 workers to make sacrifices less exacting than those of their com- 
 rades in the trenches. The Government's control of work, in 
 regard to munitions and some other things, rode on the top of 
 this wave of patriotic unselfishness, with results, which are 
 notable; though inferences from them are not directly apphcable 
 to ordinary conditions^. 
 
 Since the appeal to a strong worker not to work so hard as 
 to cast reflections on others who are less able, or even less in- 
 dustrious, is a chief cause, so far as the employees are concerned, 
 of the vastly inferior jper capita output of British industries to 
 those of America: welcome may be given to a movement in the 
 direction of "collective" piece-work; under which a job is taken 
 on contract by a group of workers, not necessarily of the same 
 . craft; and often including unskilled workers, and even boys. If 
 it is done quickly, the payment for it will exceed the aggregate 
 of the time-wages of all; and the surplus is then divided out, 
 generally in proportion to the time- wages due to each: this 
 causes each member of the group to benefit by the energy and 
 ability of every other. The scope of the responsibilities of the 
 manual workers is not materially increased so far: but a second 
 step is under discussion, which may have that effect; and, if 
 successful, will go a long way towards lowering the monopoly of 
 high responsibility which stiU generally belongs to the employ- 
 ing class. It is suggested that, in alliance with organized office 
 workers, a Shop Committee should arrange with the owners of 
 the works that they should be free to take a contract from a 
 customer. This suggestion, though without practical weight at 
 present, is significant of a broad tendency which manual workers 
 are showing to endeavour to bring over brain-workers to their 
 side. Unfortimately the faculties needed for the higher work of 
 business can be judged only by those who have those faculties. 
 Under election from below several incompetent managers are 
 nicely to work havoc before one is found, who is capable of 
 taking rightly those risks which are needed for progress. 
 
 '■ A little has been said on this matter above, pp. 224 — 6; 491 — 2. 
 
THE WHITLEY BEPORT: JOINT INDUSTRIAL COUNCILS 643 
 
 3. Some further observations on the movement, voiced by m, uv, a 
 the Whitley Report, for enlarging the influence of employees 
 over those affairs, connected with their employment, in which 
 they are most nearly concerned. 
 
 We now return to changes in the conditions of employment. 
 The world-war brought together men of all social ranks in the 
 trenches, and thus helped them to know one another. It also 
 enforced rapid changes in organization within industries and 
 between industries: and it increased the need for explaining to 
 all the urgency of new developments, and for enlisting their co- 
 operation in overcoming the difficulties in the way. Thus all 
 were inclined to consider suggestions, such as were made in the 
 Whitley Report, for setting up Joint Works Committees, leading 
 up to Joint Industrial Councils for each district, and then to 
 Joint Industrial Councils for the nation^. 
 
 One of the main purposes of the Whitley Report is indeed to 
 raise the status and develop the self-respect of the workman, by 
 enabUng him to form and express well considered judgments on 
 all those aspects of the business in which he is employed, which 
 specially affect him; and in a less degree on the general poUcy 
 of the business, in so far as there is no need for keeping them 
 private. In all these matters "frank talk heals"; and, as the 
 workman's knowledge and faculty expand, growing self-respect 
 wiU give firmness and moderation to his policy. 
 
 ' See above, pp. 393 — i. The urgency of this movement was increased by 
 the hurried, and sometimes ill-considered action of Government, which was over- 
 strained by the immense burden of the task imposed on it : for though the ablest 
 men in the country put their services at its command, often to their own great 
 inconvenience and pecuniary loss, many important secondary tasks had to be 
 entrusted to people who lacked experience, perseverance, sound j udgment, and 
 knowledge of their own limitations. "Industrial Unrest" was the subject of a 
 series of Commissions of Inquiry which reported shortly afterwards. All of 
 them assigned chief places to nerve-strain caused by the events of the war; 
 fatigue due to overlong hours of work; to frequent disturbances of arrangements 
 through changes in Government orders, by which the serenity of employers and 
 employed was disturbed: to the setting aside of trade union rules: and to the 
 disproportionately high wages sometimes obtained by unskilled labour, and even 
 by boys. For instance, in reference to the West Midlands Area [Cd. 8665], pp. 7, 
 8, it is reported that work was being done at piece rates " fixed in peace time when 
 not only were conditions more leisurely, but orders were received in dozens and 
 grosses, where now they are received in thousands and tens of thousands''; and 
 
644 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 ili,iiv,3. The Report suggests that the Joint Industrial Councils and 
 Workmen's Committees, already described, shall include in theii 
 aims the better utilization of the knowledge and experience of 
 the workers: settlement of general principles for fixing, paying, 
 and readjustiug wages with a view of securing to the workers a 
 share in the increased prosperity of the industry: arrangements 
 for fixing wages, piece-work prices etc. both generally, and in 
 regard to particular jobs: technical training and industrial re- 
 search: the development of inventions made by the workers, 
 with the cooperation of the employers; and legislation affecting 
 the industry^- 
 
 That is to say, it is proposed that everyone shall contribute, 
 both as an individual and in association with his comrades, to 
 the solution of such business problems as are of most direct in- 
 terest to him and to them. This cooperation may be expected 
 directly to promote correct understandings, by every individual 
 and group, of the desires, grievances and capabilities of all: and 
 indirectly to enable the more able and enterprising minds in each 
 several rank to approach gradually towards a fuU comprehension 
 of the supreme difficulties and strains involved in the piloting 
 of a progressive business in a progressive branch of industry. 
 The remainder of this chapter wiU be much occupied with the 
 contrast between these two kinds of business work — one of 
 which is more or less within the grasp of every thoughtful and 
 responsible person: while the other requires somewhat rare 
 faculties; and in many cases, a longer special training than is 
 needed for navigating a ship on the ocean, if not for making a 
 correct diagnosis of a subtle disease, 
 
 "in many cases the wage reaches six, eight, and ten pounds a week, or even 
 more, by workers with no previous experience. At the same time the Tool-maker 
 and the Gauge-maker, both skilled men whose skill is the basis on which the 
 machine operates... are receiving considerably less than the piece worker.. ..The 
 injury to his self-respect is aa great as that to his pocket. . . .The Leaving Certificate 
 System prevents him from taking up repetition work himself." 
 
 • It may probably promote, among other things: "Suggestions as to im- 
 proved methods of manufacture, tools, jigs, gauges: new methods of production: 
 class of labour to be used on new types or reconstructed machines: criticism and 
 adjustment in existing piece-work prices.. .due regard being had to custom etc.; 
 cooperation with the management in supervision: shop troubles and grievances: 
 suspensions and dismissals consequent upon slackness in trade: shop rules — 
 timekeeping, meal hours, cleaning-time etc.: changes.. .between payment by 
 
DIVORCE OF SELECTION OF RISKS FROM BEARING THEM 645 
 
 4. The control of a great part of business organization iii,xiv,4. 
 may he diffused: hut decisions as to the tahing of risks 
 generally, and of new departures in particular, should re- 
 main, for the present at least, in the hands of those who will 
 hear the hurden of the risks. 
 
 Judicious, orderly and vigorous management of routine will 
 often su£&ce to enable a business to prosper in an industry, tlie 
 methods of which are for the time practically stereotyped. 
 But such management, while useful in its generation, has con- 
 tributed very little towards progress: and, if routine had been 
 universal, a country of the size of Britain would have afforded 
 support for only a few million people, barely supplied with the 
 necessaries of life. Progress has been effected on the scientific 
 side by students and by business men: on the practical side 
 by those business men, who have been alert to invent or adopt 
 new ideas; to put them into practice, bearing the risks of loss; 
 to improve on them, and again to improve on them. At each 
 step these men have weighed many complex considerations, one 
 against another: and finally they have acted boldly and freely, 
 because that which they risked was their own. 
 
 No doubt in many industries the capital, required for 
 efficient work, has become so large as to exceed the resources 
 which are commonly to be found in the hands of a single owner, 
 or even of a private partnership. And it is true that the 
 directors of a joint stock company must sometimes take de- 
 cisions, which are in effect final, as to large risks to be borne by 
 capital of which they themselves are relatively small holders: 
 but those directors are nearly always men of wide business 
 experience; who have been in effect selected and are still in 
 
 time and according to results: matters relating to welfare: demarcation be- 
 tween trades, with the free sanction of the Trade Unions concerned : advice on 
 workshop conditions and other matters affecting labour." See a paper by an 
 engineer in Labour and Capital after the War, edited by S. J. Chapman, C.B.E., 
 pp. 151—2. 
 
 At the moment of writing there appears to be some differences of opinion as 
 to the relations of the Whitley Councils to the great National Industrial Con- 
 ference, which is to collect, digest, and disseminate information and suggestions 
 that make for industrial progress; and probably to develop some other functions. 
 It may perhaps be more directly representative of crafts, as distinguished from 
 industries, than the Whitley Councils are. 
 
646 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 iii,iiT,4. a measure supervised by strong stock-holders, who themselves 
 have been trained in the fierce arena of great transactions^. 
 
 Now, though the employees of a business may often con- 
 tribute advice and aid in the general management of a business; 
 they are seldom in a position to form good judgments as to new 
 developments of the business, nor even as to the selection of 
 the risks to be taken in its ordinary course. Were it otherwise, 
 businesses owned by the workers themselves would certainly 
 have had a great past: and the general spread of enlightenment 
 would have insured for them an ever increasing rapidity of 
 growth in the future. For so thorough is the organization of 
 capital supply now, that the past successes of businesses owned 
 by working-men would have enabled such of them as were in 
 good repute to obtain from bankers and others large supphes of 
 capital at low rates. It may therefore be inferred that the chief 
 hindrance to the advance of working-men to the control of 
 business lies in a lack, not of capital, but of the training and 
 habits of mind needed for dealing with the larger problems of 
 business policy; and especially deciding on doubtful ventures m 
 regard to technique and plant, to marketing; and last, but not 
 least, on the selection of the right men to fill the higher and 
 more responsible posts. In these matters only those working- 
 men who are of exceptional ability can form fairly good 
 judgment: and, even if no jealousy intervenes, they are in 
 great danger of being outvoted. These difficulties are greatest 
 in those industries in which technique is changing most rapidly: 
 that is, those on whose enterprise and resource the general 
 progress of the world and the industrial leadership of a nation 
 most closely depend^- This observation is consistent with the 
 fact that a great part of the supply of business genius of the 
 highest order, especially in America, has come from the working 
 classes: for such genius is in great measure innate; and an alert 
 youth in a factory or counting house has great opportunities for 
 sharpening his wits in relation to realities'. 
 
 1 See above, pp. 316—328. 
 
 ' The experiences of cooperation and copartnership are of interest in this 
 connection: see below, Appendix P. 
 
 ' See above, p. 359. The supply has indeed not been in full proportion to 
 the large numbers of the working classes; but this may be due partly to the 
 
BEITAIN'8 NEED OF THE BEST MECHANICAL APPLIANCES 647 
 
 6. Britain can obtain her necessary supplies of food and ni, xw, s. 
 material only by continued leadership in those industries, 
 which make large use of the most expensive mechanical 
 appliances : that is in those industries which have the greatest 
 need of the bold, judicious, unfettered undertaking of grave 
 risks under difficult and ever-changing conditions. 
 
 No thoughtful person regards with satisfaction the extreme 
 inequalities of fortune, which are conspicuous in the present age; 
 and, in great measure, have taken the place of the inequalities 
 in military and political power, which have prevailed in earlier 
 ages. As the herdsman and the gardener are more careful to 
 protect from hurtful disturbance such cattle and plants as are 
 of exceptional value, so an enlightened communistic regime 
 would take care that those, whose thought and work were of 
 high value to the State, were able to give all their strength 
 under favourable conditions to the discharge of their special 
 functions. But that ideal Golden Age, which almost every 
 people has thought to discern in the past, permitted no sump- 
 tuous expenditure save on public account — Privatus illis census 
 erat brevis; commune magnum. 
 
 The imagination, which endowed the individual with heroic 
 virtue, endowed the State with an equally heroic wisdom and 
 activity in the service of all: and imagination, though vain, was 
 logically consistent; for the State at any time and place is the 
 chief emanation of the character of mankind then and there. 
 Of course a despotic State may represent the aims of a military 
 minority, but we are now concerned with a self-governing 
 people. The State, which they evolve, wiU reflect whatever 
 purity of aim and nobility of purpose are to be found in their 
 Hves, but no more: it is likely to be much less efficient for its 
 purposes than they are for theirs, because its tasks are much 
 heavier than theirs. Nevertheless the State is the most 
 precious of Jiuman possessions; and no care can be too great 
 to be spent on enabling it to do its special work in the best 
 way: a chief condition to that end is that it should not be set 
 
 fact that natural faculty ia in some degree inherited: and therefore a man who 
 has the genius needed for brilliant business success is more likely to be the son 
 of a parent who has made some considerable advance himself, than of one who 
 has not. 
 
648 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 III, XIV, 5, to work, for which it is not specially qualiiied, under the con- 
 ditions of time and place. 
 
 In the early military ages, the despotic ruler — whether a 
 monarch or a dominant section (such as the Roman Populus, 
 which called itseK the "Republic") — could accumulate capital; 
 by means of a large command of forced labour of slaves or 
 serfs : such labour was capitalized in the great Roman A(jueducts. 
 Modem appliances for manufacture, and for transport by land 
 and sea of imported food, materials and other things, in exchange 
 for manufactured and other products, have enabled nearly the 
 whole population of every western country to enjoy a greater 
 amount of comfort than was to be had by any but the very rich 
 a few centuries ago. They have so diminished the strain on 
 human muscles that education is now a real force; whereas 
 without such aid the strain of severe manual labour would have 
 left most operatives at the end of the day's work, so tired that 
 the brain would have been unable to make good use of any 
 faculties that it had acquired. But yet a modem Government 
 seldom accumulates capital: it is a brave borrower. 
 
 In some countries a good deal is accumulated in driblets by 
 peasant proprietors and other "small-folk": but in the pro- 
 gressive western world the task is for the greater part in the 
 hands of the middle and upper classes: and they consequently 
 receive nearly all the direct money income derived from it. 
 But that direct net income is small in comparison with the 
 indirect benefits derived from the increased efficiency that the 
 aid of capital bestows on man's productive work: these benefits 
 belong to the whole nation; and much the larger part of them 
 in the aggregate goes to the working classes. More machine 
 power goes to the production, and more shipping goes to the 
 carriage, of each pound's worth of a labourer's purchases than to 
 each poimd's worth of an artisan's purchases; and several times 
 as much goes to each pound's worth of his purchases as to each 
 of those of the very rich man. And yet, it must 'be repeated 
 that the artisan, even when earning as good an income as many 
 of those who are regarded as middle-class brain-workers, seldom 
 saves as much as they do^. 
 
 ' The chief causes of this difference are no doubt to be found in traditionary 
 custom and inherited qualities. But a minor cause may be found in the fact 
 
BRITAIN'S NEED OF THE BEST MECHANICAL APPLIANCES 649 
 
 It is to be remembered that the income derived from capital iii,iiv,5 
 did not increase as fast as the savings from which it was derived, 
 until the time came for the State to borrow a great part of it 
 at a high rate for the purposes of the world- war: and that, Lf 
 the private capital at the disposal of Britain and America had 
 not been available, German troops would have treated Britain 
 as they did treat Belgium. Moreover, it seems probable that, 
 if the motives and opportunities for the accumulation of private 
 capital in Britain were considerably reduced, while average 
 human nature and conduct remained much as it is now, her 
 total supply of the material appliances needed for high grade 
 manufacture and trade would be so much reduced by wear and 
 tear, obsolescence, and exportation, that ere long her people 
 would become relatively poor. In fact it might soon become so 
 small, that an even distribution of the whole income of the 
 country among all her inhabitants would bring down the in- 
 comes of all below that of the artisans and other well-paid manual 
 workers now. Even as things are, such a division would give 
 more meagre results than is generally supposed^. 
 
 that the widow of a working man and his daughter can earn their livings and 
 accept aid in ways, for which derelict members of the middle classes have not 
 been prepared by previous experience. 
 
 ' Professor Bowley's The division of the prodvuil of industry, 1919, shows the 
 total income of Britain, derived from home sources, to have been in 1913 — 14 
 £m.2,000 or £m.2,100: which "would not have yielded more than £230 per 
 family of five; or £170 net after all rates and taxes were paid, and an adequate 
 sum invested in home industries. The income brought home from abroad 
 amounted to about £m.90, or £10 a family. The average family is not however 
 five as is frequently assumed, but about 4 J persons.... The average net income 
 of a family.. .would have been £153 from home-product, or £162 if income from 
 abroad is included.... There are on an average nearly two earners to a family." 
 
 Suggestions in this direction had been occasioned by anxieties, less than those 
 of the present troubled time. Thus in my Principles of Economics ( first edition, 
 1890, pp. 47 — 8) it is observed that since the repeal of the Corn-laws " the average 
 money income of the people has more than doubled; while the price of almost 
 all important commodities, except animal food and houseroom, has fallen by one 
 half or even further. It is true that even now, if wealth were distributed equally, 
 the total production of the country would only suffice to provide necessaries and 
 
 the more urgent comforts for the people The average income per head in the 
 
 United Kingdom, which was about £15 in 1820, is about £33 now; i.e. it has risen 
 from about £75 to £165 per family of five. There are not a few artisans' families, 
 the total earnings of which exceed £165, so that they would lose by an equal 
 distribution of wealth: but even they have not more than is required to support 
 a healthy and many-sided life." In the third edition, 1895, this estimate 
 
 21—5 
 
650 DECLINB OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 iii,xiT,5. If Britain is to hold her place in the world, her growing 
 population, ever more dependent on external supplies of food 
 and materials, must be provided with enlarged and improved 
 mechanical appliances for production; and therefore ever greater 
 net annual additions to her accumulated capital must be made 
 in order that her total real income (or National Dividend) may 
 be as large relatively to her population as was that of an artisan's 
 family before the war: and a new spirit, in harmony with 
 the patriotic emotions of the war, must rid her of her Achilles' 
 heeP- If everyone will get as much work as possible out of his 
 plant while in charge of it; and, in those industries in which 
 the plant is very expensive, will agree to work in shifts, so as 
 to keep the plant at work for twice as long as the normal 
 working day, then wages will be raised automatically far above 
 their present level: and yet there will be an increase in the 
 inducements so to develop plant as to greatly increase the 
 National Dividend. Then all workers may receive as good pay 
 as the artisan does now: and the artisan, together with those 
 office workers who are on about equal level with him in the 
 faculties required for their work, may speedily rise miich 
 above it^. 
 
 Thus the future may be made brighter than the past by 
 greater community of thought, action and sympathy; by a 
 fuller recognition of the dignity of man, and cordial cooperation 
 
 of £33 per head was raised to £40: and in the seventh edition, p. 713, the guess 
 ia hazarded (on much slighter foundations than those of Prof. Bowley's study) 
 that the income of the 49,000,000 inhabitants of Britain may be taken at 
 £2000,000,000 or £40 a head; which was less than that of many artisan families 
 even before the war, when the purchasing power of money was still high. 
 
 ' See above, p. 641 n. 
 
 ' The economy to be obtained by compelling a single outfit of untiring 
 mechanical plant to work twice the number of hours which can reasonably be 
 required of human beings, who are easily tired, and whose life needs to be 
 developed outside of their work as well as in it, is jirged by Lord Leverhulme in 
 The Six-how day. He insists, as many others have done, on the wastefulness of 
 the British method of keeping the supply of plant and horse-power per thousand 
 operatives somewhat below the American standard. It is suggested in my 
 Principles (pp. 695 — 6 n.) that two sets might work alternately. With a seven- 
 hour day one might work from 6 a.m. to 9 a.m. and from 12.30 to 4.30 p.m.: the 
 other from 9.15 a.m. to 12.15 p.m.; and from 4.45 p.m. to 8.45 p.m.: they might 
 change places at the end of each week or month. With a six-hour,day no one 
 need work more than three hours continuously. 
 
BRITAIN'S NEEDS: INADEQUACY OF SOCIALIST REMEDIES 651 
 
 among all the various ranks of industry, and by a continued de- ni,xiv,6. 
 velopment of the fundamental principles of the Whitley Report. 
 When man has been raised to a level far higher than he has yet 
 attained, he will have raised the State also to far higher pos- 
 sibilities than it has yet reached: and then industry is likely 
 to be recast on some plan not yet in sight. For human nature 
 has developed new possibilities in almost every generation 
 under quiet and orderly conditions; and it has progressed very 
 fast in this country during the last fifty years. 
 
 One indication of this progress is the increasing solidity and 
 breadth of socialistic schemes: for instance "labour" is no longer 
 regarded as exclusively manual; and the Guilds now suggested 
 are to make use of the best scientific, technical and administra- 
 tiye ability that they can attract. But it seems that these new 
 schemes, hke those of earlier times, look only at the surface 
 difficulties of business; and do not attempt with patient care to 
 track out the effects of effects, and the causes of causes. In 
 particular they appear to regard economic progress as a thing 
 that goes almost of itself: they take little thought for its 
 dependence on deep insight, on farseeing fore-sight, on sound 
 judgment in selecting new developments of technique and 
 organization, and on the courage of leaders of industry in taking 
 selected risks on their own shoulders. Even the most advanced 
 schemes for National Guilds seem to ignore the fact that the 
 State has been a borrower rather than an accumulator of capital; 
 and to take Uttle or no account of the superhuman abihty 
 required on the part of those persons in whom the chief functions 
 of "the State" are to be concentrated, when called on by a 
 Guild to advance more capital in order to replace some that has 
 been lost in an ill-fated venture, or to enable some new venture 
 to be put through. No doubt the State, like man himself, is to 
 be born anew in the new age; but no definite provision is made 
 for this re-birth; and meanwhile the intimate dependence of 
 progress on the right taking of risks, seems to be ignored^. 
 
 ' But such schemes may point the way to soUd progress in a later age, when 
 some oversights have been corrected by experience. And bold imaginations, 
 though unbalanced and dangerous as guides, often contain a solid kernel, from 
 which are evolved in a later age important results, far removed from the aims 
 ■vith which they were originally associated. So a, short account is given in 
 
652 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 iii,iiv,6. 6. Some general conclusions. Sectional, national, and in- 
 ternational interests. Anglo-Saxons have generally eschewed 
 the more antisocial forms both of competition and combina- 
 tion. Collective control of industry would be unfavourable 
 to the best selection of men for its most responsible worh 
 
 In this Book and in Book II we have been occupied chiefly 
 with the relations of sectional to national interests. But it will 
 be well to revert for a while to the point of view of Book I, from 
 which national progress was seen as in great measure dependent 
 on world progress; and to consider the partial likeness, which 
 the relation of national to cosmopohtan interests bears to that 
 between sectional and national interests. 
 
 Many sectional interests within a country are concentrated 
 in particular places, in consequence partly of unequal distribu- 
 tion of mineral and other natural resources, partly of more or 
 less accidental localization of special industrial aptitudes. But 
 special local interests are generally recognized as definitely sub- 
 ordinate, on moral and on political grounds, to those represented 
 by the central Government: while devotion to national interests, 
 to the almost complete exclusion of those of the rest of the world, 
 is implicit in much ordinary conversation, and is proudly 
 asserted even by some thoughtful people. 
 
 The recent growth of a strong sentiment in favour of a 
 League of Nations, may ultimately have some power to foster 
 cosmopolitan interests. It is an evidence of under-currents of 
 thought and feeling, which were felt at the Universities and 
 elsewhere half a century ago, and are now becoming prominent. 
 Science is already almost completely international: nearly every 
 change of political thought and sentiment in any one western 
 country soon spreads some waves over others; and the same 
 is true of progress in industrial technique. Capital is also 
 in great measure international; facilities for travel and the 
 transmission of news by wire and by air are enabling the new 
 education of the masses of aU western peoples to become in- 
 creasingly international. Recent discussions, arising out of the 
 emergencies of the great war, have quenched many jealousies, 
 
 pp. 657 — 660 of some proposals for setting up National Guilds in the place of 
 tlie present mechanism of industry and trade. 
 
SOME GENERAL CONCLUSIONS 653 
 
 and have effected friendly compromises in regard to conflicting iii.av.e. 
 interests: but yet the time seems far off at which each country 
 will deliberately abstain from any action, which would bring 
 benefit to her, on the ground that it would cause somewhat 
 greater detriment to others. If that end is ever reached, the 
 way to it may perhaps be led by the increasingly independent, 
 but also increasingly cordial, relations between Britain and her 
 Dependencies. In all international trade policies, her great 
 Dominions are able to take full care of their own interests: but 
 her Crown Colonies and India are not in equally strong positions; 
 and therefore Britain is morally bound to attach to each of 
 their interests at least as great a weight as if it were her 
 own^. 
 
 In Books II and III we have been increasingly occupied with 
 the observations that the term "competition" has many different 
 interpretations in common usage; that the same is true of the 
 term "combination"; and that consequently indiscriminate 
 praise or blame of either is futile. Varieties of competition seem 
 to fall in the main under one of the following three heads: 
 (a) friendly emulation, implying cooperation in case of any need, 
 as when two friends rival one another in the ascent of a difficult 
 mountain: (6) ordinary business competition, in which each of 
 several neighbourly producers or traders endeavours to get ahead 
 of the others; but neither makes, nor tolerates the making by 
 others, harsh judgment of their actions: (c) competition with 
 destructive aims, in which each would go to some trouble and 
 expense in order so to hurt others, as to clear the field for his 
 own advance. The largest and the most savage developments of 
 destructive competition on record have been incidents in cam- 
 paigns for crushing inconvenient competitors by a Juggernaut 
 car of combination striving for monopoly. And it is noteworthy 
 
 ' In particular no pica should be entertained for Protective taxes on imports 
 into Britain competitive with some of her own industries, however strong the 
 national need for developing them may be; unless a similar principle is appUed 
 to selected Indian manufactures, whose youthful strength ia insufficient for com- 
 petition on nearly even terms with rival imports from Britain and other western 
 countries. These considerations are developed a little further in pp. 26—9 of a 
 Memorandum by the present writer on the Fiscal Policy of International Trade, 
 printed by order of the House of Commons, C. 321 of 1908. 
 
654 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 iii,iiT,6. that some vehement strategic denunciations of competition as 
 essentially malign and rancorous, have been uttered by advo- 
 cates of combination for the purpose of raising prices to artifici- 
 ally high, if not to monopolistic levels. 
 
 Again, the term "combination" has three similar connota- 
 tions. It is often applied to constructive association^. Some- 
 times it refers to joint action for the regulation of prices; as for 
 instance by cartels or trade unions, which keep the door open to 
 all suitable applicants for admission, but nevertheless set them- 
 selves to push up the prices of what they have to sell : sometimes 
 it suggests deliberate destructive competition by a group of busi- 
 nesses aiming at monopoly. So long as the term "suitable" in 
 the second of these connotations is interpreted with reference to 
 the interests of the community in obtaining good service, and 
 without any design to stint supply in the interests of a section, it 
 does not offend against the fundamental ethico-political rule that 
 everyone should have free access to the highest orders of work 
 of which he is capable — carrieres ouvertes aux talents. 
 
 In this matter manufacturers and other employers are more 
 directly — though not more deeply — interested than the nation 
 generally: and they seem to fail in their duty to themselves and 
 to the nation, when they unconsciously coimtenance evil develop- 
 ments of trade-union policy, by setting up associations of the 
 combative order of German cartels. An urgent obligation hes 
 on the State to search out and correct such malign practices by 
 methods of the same thorough and uncompromising character 
 as those of the American Federal Commission : for by such means 
 only is it possible to allow unfettered liberty of association for 
 constructive purposes, while curbing antisocial devices. 
 
 There is indeed but one moral rule and there should be but 
 one aim of authoritative control, for the operations of trade, for 
 the attitude of employers towards employees, and for the attitude 
 of employees to their work. Every sort of association that enriches 
 life by giving to the individual broader, and therefore presumably 
 higher, interests than those which directly concern his own well- 
 being, is to be cherished: but any tendency to curtail important 
 activities unduly {i.e. before they have reached the point at which 
 
 ' Such aa that describsd above, pp. 003 — 616. 
 
SOME GENERAL CONCLUSIONS 655 
 
 fatigue becomes a serious evil) in order to obtain an artificial iii,xiv,6. 
 advantage in bargaining, is to be condemned as antisocial. 
 
 The predominance of constructive over destructive forms both 
 of competition and of combination is even more important to 
 Britain tban to other countries: for her responsibilities in the 
 world are far greater relatively to her natural resources than are 
 those of any other land. Because she has achieved so much 
 relatively to her resources, she is bound to foster her acquired 
 sources of strength with exceptional vigilance and energy. 
 
 She needs to obtain vast quantities of food and material from 
 countries, that have relatively large natural wealth, by exporting 
 to them commodities made by such excellent appliances that her 
 working classes will be able to obtain the larger necessaries and 
 comforts of life — even after allowance for expenses of transport — 
 at the cost of no great amount of labour of her own. If her in- 
 dustries follow America's lead in largeness of supply of plant to 
 each worker: and if the short-sighted selfishness which has 
 developed the evil practice of stinting output (whether by trade 
 unions or by employers' associations on the cartel model) be 
 abandoned, then she may prosper: but she may rapidly fall from 
 her high place, if she becomes slack in any respect. 
 
 A characteristic of the last few decades has been the increas- 
 ing affinity between industrial evolution, and progress towards 
 government of the people by the people : and therefore it is worth 
 while to reflect that the special qualities, which made England 
 an industrial leader, were shown in her political evolution during 
 many centuries, in which her industries lagged behind those of 
 other lands^- They had indeed deeper roots and acquired much 
 larger scope, than those that were needed by the earlier forms 
 of merely industrial organization; and their first great achieve- 
 ment was to enable her gradually to develop true popular self- 
 government on a large scale. A bold guess may be hazarded 
 that a thousand years hence, when all economic institutions, 
 
 ' See above, pp. 35—39, and 179: also below, pp. 700—718. 
 
 A tribute should also be paid to somewhat similar national charaoteristios 
 which have preserved the independence of Switzerland; though the geographical 
 conditions, which have helped her to maintain it, have also confined its influence 
 within narrow bounds. 
 
656 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 III, XIV, 6. and nearly all economic rights have been remoulded several 
 times, a chief outstanding fact in the history of the past will 
 be the spread of the Anglo-Saxon language over a great part of 
 the world, regarded as the result of the early faculty of the 
 Anglo-Saxon temperament for ordered freedom. 
 
 Self-restraint in the statement of claims, and resolute per- 
 sistence in those which have been finally approved, have gener- 
 ally enabled Anglo-Saxon peoples to move forwards steadily: 
 retrogressions have occurred, but they have been rare. And, as 
 an indirect, but perhaps necessary, consequence of this character, 
 both competition and combination in Anglo-Saxon countries 
 generally have been more inclined to construction than to 
 destruction. It is indeed true that some violent ebullitions of 
 competition, chiefly in pursuit of monopolistic combination, have 
 occurred in America: but they do not appear to have been 
 numerous relatively to the rapidity of growth and change in 
 her industrial structure, to which no near approach has been 
 seen elsewhere. America has attracted the most eager and ex- 
 citable strains of the Anglo-Saxon, the Celtic, and Slavonic races: 
 and yet Anglo-Saxon moderation and stability have enabled com- 
 petitive and monopolistic abuses to be kept within relatively 
 narrow limits, with but httle direct intervention of authority. The 
 chief weapon of the Bureau of Corporations has been publicity. 
 So far we have been concerned chiefly with movements, which 
 have passed, with more or less success, through the ordeals of 
 sustained working and many-sided experience. But we may now 
 allow ourselves to venture a little on untried ground, and specu- 
 late as to the future; not being deterred by the reflection that the 
 fond fancies of one age as to noble possibilities of social develop- 
 ment have not very often evoked as much approval as mirth in 
 later generations. 
 
 We may begin by reference to National Guilds: for they claim 
 with some partial justice to be developments of movements, 
 which may be traced in nearly all phases of civiUzation during 
 more than two thousand years; and to have earned some sort 
 of certificate from the past. In fact however those parts of their 
 policy, which are at once most novel and most alluring at first 
 sight, seem on consideration to involve grave hazards to social 
 stability and progress. 
 
NATIONAL GUILDS 657 
 
 7. National Cruilds. iii,xiv,7. 
 
 It has already been noted that the (Whitley) Works Com- 
 mittees and Joint Industrial Councils embody something of a 
 movement in the direction of loyalty to others engaged in the 
 same industry, by the side of, and occasionally in preference to, 
 loyalty to the same craft. The claims of industrial Guilds have 
 drawn support from this movement; which belongs especially 
 to the last few decades, and is in the reverse direction from that 
 which set in a century earlier. Tor, as the eighteenth century 
 passed rato the nineteenth, the domiaant industrial unit ceased 
 to be a workshop, owned by the leadiag craftsman in it: and 
 after two more generations had passed the employer, even if he 
 had been a working man himself, was chiefly concerned with the 
 organization and the finance of a large establishment; though, 
 especially if engaged in engineering, or allied work, he would 
 of course supplement technical studies by some manual 
 experience^. 
 
 Towards the end of the nineteenth century, the number of 
 tasks handled in the same factory became so great that the 
 various craftsmen engaged in them had scarcely any common 
 bond: each craftsman ia the factory looked to his own Union for 
 guidance and aid in regard to pay and other matters. Loyalty 
 to craft gave scope to some of his higher emotions: but the 
 general interests of the business in which he was engaged did 
 not appeal strongly to him. So the suggestion that the State 
 should own all capital and directly control all industry appealed 
 to his idealism, as well as to his desire for greater material 
 comfort: and he was inclined to approve the mystic reasoning 
 with which Marx "coquetted," and which claimed to prove 
 that though a worker has a right to his own earnings, yet 
 any part of them which he or any one else uses in facibtatuig 
 production, encroaches on the rights of the State. He often 
 regarded the Marxian doctrine, that aU profit derived from 
 private capital is "theft," as an overstatement of an important 
 
 ' Some employers are skilled craftsmen. One, whose engineering works 
 were large and various, told me that he had mastered his whole plant: he could 
 step into the place of any operative, and show him how to do his job easily and 
 neatly. 
 
658 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 iii,xiT,7. truth. So far socialistic tendencies went very much on the 
 same lines in most Western lands. 
 
 But the attitude of Anglo-Saxon workers difiered from that 
 of Germans and others, who rejoiced in the apparent vigour of 
 autocratic Government, and cared little about freedom for its 
 own sake. Fabians made something of a compromise with pure 
 Marxian doctrine. But in recent years their influence has de- 
 clined in Britain relatively to that of a school, which insists 
 that though collectivism might increase the material comforts 
 of the workman, it would not develop his self-respect: the post- 
 man is not made free by escaping from the control of an 
 employer, who may be sympathetic; and coming under that of 
 officials, who must obey orders, and have no power to indulge 
 their sympathies. 
 
 The new movement therefore puts into the forefront the 
 dignity of the worker, whether with hand or head, as a man: it 
 claims thus to evoke his full energies and give them free play: 
 and finally so to increase production that material well-being 
 would be raised generally, even though the State, while annex- 
 ing private capital, give in return bonds of its own which will 
 yield an income equivalent to normal interest on the capital for 
 a period of say forty or fifty years. Business men may con- 
 tinue their activities in the service of their respective industries: 
 but the whole of the operations of each industry will be con- 
 trolled by those engaged in it, who in their collective capacity, 
 as a Guild, will pay rent to the State for the means of pro- 
 duction. 
 
 On this plan control is to be guided by the highest available 
 technical knowledge and business experience. For, though the 
 State takes over all business plant, with some sort of compen- 
 sation to its owners, the Guild is to avail itself of every suitable 
 faculty that will participate in its task. While all its members 
 vote on its main problems, the policy thus directed will be 
 carried out by those whom the Guild may consider most cap- 
 able: whether they are compensated ex-capitalists, experienced 
 managers; or manual workers, who have shown high faculty 
 imder the new conditions. Thus the plan is on a difEerent 
 intellectual level from those which regard the whole product of 
 industry as belonging to the operatives; and think but lightly 
 
NATIONAL GUILDS 659 
 
 of any work that is not manual. It leaves trade-unions, or iii,xiv,7. 
 their successors, in full control of the internal management of 
 particular crafts, but the main organization of industry is to be 
 based on "function"; and there are many industrial functions 
 beyond the scope of any one craft, and therefore of any trade- 
 union. 
 
 In order to avoid arousing strong opposition, while the 
 movement towards the goal is stUl rather weak, caution is 
 recommended. "The keynote is to be Encroaching Control": 
 but, when the goal has been reached, "economic sovereignty is 
 to be shared between the Guilds (with whom will lie the initiative 
 in the economic no less than in the purely industrial sphere) 
 and the State (which stands by as guardian of communal interests 
 that might otherwise be lost sight of)^." As a means to this end, 
 the shop committees are to begin by making impossible the 
 position of any foreman, whom they do not approve, " such passive 
 approval to be transformed at the earliest possible moment 
 into active election by the workers themselves, so that the 
 shop steward becomes the officer not of the Union only, but of 
 the industry." "Collective Contracts" arranged by the Union, 
 which itself distributes the money received, are to be increasingly 
 substituted for individual contracts. "As the functions of the 
 employer pass from him one by one, his fundamental character 
 as a profiteer wiQ become more obvious... and this will fatally 
 impair what is even more essential to his power — his prestige^." 
 
 The scheme is thus elaborated by Mr G. H. D. Cole: There 
 is to be set up in each works, subcommittees elected by all the 
 workers in the several shops; and a Works Committee elected, 
 directly or indirectly, by all the shops. A District Committee is 
 to consist of members elected by the several Works Committees, 
 together with craft representatives elected by the local crafts. 
 These are to lead up to a National Guild Executive and a 
 National Delegate meeting of representatives of each craft in 
 each district. Foremen and Managers are to be elected by those 
 manual and clerical workers respectively who would serve under 
 
 1 Bechhofer and Beokitt, The meaning of National Guilds, 1918, pp. 284, 5. 
 
 ' lb. pp. 286, 7. A writer is quoted with approval by them (p. 335) who says : — 
 "A correotive for judicial arrogance wUl need to be discovered: perhaps. ..by 
 rendering the Judiciary elective. ..by Guild and Civic Congresses." 
 
660 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 III, iiv, 8. them, for each works and for the whole Guild. Similar provision 
 is to be made for experts, for each works, for each district, and 
 for the whole country '^. 
 
 The Central national control of all industries is to be in the 
 hands of (a) a Guild Congress representing producers; (b) Par- 
 liament representing "the people as consumers"; and (c) a some- 
 what mysterious body, on which "not merely aU the citizens, but 
 all the citizens in their various social activities are represented"; 
 which is on occasion to settle controversies between the Guild 
 Congress and ParUament*. He insists that "the Collectivist 
 Utopia would be a world of pubUc trusts: the Guild Utopia 
 wiU be a world of producers' cartels, worked in the interest of 
 the whole community. If the Guild is not to faU into mediocrity 
 it must preserve the distinctness of works from works, of locality 
 from locaUty and of nation from nation. It is the organization 
 of human difEerences on the basis of human identity'." 
 
 In the present economic system, discipline is enforced in 
 great measure automatically "by an unseen hand." It is often 
 rather harsh; and its severity calls for frequent mitigation by 
 human effort. But if automatic discipline is removed, an all- 
 pervading authority must be invoked to check abuse in small 
 matters as well as in large. Unless Guild organization develops 
 some notion, of which it at present seems to have made no forecast, 
 it may probably drift into chaos, from which relief can be found 
 only in a military despotism ^- 
 
 8. Possibilities of the future. 
 
 Let us now imagine some possibihties of the future, which 
 may be attained without casting the experiences of the ages to 
 the winds; and without supposing that methods of organization, 
 
 ' Self -government in industry, 1918, pp. 257 — 268. 
 
 ' lb. pp. 86—88. 
 
 ' 76. p. 154. Marx might have en-ded this phrase. 
 
 ' In this matter, as in some others, Mr Cole {Self-government in industry^ 
 pp. 234 — 9) seems to follow closely in the paths of St Simon, Fourier, and other 
 early socialists of noble character and vivid poetic imagination. The last new 
 version of the Golden Age is to bring out latent powers of goodness in human 
 nature: the task of regulation is to be as simple as it would be if all men were 
 as unselfish and earnest as the writer himself: the vast difficulties of modern 
 business organization are so completely left out of account as to imply that they 
 have never been seriously studied. 
 
POSSIBILITIES OF THE FUTURE 661 
 
 which have never attained lasting success on a considerable iii,iiv,8. 
 scale, will prove permanently efficient under the wand of a 
 socialistic prophet. 
 
 Stress must be laid on the extent to which industrial strength 
 is being increased by the broadening of the basis, from which 
 can be drawn men endowed with the high faculties needed 
 for the more responsible posts in industry. Until recently the 
 supply came almost exclusively from a rather thin upper 
 stratum of the population. It alone had a great surplus of 
 material resource over what was needed to supply the neces- 
 saries of life; and sufficient freedom from oppressive manual toil 
 to be able to devote much mental energy, save in exceptional 
 cases, to the larger problems of thought and work. 
 
 But it has now a larger sense of social responsibility; and, 
 aided by the application of natural forces to much of the heavy 
 work that wearied the manual worker, it has contrived larger 
 opportunities for the masses of the people to develop the high 
 faculties bom in them: and the State can now look to the 
 main body of workers as the source of much of that higher 
 administrative work, which used to belong almost exclusively ta 
 the weU-to-do. This change was emphasized by the Whitley 
 Report, and it will be promoted by Joint Industrial Councils; 
 though their efforts may not reach far towards a wide dis- 
 semination of the supreme tasks of conceiving new ventures, 
 weighing their promises and their risks, and making a wise 
 selection. There is a rapid increase in the number of those who 
 have the strength and the elasticity of mind and character 
 needed for the larger responsibilities of industry: but un- 
 fortunately the probability that the best men wUl be brought 
 to the front is being diminished by several causes. 
 
 Records of a man's work in one grade of industry throw but 
 httle light upon, his fitness for a higher grade, in which different 
 faculties are required. Everything, that is within a man, does 
 indeed come out in close intercourse with those whose qualities 
 are at least as high as his: but in a large business those, whose 
 own qualities are high, are seldom brought into much direct 
 contact with the main body of workers. The foremen and 
 other officials of medium grades are not always quick to 
 appreciate fully any higher qualities that may be latent in 
 
662 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 iii,xiT,8. a young artisan: they judge him probably by his output; but 
 that, though a good measure of his value as an operative, is 
 a very poor measure of his higher capabilities. The small 
 employer, who knew all his men, could draw a broad distinction 
 between the value to the business of a particular operative, and 
 the value of his work: and would go out of his way to retam 
 anyone who, though not specially expert and quick with his 
 hands, would be likely to develop such faculties of judgment 
 and resource, that considerable responsibilities might be thrown 
 upon him later on; and thus the man who had latent high 
 qualities would be drawn upwards. But such a man might 
 not be much liked by a foreman or other minor official of a 
 large business, whose horizon is more limited than his own: 
 and his value is lilsely to be reckoned merely by his 
 output^. 
 
 This likelihood, that in a very large business the latent 
 capabihties of a man wiU fail of recognition by his immediate 
 superiors, is to some extent both a cause and a justification of 
 a tendency to promote according to seniority: especially if 
 the work to be done is such that the output of any one man is 
 not easily to be distinguished from that of others. As is well 
 known, this tendency becomes an almost absolute rule in many 
 kinds of employment imder Government: for officials, who 
 have made their way by seniority, are naturally inclined to 
 promote by the same rule^- National Guilds propose at starting 
 to annex the services of men who have been trained in inde- 
 pendent businesses: and that device may serve for a time. 
 But when those men have gone, and the Guilds have to train 
 their own leaders, they are likely to find unexpected difficulties 
 in the causes just indicated. 
 
 To sum up this group of considerations: — Moral and 
 economic advances depend increasingly on the extent to which 
 
 ' This is a difierent thing from saying that hia value would be reckoned in 
 proportion to his output. For it is obvious that the work of a man in charge of 
 very expensive plant, who gets out of it a quarter as much again as another, 
 may be worth twice as much as the other one, if neither has any latent capacity 
 for higher work than that on which he is engaged. The phrase "equal pay for 
 equal output" has its uses, but is liable to be grievously misapplied. 
 
 " Reference may be made in this connection to the first and fourth Sections 
 of Book II, Chapter x, see also pp. 680 — i. 
 
POSSIBILITIES OF THE FUTURE 663 
 
 the most strength-giving influences can be brought to bear on iii,iiv,8. 
 character: and among these a chief place must be assigned to 
 the' selection of men for responsible posts in accordance with 
 indications that they are likely to develop in those posts 
 faculties, for which they have had relatively small need in the 
 past. Only independent heads of business are in a position to 
 make such a selection with free hands; and only they have full 
 incitement to exercise their best energies in the selection. 
 
 But yet there is room for large hopes. Leaving wars out 
 of account, we may perhaps reasonably hope for a gradual 
 extension to nearly the whole population of those resources and 
 opportunities, which are needed for comfort and for the full and 
 harmonious development of the higher human faculties, on the 
 followiag conditions: (i) that mankind set themselves greatly 
 to increase the supply of mechanical appliances, which are to 
 raise the condition even of the humbler classes of mankind by 
 acting as slaves for them: (ii) that they make these slaves so 
 numerous and powerful; and manage to keep them at work for 
 so long hours by alternating shifts of attendants, that even the 
 lowUest of human operatives need work only during short hours; 
 though with energy while at work: (iii) that they raise the level 
 of general education till there are scarcely any adults, who can 
 only do such simple work, as is within the capacity of a properly 
 guided mechanical slave : (iv) that they develop assiduously the 
 channels by which those who are endowed with high faculties 
 of thought and invention, of enterprise and administration, may 
 rise rapidly to posts of responsibility commensurate with their 
 qualities: (v) that they keep constantly in view the broad 
 distinction between tasks of orderly business management, 
 which conscientious officials perform adequately; and tasks of 
 constructive enterprise, on the bold and enlightened discharge 
 of which economic progress mainly depends, though they are 
 often beyond the power of the official, and even uncongenial to 
 his temperament: (vi) that they recognize (a) that the most pro- 
 gressive business men value the freedom to take risks on their 
 own account, and to earn a reputation for able leadership, by 
 success in leadership which cannot always easily be proved 
 otherwise than by its pecuniary results : but (6) that an adverse 
 
664 DECLINE OP EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 iii,iiv,8. tide which retards all rowers does not materially diminish the 
 zest of emulation in a race; and therefore (c) that enterprise 
 may be maintained, even though those who are rich are required 
 to make large contributions for national purposes: (vii) that they 
 remember that all taxes on resources, which might probably have 
 been used for the increase of the material slaves of man, are 
 prejudicial to the whole people; and in some respects especially 
 prejudicial to the poorer members of it: and that therefore the 
 produce of exceptionally heavy taxes on capital, or on income 
 derived from it, ought not to be used to defray current expendi- 
 ture: (viii) that at junctures such as the present, when the 
 national burden of debt is an enormous heritage of evil for 
 coming generations, they insist that the produce of all taxes, 
 which tend considerably to check the accumulation of private 
 capital, be devoted to the reduction of that debt: (ix) that they 
 take account of the tendency of capital to emigrate from a place 
 in which it is unjustly handled; though a country, which 
 nourishes and stimulates capable business enterprise, will con- 
 tinue to attract capital, in spite of its being subject to some- 
 what heavy taxes there: (x) last, but not least, that employers, as 
 well as other capitalists; employees; and in short all classes and 
 groups, eschew all practices which tend to raise the market 
 values of their services or products by making them relatively 
 scarce. 
 
 The problem of social aims takes on new forms in every age: 
 but imderlying all there is the one fimdamental principle: — viz. 
 that progress mainly depends on the extent to which the 
 strongest, and not merely the highest, forces of human nature 
 can be utilized for the increase of social good. There are some 
 doubts as to what social good really is; but they do not reach 
 far enough to impair the foundations of this fundamental 
 principle. For there has always been a substratum of agreement 
 that social good lies mainly in that healthful exercise and 
 development of faculties which yields happiness without pall, 
 because it sustains self-respect and is sustained by hope. No 
 utilization of waste gases in the blast furnace can compare with 
 the triumph of making work for the public good pleasurable in 
 itself, and of stimulatiog men of all classes to great endeavours 
 by other means than that evidence of power which manifests 
 
POSSIBILITIES OP THE FUTURE 665 
 
 itseK by lavish expenditure. We need to foster fine work and iii,xit,8. 
 fresh initiative by the warming breath of the sympathy and 
 appreciation of those who truly understand it; we need to turn 
 consumption into paths, that strengthen the consumer and caU 
 forth the best qualities of those who provide for consumption. 
 Recognizing that some work must be done that is not ennobling, 
 we must seek to apply the growing knowledge and material 
 resources of the world to reduce such work within narrow limits, 
 and to extirpate all conditions of life which are in themselves 
 debasing. There cannot be a great sudden improvement in 
 man's conditions of life; for he forms them as much as they form 
 him, and he himself cannot change fast: but he must press on 
 steadfastly towards the distant goal where the opportunities of 
 a noble life may be accessible to all^- 
 
 Organic life on this Httle planet, which has been inhabitable 
 for only a few thousand years, may indeed perhaps claim to 
 have made fair progress, morally as well as physically, in a 
 minute fraction of the period during which the steUar imiverse 
 is known to have been nearly in its present form. Other 
 planets, which have been suitable for the maintenance of organic 
 Ufe during much longer periods, may have gone a long way 
 towards solving socio-economic problems, of which we are only 
 able to touch timidly the outskirts. In particular they may 
 have probed many of those responsibiKties of the iadividual to 
 the State and of the State to the individual, as to which we have 
 learnt so much in the last few generations, that we appear to 
 have made some considerable way towards fathoming the depths 
 of our ignorance. But it seems that, the longer we ponder, the 
 greater must be our diffidence in prediction, and the more pro- 
 found the awe with which we regard the Divine Governance of 
 the Universe. 
 
 ^ This paragraph is substantially reproduced from an article on "The old 
 generation of economists and the new," published in the Harvard Quarterly 
 Journal of Economics in 1897: and something more is said on similar subjects in 
 the last chapter of my Principles of Economics. 
 
666 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 III, XIV, 9. 9. Nature and limitations of the constructive woric of a 
 democratic Government in regard to industry. 
 
 To return to the hard realities of actual life: — It has 
 been indicated^ that, although the semi-military organiza- 
 tion of Imperial Germany was well adapted for the methods 
 of bureaucratic control, other methods are needed by a nation 
 which governs its own Government: but a little more must be 
 said on this subject. 
 
 Each of the numerous Government offices in Westminster is 
 in some measure bureaucratic. Its officials have for the greater 
 part been trained from early manhood onward in its work; 
 and promotion has been governed by seniority, with some little 
 reference to the claims of exceptional ability. In broad matters 
 however the ultimate decision depends on a Minister, whose 
 knowledge of the technique of his Department is seldom great. 
 He is likely to bring a fresh and alert mind to its problems, 
 but he has many other things to think about: and he has done 
 his duty well, if he listens carefully to the suggestions of his 
 chief subordinates; and endeavours to bring the Cabinet, and 
 afterwards Parhament, to adopt such of them, as seem to him 
 well conceived and likely to prove beneficial. His competence 
 to decide on its business problems is therefore likely to be 
 inferior to that of a man of equal natural ability and energy, 
 who has given his whole time and strength to the thoughts and 
 the actions that relate to the same business problems ; and who 
 has tested his judgment by applying it to many various risks 
 which appertain to them, and which he has borne on his own 
 shoulders. A Minister must continue to devote much of his 
 energy to the great tasks of political statesmanship; and must 
 apply those faculties of persuasive oratory, to which his high 
 position is largely owing, in advocating the chief measures of 
 general public policy, on the success of which the Ministry 
 depends for the maintenance of its position. That is work of 
 the highest importance: but in regard to his responsibihties 
 as head of a vast business it is a grievous, if not a disastrous 
 hindrance. 
 
 • Below, pp. 850, 1. 
 
PRESENT INDUSTRIAL FUNCTIONS OF GOVERNMENT 667 
 
 Consequently, for good and for evil, the main effective iii.xiv.o. 
 responsibility for the conduct of the higher business of a De- 
 partment rests with its chief permanent officials. They have 
 perhaps entered on their work with eager enthusiasm: but 
 enthusiasm is seldom in high favour with their seniors. For, 
 though Ministers are likely to select as private secretaries men 
 of alert and enterprising minds, they often acquiesce in the 
 common rule of promotion by seniority, save in ezceptional 
 cases: and this rule perpetuates itself, because those, who have 
 prospered under it, appreciate its convenience more fuUy than 
 its shortcomings. 
 
 Therefore a new technical advance is apt to be regarded 
 coldly by a Government Department; for regulations which 
 have been worked out with much care for the control of old 
 established methods, may not be applicable to the new method: 
 so it is likely to be treated as an enemy not exactly of the 
 public, but of the public as represented by the Department^. 
 
 But when private enterprise has toiled and invented and 
 experimented and failed; and again invented, and experimented, 
 and perhaps succeeded a little; and then has further invented 
 and experimented and quite succeeded, the public official enters 
 on the scene. He endeavours to absorb the latest ideas: he 
 brings the might of a bottomless public purse to bear on their 
 finance; and he annexes some leaders of the new industry to 
 carry the chief burden of the technical side of the work. If the 
 enterprise needs the use of public rights of way — as for instance 
 tramways and electric light do — he has so great an advantage 
 of position, that his victory is almost inevitable: and indeed in 
 
 ' For instance "the ofSciala responsible for drafting the London Building 
 Act of 1894, had in view nothing more advanced than the time-honoured method 
 of brick and stone construction, and were apparently unaware of the fact that 
 steel-frame construction and reinforced concrete construction had already been 
 applied with satisfactory results as regards safety, durability and economy both 
 on the Continent and in America. As neither of these methods could be employed 
 with economy under the requirements of the Act, steel-frame construction 
 remained under a ban until 1909, and reinforced concrete construction was 
 similarly handicapped until 1915." Engineering Supplement of the Times, 
 March, 1918. 
 
 The following is a representative case. An intelligent Borough Engineer 
 had his attention called to a dangerous place on the road. Reference being 
 made to an inexpensive remedy, by which he held that most of the danger 
 would be removed, he added : — "I dare not do it. An accident might still happen : 
 and then I should be held responsible for it: a thorough remedy would be very 
 expensive. As tilings are, an accident there would not hurt me: for I should 
 merely have left the case as I found it." 
 
668 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 III, XIV, 9. such cases private enterprise may be patriotic enough to regard 
 its own despoilment with satisfaction. Even in the railway 
 industry, in which Government control has some exceptional 
 advantages, it seems to have borrowed almost every new idea 
 from independent work^. 
 
 The industries in which Government Departments and Local 
 Authorities have succeeded are few in number, but important. 
 They are mainly concerned with "things that sell themselves"; 
 that is, things which are in large demand, and more or less 
 standardized by natural causes. The chief of them are connected 
 with facilities for transport, and the distribution (by aid of way- 
 leaves) of water, light and power: they all meet elementary 
 needs; call for little or no adaptation to changing habits, or 
 varying tastes; and make use of plant, the central ideas of which 
 have been worked out by private enterprise and gradually 
 become common property. 
 
 State Management possesses advantages, where many 
 routine operations are "performed under the pubUc eye, or for 
 the service of individuals, who wUl immediately detect and 
 expose any failure or laxity"; especially if "there is but httle 
 capital expenditure, so that each year's revenue and expense 
 shall represent with sufficient accuracy the real commercial 
 conditions of the department." These conditions, indicated 
 long ago by Jevons^, are fulfilled in an eminent degree by the 
 postal business: and the first, though not the second, is 
 fulfilled by all other important businesses in which State 
 Management has had much success. 
 
 It may be noted in passing that mining does not seem to 
 belong to this class. For, though the miner merely transports a 
 product from one place to another, and does not make it; yet 
 the selection and organization of underground routes require 
 
 1 "The telegraph, the telephone, the electric light, the raUroad track, the 
 locomotive, the air brake, the block signal system were all introduced by private 
 companies. In most cases it took Government experts from ten to twenty-five 
 years to discover them after they had been in use on private lines": said 
 President Hadley writing in the Yah Review, Feb. 1896, p. 406. Many Muni- 
 cipal tramway schemes have failed : but private enterprise, which initiated them, 
 has brought their technique on so far, that the predominant advantage, derived 
 by local authorities from their ownership of the roads, has set thein now in the 
 saddle : and the victory, thus almost forced upon them, has been exploited by 
 eager politicians as affording a strong argument in favour of Government 
 businesses in general. 
 
 * See Metfkods of Social Reform, p. 338. 
 
PRESENT INDUSTRIAL FUNCTIONS OF GOVERNMENT 669 
 
 decisions to be taken on important details, that are presented iii,xiv,9, 
 in manifold combinations and are not easily to be reduced to 
 rule. There is therefore no cause for surprise in the fact that 
 even the strong German bureaucracy (before the war) was found 
 to get but small profits from its coal mines, while yet it was not 
 generous to its employees^. 
 
 But the relations among the various Departments of a 
 modern Government are numerous: and when a much vaunted 
 public enterprise has turned out badly, the resulting losses can 
 be so distributed and buried under a mass of Departmental 
 detail, that their true history cannot be unravelled without the 
 aid of a semi-judicial inquiry: in fact, it generally remains 
 obscure; and those, who are responsible, escape their just 
 censure^. 
 
 Thus Governmental administration is apt to suffer from lack 
 of concentration of authority and lack of elasticity in methods 
 of procedure. Very few large practical problems lie wholly 
 within the competency of any one Department: and a decision 
 on some trifling issue may not be reached, tUl the corre- 
 spondence about it among various offices in Whitehall has 
 cost the nation many times as much as the whole value of the 
 matter in hand. If that matter is of private, as well as public 
 concern, the delay and waste of time to individuals lend support 
 to the belief that it is better to suffer some hurt from official 
 control or charges, than to strive for a remedy. Of course, such 
 
 ' See above p. 574 fn. At the time of going to press, evidence before the 
 Coal Commission is making prominent many of the evils that have arisen or 
 might arise from local coal monopoUes; and from cheap railway charges for 
 long distance coal transport, by which such monopolies are to some extent 
 cmrbed. Something has also been established as to the good and evil of concen- 
 trated private ownership under State control; and as to evil that might probably 
 have been caused by nationalization of the mines. Much enthusiasm, but very 
 little solid argument, has been prominent in pleas for nationalization. 
 
 " Difficulties of this kind have obstructed the formation of a good judgment 
 on many of the ventures of the Coalition Government during the war: the 
 unwieldy majority, which was awarded to it under the supreme necessity of 
 presenting a united front to the foe, has quenched inconvenient inquiries. 
 Transferences of control (often no doubt made for sound reasons) from one 
 Department to another have obscured accounts; as for instance when the 
 Shipyards at Chepstow and Beachley passed from the Ministry of Shipping to 
 the Ofhoe of Works. And during the war, when the Government was spending 
 two or three thousand millions a year; wasteful duplication of work was ram- 
 pant: and "the accretion of Departments, their clashing and overlapping," 
 became the subject of general comment. 
 
670 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 III, XIV, 9. troubles are great in a democratic country, where permission 
 to alter established practice may require the sanction of a 
 Minister, who has no technical knowledge of the matter; and 
 who may be about to move to another Ministry, or to go out of 
 office. These and similar difficulties led to the appointment in 
 1917 of the Machinery of Government Committee; whose Eeport 
 is much to our present purpose. It lays stress on the fact that 
 the centre of each Department's work ought to be an organized 
 study of some one of the broad functions of Government; and 
 not of the activities of Government in regard to the interests 
 of particular classes of persons^. 
 
 This fimdamental unity in regard to the matters entrusted 
 to a Department being secured, it may reasonably be required to 
 have recourse to "the advice and assistance of advisory bodies so 
 constituted as to make available the knowledge and experience 
 of aU sections of the community affected by its activities " : but 
 "there should be no omission in the case of any particular service 
 of those safeguards which ministerial responsibiUty to Parliament 
 alone provides." This last suggestion is enforced by the weighty 
 observation that "a more efficient public service may expose the 
 State to the evils of bureaucracy, unless the reality of Parliamen- 
 tary control is so enforced as to keep pace with any improvement 
 in departmental methods^." 
 
 If the applied science of administration is mastered by De- 
 partments ; and members of Parliament generally lack the leisure, 
 the inclination, or the ability to form independent judgments 
 as to recommendations made by Departments in regard to 
 broad problems of public policy; then Parliament will in 
 effect often do little more than register the decisions of a 
 Bureaucracy: and democratic rule will be stultified by the 
 absence of an adequate response to the question: Quis cus- 
 todiet ipsos custodes? Government Departments are chief cus- 
 todians of the interests of the nation: Parliament cannot do 
 that work; but its duty is to control that work: i.e. to make 
 it efficient, to prevent its being obstructed by internal friction, 
 and to resist unnecessary expenditure of public money. To do 
 this Parliament needs to take its own arduous functions as 
 seriously as Bureaus need to take theirs. 
 
 » [Cd. 9230], 1918, § 18. ' lb. pp. 11 and 16. 
 
PRESENT INDUSTRIAL FUNCTIONS OF GOVERNMENT 671 
 
 We pass to scientific studies in the narrow sense of the term. iii,xiv,9. 
 The National Physical Laboratory and the Committee of the 
 Privy Council on Scientific and Industrial Eesearch are recog- 
 nized as doing work of the highest value. But there is danger 
 that, when relying on private advice, a Department or the 
 Cabinet may be influenced by biased opinion in deciding what 
 industries should be aided on account of their exceptional im- 
 portance as "key" or "pivotal" industries. And yet the State 
 has clearly some duties in the matter; especially when sup- 
 porting independent organized effort^. 
 
 In so far as State assistance is given to such developments 
 by direct money grants, ParUament is likely to be vigilant. For 
 this, among other reasons, such grants are to be preferred from 
 the national point of view to the taxation of imports that com- 
 pete with the products of essential industries: though in a few 
 cases a combination of the two plans may be necessary. The ex- 
 clusion of particular imports often tends to divert employment 
 from the energetic industries, that make for export, to those 
 which are favoured by the exclusion: it does not effect any net 
 increase of employment, and its indirect costs to the nation are 
 frequently underestimated, because they are not conspicuous. 
 On the other hand, the whole costs to the nation of direct 
 subsidies are definite and conspicuous: those who are favoured 
 by them are brought immediately under the eye of the people, 
 and their accounts are liable to public audit. The danger that 
 a subsidized business may abuse monopolistic power is so obvious 
 
 ' See above pp. 179, 180. Among the industries now prominent in this 
 connection are those connected with tungsten, magnetos, optical and chemical 
 glass, hosiery needles, thorium nitrate, certain gauges, and many drugs. But it 
 is recognized that technical, military and even political developments may cause 
 rapid changes in such a list: and therefore it is proposed that a Special Indus- 
 tries Board, consisting of commercial and industrial experts, in association with 
 a Department of State, shall be set up to work in close relation with the Depart- 
 ment of Scientific and Industrial Research, aijd with others interested in the 
 development of industry. It should recommend on occasion that financial 
 assistance should be given to vigorous firms, which are pioneering the way in 
 such industries, by studies, experiments, and production, that may be amply 
 remunerative to the country as a whole, though not to the pioneers. The 
 functions of the State in this matter have been made urgent by a sudden 
 iucrease in the dependence of military operations by land, by sea, and lastly in 
 the air, on scientific and technical developments; some of which were not in 
 sight even a few years ago. In case of urgent need only, "the Government 
 should itself undertake the manufacture of such articles as may be essential for 
 national safety." Report on Commercial and Industrial policy after the war 
 [Cd. 9035], 1918, pp. 31, 32. 
 
672 DECLINE OF EXCLUSIVE CLASS ADVANTAGES IN INDUSTRY 
 
 iii,xiT,9. as to be unlikely to escape the notice of the official investiga- 
 tions, to which it must be in any case submitted^. 
 
 It is perhaps true that the power of Government to control 
 the administration of a great Departmental business is on the in- 
 crease: that the power of the nation to govern its Government 
 is on the increase; and that the number of giant undertakings 
 which have the apparent (though perhaps not the real) maturity 
 of standardized routine method, needed to make them in some 
 measure suitable for Governmental ownership, is on the increase. 
 But it seems to remaiu almost as true now, as in former times, 
 that the heavy hand of Government tends to slacken progress 
 in whatever matter it touches; and finally that "business in- 
 fluences are apt to corrupt politics; and political influences are 
 apt to corrupt business." 
 
 Increasingly during the last hundred years national weU-being 
 has depended on the progress and dissemination of sound edu- 
 cation. It is clear that a great part of the funds for this purpose 
 must be suppKed by the State, though public officials are not 
 generally well fitted to control the methods of higher education: 
 and in regard to them the State may be well advised to trust 
 as far as possible to the guidance of the Royal Society and other 
 bodies of advanced students, in association with the Univer- 
 sities. In regard to popular education it is to be remembered 
 that drinking troughs are in vain supplied for horses, if their 
 bearing-reins are kept so tight that they cannot reach the water. 
 Therefore, if education in any broad meaning of the word is to 
 become a reality, reasonable conditions of life are necessary"'^. 
 
 ' See the Memorandum of the Board of Trade on State assistance to the dye 
 industry [Cd. 9194], 1918. Grants in aid may be made up to 40 per cent, of costs 
 of (1) general plant and buildings, (2) laboratory buildings and equipment, and 
 (3) laboratory maintenance for certain periods. In return restrictions are to be 
 imposed as to prices that may be charged, and as to the profits that may be 
 divided. Thus the great power which has been obtained by the combined firms 
 of British Dyes and Messrs Levinstein seems (in the present state of the in- 
 dustry) almost an essential for rapid progress : and it is to be strongly con- 
 trolled in the general interest. 
 
 ' This is the main drift of the Report of a Committee on Social Conditions in 
 relation to Adult Education [Cd. 9107], 1918. The Master of Balliol was in the 
 chair. 
 
APPENDIX Ai 
 
 A NOTE ON METHOD IN ECONOMIC STUDY 
 
 I. The progress of science, while increasing the stock of app. a, i. 
 knowledge, increases also the area of conscious ignorance. 
 Relations between economic analysis and ethical aspira- 
 tions. 
 
 Absolute certainty is possible only in regard to (1) par- 
 ticular individual facts; and (2) deductions by strict reasoning 
 from axiomatic premisses, such as those of pure mathematics. 
 Even sciences, which deal with concrete facts and conditions as 
 definite and immutable as those of physics appear to be, cannot 
 claim certainty over the whole of their area. In biological 
 sciences the area over which certainty extends is relatively 
 very small; and in the social sciences it is less than in those 
 which deal with the lower forms of Ufe. 
 
 Even the physical sciences made but little progress ia their 
 youth; partly because they had no adequate apprehension of 
 the vastness of the area, which lay beyond their knowledge. 
 But by patience and perseverance each generation of workers 
 has corrected, and brought certainty into, doctrines which had 
 previously been faulty and uncertain; and at the same time it 
 has opened out new ground ia which uncertainties abound 
 and certainties are rare: the certainties of physics increase 
 in number, but its uncertainties increase much faster. 
 
 The experience of economics during the six or seven 
 
 generations, in which it has been studied seriously, has been 
 
 similar, though cast in a smaller mould. Adam Smith cleared 
 
 up many obscurities and uncertfiinties : but the area of his 
 
 I See above, p. 7. 
 
674 METHOD IN ECONOMIC STUDY 
 
 App. A, 1. conscious uncertainty was far greater than that of his pre- 
 decessors. Ricardo's bias was towards making his ground 
 certain, so far as he went, rather than towards broadening his 
 outlook: and his vigorous narrow certainties had such sway 
 that men rested on them, with the result that little truly 
 constructive work was done for a long whUe; though in conse- 
 quence of that very stagnation, the science appeared to increase 
 in certainty. But the combined constructive efEorts of students 
 in the chief coimtries of the western world have made the area 
 of economic certainties perhaps fully twice as large as it was 
 in, say, 1860: and at the same time they have increased in even 
 larger proportions the area of conscious economic uncertainties. 
 Those matters as to which there is no longer uncertainty are 
 but little discussed; while conflicts of opinion are promiaent 
 over the widening area of uncertainties. The quiet agreements 
 do not attract the attention of hasty critics; the turmoil of 
 conflicts does. 
 
 A chief cause of the great recent extension of the area of 
 uncertainty in economic discussions is to be found in that 
 growing volume of responsible doubt as to the general sufficiency 
 of the existing social order for the requirements of man's nature, 
 to which reference has already been made. In an age of violence 
 prudent men strive rather to strengthen those elements of social 
 order which are already the strongest, than to inquire whether 
 it might not be possible, in more fortimate times, to improve 
 them away, and substitute better elements in their place. The 
 rigid outlines of the doctrines of Ricardo and the earUer Mill 
 were partly caused by the temporary return of Europe, between 
 1790 and 1820, to a reign of violence: and John Stuart MiU was 
 so much under their influence when young, that he laid down 
 canons as to the province of the economist, which seemed to 
 exclude the use of all faculties except the intellectual. But 
 these rigid hmits were unsuitable to the latent warmth of his 
 nature: and, as he indicated on the title page of his Principles 
 of Political Economy, he softened the hard outUnes of economic 
 science by an admixture of "social philosophy." This move- 
 ment was carried further, at first chiefly under German influence: 
 and it has now gone so far ih England and America and other 
 countries, that it may be regarded as cosmopolitan; social 
 
LIMITATIONS OF KNOWLEDGE. ECONOMICS AND ETHICS 675 
 
 studies of a general character are now largely mingled with app. a, i 
 others that are more strictly scientific^. 
 
 To the scientific group belong retrospective statements in 
 the indicative mood, as to the causes which have been (certainly 
 or probably) operative in bringing about past events; and 
 prospective statements, also in the indicative mood, as to the 
 results which may be expected (certainly or probably) to follow 
 from the action of specified causes. All opinion is liable to be 
 tainted by unconscious bias; but that taint can be kept low in 
 matters in which every serious student can equip himself with 
 the knowledge and the implements for investigation and 
 reasoning, that have been accumulated by the progressive 
 labours of many generations of strong workers in the same field. 
 And, though confusion may for a time be caused by the intrusion 
 of partisan or interested disputants, yet patient study prevails 
 progressively in all issues that are within its grasp. 
 
 On the other hand, expressions of sentiment or desire in the 
 optative mood, as to the relative claims of different social aims, 
 must necessarily rest in the main on the personal authority 
 of individuals. For instance the social benefits, which would 
 result from an increase in the supply of material comforts and 
 luxuries, are of a difEerent order from those which would result 
 from improved health, increased leisure, better musical oppor- 
 tunities and so on: and when a difference of opinion arises as 
 to the preference which people ought to show for any of these, 
 the issue cannot be decided by scientific method. 
 
 Again, it may be suggested that, though the rigid rights of 
 private property, which prevail under the present social order, 
 may justly claim to have done a great and necessary work; yet 
 human nature has now so far developed, that social benefit would 
 result from some softening of these rights in such ways as would 
 promote the more equal distribution of wealth. Now such 
 a proposal offers scope for turning to account the stores of 
 knowledge and scientific apparatus, that have been accumulated 
 by economic science; and therefore there is a certain obvious 
 
 ' Mill's term "philosophy" is perhaps not wholly appropriate. A better term 
 appears to be "poUoy" (not current "politios"); which corresponds to the full 
 title of the great German Association, commonly known as the Sociai-V erein; 
 but of which the ofBoial title ia V erein fUr Social- Politik. 
 
676 METHOD IN ECONOMIC STUDY 
 
 App. A, 2. convenience and appropriateness in its being discussed from the 
 special point of view of the economist. But some of the 
 questions involved in it, and especially those which relate to 
 the development of human nature, have not yet been brought 
 within the scope of scientific treatment, at all events by the 
 methods of economics^. 
 
 To conclude: — economic studies are not to be limited to 
 matters, which are amenable to strictly scientific treatment. 
 But those conclusions, whether in detail or in general, which 
 are based on individual judgments as to the relative desirability 
 of different social aims, or as to matters of fact which lie beyond 
 the scope of any individual's special studies, should be clearly 
 distinguished from those which claim to have been reached by 
 scientific method. 
 
 2. Similarity amid diversity of the methods of physical 
 and social sciences. The need for elasticity in the uses of 
 economic terms. 
 
 A few words may be added as to the guidance which the 
 experiences of the physical sciences suggest to their younger 
 sisters, the social sciences. 
 
 The path to be followed was pioneered by the sciences of 
 mechanics and astronomy and by other studies of inorganic 
 matter; because they meet less obstacles to exact observation 
 and reasoning than are encountered in a study of organic 
 development. They discovered at a comparatively early stage 
 that complex problems must be broken up into elementary 
 parts; for there is indeed but little chance of finding a class 
 of complex problems which resemble one another so closely that 
 
 ' An illustration wiU perhaps make more clear the way in which exact but 
 limited knowledge may be combined with broader estimates that rest on 
 uncertain foundations. A navigator who has for some time been unable to 
 take good observations, and is in waters where the currents are uncertain, must 
 be content with probability: he can do no more than make sure that his con- 
 clusion as to the distance and direction which his ship has travelled since 
 his last good observation contains no error that is not inherent in his guess at 
 movements of the currents, or iif the figures shown by his log; but he may not 
 rest content with less. The function of economic analysis is to render a service 
 within its sphere similar to, though less thorough than, that which the science 
 of navigation renders within its sphere: the value of such services ia seldom 
 very much diminished by a little uncertainty as to some of the data. 
 
VARIOUS METHODS IN SCIENCE. THE USE OE TERMS 677 
 
 the same sort of systematic reasoning can be applied to all app. », 2. 
 of them, and thus each be made to throw light on the others. 
 
 But the opposite is true of the elementary parts into which 
 complex problems can be broken up. Each such part of any 
 one of them is likely to belong to the same class as a number 
 of elementary parts of other complex problems; and by 
 systematic study, general rules can often be discovered which 
 apply, more or less nearly in the same way, to each member 
 of the class. Similarities and dissimilarities between different 
 members are fruitful of suggestions. Gradually a general rule 
 appropriate to them is developed; and the rule becomes more 
 definite and also more elastic, as the fundamental laws of Nature 
 which underlie it are more distinctly apprehended. Meanwhile 
 provisional conclusions in regard to various elementary parts of 
 complex problems are brought together, and worked up into 
 broader partial truths: and thus by the cumulative work of 
 successive generations, intellectual machinery is built up which 
 can work its way through even very refractory material. The 
 most prominent change in method which has resulted from this 
 experience is an increase in the stress which is set upon the 
 study of tendencies; as distinguished from the comparison of the 
 same or similar events under very different conditions or at 
 widely different stages in their evolution. 
 
 It was not till the seventeenth century that the physical 
 sciences appreciated the full importance of the fact that when 
 several causes act together and mutually afiect one another, 
 then each cause produces two classes of efiects; those which 
 are direct, and those which result indirectly from the influences 
 exerted by it on other causes: for indeed these direct and indirect 
 effects are apt to become so intricately interwoven that they can 
 by no means be disentangled. So far the results were negative : 
 they seemed to indicate that the task of following out and 
 understanding the combined action of several causes, which 
 are in various degrees mutually interdependent, is beyond 
 the power of himaan faculty. But a way out of the difficulty 
 was found, chiefly under the guidance of Leibnitz and Newton. 
 An epoch-making process of reasoning showed that, though the 
 indirect efiects might grow cumulatively, and ere long become 
 considerable, yet at first they would be very small indeed 
 
678 METHOD IN ECONOMIC STUDY 
 
 App. A, 2. relatively to the direct efEects. Hence it was concluded that a 
 study of the tendency to change, resulting from each several 
 disturbing cause, might be made the starting point for a broad 
 study of the influences of several causes acting together. This 
 principle is the foundation of the victory of analytical methods 
 in many fields of science. Its best known triumph is that of the 
 Nautical Almanack which takes account of the disturbing 
 influences exerted by any two planets on one another directly; 
 and also indirectly as the result of their disturbances of other 
 planets^. 
 
 Social sciences have profited slowly at first, but with ever 
 increasing rapidity, from such experiences of their elder sisters, 
 the physical sciences. Facts are closely studied in well selected 
 groups : tendencies which are observed as provisionally suggested 
 by each of several similar groups, are first subjected to critical 
 analysis, and then set up as provisionally established. But they 
 remain ever on their trial. New experiences, apparently incon- 
 sistent with the old, may threaten their credit: but if a closer 
 study shows that difEerences in conditions account for the 
 differences in observed results, the credit is improved. Each 
 such well established tendency is a real asset of knowledge: 
 but it is seldom of much practical service, till its manner of 
 working in combination with other tendencies has been studied. 
 The task is long, but each of several generations has already 
 contributed to its achievement: and now the number of those 
 who work at economic science in Western Europe, the United 
 States and some other new countries, is so great, that the 
 progress made in a single decade can be clearly marked. The 
 result is not to set up economic doctrines: they are left for 
 
 ^ This method is not easily grasped without the aid of mathematical 
 symbols; but its central idea can be indicated vaguely without their aid. If 
 4 is a state of things influenced by conditions B and C; while B and C are so 
 connected that a change in B sets up simultaneous tendencies to change in both 
 A and C; then the changes produced in A and in C will at first be very small, 
 though they may increase continually and cumulatively. Now since the im- 
 mediate effect which a considerable change in B exerts on C would be very 
 small; the immediate effect which the change B exerts on A indirectly through 
 a very small change made by it in C, must be a very small part of a very small 
 thing (in mathematical language it must be "a quantity of the second oidei 
 of smalls") and be negligible provisionally. But yet its accumulated effects 
 may need consideration in special cases, among which those considered by the 
 Nautical Almanack hold a place. 
 
VARIOUS METHODS OF SCIENCE. THE USE OF TERMS 679 
 
 political partisans, and elementary preceptors. It is to set up app. a, 2. 
 principles of record and analysis, so carefully applied that those 
 who seek knowledge for its own sake, increasingly agree as to 
 the general character of the tendencies to be expected from any 
 set of conditions; and even, in some small measure, agree as 
 to the course of action most appropriate to those conditions. 
 There is however a special difficulty in social studies. No one 
 can have first-hand knowledge of any considerable part of the 
 conditions and other facts relevant to any issue. Therefore the 
 first duty of every student is to be diffident: and his second is 
 to shun controversy. 
 
 A business man is generally the best and often the only 
 authority on those transactions for which he is directly re- 
 sponsible; but he must depend largely on second-hand in- 
 formation in regard to movements of production and trade 
 in places and under circumstances remote from his own: and 
 conclusions which are valid in regard to a single business, or 
 even a single industrial group, are often not true in regard 
 to larger units. 
 
 For instance, artificial restrictions on the number of workers, 
 or on the output in any one skilled industry, influence the wages 
 and profits immediately concerned in a different manner, and 
 often in the opposite direction, to those of similar restrictions 
 when applied generally. This fact is analogous to the fact that, 
 though a shipwrecked man will increase his chance of reaching 
 the shore, if he is able to rest one hand on the shoulder of another 
 of the crew, yet the general adoption of this practice would 
 greatly increase the chance that they would all be drowned. 
 
 Therefore an economic doctrine cannot be tested, as has 
 frequently been suggested, by such questions as: — "Consider 
 your own case: would the doctrine be true in regard to it?" 
 The answer to that question may probably be in the negative; 
 and yet the doctrine may be true in regard to the general case 
 to which it claims to apply. If so, its practical importance will 
 be increased by the fact that its truth would not be likely to 
 be suggested by the ordinary experience of life, and could be 
 grasped only by considerable observation and thought. In short, 
 though direct practical experience of particular events is the 
 basis of all economic knowledge, and is the exclusive source of 
 
680 METHOD IN ECONOMIC STUDY 
 
 App. A, 2. supply of the material used in the construction of economic 
 science; yet by itself it reaches but a very little way towards 
 the great task of deducing general guidance for the future from 
 the instruction of the past. 
 
 Those studies, which are of Kttle interest to any but experts, 
 can escape ambiguity by the adoption of a great number of 
 technical terms; each of which is defined sharply, and has no 
 variations of meaning. But technical terms must be kept 
 within very narrow limits in studies which relate to the affairs 
 of the market-place: and unfortunately there are not enough 
 terms in ordinary use in any language to enable each one of 
 them to be allotted permanently in one particular sense with 
 sharply defined boundaries. This difficulty is not very trouble- 
 some in ordinary conversation; where, as a rule, each one is 
 concerned only to know that a word, which he uses, will be 
 taken by his hearers in the sense intended. It is of httle 
 concern to him that elsewhere, and in other conditions, the same 
 word may be commonly taken with rather different breadth or 
 shade of meaning: for differences as to interpretation can be 
 cleared up easily by question and answer. But the written 
 word must carry with it all necessary explanation: and therefore 
 a writer is bound to consider whether the particular use, which 
 he is attaching to an important word in any inquiry, has been 
 made clear by the context; and if not, to state explicitly what 
 he means by it there. In another inquiry, he may desire to use 
 it in a rather different signification, as is common in ordinary 
 conversation: but, if so, he must be alert to indicate the change 
 in the service to which he is putting the word. This is no 
 doubt a counsel of perfection, to which few, if any, have attained. 
 But the more nearly it is reached, the better will be the 
 prospects of cooperative progress by men of affairs and by 
 professional students in the discussion of matters of general 
 mterest, without the aid of an elaborate technical terminology^. 
 
 ^ Bagehot, a master of literary form, and a leader in affairs, urged econo- 
 mists "to write more as we do in common life where the context is a sort of 
 unexpressed interpretation clause"; and warned them against attempts to 
 "express various meanings on complex things with a scanty vocabulary of 
 fastened senses " (Postulates of English Political Economy, pp. 7, 8, 9) : and an 
 attempt is made here, as in my Principles of Economics, to conform to this precept. 
 
APPENDIX B 
 
 SOME EARLY PHASES OF INDUSTRY AKD TRADBi 
 
 1. Beginnings of specialized industry and long dis- app. b, i. 
 tance trade. 
 
 The spirit of economic nationality has had many phases and 
 many degrees in every phase. Sometimes it has been broad 
 and genial; sometimes it has been intense and narrow. It has 
 rarely been a universal good. But its evil results have seldom 
 lasted long after their immediate cause has passed away; while 
 its good results have borne fruit many fold. 
 
 In early times it was generally very narrow: because the 
 whole range of man's moral vision was short; and even at a 
 small distance other people appeared to him as strangers and 
 aliens. The stranger or enemy — for one word often sufficed 
 for both — could seldom reckon on more than the good faith 
 and courtesy that belonged to the herald's tabard or the flag of 
 truce. Except in this last respect, the instinctive habits of 
 mutual aid among neighbours, and of common hostility to 
 strangers, in the earlier stages of civilization seem not to have 
 differed very widely from those which prevail among lower 
 animals*. 
 
 Within the family, or village, or clan there was little or no 
 buying and selling, and not much even of formal and explicit 
 barter: but the hard clear cut lines of that definite bargaining, 
 which has so largely fashioned human life for good or for evil, 
 came to the front when strangers sought strangers for the 
 satisfaction of their own wants and the disposal of their own 
 superfluities. Trade proper, and especially trade organized by 
 a distinct class of traders and merchants, arose first out of 
 the relations between groups of men, clans, or other rudimentary 
 
 ' See alfeve, p. 33. • See Kropotkin's brilliant Mutual Aid. 
 
 22—5 
 
682 EARLY PHASES OP INDUSTRY AND TRADE 
 
 App. B, 1. economic nations. It was international trade rather than 
 domestic trade: Hermes was the God of money, trade and 
 theft; of hospitalities and embassies. 
 
 Gradually there arose division of labour, and specialization 
 of skill. It did not extend to nearly all industries. But it was 
 occasionally carried a long way by sporadic groups of artisans, 
 who gradually attained a subtle hereditary skill in choice metal 
 or textile work: their light goods travelled far, with but Uttle 
 protection from physical force, though often under some sort of 
 reUgious sanction. Thus trade at Delphi and Olympia was 
 protected by the truce of religious festivals before the time of 
 Zeus and Apollo; as was that of Mecca before the time of 
 Mahomet. And wherever the sway of an organized church 
 extended over a wider area than the sway of political rulers, 
 commercial intercourse owed much to the religious security of 
 fairs and pilgrimages, of national games and church festivals, 
 of monasteries and sanctuaries^. 
 
 For indeed, as Heeren seems to have been the first to show, 
 the course of history has been largely shaped by the need 
 of commerce in its earliest stages for easy land routes: because 
 traffic by river has many limitations, and traffic by sea requires 
 great resources. Traffic over moist land, or through jungles 
 and forests, is difficult or impossible without expensive roads: 
 and the earUest long trade routes were over the vast dry plains 
 of Asia and Northern Africa. The desert generally afforded an 
 easy path, wherever there was water enough to support life^. 
 
 The cessation of agricultural work, as soon as the green of 
 spring passed into the brown death of early summer, forced men 
 to exert themselves to manufacture Ught and refined wares for 
 
 ' The influence of war and brigandage in afieoting fellowship and solidarity 
 among traders, honest and dishonest, peaceful and warlike, has been often 
 discussed. See e.g. the earlier chapters of Roscher's Handel und Gewerbfleisa, 
 Walford's Fairs past and present, and Robertson Smith's brilliant article on 
 "Mecca" in the tenth edition of the Encyclopoedia Britannica. 
 
 ' It gave some little scope to the Law of Squares in transport and trade, 
 even on land. But the work was slow. A camel spends the whole of a favour- 
 able season in carrying eight chests of tea, about half a ton, in two journeys 
 from Kalgan to Urga (600 miles), at a cost of about £6 {Journey in Mongolia, 
 1902, by C. W. Campbell, British Consul [Cd. 1874, pp. 8, 9]). A caravan carrying 
 a hundred tons would be nearly a mile long; and a single modern fast ten 
 thousand ton ship can do about as much carrying in a year in spite of some delays 
 in ports, as two thousand such caravans. 
 
SPECIALIZED INDUSTRY AND LONG DISTANCE TRADE 683 
 
 sale, and to serve as carriers and merchants between neigh- app. b, i. 
 bouring lands for those goods that woidd bear the expense. 
 Caravans carried spices and flavours, of which a small quantity 
 satisfies a strongly felt need. And, what was much more im- 
 portant, they carried the best products of the subtle hereditary 
 skill, which had grown up here and there among the more 
 advanced peoples. These products, slight as their bulk was, 
 served as an educating influence wherever they went: they 
 stimulated the mind in the same way as the aroma and 
 splendour of the choice natural products which they .accom- 
 panied did the senses. All routes, however long and difficult, 
 were open to delicate and refined textile goods and embroideries, 
 to trusty steel and well- wrought weapons; and to various forms 
 of work even in common metals, which contained more poetry 
 than metaP- 
 
 Great highways were made chiefly for political and military 
 purposes: they connected seats of provincial Governments, 
 camps, and depots with one another, and with the central 
 authority; or they ran out to frontiers liable to attack. But 
 though they were seldom laid out with any great regard to the 
 needs of commerce, they effected a good deal for it; and they 
 are noteworthy as the first large embodiment of public 
 resources. Strong rulers have generally been impatient of the 
 trade particularism of the several groups of their subjects; they 
 have tried to break it down, and to spread freedom of trade and 
 intercourse among the various provinces under their rule. For 
 
 ^ The chief long distance trade of early times was that between Southern 
 Europe and Western Asia; all of which was forced to go part of the way by 
 land. But most of it made much the larger half of its journey by sea. For a 
 long while the route by the Persian Gulf was the easiest and most secure; and 
 its advantages contributed much to the trade of ancient Phoenicia and Greece. 
 The foundation of Alexandria contributed to the supremacy of the Red Sea 
 route; in which water carriage prevailed even more strongly. The Persian 
 Gulf route was however partly revived in Venetian times : and the trade between 
 Europe and the East remained very light in proportion to its value even after 
 the Ocean route had come into use. Mr Chisholm's address to Section F of the 
 British Association in 1907 gives a list of the cargo of a Portuguese ship coming 
 from India about 1590 which consisted almost wholly of spices, precious stones 
 and similar things; while the outward cargoes were also very Ught. So great were 
 the risks and so heavy the duties of the Mesopotamian route, that the silver 
 value of spices was 60 or 100 times as high in Venice as that which had been 
 paid for them in India; though both silver and spices are exceptionally portable. 
 
684 EARLY PHASES OF INDUSTRY AND TRADE 
 
 App. B, 2. all artificial barriers within the limits of their own territory 
 have hindered the growth of that poUtical unity and strength, 
 which has been their chief aim. But, as Heeren insisted, 
 the very extension of empire often leads to an increase of local 
 autonomy; the most despotic rulers have tolerated semi-inde- 
 pendent kings, and even republics, within their rule. Partly 
 for this reason, commerce has seldom been injured as much 
 by revolutions which have substituted one dominant race for 
 another at the centre of power, as by the anarchy which has 
 followed the total decay of despotic power^. 
 
 2. Even small towns carried on a sort of international 
 trade with other towns, and a sort of colonial trade with 
 neighbouring country-folk Town patriotism, and town 
 selfishness. The City States. 
 
 Sacred festivals, and the markets associated with them, 
 received protection from rehgious sentiment and authority 
 in very early times. A certain immunity was afforded to traders 
 proceeding to them, before civil order had been established over 
 large areas by organized central rule; and the Pax Romana 
 established a wonderful viability in the lands bordering on 
 the Mediterranean, and in some others. In every age each 
 considerable, civilized nation has possessed many trade centres, 
 connected with one another by more or less easy and frequent 
 intercourse: and each centre had as a rule some sort of sense of 
 collective interests, partly political, partly economic. But there 
 appears to be no record either in early or mediaeval times of a 
 warm and strong common sentiment holding together the 
 industries and the trade of a large area: there was no national 
 trade in the full sense of the word. The individual might 
 have his share in the commercial and other relations between 
 the village or small town in which he lived and its immediate 
 
 ' For the early history of roads see Lardner's Railway Economy and Huber'a 
 Entwickdung des modernen Verkehrs. A river may consolidate military rule 
 almost as well as a system of roads. And Sohmoller suggests {Orundrisa der 
 allgemeinen Volkswirihschaftshhre, § 102) that the compactness and stability, 
 which the Nile gave to Egypt, helped it to maintain a well organized system of 
 finance, such as was characteristic of the CSty States. The Nile Delta was a 
 luxuriant garden, interspersed with oanala, almost an earlier Holland. 
 
ORIGINS OF ECONOMIC NATIONALISM: MEDIAEVAL CITIES 685 
 
 neighbourhood : but he had scarcely any interest in the affairs app. b. 2. 
 of the empire as a whole. 
 
 When a group of people in daily intercourse with one another 
 had to earn their living under difficulties, and to rely on one 
 another's aid in contending with those difficulties, a feeling 
 of brotherhood almost invariably grew up. If the difficulties 
 were partly of man's creation, and had in them any savour 
 of injustice or oppression; then to contend with them wag 
 more than mere enterprise. It became a religion, and a source 
 of inspiration; and by its aid the community was knit together 
 in living bonds, which grew with its growth. But with the 
 strength came germs of weakness. Exclusive rights and 
 privileges rose in prominence over duties and fellow-services: 
 the bonds, that held the community together, might still in- 
 crease in strength, but they lost vitality and elasticity. 
 
 In order to secure its position the better against the 
 stranger, the town would form, if allowed to do so, a "gild 
 merchant," or special "department of town administration 
 whose duty was to maintain and regulate the trade monopoly^." 
 From maintaining the monopoly for the town, the gildsmen soon 
 got to maintaining it for themselves. The "simple merchant," 
 not a member of the gild, was often put on the same footing as 
 the stranger, and was estopped from trading as he wished. He 
 might not buy some things at all, or he might not buy 
 anything in order to resell it, nor till it was clear that the 
 gildsmen did not care to have it. The Gild often bought 
 from a common purse; and, if an individual gildsman bought 
 anything from a stranger, he would often loyally fulfil the 
 obligation to let the other gildsmen have a share in his bar- 
 gain^. 
 
 And the neighbouring country-folk fared as badly as did 
 the colonies of a selfish mother country in later times. The 
 craftsman was indeed wiUing to submit to a little loss when 
 purchasing the goods of other crafts; provided he and they 
 could agree on town regulations which secured a high priced, 
 if hmited, market for all their goods among the surrounding 
 
 ' Gross, Oild Merchant, oh. ni. 
 
 • The Dublin Gild of the Art of Merchants is an early instance of special 
 racial aptitude for stringent regulation. Gross {Oild Merchant, ch. vm). 
 
686 EARLY PHASES OF INDUSTRY AND TRADE 
 
 App. B, 2. couatry-folk: as Adam Smith observes, these often gave a 
 greater share "of the annual produce of society... to the 
 inhabitants of the town than would otherwise have fallen to 
 them; and less to those of the country^." 
 
 The town frequently made and enforced a rule that no 
 grain should be sold away from the land except by the landsfolk 
 themselves in the market-place. Sometimes no one might buy 
 more than enough till every citizen had supphed his present 
 need. Sometimes no buyer might overbid another. Sometimes 
 the public authorities kept large stores or magazines of grain; 
 and sometimes bakers were ordered to keep a good stock in 
 hand. But gradually the trade in grain became so massive, 
 that stronger forces than those of governmental authority were 
 needed to deal with it. And one of the first manifestations of 
 a spread of economic nationality over large areas was the 
 granting of a more or less complete freedom of traffic in grain 
 within the boundaries of a province or a whole country, but 
 not beyond^. 
 
 As SchmoUer says: — "The omnipotence of the council ruled 
 the economic life of the town, when in its prime, with scarcely 
 any limit; it was supported in all its action by the most hard- 
 hearted town selfishness and the keenest town patriotism— 
 whether it were to crush a competing neighbour, or a com- 
 peting suburb, or to levy heavier fetters on the country around, 
 to encourage local trade or to stimulate local industries." And 
 the trade of even neighbouring towns was "international" in 
 some respects. For "a complicated system of difierential 
 tolls was everywhere devised by which some towns were 
 favoured and others were put at a disadvantage, in each case 
 either in return for corresponding concessions or in accordance 
 with the varying hopes and fears to which trade gave rise." And 
 Southampton made separate treaties with seventy other towns'. 
 
 1 Wealih of Nations, Book i. oh. x. See also his diaouasion (Book m. oh. iv) 
 as to " How the Commerce of the Towns contributed to the Improvement of the 
 Country." 
 
 ' The succeaaive stagea of thia development, and their relations to the size 
 and other conditions of the town populations to be served are well set forth in 
 Schmoller's Epochen der Oetreidehandelsverfassung in his Jahrbuch for 1896. 
 A short similar study following geographical lines is given by Lexis in the 
 Handworterbuch filr Slaatswissenachaften, s.v. Qetreidehandel. 
 
 ' See his Essay on Ttie Mercantile System edited by Ashley, and Mrs Green's 
 
ORIGINS OF ECONOMIC NATIONALISM: MEDIAEVAL CITIES 687 
 
 But economic nationality could not reach its full develop- app. e, 2. 
 ment except in a city which, whether formally subject to a 
 Suzerain or not, had practically full control of its own affairs. 
 In such a city public spirit gradually acquired the largeness of 
 view, and sometimes — not always — the stability of purpose, that 
 befit the large responsibilities of a powerful State. Inland 
 towns often became rulers of provinces. Maritime towns some- 
 times acquired an imperial sway, being drawn to it almost 
 unconsciously and without any other original purpose than that 
 of securing their own trade against violence. On the seas 
 their ships could seldom trust to any other protection than 
 their own; and they were all equipped for fight. But when 
 they had arrived safely at a foreign port, their difficulties had 
 only begun. They still needed protection for themselves and 
 their goods against the rude violence of the mob, and against 
 the more orderly violence of its rulers. 
 
 For this purpose "Factories" or forts were estabhshed along 
 the shore of the Mediterranean from the beginning of history; 
 and they grew in importance and costliness as the effective area 
 of the world's trade increased. And the empires acquired by 
 several ItaHan cities, and especially by Venice, anticipated that, 
 which an English joint stock company some centuries later 
 developed on the basis of a few forts on the sea-coast of India. 
 
 Venice was Latin, and was never quite young. She soon 
 came under the charm of Byzantine power and magnificence. 
 Reversing the old Roman rule, she for some time confined to 
 the aristocracy the rights of distant commerce; except in so far 
 as she, like Marseilles and some other ports, kept them in her 
 own hands. She built her own ships; but she often hired them 
 out to private merchants, keeping however a controlling hand 
 over many trades. 
 
 Gradually she got to love empire for its own sake: and, 
 
 Town life of the fifteenth century, vol. n. p. 63. Sometimea a charter would 
 give a town "as much liberty as the citizens of Loudon have" in certain trade 
 matters. 76. p. 51. 
 
 Even as late as 1575 the Mayor and Corporation of London forbade the 
 bringing of Norwich wares into London without their being first taken to 
 BlaokweU Hall; there to be packed away, sold at stated times, and charged 
 with heavy tolls. But such anarchic action could no longer be endured by the 
 central government, and it was cancelled. 
 
688 EARLY PHASES OF INDUSTRY AND TRADE 
 
 App. B, 2. thougli she was never cruel without occasion; though she 
 enforced her will with a comity that soothed and even attracted 
 foreign customers, yet she was a stern ruler. She placed armed 
 ships at the entrance of their rivers, for fear any foreign 
 merchant should give them better terms than Venice would do: 
 for indeed they had often to deal with Venice rather than 
 Venetians. She was jealous of any competition; but she 
 could cooperate heartily with those whose work supplemented 
 hers; and the love between her and Cadore of the moimtains, 
 with her forests of pines ready to make the tallest and straightest 
 of masts, was deep and strong. 
 
 She excluded the products of foreign skill and forbad 
 her own artisans to emigrate; and at last she ceased even to 
 learn. Her industries lived on the reputation and skill they 
 had inherited from the days of freedom and growth. But 
 the heat of the day contiaues to increase for some Uttle time 
 after the sun has begun its downward course: and the impetus 
 which Venice had obtained from enterprise, fostered by freedom 
 and only tempered by regulation, carried her onwards for a 
 while, even after excessive regulation and the want of stimu- 
 lating competition had begun to lower her vitaUty. Her fall 
 was hastened by external events; especially the spread of the 
 Ottoman empire and the diversion of the route to India frora 
 the Mediterranean to the Ocean. But List's verdict stands:— 
 "If we inquire of history what were the causes of the downfall 
 of the Republic of Venice and of its commerce, she rephes that 
 they principally consisted in the foUy, neglect and cowardice 
 of a worn-out aristocracy, and in the apathy of a people who 
 had sunk into slavery." The further development of that 
 verdict however contains the kernel of a doctrine about which 
 controversy has raged increasingly during three generations. 
 
 List admits indeed that "...Unrestricted freedom of trade 
 was beneficial to the Republic in the first years of her existence; 
 for how otherwise could she have raised herself from a mere 
 fishing village to a commercial power?" But he continues, 
 "a protective policy was also beneficial to her when she had 
 arrived at a certain stage of power and wealth, for by means 
 of it she attained to manufacturing and commercial supremacy. 
 Protection first became injurious to her when her manufacturing 
 
ORIGINS OF ECONOMIC NATIONALISM: MEDIAEVAL CITIES 689 
 
 and commercial power had reacted that supremacy, because by app. b, 3. 
 it all competition with other nations became absolutely excluded, 
 and thus indolence was encouraged. Therefore not the 
 introduction of a protective policy, but perseverance in main- 
 taining it after the reasons for its introduction had passed away, 
 was reaUy injurious to Venice^." In fact however her supremacy 
 never reached to that height. Therefore if indolence was 
 encouraged by supremacy, it must surely have been encouraged 
 also by her near approach to it: and the history of Venice 
 would seem to lend some support to the opinion that external 
 competition tends to stimulate and to maintain the resource 
 and energy of a nation's industries. 
 
 Again, List does not deny that ruin came over Spain shortly 
 after she had adopted the Venetian system of Protection, 
 though he holds that " at the time of Charles V (first half of the 
 sixteenth century) the Spaniards were more advanced than the 
 English and French in every respect"; and he admits that 
 Colbert's Protective regulations were followed by poverty. But 
 he avoids the suggestion that the enfeeblement of competition 
 tended quickly to quench the energy; which had been started 
 by the sudden opening of profitable careers to manufacturing 
 initiative^. 
 
 3. The industries of shipbuilding and trade were so 
 developed hy Holland, as partially to anticipate much that 
 is characteristic of modern capitalistic predominance, and 
 industrial technique. Industry and trade led up to finance: 
 
 Sir W. Temple, writing of the early signs that the com- 
 mercial supremacy of Holland would lead to that of larger 
 nations, implicitly classes Holland with the Free States and 
 Cities, and England with the greater nations. His survey 
 may be quoted: — "Not many Ages past, Venice and Florence 
 possessed all the trade of Europe; the last by their Manu- 
 factures; but the first by their Shipping: and the whole trade 
 of Persia and the Indies, whose commodities were brought 
 (those by land and these by the Arabian Sea) to Egypt, 
 from whence they were fetched by the Venetian fleets, and 
 
 ' National System of Political Economy, ch. i. 
 » 75. chs. V, VI, xxvn. 
 
690 EARLY PHASES OF INDUSTRY AND TRADE 
 
 App. B, 3. dispersed into most of the parts of Europe: and in 
 
 times we find the whole Trade of England was driven by 
 Venetians, Florentines, and Lombards. The Easterlings, who 
 were the inhabitants of the Hanse Towns, as Dantzick, Lubeck, 
 Hamburgh, and others upon that Coast, fell next into trade, 
 and managed aU that of these Northern parts for many years, and 
 brought it first down to Bruges, and from thence to Antwerp. 
 The first navigations of the Portuguese to the East Indies 
 broke the greatness of the Venetian Trade, and drew it to 
 Lisbon: and the revolt of the Netherlands, that of Antwerp 
 to Holland. But in all this time, the other and greater 
 nations of Europe concerned themselves little in it; their 
 trade was war. The kingdoms and principalities were in the 
 world like the noblemen and gentlemen in a country; the 
 free states and cities, like the merchants and traders. These 
 at first despised by the others; the others served and revered 
 by them; till, by the various course of events in the world, 
 some of these came to grow rich and powerful by industry 
 and parsimony; and some of the others poor by war and by 
 luxury: which made the traders begin to take upon them, 
 and carry it like gentlemen; and the gentlemen begin to take 
 a fancy of falling to trade^." 
 
 Holland was large enough to serve as a basis for the largest 
 trade that was then possible; and while not neglecting either 
 agriculture or manufacture, she gave her main strength to the 
 industry of commerce. At a time at which manufactures, 
 however concentrated, could obtain only the minor economies 
 of production on a large scale, she showed that its major 
 economies were already within the grasp of concentrated 
 commerce. She thus pioneered and prepared the way foi 
 England, who two centuries later was to develop the major 
 economies of massive production in manufactures also: but 
 in the earlier age the power of concentrated capital could 
 
 * Observations upon the United Provinces, a.d. 1672, ch. VI. Temple was 
 a. large-minded man : but the evil side of the statesmanship of that age is shown 
 in the conclusion of his survey of the state of Europe in 1671 where he sums up 
 evenly the merits of three courses open to England: (1) to preserve our present 
 alliances and thereby the peace of Christendom or (2) to encourage France to 
 an invasion of Holland or (3) to join with France upon the advantages they can 
 offer us for the ruin of the Dutch. 
 
HOLLAND PIONEERED THE WAY FOR ENGLAND 691 
 
 make itself felt only by command of shipping and merchants' app.b,3. 
 stocks. 
 
 By far the most important form of movable capital, until 
 quite recent times, consisted of live stock, to which indeed the 
 kindred origin of the words "capital" and "cattle" bears 
 testimony: but agriculture offered little scope for the concen- 
 trated and highly organized employment of capital. Thus the 
 opportunity for pioneering new and larger methods which lay 
 in the hands of landowners was much less than that of the 
 merchants, and especially of maritime merchants. For they 
 generally owned their own ships; and, till well on in the 
 eighteenth century, ships were much the most costly imple- 
 ments of industry in the world. Manufactures are commonly 
 regarded as the industries which are most closely concerned 
 with progress in mechanics. But in this and in every preceding 
 century the ship has been the embodiment of more sustained 
 thought and more organized experience than any other machine. 
 
 It was no accident that the origin of the vast modern 
 system of joint stock undertakings can be traced to the 
 necessity, which was felt even in the ancient world, for 
 combining the resources of many people, in order to bear 
 the expenses and distribute the risks of the shipping trade. 
 But, though the ancient Romans made military roads at least 
 as well as we can now, the arts of navigation are of relatively 
 recent growth. In the early Middle Ages ships were small and 
 heavily built, and they carried but little freight in proportion to 
 their bulk. They were unable to progress at all except with 
 a favourable wind: they did not venture out of sight of land in 
 uncertain weather; and they carried but small cargoes. 
 
 But from the thirteenth century, when the compass came 
 from the far East to the West, the arts and the apphances 
 of navigation progressed fast. Ships became large and yet 
 lighter of build and more easily handled: their net tonnage 
 increased relatively to their gross tonnage, and even more 
 relatively to the crews needed to work them. The art of 
 tacking was discovered; and, as ships improved in structure, 
 they were able to sail nearer to the wind and to dispense more and 
 more with harbours and anchorages. Voyages went with larger 
 freights and lower charges; with more security and less loss of 
 
692 EARLY PHASES OF INDUSTRY AND TRADE 
 
 App. B, 3. time, and therefore with less loss of capital: and there was of 
 course a vast increase in the volume of trade and extent of 
 trade: i.e. in the number of tons that were carried a mile; or, 
 to speak more shortly, in the number of "ton miles." 
 
 But meanwhile the importance of the Mediterranean was 
 being lowered by the spread of the Ottoman power, by the 
 weakening of the police of trade, by the growth of piracy, 
 and by the diversion of the traffic between Asia and Europe to 
 the Cape route: and the more vigorous races of the North 
 were gaining in knowledge, in wealth, and in opportunity. The 
 scattered forces of the Hanseatic Federation could not however 
 develop the latent economies of concentrated trade to their 
 fuU extent; and, although Antwerp showed some signs of 
 rivalling the trade of Venice, her career was cut short when the 
 Scheldt was closed against her. No other single town was 
 strong enough to fill her place: so the task fell to Holland, 
 whose position and waterways combined every physical advan- 
 tage for it, and whose people had every aptitude for it. 
 
 The Southern half of the low lands formed by the deltas 
 of the Ehine and the Meuse was the earlier in economic 
 development: the Dutch, like their pupils the English, were 
 slow of iavention^. But the toughness of their fibre was un- 
 surpassed. They possessed singular self-control: and they 
 remained frugal and persistent for more generations than any 
 other rich people had done before them. The sons and grandsons 
 and great-grandsons of a wealthy merchant were seldom above 
 work; and some special form of refined trade-knowledge was 
 often the best part of their rich inheritances- 
 Holland seemed poor in physical resources: but her poverty 
 was a part of her strength: for it led her to give her whole 
 energies to developing those resources which she possessed. The 
 chief of them lay in the fact that she contained in a small 
 
 • Huet, Memoirs of the Dutch trade, a.d. 1700, ch. i, tells how Bruges had the 
 first great trade in herrings; and how even the art of fish curing, to which the 
 Dutch owed the first great spring of their shipping industries, was borrowed 
 from the South. Many years elapsed before they carried the lessons, which they 
 had learnt from the Flemish textile industries, to a sufficient excellence for 
 export trade. 
 
 ' The evil arising from a lack of this steadfastness is well shown in 
 Ehrenberg's study of the rise and decay of the brilliant Augsburg. 
 
HOLLAND PIONEERED THE WAY FOR ENGLAND 693 
 
 compass the mouths of great rivers which bring to a focus many app. b, 3. 
 courses of rich and easy trade. Amsterdam was popularly said 
 to be built upon herring bones: for her wealth rose out of the 
 earnings of fishermen who fished first for their own markets, 
 and then for sale as fast-day food for other peoples. Thus 
 her domestic industries paved the way for her export industry 
 of the services of carriage to other countries: for, as Petty 
 said, "The Labour of Seamen and Freight of ships is always 
 of the nature of an exported commodity^." And he and others 
 maintained that Nature had been as kind in giving to the 
 Dutch but a poor home on the land, as in giving them rich 
 provinces of water by sea and river. If they could have grown 
 corn and wood easily themselves, their early call to life on the 
 waters would have been less distinct. But having little vent 
 for their capital in agriculture, they kept it long in commerce; 
 and their excellent system of banking and commercial credit 
 made their rapidly growing wealth in a fluid form available 
 for all uses. Thus the rate of interest was low with them. 
 Their shipowners and merchants could always obtain the loan 
 of capital on easy terms; and it was used freely to join their 
 natural watercourses by canals, thus making much of their land 
 into a greater Venice. They spread out their industry upon 
 the waters, so that their several towns were in constant, close, 
 and cheap communication with one another; and for heavy traffic 
 as well as for light. 
 
 They could meet the needs and hit off the fancy of cus- 
 tomers in each place with choice of things drawn from many 
 sources. They could select from many markets the fittest and 
 the most opportime for the sale of any particular ware. Further, 
 they could buy quickly and sell quickly: and therefore with 
 but little loss for spoUt goods relatively to the turn-over, 
 and but little capital locked up in idleness — a consideration 
 of great importance at an early stage of economic progress, 
 when movable capital was scarce: the rates of interest and 
 profit were still high even in Holland in comparison with those 
 of the present age. 
 
 And, just as an organized post can deliver letters more 
 cheaply than could be done by private messengers; so, by 
 ' Political Arithmetic, p. 19. 
 
694 EARLY PHASES OF INDUSTRY AND TRADE 
 
 App. B, 3. sending out ships in quick succession on circular tours, they 
 could deliver and fetch goods, and especially small parcels 
 of goods, from and to a great number of ports very cheaply. 
 The knowledge which they got of one class of customers or 
 producers in one trade helped them to know of other customers 
 and producers in that trade and in allied trades: in matters 
 of this kind almost every piece of knowledge is on the way 
 to others, as is almost every house on a postman's beat. And 
 the economy of this unity and concentration was stiU further 
 increased by the arrangement that each town should give 
 special attention to some particular branch of trade; the detailed 
 knowledge of which became the collective hereditary property 
 of her merchants. Thus Holland's trade was the cooperative 
 work of many units, each of which was organized cooperatively; 
 though indeed jealousy among neighbours was not rare^ 
 
 Turning the power of specialization that comes from effec- 
 tive unity in another direction, they adapted their vessels 
 to particular tasks. Petty remarks that, as the cloth manu- 
 facture employs many classes of artisans, each trained for a 
 special work, so Dutch commerce employs different classes 
 of ships for precious or coarse freights, for long voyages, for 
 coasting and for minor traffic, "for ports where they need never 
 lie aground, for ports where they must jump upon the sand 
 twice every twelve hours"; and so on. And a tract on "Trade 
 and Commerce with the Hollanders," which used to be attributed 
 to Raleigh, says that a Dutch ship of two hundred tons 
 needs "but nine or ten mariners where we need thirty." 
 
 Nor did their high organization of energy end with their 
 commerce. They anticipated, a little later than Venice had 
 done, but much more thoroughly, the great nineteenth century 
 principle of interchangeable parts in the manufacture of their 
 ships. Dutch shipwrights could specialize themselves on 
 
 ^ Temple mentions aa one of "the chief Advancers and Enoouragers of trade 
 in Holland, the custom of every town's affecting some particular commerce or 
 staple, valuing itself thereupon, and bo improving it to the greatest height; aa 
 Flussinque by that of the West Indies; Middleburgh, of French wines; Terveer 
 by the Scotch Staple; Dort by the English Staple and Rhenish wines; Rotterdam 
 by the Enghah and Scotch trade at large and by French wines; ...Friealand by 
 the Greenland trade; and Amsterdam by that of the East Indies, Spain and the 
 Straits." Observaliona on the Trade of the United Netherlands, 1672, ch. vi. See 
 also Huet, I.e. ch. ni. 
 
HOLLAND PIONEERED THE WAY FOB ENGLAND 695 
 
 difEerent classes of work so that one man shall be always and app. b, 3. 
 only employed in the manufacture of keels of one and the 
 same dimensions; another of ribs, another of beams, another 
 of rudders, and so on. They adhered to one pattern mainly 
 for ships of one hundred tons, and again for ships of five 
 hundred tons; and, carriage being easy, the difEerent parts 
 of a ship could be ordered from different makers and put 
 together easily. By this means "the labour must be less, 
 and consequently the prices must be less, though wages 
 should continue as high as ever^." 
 
 Further, Holland led the way in banking and financial 
 organization on a large scale, and, in this matter also, she 
 handed on the torch from the City States of North and South 
 Europe to England and other western countries. In early 
 times financial enterprise drew its resources, and obtained 
 its opportunities from trade rather than from industry. For 
 industry offered few economies to production on a great scale; 
 it belonged to artisan rather than to capitalist organizers: 
 but trade, and especially long distance trade, when conducted 
 with abihty and good fortune, yielded high returns on relatively 
 large investments. A chief field for the operations of financiers 
 was always found in the demand for loans to needy rulers and 
 other magnates. But, as industry grew, an ever larger field was 
 provided by the growth of industrial cities; where the products 
 of innumerable workshops yielded in the aggregate rich oppor- 
 tunities for financial enterprise: and those merchants, whose 
 powers of insight and imagination fitted them for handling large 
 commercial risks, rose quickly to be leaders of finance. Some of 
 them tripped, fell, and disappeared: but the survivors built up a 
 great edifice of high finance that lasted long. So it was in the 
 great cities of Northern Italy: — Genoa, Milan, Florence and 
 Venice: in Augsburg, Frankfurt, Hamburg and other Northern 
 cities: and so it was above all in Holland, leading the way 
 
 ' Considerations on the East India Trade, 1701, oh. zn. The discussion by 
 the unknown author of this pamphlet, of the efficacy of labour as applied in the 
 manufacture of cloth and watches, is one of his many claims for rank almost on 
 a level with Adam Smith. He goes on to this discussion of Dutch shipbuilding 
 as out-topping all other things "performed by the labour of man." For some 
 similar facts relating to Venice see H. Brown, Veneiian EepulUc, oh. xi. 
 
696 EARLY PHASES OF INDUSTRY AND TRADE 
 
 App. B, 3. in this also for England. Thus financial faculty was evoked 
 by the large handling of material goods; and, as Professor 
 Sombart's study of The Jews and Modern Capitalism has shown, 
 the presence of an adequate material basis for finance attracted 
 the faculty by which high gains might be reared on that basis. 
 
 He claims indeed that the rise of almost every important 
 centre of financial activity can be traced to the advent of Jews; 
 who generally came from afar, and not even from lands with 
 similar customs, language or climate: and this accentuated 
 their original tendency to regard as strangers those, who were 
 not of their own race, and to be regarded by them with dis- 
 trust. And he accumulates evidence that religious persecution 
 moulded the international distribution of economic strength 
 as much through the forced migrations of the Jews, as through 
 the forced migrations of skilled artisans. Whether his position 
 be fully established by further investigation or not, it seems 
 certain that the superior mobility of financial ability and 
 resource must be allowed credit for a larger share in governing 
 the mobility of industry in the middle stages of its develop- 
 ment, than has been generally given to it^. 
 
 ' He seems indeed to have iinderrated the difficulty of deciding which of 
 two contemporary and allied movements exerted the greater influence in pro- 
 moting the other. He shows convincingly that places which expelled the Jews 
 became poor; and that places which attracted them became rich. But it 
 is to be remembered that, if a town was failing in economic strength its 
 merchants might probably regard the competition of Jewish rivals as a chief 
 cause of its impoverishment and clamour for their expulsion; and thus ac- 
 celerate a decline which had deeper causes. Again, the expelled Jews (whose 
 knowledge of the economic conditions of various places was even more excep- 
 tional then than it is now) would be likely to move to those places which had 
 nigh and large financial capabilities: and, of course, those places derived part 
 of their strength from that very liberality of spirit of which their hospitality 
 to the Jews was an evidence. The strong brains of the Jews fitted them for many 
 tasks; they took good part in several industries and in colonization. No other 
 race has maintained vigour of intellect and character during so many centuries. 
 And Rosoher, Die Juden im Mitldalter, betrachtet vom Slandpunkte der cUlgemeinen 
 Bandehpolililc, 1875 (reprinted in his Ansichten), makes an instructive survey 
 of the many "old" peoples, who have rendered similar services (during shorter 
 periods indeed) for successive growths of new peoples. 
 
LIST'S THREE STAGES OF ECONOMIC DEVELOPMENT 697 
 
 4. It is true that economic development passes generally app. b, 4. 
 through three stages, in the last of which manufacture 
 predominates: hut List's assumption that manufacture is 
 necessarily superior to other industries seems to mistake 
 accidentals for essentials. 
 
 When this stage in the iadustrial evolution of the world 
 had been almost perfected, a seer arose to teU its story with 
 epic force. List was not altogether a kindly historian, especially 
 as regards England. But his story was full of suggestion and 
 dramatic interest. It told how the world passed from its 
 mediaeval to its modern phase in economics, and to a large 
 extent in politics, by the expansion of ideas, sentiments and 
 methods of action, which had previously been imable to expand 
 beyond the limits of towns. He showed how the "Mercantile" 
 (or, as he preferred to call it, the "Industrial") system, by which 
 the transition from economic mediaevaUsm to modernism had 
 been effected, had had for its aim to carry over these ideas, 
 sentiments and methods from the life of towns to that of whole 
 nations; and thus to create "an agricultural-commercial- 
 manufacturing state like a city which spreads itseK over a 
 whole kiugdom, or a country district raised up to be a city." 
 He was a broad-minded man, full of knowledge and insight; 
 and economic history will for ever owe him a great debt. Many of 
 his most important teachings are associated with his well-known 
 doctrine that economic development in the past has generally 
 shown three clearly marked stages. That doctrine, taken 
 broadly, appears to be securely estabUshed; but its full 
 interpretation presents several difficulties. 
 
 In List's first stage the people are not ready for the "higher" 
 forms of industry; they buy manufactured goods with raw 
 products, and are strengthened and educated by their purchases. 
 In the second they are ready for the simpler forms of manu- 
 facturing industry: and, by resolutely practising these, they can 
 educate themselves for more difiicult work. If they do this, 
 they reach the third stage in which manufacture predominates; 
 and they have some share of industrial leadership. 
 
 On this basis he foimded his great practical precept that in 
 the first stage commercial intercourse with more advanced nations 
 should be welcomed without stint, for the sake of its educative 
 
698 EARLY PHASES OF IJJDUSTRY AND TRADE 
 
 App. B, 4. influence; and because it supplies the machinery etc. needed for 
 further advance: in the second stage the nascent manufacturing 
 industries of the country should be fostered by import duties on 
 things, which they are beginning to be able to make ; and in the 
 third stage Protection, having done its work, should disappear. 
 It is well known that the wisdom of each clause of this precept 
 has been questioned from several different points of view: and 
 that there is no general agreement as to the point at which he 
 designed to draw the line between the second and the third 
 stage. But these matters, though important, are not to our 
 immediate purpose. Our special concern now is with List's 
 suggestion that the second stage of a country's industries is 
 higher than the first, and the third higher than the second, 
 in proportion as manufactures take an increasingly prominent 
 place among them. 
 
 To begin with, Knies (1853) pointed out that List's account 
 needed to be supplemented by the observation that the 
 successive industrial stages of different nations show an 
 increasing tendency to "synchronize": for backward nations 
 can, by aid of modem developments of the means of intercourse, 
 absorb advanced industrial ideas and methods with a rapidity 
 that was impossible in the ages to which List had specially 
 directed his attention. But when Knies wrote, the time had 
 not yet come for discerning that the character and conditions 
 of industrial leadership are liable to great modifications, in 
 consequence of changes in the relative ranks of difEerent sorts 
 of industrial work. 
 
 In the middle of last century it was still reasonable to think 
 of agriculture and mining as necessarily characteristic of the 
 lower stages of industry, and of manufactures as completely 
 possessed of the higher. But developments which had their 
 roots in mechanical inventions of the eighteenth century, have 
 grown at an ever increasing rate throughout the nineteenth. 
 Semi-automatic machines have taken on themselves some of 
 the responsibilities which used to weigh heavily on artisans in 
 the larger staple manufactures; and they have lessened many 
 others. Thus not a few of those manufactures which most 
 impressed men's imaginations when List wrote, have now lost 
 their right to be ranked among the higher industries; while 
 
LIST'S THREE STAGES OF ECONOMIC DEVELOPMENT 699 
 
 other economic activities, some coimected with manufacture app. b, 4. 
 and some not, have risen to the high places thus vacated. 
 These changes call for a halt in our general study of industrial 
 evolution. It is no longer reasonable to assume, as a matter 
 of course, that an increase in a country's manufactures must 
 be welcomed more heartily than other developments of her 
 economic activity. No doubt England's chief strength, when 
 List wrote, lay in manufacture. But as we have just seen, 
 Holland's chief strength always lay outside of it; and yet she 
 pioneered some of those paths of thought and action, in which 
 many of the chief triumphs of industry have been won, both 
 before and after List's time. And, as we have seen, not all of 
 those characteristics of manufacture, to which its importance is 
 owing, are of high quality. The substitution of repetition work 
 in massive standardized production, even though it be true to a 
 thousandth part of an inch, is not an advance, from the human 
 point of view, over skilled handicraft: it increases man's power 
 over matter; but it may diminish his power over himself. 
 
APPENDIX Ci 
 
 ENGLAND'S EARLY INDUSTRY AND TRADE 
 
 App. c, 1. 1. Origins of the energies, which were ultimately turned 
 to account in England's industry and trade. 
 
 Even in the present age, when travelling is easy and safe, 
 and strangers are hospitably received almost everywhere, those 
 who seek their fortunes in a far country are generally sturdier, 
 bolder, and more energetic than the comrades and relatives, 
 whom they leave behind: and this rale was almost universal in 
 the early ages of violence, when the sword, the spear, and the 
 arrow were the only passports to new lands. England was 
 peopled by successive hordes of immigrant warriors; and, 
 whatever may be the rule in the modern age of machine guns, 
 the bravest were the most likely to survive in the days of hand 
 to hand conflict. Her people therefore had an exceptionally 
 large share of the solid qualities by which men have won their 
 chief victories in difficult industries. 
 
 The energy thus imported was sustained by their predilec- 
 tion for open air rural life. England's climate is moist and 
 even sometimes melancholy: but it is almost free alike from 
 oppressive heats and long continued frosts, when outdoor 
 occupations are scanty and difficult: and the relatively rich 
 growths of winter grass, which were offered in farm land and 
 forest, enabled the people to indulge their liking for animal 
 food in a degree which was rare in fairly well populated 
 countries: roots and other crops for winter consumption were 
 still unknown. 
 
 Conditions were favourable also to a good supply of strong 
 cereal food, much of which was indeed taken in the form of 
 
 ' This Appendix is associated with pp. 33 — 41. 
 
EARLY INDICATIONS OB" HER INDUSTRIAL ENERGY 701 
 
 a drink which was midway between mild ale and grain steeped app. c, i. 
 in water. Also an exceptionally large part of the population 
 lived sufficiently near to the open country to have opportunity 
 for work on land, generally in their own occupation, so long 
 at least as population was scarce: and the rule, that every 
 artisan is an agriculturist at tunes, while every agriculturist 
 does some rough work in or about the house, was even more 
 general in England than in countries where life in cities and 
 large villages was more in favour. 
 
 Another influence which food-supply exerted in early times 
 on the vigour of the population, was seen when food had been 
 made scarce by failures of harvest or by the ferocity of 
 contending armies. Maitland's great dictum, that "Agrarian 
 history becomes more catastrophic the further we trace it 
 backwards," has been supported by investigations into the evil 
 alliance between famines and disease. During severe famine, 
 rotten poisonous food, both animal and vegetable, was eagerly 
 devoured. Famine induced disease, and disease militated 
 against the strenuous cultivation of the land: in fact famines 
 and plagues worked more evil through the general weakness 
 which followed them, than through the deaths which ac- 
 companied them. It seems however to be established that 
 pestilence was seldom followed in England, as it was abroad, 
 by ergotism, which caused an enduring lack of nervous as well 
 as physical strength; and that this immunity was largely due 
 to the generous food of Englishmen in ordinary times^. 
 
 Lastly it is to be observed that England's position lent but 
 httle support to any pretension, which the king might advance, 
 that a strong army was necessary to defend the country against 
 invasion. Some of her kings were strong rulers, but their 
 strength belonged to themselves rather than to their position: 
 it did not often descend like an heirloom to weak successors. 
 
 ' The process by which food-supply has been steadied in recent times will 
 be discussed in Appendix I; when some further light will be thrown on 
 Maitland's great dictum {Domesday Book, p. 345). He gives strong reasons for 
 thinking that the amount of land needed to supply cereal food for a given 
 population was much greater than has been generally supposed: he suggests 
 that "no more than one third of the arable land was sown in any one year," 
 and that it was necessary to "face the possibility of garnering but six bushels 
 an acre.. .of which two must be retained for seed" {ib. pp. 438 and 517 — 9). 
 
702 ENGLAND'S EARLY INDUSTRY AND TRADE 
 
 App. 1. No doubt the limitation of royal power was of interest to -the 
 nobles in tbe first instance, ratber than to the common people: 
 but indirectly it helped to maintain the sturdy independence, 
 at all events of the middle classes — i.e. the smaller gentry and 
 the well-to-do yeomen and craftsmen. And further the whole 
 of the people gained something, amid their manifold distresses, 
 from the outdoor exercises and sports, which it was the pohcy 
 of the magnates to foster among their followers. 
 
 Norman rule established formal political unity throughout 
 England: but while conquerors and conquered were becoming 
 a single people, the very toughness of their character was causing 
 obstinate local interests to grow up everywhere; partly indeed 
 because commercial intercourse, except along the rivers and the 
 sea-coast, was hindered by the lack of good roads. England 
 long remained backward in this respect: for the great roads of 
 early times were chiefly built for strategic purposes and by 
 forced labour; and the English King had no great occasion for 
 them, and no great power of making them. So this vital factor 
 of national economic unity was neglected^. 
 
 Thus England lacked concentration: her people always made 
 use of the estuary of the Thames, of the marshy network of rivers 
 of the East coast, and of the small harbours of the South coast. 
 But they left nearly aU the larger affairs of their own seas to 
 Italians and to Easterlings. They received from foreigners 
 high-class goods and services; and in return they gave crude 
 wool and skins and minerals, which they had received from the 
 bounty of Nature. The foreigners, who carried the trade, brought 
 revenue to the king, but were not loved by his subjects. 
 Further to increase his revenue, and to educate his people, he 
 favoured the settlement of foreign artisans among them: they 
 were not much better loved than the foreign traders, but this 
 educative policy was truly constructive. 
 
 The royal power could protect foreign artisans in England 
 fairly well: but it was not ready for the larger and costlier 
 task of protecting English traders in distant lands. Some 
 
 ' Rogers held that durmg the Middle Ages, though the local roads were bad, 
 the old Roman roads were kept in good repair. But this is doubtful. See 
 Denton, England in the Fifteenth Century, pp. 171 — 182: and Cunningham, 
 Growth of English Industry and Commerce, n. § 130. 
 
EARLY INDICATIONS OF HER INDUSTRIAL ENERGY 703 
 
 start indeed was made with the Company of the Staple, trading app. c, i. 
 under direct royal authority. But the chief extensions of 
 national trade were intrusted to private companies; who received 
 more or less of a monopoly, direct or indirect, to recompense 
 their private outlay on behalf of the order and security of trade, 
 at first with England's near neighbours, and afterwards with all 
 the four Continents. The privileged companies provided a 
 fairly thorough substitute for a national trade policy; and they 
 fostered the growing rush of the strong Norse blood into 
 maritime adventures, which were ultimately to plant the English 
 race firmly in a great nimiber of the richest districts and the 
 best ports of North America and Asia. 
 
 While Enghsh merchants were slowly feeling their way to 
 liberating the trade of their country from dependence on foreign 
 capital and enterprise, internal trade was in process of being 
 developed in spite of the lack of adequate roads. As now-a- 
 days good roads are the feeders of railways; so rough roads and 
 packhorse tracks fed innumerable waterways, small and large. 
 Only a small part of the total area of the coimtry was very far 
 removed from water that would carry a boat or shallow barge, 
 and that small part of the country was thinly populated: 
 nearly aU considerable towns, and even important villages, 
 monasteries etc. were situated near deep water^. 
 
 Crude metals, and mill stones, and other heavy things, for 
 which the demand was urgent, would go round almost any 
 distance by water, in order to avoid a long land journey: and 
 even at a relatively late date, the monstrous bulk of the crop 
 of hops grown in the South-east of England came partly by 
 water to the international Stourbridge Fair near Cambridge, 
 whence they went by water in all directions. Wheat and other 
 grains would seldom bear the expense of a long journey by land; 
 though a few other rather bulky things, such as salt-fish, would 
 on occasion force their way nearly everywhere^- 
 
 Wool was the only thing of first commercial importance that 
 
 ' Towns now remote from the coast are described as porta by the chroniclers; 
 and such towns as York and Doncaater "exercised the right of shaiing in 
 wrecks at sea.'aa though they stood on the sea-board" (Denton, I.e. p. 183). 
 
 2 An interesting contemporary map of Stourbridge Fair is reproduced by 
 Selfridge, The Romance oj Commerce. 
 
704 ENGLAJNTD'S EARLY INDUSTRY AND TRADE 
 
 App. 0, 1. went in every direction, taking no refusal: and the head- waters 
 of nearly every stream that flowed to an Eastern port, however 
 small, received from land-carriers wool that was on its way to 
 the Continent. Thus it pioneered the way to highly organized 
 internal transport, just as later on it was to pioneer the way to 
 highly organized industry. Coarse woollen cloth shared with 
 leather the chief services that portable commodities rendered to 
 substantial comfort. Raw wool in the early time, and manu- 
 factured wool in a later time, were the principal means of 
 bringing into the country imports of aU things, and especially 
 of the much coveted precious metals: and it was regarded, for 
 various reasons, sound and unsound, as the main buttress of 
 national power in early times; while its manufactures were 
 a main embodiment of industrial prowess in the beginnings of 
 England's industrial leadership. The prominent place which 
 wool holds in English history is not a mere episode, interesting 
 to the chronicler. It is the dominant outward manifestation of 
 that deep-set firm resolve to concentrate energy on things which 
 make for sohd and enduring results, which is the chief foundation 
 of the place that England has won for herself in the world. 
 
 It is perhaps a relatively small matter that weavers shared 
 with bakers the position as leaders in the formation of craft- 
 gilds. Bread and clothing . were chief representatives of the 
 domestic commodities. Bread could not stray beyond its local 
 market: but division of labour in the woollen trade went early 
 in union with production for general markets, and thus worked 
 towards the development of a class of dealers as distinguished 
 from the actual makers^. 
 
 Towards the end of the twelfth century "two and a half 
 stones of wool," says a writer in 1805, when the woollen manu- 
 facturers were still predominant over all others, " would purchase 
 an ox, whereas a labourer wiU now earn the value of a stone of 
 wool in a week. At that time it would require sixty days, 
 so that poor sheep walks were as valuable as the best land^." 
 During the following century England had become fairly pros- 
 perous, in spite of civil troubles; but her cloth seldom tempted 
 
 ' Ashley, Economic History, i. p. 192. 
 
 ' Whitaker, History oj Craven, quoted by James, History of the worsted 
 manufacture in England, 1857, p. 47. 
 
EARLY INDICATIONS OF HER INDUSTRIAL ENERGY 705 
 
 a foreign buyer, and she exported raw produce only. Early in app. c, 2. 
 the fourteenth the strong hand of Edward III set on foot such 
 large schools of skilled foreign artisans, that she began to be 
 able to seU coarse stuffs abroad, though still dependent on 
 importation for aU fine stuffs. This was the turning point: but 
 several more centuries passed before the best handling of her 
 own wool was in her own workshops. 
 
 The foreign artisans thus imported, as well as those who in 
 later times sought England as a refuge from persecution, were 
 drawn from many parts of Europe; and each group tended to 
 set up that particular sort of woollen or worsted fabric for 
 which its own home was noted. There soon appeared an 
 astonishing variety of manufacturing processes, each of whieh 
 belonged to one or two localities: and thus the great fairs 
 were — like modem Exhibitions — schools in which people learned 
 that the habits and resources of their own villages, and even 
 their own counties, represented but a small part of what went 
 on in the world. 
 
 2. The desuetude of mediaeval institutions and Jiahits 
 of life and action ; and the growth of a labouring popida- 
 tion, detached from specific obligations and rights, prepared 
 the way for conditions of which the present dominant rela- 
 tions between employer and employed are the result. 
 
 During the thirteenth century and the first half of the 
 fourteenth, a certain impatience of the customary conditions of 
 tenure and service had been spreading among the people^ It 
 would have prevailed ere long without any external aid; but ia 
 fact it received a mighty impetus from the destruction of a third 
 part of the population by the Black Death in 1348 — ;9. Such 
 an event would have caused a great dislocation of social and 
 economic relations at any time: but, coming when it did, its 
 force was increased greatly in fact, and even more in appearance. 
 For, just as the rise of prices about 1870 set the agricultural 
 labourers on improving their position by migrating to the 
 
 ' The. great variety, complexity, ambiguity and changefulneaa of these 
 conditions, and tlie narrow limitations of present knowledge witli regard to 
 them, have been set out by Maitland and Professor VinogradofI; see e.g. 
 the summaries in D<ymesday Boole, pp. 60^61; and Villainage in England, 
 pp. 220 and 312. 
 
 M. L T. 23 
 
706 ENGLAND'S EARLY INDUSTRY AND TRADE 
 
 App. c, 2. towns; BO the feeling of power which the villeins derived from 
 the new scarcity of labour set them to surrender their holdings 
 and purchase licences to live within the walls of the city^. 
 
 The immediate effect of the Black Death was of course to 
 create a scarcity of labour relatively to land, and of both 
 labour and produce relatively to the stock of money: that is 
 to raise the price of produce, and therefore the money wages 
 needed to yield the accustomed food etc. to labour, at the same 
 time that it raised the amount of produce which it was 
 worth the while of the superior holders of land to give for 
 labour. But they could not realize the situation, or perhaps 
 they refused to realize it: they endeavoured violently to force 
 back labour to a position worse than that which it had held 
 before the Black Death; and their shortsighted sel&sh cruelty 
 accelerated that break up of the structure of society, which 
 they were anxious to sustain. It was ordered that everyone, 
 who could not show a satisfactory occupation in the country, 
 and had not already found footing in an urban industry, should 
 be compelled to work at the money wages which were 
 "accustomed to be taken" in the neighbourhood in which he 
 used to serve two years before the Black Death — a rule that 
 could not be enforced strictly, but yet was a potent aid to 
 oppression : and that in turn strengthened the spirit of revolt. 
 
 If a labourer migrated in search of other employment he was 
 liable to be arrested, to be put in the stocks, and ultimately to 
 be branded with a hot iron: and the enforcement of this rule 
 
 ' R. E. Prothero, English Farming, ch. n. "The break up of the Manor''; 
 aad oh. ni. "Farming for profit," sets out the whole position very clearly. 
 
 The disarrangement of social relations caused by the Black Death was so 
 violent as to arrest general attention; just aa when a great river in India or 
 China changes its course, the destruction of all land marks, over which its 
 torrents have swept on the way to their final bed, completely destroys for a time all 
 traditional customs. New customary rights grow up in a few short generations, 
 and in a few more they are thought to have descended from time immemorial: 
 the great deluge remains as an epoch in the history of the learned, while the 
 incessant minor Calamities, which have made plasticity and mobility the only 
 enduring features of custom, are but little considered. "Juat before the out- 
 break of the Black Death, the wages of agricultural labour were exceptionally 
 high:. ..the rise was due to earlier pestilence": and in the following century 
 "twenty outbreaks of plague have been recorded" (Denton, pp. 218 and 105). 
 In fact the Black Death "fell in the middle of a period of social convulsion, 
 and only gave a more radical character to its later half" (Steffen, OeachicUe 
 der englischen Lohnarieiter, p. 310). 
 
MEDIAEVAL INSTITUTIONS AND HABITS GRADUALLY WANE 707 
 
 was entirely in the hands of those in whose interests it was app. c, 2. 
 ordained. Such discipline tended to drive the rural labourers, 
 now defiant with a nascent consciousness of power, away from 
 agriculture. Authority, urged on by the landowners, decreed in 
 vain that every boy and girl who had served up to the age of 
 twelve at the plough or cart should abide ever at the same 
 labour: and later on it added that no country man other than 
 a freeholder of 20s. might apprentice his son to an industry. 
 The latter rule was more easily enforced than the former; and, 
 in consequence, the woollen and other industries sought rural 
 districts where formal apprenticeships could be avoided. A 
 httle later the towns felt symptoms of decay, for which their 
 own narrow regulations had prepared the way: and they had to 
 petition for leave to draw apprentices from outside^. 
 
 The reconstruction of social and economic order moved 
 forward without any reversal, though not without some checks. 
 The ebullitions of 1381 and 1450 (the Peasants' Revolt and 
 Jack Cade's rebellion) indicated much, but effected little. Mean- 
 while however a steadily expanding freedom of thought was 
 reinforcing freedom of action: the Lollards protested against 
 the manner in which the monasteries discharged their steward- 
 ships for the poor; and their criticisms cut deep into the 
 foundations of all authority that seemed in conflict with reason. 
 
 ' This was nearly the last phase of the many changes which the Craft Gilds 
 had undergone since they had superseded the earlier Merchant Gilds. It seems 
 doubtful whether there evei was a time at which all those who assisted in the 
 work of a craft had a reasonable prospect of attaining full membership; and it is 
 known that great distinctions of wealth gradually showed themselves within a 
 gild, and between gilds; and that members of "yeomen gUds," set up by journey- 
 men, were of lower status than those of full craft gilds. The decay of many 
 towns in the fifteenth and sixteenth centuries is attributable to the selfishness 
 of the gilds, their inability to adapt themselves to changing conditions, and 
 their general mismanagement. See Unwin, Industrial organization in the 
 sixteenth and seventeenth centuries. Introduction and chs. i, 11; Ashley, I.e. 
 ch. n; Cunningham, I.e. pp. 236—353, 441-^47; and 145—525; and Webb, 
 History of Trade Unionism, ch. I, especially pp. 35—38: also the chapter on 
 ■'the control of industry" in Salzmann's English Industries of the Middle 
 Ages. There is some interest in a comparison of this history with that, which 
 Dr Clapham shows {Economics Journal, June, 1910) to be the true explanation 
 of the decay of the Norfolk worsted industry from about 1830, He proves 
 that the lack of water power and that of cheap coal were by no means the 
 only factors. A third commensurate with them was the violence and corruption 
 which marked the resistance of the old highly-concentrated forces both of em- 
 ployers and employed to the technical changes demanded by the new era. 
 
708 ENGLAND'S EARLY INDUSTRY AND TRADE 
 
 App. c; 2. The extravagance, made fashionable by Edward IV, hastened 
 the sale of landed properties to men, who regarded land as a 
 source of revenue to the neglect of its amenities. The strong 
 hand and parsimonious habits of Henry VII made for quiet 
 steady work: but his frugality was rendered odious by the 
 methods which his ministers adopted for fiUing his cofieis. 
 And the dashing extravagance of Henry VIII, being backed by 
 an unprecedented accumulation of treasure, set going a display 
 of wealth, which inevitably made for poverty; even though 
 industry and trade were flourishing, and knowledge was being 
 increased by leaps and bounds through the Eevival of Learning. 
 Thus "rogues and vagabonds" did not wait for the Reforma- 
 tion and the dissolution of the monasteries, but plagued 
 Henry VIII while he was still a faithful follower of the old 
 religion. In Elizabeth's reign, the most skilful, thrifty and 
 energetic artisans from many parts of the Continent crowded 
 into England. Some of them brought a good deal of capital, or 
 rather command over capital in the form of various documents 
 which the age was getting to use freely. But even more 
 important additions to the real wealth of the country were 
 artisans, who could teach something that Englishmen did not 
 know, and had good cause for wishing to know: one of these 
 might easily be of more commercial value to the country than 
 a draft on a foreign banker for money equivalent to several 
 hundred pounds. And yet so grievous were the "growing 
 pains" of the social body in transition, in spite of the vehement 
 remedies prescribed by the unskilled political practitioners of 
 the age, that vagabondage was still rampant; and all wages 
 continued to fall, if we can trust the doubtful indications of 
 statistical records^. 
 
 ' Steffen, Oeschichte der englischen Lohnarheiter, has analysed the history of 
 wages in England, making careful use of the data compiled by Rogers and 
 others; and his chief results, so far as relevant to our present purpose, may be 
 summarized thus: — He takes as representatives the amounts of wheat that 
 a carpenter's and an agricultural labourer's day's wages would severally buy; 
 and he further shows that no great difference in the results (so far as the 
 period under view is concerned) would have been made if the standard ration 
 had been taken to consist of wheat and meat in proportions by weight of about 
 five to one. Wages thus reckoned appear to have been rising considerably just 
 before the Black Death: they made a great jump upwards in the next half 
 century, in spite of a rapid increase in the population: they continued their 
 
THE GROWTH OF LARGE MOBILE CAPITALS 709 
 
 3. Further preparation for modern, relations betiveen atp. o, 3. 
 capital and the various orders of the industrial population. 
 The constructive worh of early trading monopolies. 
 
 The total quantity of movable wealth required to sustain 
 the new methods of industry was not very great: it attracted 
 
 upward movement during the fifteenth century, though at a slower rate, the 
 growth of population being relatively slow; they fell generally during the 
 sixteenth century, rising indeed a little during the early years of Elizabeth's 
 reign, but falling rapidly towards its end; the increase of population meanwhile 
 becoming a little more rapid. They seem to have reached their lowest point 
 early in the seventeenth century (in the reign of James I) ; and thence to have 
 risen slightly in the case of agricultural labour, but fast in the case of carpenter's 
 labour, till the middle of the eighteenth century; beyond which we need not go 
 at present. 
 
 But in all this there is a large element of conjecture. No near approach to 
 accurate estimates in regard to the purchasing power of wages even in our 
 own time is attainable: and of the numerous questions, which arise in regard 
 to early entries relating to wages, only a very few can be answered even approxi- 
 mately. For instance the representative wages quoted above are necessarily 
 those of men who work by the day; because the allowance in kind to those 
 permanently employed varied much, and cannot be traced. The high wages 
 during the fifteenth century, shown in Rogers' tables, have contributed to the 
 erroneous notion that it was the golden age of English labour. But Denton 
 (I.e. p. 214) seems to have established — though the matter is not wholly free 
 from controversy — that the day labourers could not look for employment for 
 more than three days on the average. They may indeed in some cases have 
 occupied land on which they could use their free time; but the evidence on this 
 matter, as well as in regard to the benefits which they could get from common 
 land, is so vague as to be almost without statistical value. Modem experience 
 of large common land in some parts of the Continent suggests that its chief 
 benefit accrues practically to those who are well to do, and can supply some 
 hay (or other fodder) to eke out the scanty winter growth. 
 
 Again the price of English wheat is governed now by that of imported 
 wheat : and therefore it is generally low after a wet summer, in spite of modem 
 facilities for curing damaged grain j bu t much of that wheat for which the labourer 
 had then to pay the highest price after incessant rains, was such as would not 
 be marketed at all to-day. We do not know how far this evU extended; nor do 
 we know how much allowance must bo made for the fact that the coins in 
 common use were habitually clipped and sweated: the coin was counted out to 
 the labourer; but it was generally weighed to the wholesale seller of grain. 
 Again the silver, even in new coins, was always being lessened to the detriment 
 of the working-man: it had been about halved in the four and a half centuries 
 which followed the Norman Conquest; and Henry VIII and his children took 
 quickly a third of what remained. 
 
 If the comparison between present and earlier times is carried further, 
 account must be taken of the prices of meat and other things which were cheap 
 then, but are relatively dear now: and allowance must be made for manufactured 
 and oriental products and for a multitude of services and other things which 
 were very dear or even inaccessible in early times. 
 
710 ENGLAND'S EARLY INDUSTRY AND TRADE 
 
 App. c, 3. attention chiefly because England had been so singularly ill 
 provided with it during the Middle Ages. For then nearly 
 every product that was adapted for the larger commerce came 
 directly from the land, and belonged to men who had no 
 inclination to use their resources for any other purpose than 
 the promotion of their own pleasure, power and prestige. They 
 were, however, perforce responsible for England's first capitahstic 
 industry, that of mining; and, shortly after the monasteries had 
 ceased to pioneer the intensive capitalistic cultivation of land, 
 the landed gentry began to take up their task. The shipping 
 industry was far more greedy of free capital than any other till 
 quite recent times it absorbed a good part of the little that 
 was to be had in the fourteenth and fifteenth centuries. Ere 
 long the great merchants became the chief financiers of England, 
 in an even more marked manner than they had of other 
 countries; partly perhaps because Edward I had expelled the 
 Jews, just when England's commerce was beginning to lead its 
 own life. 
 
 When an able financier, whether Jew or Gentile, had once 
 found a footing, his resources were likely to grow by leaps 
 and bounds, so long as he and his heirs maintained their 
 ability and their liking for financial pursuits; imless indeed 
 their careers were cut short by violence, or powerful debtors 
 repudiated some large debts. For the habitual rates of interest 
 corresponded to the impatience and lack of arithmetical faculty 
 of rich men and monarchs, who were not accustomed to be 
 thwarted, and had no turn for accounts^. 
 
 • It has been suggested that the sudden growth of great fortunes in early 
 times is hard to be explained in view of the smaU amount of capital employed in 
 industry and trade, except on the supposition that the ordinary rate of profits 
 in business was extravagantly high. But perhaps insufficient account has been 
 taken of the frugality of early merchants and financiers untU they had become 
 wealthy; and again of the marvels of rapid accumulation at a high rate of net 
 profits. Suppose that merchants, father and son, conducted a business with 
 such unbroken frugality, ability and good fortune as to net ten per cent, of 
 annual profits, in excess of all their personal and domestic expenses, on the 
 average in each of sixty years : their capital would then have been increased three 
 himdred fold. And interest on loans has even greater marvels; because the 
 hasty and sanguine borrower often accepts a loan for a short period, say three 
 months, at say five per cent. This would accumulate at compound interest to 
 three times its original value in six years if no payment were made meanwhile; 
 and would be multiplied eighty fold in twenty-four years: at five per cent. 
 
THE GROWTH OF LARGE MOBILE CAPITALS 711 
 
 The situation was a little changed by great mortality among app. o, 3. 
 the nobility and higher gentry in the final struggles of the 
 Roses. The Tudors and the Stuarts fiUed the vacancies in 
 a great measure from the ranks of rich traders: thus we read 
 that trade is not "practised by the nobility of the Kingdom as 
 it is in other states from the father to the son throughout 
 their generations... the son being left rich scometh the profession 
 of his father, conceiving more honour to be a gentleman^." And 
 again those who draw income from land are apt to "consider 
 trade as no otherwise necessary in a nation than to support 
 younger brothers, and are ready to thrust all public taxes upon 
 trade that they may ease the land^." In all this the cultivation 
 of the land gained a little; but industries and the common 
 people lost much. There was however some compensation in 
 the tardy growth of powerful companies for commercial and 
 industrial enterprise: for these enabled rich men, who did not 
 desire to take an active part in business, to supply it with some 
 of their capital and draw good returns from it^. 
 
 The most prominent English trading company in the Middle 
 Ages was not a Joint Stock Company but a Regulated Company: 
 that of the Merchant Adventurers. It was in their support 
 that Bacon wrote to James I: "Trading in companies is most 
 agreeable to the English nature, which wanteth that same 
 
 a month, a rate at which some people borrow now, a debt of £1 would become 
 £100 if allowed to accumulate for eight years. Few people reflect on such 
 arithmetical results; but the professional lender has always known them. 
 
 ' Mun, Treasure of Traficke published in 1664 (but written a good deal 
 earlier), p. 5 of MoCullooh's edition. 
 
 ^ Britannia Languens, 1680, p. 3 of McCuUoch's edition. The observations 
 on "the new nobility" in Sombart'a Luxus und Kapitalismua, pp. 10 — 24, 
 contain much similar matter in regard to England and France. 
 
 ' Professor W. R. Scott has written the history of Joint Stock Companies 
 to 1720 with notable thoroughness. It may be observed that a few Joint Stock 
 companies connected with the water supply, the draining of land, and fishing 
 appeared rather early; and a few manufacturing companies in Scotland were 
 founded between 1600 and 1690. But 1690 may be taken as the beginning of 
 the modem Joint Stock era for most purposes. Rogers' study of The first 
 nine years of the Bank of England has made clear the peculiar conditions of 
 credit at the end of the seventeenth century: and the diagram, in which Prof. 
 Scott {I.e. vol. m) sets out the daily variations in price from May to September 
 1720 for the South Sea Company, the East India Company and the Bank of 
 England, makes a vivid presentation of marvellous events. 
 
712 ENGLAND'S EARLY INDUSTRY AND TRADE 
 
 AFP. c, 3. general view of a republic which runneth in the Dutch and 
 serveth them instead of a company^." 
 
 A Regulated company was an association of merchants, each 
 of whom managed his business in his own fashion, subject to 
 the general regulations of the company and to his payment of 
 a certaiQ contribution to a common purse. From this purse 
 were paid the expenses of defence, of "factories" (i.e. fortified 
 trading stations), ambassadors; and such other expenses as 
 belonged to the trade as a whole, rather than to the business 
 of any individual. 
 
 The Merchant Adventurers earned the gratitude of the 
 country by the courage and ability with which they handled a 
 great part of her trade with the Continent during several 
 centuries: but, when the larger problems of trade with Asia and 
 America called for bold expenditure, they were hampered by 
 lack of coherence and by that tenuity of common purse, which 
 were inherent in their constitution. They suffered, as all other 
 institutions did, from the drowsiness of old age, from which 
 there was no alert public criticism to awaken them. Eegulated 
 companies thus gradually yielded place to those on Joint 
 Stock: they were in fact the product of transitional circum- 
 Ettances. 
 
 The general principle of Joint Stock association, especially 
 in maritime enterprise, belongs to the Ancient World; and it 
 has remained without great change to the present time. But 
 the early EngUsh Joint Stock Trading Companies, like the 
 Regulated, required and obtained exclusive privileges, ia order to 
 recompense them for their great outlays: and they became the 
 chief guardians of the country's trade with other continents; 
 until the time was ripe for Governments so to take over the care 
 for security on land and sea, that even small men and small 
 companies might trade at their ease. Their discharge of this 
 trust was not without reproach. But their worst faults were 
 not developed till the Mercantilist policy, of which they had 
 
 1 Quoted by Craik d propoa of the small part ■which trading by indiriduala 
 played in English oommferoe even later, as seen e.g. in Roberts, Map of Commerce, 
 1638; but in fact even wealthy Holland instituted companies, whose common 
 purse might defray the ovitlay needed by distant trade for defence and other 
 common ends. Of course strong merchants may have exercised individuality as 
 members of a Joint Stock, and still more as members of a Regulated Company. 
 
THE GBOWTH OF I.AKGE MOBILE CAPITALS 713 
 
 been chief ornaments, sank into a corrupt and inept old age; as app. c, 3. 
 will be noted later on. 
 
 In short, such exclusive trading was in its origin "con- 
 structive"; since it enabled the great companies to perform 
 such large work for the nation, as would in turn ena.ble the 
 nation as a whole to achieve yet larger work. The task set 
 them called for courage and prudence, for large power of 
 organization, and administrative skill. It called into activity 
 quaUties that are to be found only in great nations; it 
 developed them, and made the nation greater. 
 
 It is true that the monopolies caused England's commerce 
 to be divided up into distinct compartments; but the partitions 
 gradually disappeared: and there was left a world trade so 
 broad in its scope, so unified in its central relations, and so large 
 in its volume, when judged by the standards of that age, that it 
 would have made an epoch in history, even if it had not inci- 
 dentally founded the British Empire. 
 
 Meanwhile there were other industries, much smaller in the 
 aggregate than agriculture, and giving much less scope for large 
 individual capitals than maritime trade, which were in some 
 sense capitalistic even at an early stage. The miller, whether 
 he used wind or water power, needed an expensive plant: his 
 position helped him to mercantile transactions of considerable 
 scope; and he did not always rise above the temptation to usurious 
 deahngs with producers of grain and consumers of flour. Refer- 
 ence has already been made to the early sinking of capital in the 
 search for minerals. But, except for copper and other valuable 
 ores, mines could not be carried far down; for there existed no 
 adequate appliances for pumping out the water: and therefore, 
 though the English coal industry became important in the 
 sixteenth century, it offered no special attractions to very large 
 capitals. And in the seventeenth century several imported 
 minor industries were set up on more or less capitalistic bases. 
 But the evolution of capitahstic production is of course best 
 seen in the textile industries, especially that of wool: for it was 
 the basis of a great part of the movable wealth of the people^. 
 
 ^ The introductory chapter of Levy's Monop ily and Compelilion gives some 
 details as to alum, salt and glass. The fiduciary element, which exists in all 
 large cooperative and joint stock undertakings, has been always latent in the 
 
 23—5 
 
7l4 ENGLAND'S EARLY INDUSTRY AND TRADE 
 
 App. c, 4. 4. Work done in the household for the use of tlxe, house- 
 hold gave way to pi'oduction, mainly in cottages and small 
 workslwps, of goods, the ultimate marketing of which was 
 organized by professional traders. 
 
 In the early Middle Ages, the food, clotMng, houses and 
 utensils were made almost exclusively of local materials by 
 local labour. And — partly because English roads remained 
 exceptionally bad tUl the middle of the eighteenth century, — 
 this old rule held in regard to a large part of the consumption 
 of the rural population, long after speciaHzed industries with 
 high technique had established themselves firmly in places that 
 were in early touch with the greater world. Accordiug to the 
 old rule "women spun and wove wool into coarse cloth, and 
 hemp or nettles into linen; men tanned their own leather": 
 in the winter evenings nearly every man took a hand at 
 making rough tools and household utensils, with the aid of the 
 village smith for iron work; while "travelling carpenters, 
 smiths and tinkers visited detached farm-houses and smaller 
 villages at rare intervals^." < 
 
 businesses of monasteries, among which for this purpose the colleges of Oxford 
 and Cambridge may be reckoned. 
 
 The various causes which enabled joint stock companies to flourish in 
 particular trades and industries, though generally only for short periods, are set 
 out in SchmoUer's Geschichiliche Entwickelung dea Unlernehmens. He shows 
 how the difficulties of getting one set of people to confide their capitals to the 
 permanent control of others, with whom they were not in contact, were evaded 
 rather than overcome. For many companies were only family groups ; some, as 
 those of the Publicans, were also held together by common professional interests. 
 Others were in effect short-lived associations for carrying out some task which 
 involved greater capitalistic risks than were convenient, perhaps possible, to the 
 individual : the permanent companies of modern times owe their strength in great 
 part to moral qualities of recent growth. 
 
 ' See R. E. Prothero, English Farming, p. 29, for details. Similar conditions 
 of life and work may be observed to-day in Tyrolese villages. Even in summer, 
 in the interval between hay and grain harvests, the advent of a shoemaker will 
 collect all the members of a family who are not on the high "alps" to do the 
 less skilled work of making into shoes tor the family the leather, that has come 
 from their own cattle and been cured in the village tan-pit. 
 
 In rural districts remnants of household industry were common up to the 
 eighteenth century. Thus in 1727 Laurence, Duly and Office of a House 
 Steward, says: — '"Tis supposed that all materials are found, and laid at hand 
 for the workmen, (except glazier's) which is much the best way, for workmen, 
 sometimes are apt to impose, and use bad materials." Quoted by Rogers, 
 History, vu. 620. 
 
 Unwin, Industrial organization in the sixteenth and seventeenth centuries. 
 
BEGINNINGS OF THE MODERN ORGANIZATION OF INDUSTRY 715 
 
 In this stage there was a good deal of work for wages; app. c,4. 
 but for a long while most of it was performed as service 
 due by serfs or by semi-free labour; or by free, but inferior, 
 holders of land to their superiors. The greater part of it may 
 be classed as household industry, because it was rendered in the 
 homes (or other premises) of the consumers of the products. It 
 is thus contrasted with domestic industry in that broad sense 
 of the term in which it includes all the various arrangements 
 under which things were made, either for sale or under contract, 
 in the homes of the producers. 
 
 Domestic industry in this broad use of the term, began to 
 get the upper hand of household industries, except in purely 
 nural districts, about the thirteenth century : and its dominance 
 was maintained till the eighteenth. In all its forms it offered 
 scope for a single independent artisan; with or without assistance 
 from his family: but for the greater part it made use of hired 
 labour on a small scale; and therefore should not be contrasted, 
 as it has been by some writers, with the wage system. It includes 
 all handicraft, whether organized in Gilds or not; and it may be 
 regarded as consisting of three broad classes; which, like nearly 
 aU other groups of adjacent economic classes, shade into one 
 another by imperceptible degrees. 
 
 In the first class are those industries, which worked up local 
 material to meet a steady local demand for goods of customary 
 quaUty. The producer was thus in personal contact with those 
 who supplied his requirements and those who bought his 
 products: and he had scarcely any occasion for the services of 
 capitalist traders. For his implements were inexpensive: he 
 needed not to hold any great stock of materials or finished 
 goods at any one time: and, though his outlook was narrow, 
 it reached to aU the persons and places with whom his business 
 was directly concerned. AU his work was within the range of 
 homely associations and habits of mind. 
 
 The second class of domestic industries made staple products 
 from familiar materials. Some of the materials had generally 
 to be obtained from afar by aid of traders; and the greater 
 part of the products had to be sold by aid of traders; that 
 
 pp. 53 — 4, suggests that the class of masters was largely developed in the latter 
 part of the fourteenth and the earlier part of the fifteenth centuries. 
 
716 ENGLAND'S EARLY INDUSTRY AND TRADE 
 
 Avr. c, 4. is, by men who had larger resources and a wider connection, 
 than belonged to homely producers. But yet the breadth 
 and steadiness of these industries enabled homely producers, 
 congregated in the same neighbourhood, to make almost 
 automatically a market of their own to which traders steadily 
 resorted to supply the materials and other things needed, and 
 purchase the things ready for sale; and each producer carried 
 the risks of his own share of the process of production, in the 
 trust that, so long as the conditions of outside markets were 
 favourable, traders would do his marketing for him, under the 
 influence of mutual competition, on terms advantageous to him. 
 Speaking generally this trust was justified by the event: though 
 the exceptions fill a large and gloomy page in economic history^- 
 
 The third class of domestic industries was that conducted 
 by small master producers, who supplied factories or workshops 
 with their plants, and were independent of external control 
 in all matters of detail; but yet manufactured to the order of 
 capitalist "undertakers," who bore all the risk of marketing, 
 and often even supplied the material to be worked up. This 
 arrangement has already been described (above, I, iii, 5) as be- 
 longing to the third stage of domestic work. 
 
 To sum up the position: — when the material used was 
 costly; and especially when the homely producer would have 
 difficulty in getting the most appropriate sorts, and perhaps be 
 tempted to mix in some inferior sorts; then the merchant, 
 who contracted to buy the product, generally supplied the 
 material, thus carrying his financial aid a good deal further. 
 
 ' The two following pictures make a pair. The first is from a Devonshire 
 account of 1630 (quoted by Cunningham, I.e. Ii. 499): — "The gentleman farmer 
 or husbandman sends his wool to the market, which is bought either by the 
 comber or the spinster, and they, the next week bring it thither again in yarn, 
 which the weaver buys; and the market following brings it thither again in cloth, 
 where it is sold either to the clothier (who sends it to London) or to the merchant 
 who (after it has passed the fuller's mill and sometimes the dyer's vat) transports 
 it." The second is a statement by Gaskell (Artisans and Machinery, 1830, p. 13) 
 referring to the time when water power was beginning to be applied to 
 spinning: — "The domestic manufacturers were scattered over the entire surface 
 of the country. Themselves cultivators, and of simple habits and few wants, 
 they seldom left their own homesteads. The yarn which they spun, and which 
 was wanted by the weaver, was received or delivered, as the case might be, by 
 agents who travelled for the wholesale houses: or dep6ta were established id 
 particular neighbgufjiog^, ^q MTbich they could apply at weekly periods." 
 
BEGINNINGS OF THE MODERN ORGANIZATION OF INDUSTRY 717 
 
 One step further was taken, when the plant required was app. u. 4. 
 beginning to grow expensive; for then it also was supplied 
 by the merchant. The cutlery and several other industries, 
 which spend much labour on small products made of cheap 
 metal, have always been among those in which the homely 
 producer could supply his own material most easily and with 
 the least risk to the merchant who bought his wares: but the 
 needs of the smith for the water driven triphammer and of the 
 grinder for the water driven wheel, started the plan under 
 which a capitalist let out space and power in a large building 
 to individual artisans and other homely producers; "homely" 
 because their resources and outlook were narrow, though they 
 no longer worked in their own homes, and were not literally 
 "domestic" workers^- And there were yet two other motives 
 which sometimes induced the capitahst to collect a number of 
 workers into a single large building, supply them with plant 
 and material, and pay them either by wage or on small con- 
 tracts. One was the advantage of keeping the whole of some 
 valuable materials under his own eye, so as to secure that 
 nothing was pilfered or badly handled: the other motive 
 operated in the case of new industries, especially such as were 
 imported from Italy or elsewhere, and needed the supervision 
 of foreign skilled workers^. 
 
 The transition from each of these phases to the next was 
 seldom made at a bound: it went generally by many Uttle 
 steps; and these steps were not always on the same lines. 
 Throughout all of them the production was, for the greater 
 
 '■ This plan ia still in work, steam power taking the place of water power: 
 but possibly the cheap supply of electricity in cottages as a source of power 
 may send some of these homely producers back to their own homes; a matter 
 which will appear later on to be of some social importance. 
 
 ' Thus it has been observed that in Tudor times capitalism was especially 
 appropriate to exotic trades: — "The planting of new trades was a capitahst 
 undertaking, organized by moneyed men, who were prepared to wait some years 
 for the full return on their outlay"; especially when, as often happened then, 
 they obtained, gratis or for payment, a monopoly for a considerable time. And 
 a, similar tendency showed itself in a rather different form from early in the 
 eighteenth century; "any trade which had been constituted under the control of 
 large employers in its older habitat, was likely to be introduced in the same 
 form; and, as capital was an important factor in the transferring of a trade to 
 a new area, there was a tendency for the industry, as transplanted, to conform 
 to the capitalist type." Cimningham, I.e. pp. 78 and 518. 
 
718 ENGLAND'S EARLY INDUSTRY AND TRADE 
 
 App. c, 4. part, "domestic," in that broad use of the term, in which it 
 imphes merely that the making — as distinguished from the 
 marketing — can be conveniently conducted in. the house or out- 
 buildings of a single independent worker or small master. 
 
 As has been indicated above (I, iii, 5 and 6) the term 
 "domestic industries" has been used by various authorities in 
 narrow technical senses, which are inconsistent with one another: 
 some for instance confining it to cases in which the smaU producer 
 works up material belonging to traders, while others confine it 
 to cases in which the material is his own: these ambiguities 
 have suggested the use here of the term "homely producer" to 
 include all those whose resources are so small and whose outlook 
 is BO narrow, that they cannot obtain good direct access to 
 general markets^. 
 
 ' Prof. Biioher gives in the H. W. der StaaUwissenschaften, b.v. Oewerbe, 
 a careful analysis of five main groups. The first is what has been called above 
 "household industry" (he calls it "Hauswerk or Hausfleiss"); the second 
 wage-work; the third handicraft {'' Handwerk or Preiswerk"); and the fourth 
 "financed work" {"Verlag or Hausindustrie"); the fifth is factory industry. 
 ( Verlag is rendered by the translator of his Industrial Evolution as "commission 
 work" : but that term seems too narrow.) 
 
 The famous 1806 Report on the Woollen Manufacture (quoted by Ashley, 
 I.e. n. pp. 252 — 3) classes the Yorkshire woollen system, in which the small 
 masters bought their own wool and sold the cloth to merchants, as " Domestic." 
 But Prof. Biioher and Held (whose Zwei Bilcher zur SociaXen Qeschichte 
 Englands, 1881, exercised a great influence in England) class it as handicraft; 
 and confine the term " domestic " to cases in which the merchantsupplies the wool 
 to the manufacturer. That was done in some cases in the West of England; and 
 the 1806 Report regards this as akin to the Factory System, in contrast with the 
 "Domestic." Hence it may be concluded that "Domestic" carmot be safely 
 used as a technical term; though it may perhaps be used to include all work 
 done in their own premises by small producers, who do not attempt to market 
 their goods themselves. Dr Cunningham uses it broadly {I.e. n. 497), and shows 
 cause against Prof. SohmoUer's proposal to exclude gild industry from it. 
 
 The word "manufacturer" originally meant a man who makes with his own 
 hands : but in the nineteenth century it meant a factory owner. Ure (Philosophy 
 of Manufactures, 1861, p. 1) says that "manufacture is a word which has come 
 to signify the reverse of its intrinsic meaning. ..the most perfect manufacture is 
 that which dispenses entirely with manual labour." He however ignores all 
 manufactures except the textile. See also Held, I.e. p. 549. 
 
APPENDIX D 
 
 THE ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 1. Mercantilism differed from policies of earlier times, app. d, i. 
 iwt so much in general tendency, as in the ability and energy 
 with which it was enforced and in the largeness of its scope^. 
 
 The purpose of this Appendix is to develop suggestions made 
 in the third chapter of Book I, especially at its end, to the effect 
 that Mercantilist policy contained a few principles applicable to 
 all stages of economic evolution; together with many that were 
 appropriate to the stage in which it had its origin. It is here 
 argued that the conduct of public affairs in England in the 
 middle of the eighteenth century was bad, and that the poten- 
 tial virtues of Governmental intervention in business were over- 
 shadowed by its actual vices: but that Adam Smith's doctrine, 
 carefully interpreted, supports its active intervention in many 
 affairs in an age in which it has acquired the power and the will 
 to govern the people wisely; and the people have acquired the 
 power and the will to govern their Government with knowledge, 
 discretion and restraint. 
 
 Adam Smith is less open than many other economists to 
 the charge of formulating sharp, short statements as to things 
 which appeared to be fixed and primary elements, but were 
 really variable compounds. And yet he is perhaps more 
 responsible than anyone else for the belief, which long pre- 
 vailed, that Mercantilism was a definite, unified body of 
 doctrine; and that it worked mischief by inventing diverse 
 shackles which hampered the natural freedom of trade. We 
 now know that it was not a body of definite doctrines which 
 
 ' This Appendix is associated with I, in, 4. 
 
720 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 kvv. D, 1. arose suddenly, quickly overcame all minds, and after a time 
 was wholly discarded: it was rather a tendency of thought and 
 sentiment which had its roots in the far past; which never, even 
 at the height of its power, completely dominated aU minds, 
 and which has not yet completely disappeared. 
 
 And that which was characteristic of Mercantile practice, 
 as distinguished from the practice of still earlier times, was 
 almost wholly to its credit. The narrowness and confusion of 
 thought, by which it was marred, were not new: but the 
 consistency, system, and energy with which it was pushed, and 
 the largeness of the afiairs with which it was concerned, brought 
 these defects into prominence. So far as it diSered from 
 the corresponding practices of earlier times, it was seldom less 
 liberal than they, and often more liberal. 
 
 Trade in the precious metals has attracted more attention 
 than it merits: because human nature, and especially primitive 
 human nature, has a deep-seated tendency to idolatry; that is 
 to the cult of symbols in preference to that of the things which 
 they syrribolize: and money is the symbol of wealth. But 
 more: the precious metals are the most durable and generally 
 acceptable forms of wealth. A store of them serves as the 
 "fly-wheel" to growing wealth generally. And money promotes 
 the circulation of things towards those who can turn them to 
 best account, and can thus increase wealth. 
 
 As Schmoller says: — "The limitation of the exportation 
 of the currency and of the precious metals frequently occurs in 
 the case of the towns as early as the thirteenth century. It 
 was not because money payments or industry or trade suddenly 
 played an altogether new rtle in the days of Cromwell and 
 Colbert, that it occurred to people to guide the course of 
 exportation and importation and colonial trade, and to subject 
 them to governmental control. On the contrary, it was because 
 just then, out of the earlier small communities great national 
 communities had grown up, whose power and significance rested 
 on their psychological and social concert, that they began to 
 imitate, not merely what Charles V had done in Spain, but 
 what all towns and territories of earlier times had done, from 
 Tyre and Sidon, from Athens and Carthage onward; to carry 
 over what Pisa and Genoa, Florence and Venice, and the 
 
MERCANTILISM MADE AN ADVANCE ON EARLIER DOCTRINES 721 
 
 German Hanse Towns bad done in their time to the bioad app. d, 2. 
 basis of states and nations^." 
 
 Again, "Mercantilism and bureaucracy (Cameralistik) over- 
 rated the possibility of ordering and arranging anew everything 
 by the State, by law and by the will of Princes: even morality 
 and justice appeared to the first thinkers from Hobbes to 
 Frederick the Great as products of State regulation. Institu- 
 tions appeared to them to be everything, the free play of 
 individuals to be but little... It is the business of the rulers to 
 prevent there being too many producers or too few, to resist 
 Polypoly and Monopoly^." 
 
 2. The discovery 0/ the Neiv World altered the form 
 rather than the substance of trade policy with regard to the 
 precious metals. 
 
 Large war-chests have been held by the great military nations 
 Germany, France and Russia. Thus warlike rulers in old times 
 used to put a stock of silver or gold on the same footing with a 
 stock of bowstaves at one time, and of gunpowder at another: 
 for instance the importation of various luxuries into England 
 was ordered to be accompanied by certain quantities sometimes 
 of bullion, and sometimes of bowstaves^. And when the new 
 era of territorial expansion came together with the influx of 
 larger stores of the precious metals, desires which had always 
 been present became active and prominent. For during the 
 Middle Ages the stock of gold and silver in Europe was 
 dwindling, and any nation that could maintain its stock un- 
 impaired was gaining ground relatively to its neighbours: but 
 afterwards, when the West was procuring larger supplies than 
 the East was taking away, any nation which had not rapidly 
 increased its stock would have lost ground relatively to others. 
 There is no fundamental difference between the defensive pohcy 
 
 ' Mercantile System, pp. 10, 60, 61. 
 
 ^ Schmoller, Grundriss der allgemeinen Volkswirlhschafislehre, pp. 63 and 
 85. For early regulations of industry in England see Riley's Memorials of 
 London Life; and Schanz, Englische HandelspoUtik, iv. ii, especially pp. 478 — 
 480. The old regiilations throw some light on the strategical side of the science 
 of modem government, but not on its tactical side. 
 
 ' In 1397 an ounce of gold was substituted for the two marks of silver which 
 the law of 1339 had ordered to be brought back for each sack of wool exported. 
 
722 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 App. D, 2. of trying to keep the national stock of precious metals in the 
 country from diminishing rapidly, before the discovery of the 
 New World, and the offensive policy of trying to augment the 
 stock afterwards. The influx of silver from the New World 
 may have set a score of tongues talking about the trade in the 
 precious metals, where only one had been talking before : but it 
 did not narrow trade policy^. 
 
 The Mercantilists knew that, "although treasure is said to 
 be the sinews of war, yet this is so because it doth provide, 
 unite and move the power of men victuals and munition, 
 when and where the cause doth require. But if these things be 
 wanting in due time, what then shall we do with our money ^1 " 
 
 Even Adam Smith admits that countries which have not 
 many fine manufactured or other goods containing great value 
 in small bulk, cannot well supply the sovereign with the means 
 of maintaining an army abroad during a great war: "it is in such 
 countries therefore that he generally endeavours to accumulate 
 a treasure as the only resource against such emergencies." As 
 Sir Dudley North said (1691), Stocks of money are no better 
 
 ' There has been a tendency in England, though not apparently in Germany, 
 to follow Prof. Oohenkowski {England's wirischaftliche Entwichdung, pp. 10 — 11) 
 in drawing a sharp contrast between the eager quest for the precious metals of 
 the MercantUistg, and the "childlike" and "naive" contentment of their pre- 
 decessors. In the Middle Ages, he says, "the end directly sought was the 
 complete development of sound human faculties, which should be the basis 
 of the economic well-being of the individual and at the same time the support 
 of social order" (pp. 248 — 9; compare also pp. 256 — 261). No doubt much 
 authority can be found for this in the phrases of canonical writers, of royal 
 ordinances, and of gild statutes. But it is to men's conduct, and not to their 
 phrases on set occasions, that we must look for a true knowledge of their habits 
 of thought: this holds as to all phases of Hfe, and to none more than to the 
 mediaeval. 
 
 2 Mun, Treasure hy Foreign Trade, oh. xyia. Britannia Languens, 1680, 
 maintained that whUe "anciently the event of war" turned on "personal 
 strength and roughness," wars had come to be "managed by much Treas^ire 
 and lilile Fighiiru;, and therefore with little hazard to the richer nation": 
 and Defoe a little later said, "'tis the longest purse that conquers now, not the 
 longest sword." The doctrines "money is the sinew of war," and "he who 
 has iron can take gold," have supplemented one another since early times. 
 MaochiaveUi in the Italian turmoil of iron and gold (and silver) at the beginning 
 of the sixteenth century, maintained that gold wUl not always buy good soldiers, 
 but that good soldiers wiU always conquer gold: but, as his friend Guicciardini 
 says, this is practically false, though true theoretically. In fact it is easier 
 to buy soldiers with money, than to get money by soldiers. See Ehrenberg, 
 Zeitalter der Fugger, i. p. 7. 
 
INFLUENCE OF SILVER FROM NEW WORLD ON TRADE POLICY 723 
 
 than stocks of logs, only that "Money is much better for trans- app. d, 2. 
 portation^." 
 
 The Mercantile policy of maintaining a favourable balance 
 of trade in the precious metals was from the first more Hberal 
 than that " balance of bargain " system which some meddlesome 
 rulers had previously tried to enforce; for that ordained that 
 each single venture of each single merchant should bring back 
 at least as much gold and sUver as he took out^. The later 
 and specially English developments of MercantiUsm rose above 
 the notion that the trade with any one foreign country was to be 
 condemned on the ground that that trade showed on the balance 
 an export of the precious metals: bullion sent to India, as Mun 
 argues, brought back to England goods which could be sold 
 on the Continent at such high prices, that even a small part of 
 them could bring back more bullion than was sent out for the 
 whole of them. 
 
 When a Mercantilist policy prohibited, or taxed, or otherwise 
 narrowed the purchasing of certain classes of things from 
 foreigners, it might have claimed to resemble the shutter 
 which is drawn partly across a fire, with the effect of lessening 
 for the time its total supply of air; but which by concentrating 
 the remainder on some burning coals hurries their duU red heat 
 into a white glow, which spreads through the furnace and 
 ultimately evokes a greater heat and a larger feed of air than 
 if there had been no restriction. Mercantile writers often seem 
 to go close to this modern doctrine, but yet they miss it*. 
 
 ' Wealth of Nations, iv, 1, and p. 17 of MoCullooh'a edition of North's Esaay. 
 Hume, whose opinions on money were very enlightened, argued to the same 
 effect. And the American colonists justified their adoption of paper and other 
 fancy currencies in the eighteenth century, on the ground that having but few 
 portable commodities that were in much demand abroad, and being compelled 
 to buy even their ruder manufactures from England, they were in constant 
 danger of being denuded of their gold and silver coin. 
 
 * Described with fine humour by Richard Jones, whose great services to 
 English economics have been insufficiently recognized. 
 
 ' Thus Hales' Discourse of the Commonwealth, 1549, argues that foreign paper 
 should be taxed up to a price which would enable it to be made in England; 
 because "they do not best provide for his grace's profit that procure only a 
 present commodity, but rather that commodity that may long endure without 
 the grief of his subjects." But his explanation is disappointing. He does not 
 state or imply that the country has latent natiiral advantages for the industry, 
 which would enable it to thrive unaided if once it could outgrow its infant 
 diflBculties; for indeed the industry had already had a trial. His reason ia that 
 
724 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 App. D, 2, Mun's intelligence was no doubt sharpened by his zeal for 
 the interests of the East India trade. And later on the 
 intelligence of Tory writers was sharpened in the same way. 
 For France sold much to us, and bought little from us; and 
 France supported the Stuarts and opposed the Dutch. So at 
 the end of the seventeenth and beginning of the eighteenth 
 centuries the Tories were inclined to make little of our adverse 
 balance with any particular coimtry; while the Whigs wrote 
 with nearly equal abihty, but less insight, on the other side. 
 They ignored Mun's doctrine; and argued: — "We purchase 
 great part of our linen from Hamburg, Germany, and Holland, 
 for which we pay them in manufactures: the rest we make 
 ourselves; and if the value of £600,000 in linen should be 
 imported from France, must not so many of our people be 
 deprived of their employment^?" They took no account of the 
 fact that French goods could be paid for indirectly by means of 
 England's exports to other countries. 
 
 Political bias then, as always, had a great power of enabling 
 people to see just those parts of economic truth which fitted in 
 with their policy, and to remain honestly bUnd to those which 
 did not. But yet the economic wrestling of the poHticians 
 of the eighteenth century did good service. They overhauled 
 trade statistics, searched out their inaccuracies and .misleading 
 suggestions; and, as the eighteenth century passed on, their 
 successors continued the work and laid the foundation on which 
 inductive studies of the course of international trade have been 
 built up^. 
 
 "it were better for us to pay more to our own people for those wares, than less 
 to strangers: for how little gain so-ever goes over, it is to us clear. But how 
 much so-ever the gains be that go from one of us to another, it is all saved 
 within the Kealm" (fi. 38, 38 6). Thus gold and silver are regarded as the 
 ultimate gains of work. 
 
 ^ The British Merchant (vol. i. p. 304 of second edition): — a celebrated 
 collection of papers edited by Charles King, and collected and published in 1721. 
 The general Maxims of Trade, with which the collection opens, are good instances 
 of a sophistical use of half truths, which is not infrequent even now. For 
 instance: "The exportation of manufactures is in the highest degree beneficial 
 to a nation." And "the importation of such goods as hinder the consumption 
 of our own... necessarily tends to the ruin of multitudes of people." 
 
 " A brilliant and entertaining sketch of "Tory Free Trade 1673 — 1713" is 
 given in Ashley's Surveys. Compare also Cunningham's Growth of English 
 Industry and Commerce, vol. u. § 220. Davenant gives the impression of havmg 
 
MONOPOLIST TRADING AND INDUSTRIAL COMPANIES 725 
 
 3. The decline of the monopolist trading companies. The app. d, 3. 
 misuse of industrial monopolies. 
 
 The expenses of trade with distant Continents were too 
 heavy for the small common purses of Regulated Trading 
 Companies: and trade with England's neighbours gradually 
 ceased to need any special organization for defence. Therefore 
 in the seventeenth and eighteenth centuries, the chief con- 
 troversies in regard to monopolies related to those of the great 
 Joint Stock Trading Companies. Fortrey (1673) says of them: 
 " The whole commodity being in their hands, they will make the] 
 most that can be made of it, none having the like commodities 
 to undersell them. And the like advantage they have again in 
 what they buy; whereby in truth our own commodities are sold 
 the dearer to strangers, and foreign commodities bought much 
 the cheaper: when both would happen contrary in a free trade, 
 where each will undersell the other to vent most, and also 
 purchase at any rates to prevent the risk.'^ They had a strong 
 organization, unity of purpose, a rich purse and a long life; and 
 they could afford to invest much capital and effort in building up 
 a pohtical and commercial fabric, which would give good return at 
 a distant date. Fortrey says that it is urged that such companies 
 "keeping the trade to themselves only, will have what com- 
 modities are to be vented abroad at their own price, whereby the 
 workmen are many times discouraged and sometimes undone. 
 And on the contrary what commodities are brought home in 
 exchange they seU at what unreasonable rates they please, the 
 whole commodity remaining in their hands; whereby the people 
 in general are very much damnified, and the companies only 
 enriched." And yet though it is "something difficult to deter- 
 mine," he concludes that "the prejudice that may happen by 
 them to the workmen or home chapmen... is fully recompensed 
 by the clear profit they return to the public of which they are 
 members as well as others": — a characteristically hazardous 
 conclusion from arguments which appear to be fair representa- 
 tives of his time^- 
 
 half perceived certain trutlia at one time; and, at another, of having fallen back 
 into old errors : as indeed Adam Smith himself did. 
 
 ' England's Interest and Improvement, pp. 34 — 5 of McCullooh's edition. 
 It is notable that the Merchant Adventurers though only a Regulated Company 
 were accused of "stinting" the trade in cloth; and denied that they would or 
 
726 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 App. D, 3. The companies adopted elaborate checks and counter checks, 
 the expense and the delay of which caused their trade to be not 
 very profitable to themselves, even when they were stinting at 
 both ends: that is when they were both ofiering to the home 
 producer a poor vent for his goods, and making foreign goods 
 artificially scarce to the nation. They were compelled to go 
 much by rule, and rules framed at a distance were often in- 
 appropriate to a sudden emergency or changed conditions: 
 their instructions were prevented from doing frequent harm only 
 by the continually recurring clause that the agents must after 
 all use their own discretion. In spite of their being often well 
 supplied with capital, they had not those resources derived from 
 division of labour, and that aid of subsidiary industries which a 
 free commerce finds in a large centre of trade. 
 
 Again there were complaints that the agents looked after their 
 private interests; and as years went on, the Dutch and English 
 East India Companies suffered much from the private trading 
 ' of their own agents. At first the EngUsh Company had often 
 made very high profits: its voyages in 1607 yielded profits of 
 234 per cent. But towards the end of its career, when sufiering 
 much from the vigorous competition of free traders and the 
 faults of its own servants, it only gained £850,000 yearly from 
 its trade in tea; though it charged the English people 
 £1,500,000 more for the tea than they would have paid for it 
 in Hamburg or New York if allowed to purchase it there^. 
 
 could do so. But their Secretary Wheeler in 1601, can give no better evidence 
 of this than the special pleading that "any matter of setting price was never once 
 mentioned in any Court of Assembly of the said Company.... Every one studies to 
 keep his feat (sic) and trade as secret to himself as he can, for fear of his fellow, lest 
 being copied it might be taken from him." Maopherson, Annals, n. pp. 499 — 502. 
 
 > The first letter look of the East India Company, 1600—1619, edited by 
 Sir George Birdwood, is full of prohibitions against private trading by its factors, 
 which were often defied. Complaint is made (p. 317) that "The private trade of 
 our factors has been carefully carried for their own lucre with the great neglect 
 of ours, convertiag all the rich and precious things to their own use, and 
 nothing for the Company but pepper and gross commodities." 
 
 The Company took no mean view of the probable profits of the trade It 
 bargained in 1610 to fit out and finance a ship for the use of two Dutch 
 merchants with the proviso, that if the net profits per cent, are under a hundred, 
 they shall receive no "factorage": but they are to have six per cent, if the net 
 profit is two hundred per cent.: rising gradually till "if four hundred be made 
 net profit upon the hundred, as £60,000 for £12,000, then they are to have 
 10 per cent." [ih. pp. 365— G). 
 
MONOPOLIST TRADING AND INDUSTRIAL COMPANIES 727 
 
 The histories of some privileged companies might be app. u, 3. 
 written — "Charter, prosperous trade, keen competition, en- 
 croachments, decline, debt, difficulties, disappearance^." But 
 there were exceptions. Thus the Hudson's Bay Company was 
 governed by a succession of able men, few in number, resolute 
 and moderate, who looked far ahead, undertook expenses that 
 were beyond the reach of "the particular," and fell not very far 
 short of the ideal which had been pictured by their advocates. 
 And there long remained much to be said for a strong company 
 that could hold its own in war and diplomacy with the highly 
 developed States of Asia: and there was much force in the 
 plea, that while the trade to the West Indies could take care 
 of itself, the trade to the "East Indiep" (that is to the Pacific 
 generally) was not ready to stand alone even at the beginning 
 of the nineteenth century^. 
 
 Adam Smith held that the resources at the command of the 
 public for controlling the directors of Joint Stock companies, at 
 the time at which he wrote (1775), gave no good reason for 
 thinking that the directors would exert themselves sufficiently 
 to succeed (without an exclusive privilege) in businesses, other 
 than those "of which all the operations could be reduced to 
 such a uniformity of method as admits of little or no variation." 
 He had an advantage over the present generation in his personal 
 
 '■ Cawaton and Keane, The early chartered companies, p. 85. 
 
 ^ Macpherson's History of European Commerce, 1812 (pp. 315 — 410), contains 
 a detailed and forcible answer to Adam Smith's attaclis on the East India 
 Company. The Company lost its monopoly of trade to India in 1813: but it 
 retained that to China till 1833; when it ceased to trade altogether. It 
 discharged purely political functions till 1858; and then it ceased to exist, after 
 the full strength of the nation had been needed to grapple with the difficulties 
 that had grown up under its management— vigorous and upright as that had 
 unquestionably been. 
 
 The Dutch East India Company was much better managed than the Dutch 
 West India Company. The Dutch Greenland trade increased fifteen fold on 
 being released from the dominion of an exclusive company, to the great delight of 
 Dc la Court, the real author of the book commonly known as De Witt's Political 
 Maxims. 
 
 Powerful attacks on monopolies are made in (Decker's?) The Causes of the 
 decline of foreign trade, 1744, and in Tucker's Tract on trade, 1750. Much is 
 said in Lecky's History of England in the Eighteenth Century, of the share 
 which the East India Company had in the direct corruption of politics; and of the 
 injurious influence exerted on the tone of society by the crude extravagance of 
 East and West Indian Nabobs. 
 
72« ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 APP. D, 3. knowledge of the class of men who were directors in his time, 
 and the way in which they did their work. He was therefore 
 on strong ground when he suggested that a director, whose 
 holding in the stock of a company was but a small part of 
 the whole, might be inclined to pretermit a task that would 
 increase his work, and add perhaps £1000 to the income of 
 the company; but that he might probably have risen to the 
 occasion, if his holding had been so large a part of the whole 
 that a very considerable share of the £1000 would have accrued 
 to himself. And it is to be remembered that the tone of 
 moraUty, to say nothing of pubhc spirit, was very low in 
 England at the time; perhaps lower than even in the time 
 of Charles IP. 
 
 It has long been known that some of the evidence on 
 which Adam Smith rehed against the companies was biassed. 
 Professor Scott has developed this objection; and shown in- 
 structively that the companies sought for the greater part 
 undertakings, which at the time were new in kind, and needed 
 resource. This was of course partly because imdertakings, which 
 required larger capitals than were easily to be got under a single 
 hand, had to wait for the joint stock movement to become 
 strong before they could be begun. And further Joint Stock 
 companies, though often fraudulent from the beginning, are 
 seldom started by men lacking in initiative. The intrusion of 
 routine into businesses, for which routine is inappropriate, comes 
 at a late stage: and it is doubtful whether there was in Adam 
 
 * This seems to be Adam Smith's meaning. But Prof. Soott, I.e. i. 452, 
 holds that he makes the mistake of "regarding the aggregate holding of the 
 management in relation to the total capital of the company as the measure of 
 eiEciency." (This point has been noted above, p. 313 fn.) Prof. Scott has 
 made important contributions to our knowledge by accounts of many Joint 
 Stock companies which succeeded, although engaged in ilew and hazardous 
 enterprises. In ancient as well as recent times it has been generally recognized 
 that a chief function of joint stock association was to divide risks, of which few 
 or no individuals have been able and willing to bear the whole. But many of 
 the more frail joint stock undertakings of that time were not registered: and, 
 it they failed, their memory seldom survived their decease very long. The strong 
 companies, who survived, are at the service of the historian of our own time; 
 whUe the others are not: and it seems probable that the misadventures of 
 companies which were known to Adam Smith, and other responsible writers in 
 the eighteenth century, j ustified his conclusions in great measure. The scope of 
 his work prevented him from making ezpUcit use of more than a very small 
 fraction of the facts by which his opinions had been fashioned. 
 
MONOPOLIST TRADING AND INDUSTRIAL COMPANIES 729 
 
 Smith's time a single very old company in existence which had app. u, 3. 
 escaped such an intrusion. 
 
 There is moreover great force in Prof. Scott's argument that 
 the companies gained by associating men of different aptitudes 
 in a common enterprise, and combining "the specific and 
 detailed knowledge of the trader with the broad outlook of the 
 man of affairs." And of course they enabled much capital, that 
 would otherwise have lain idle, to bring forth good fruit; 
 though in this matter there is a danger, which cannot be 
 examined here, of a confusion between leaving money idle and 
 leaving capital idle. The two things are closely akin from the 
 point of view of the individual, but not from that of the whole 
 community. 
 
 The whole position seems to be well put in the Considerations 
 on the East India Trade, published in 1701, when the South 
 Sea Bubble was not yet in sight. It says, that "in the time 
 of Sir Thomas Gresham, wonderful things are storeyed...For 
 every hundred pounds at the end of the year, besides principal 
 returned again, two or three hundred pounds are said to have 
 been divided between the customs of the King and the mer- 
 chants gain." The writer adds that in his time the stock in 
 trade (largely in the hands of companies) was a hundred fold as 
 great as then; and, though the rate of profits was but a tenth 
 as great, the aggregate contribution to wealth was ten times 
 as great as then. 
 
 Though the monopolies granted to the great trading com- 
 panies were originally part of a constructive, rather than a 
 restrictive policy; yet no similar defence can be maintained on 
 behalf of the great majority of industrial monopolies. A very 
 few of them were granted on the plan of modern patents, to en- 
 courage and reward those who had devoted trouble and expense 
 to victory over some difficulty in manufacture; and they were 
 constructive in tendency. But such invention was of the rarest 
 occurrence in England during the time when monopolies were 
 granted most freely : in fact most of them were given to favourites, 
 or sold for sums not comparable in value to the injury inflicted 
 on the people^. 
 
 1 As Hume showa {History of England, oh. XLiv and Appendix to it) 
 
730 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 „ App. u, 3. Eestrictive regulations, which have an indirect constructive 
 result in promoting national power and dignity, are rightly 
 judged with exceptional favour. But this fine feeling is not 
 without its perils; for it is apt to be turned to account by 
 persons who stand to gain by the restrictions. Such persons 
 are most dangerous when they are honestly convinced, as they 
 often are, that they are striving for the public good as well as 
 their own. Among the monopolies which did most to maintain 
 sectional jealousies and to delay the growth of national unity 
 were those granted to particular towns to enable them to put 
 down inconvenient rivals^. 
 
 The Navigation Laws, though of most doubtful wisdom when 
 regarded from the point of view of peace, had strong claims in 
 view of the need for maritime defence. The exclusive or pre- 
 ferential privileges, which they gave to all English ships, could 
 be defended on similar grounds to those that were granted to a 
 particular company on condition that it provided for its own 
 protection. The most famous of them were directed by England 
 against the Dutch in the middle of the seventeenth century. 
 
 As is well known, Adam Smith held that they had con- 
 tributed to national defence at no very great cost; and had 
 been therefore wise, though "not favourable to commerce, or to 
 that opulence which can arise from it." There is no sufficient 
 evidence that the increase of England's naval power, which 
 came about the same time, was largely due to them. But it 
 
 Elizabeth waa one of the most wantonly misohievous traders in Monopohes. 
 It is characteristic of her that when Lee brought to her notice an epoch-making 
 invention for knitting stooldngs by a machine — almost the only invention 
 of any considerable genius and practical force which ia known to have been 
 made by an Englishman before the eighteenth century — she said, "I have 
 too much regard for my poor people who obtain their bread by knitting." So he 
 took his invention to France. The practical problem to be solved was not easy: 
 but Elizabeth's solution was clearly a wrong one. See also Levy, Economic 
 Liberalism, ch. m. It ia shown by W. H. Price, English Patents of Monopoly, 
 that, though the few patenta which were given to real inventions, were generally 
 granted with honest purpose, they did not yield the same good results as such 
 patents do now. 
 
 ^ As e.g. to Bridport for rope making, to Worcestershire towns for woollen 
 cloths, to York for coverlets, etc. In some cases plausible reasons were sug- 
 gested: and indeed the Tudors were masters of the fine art of writing 
 preambles. 
 
MONOPOLIST TBADINQ AND INDUSTRIAL COMPANIES 731 
 
 is to be remembered that mercbant ships were still convertible app. u, 4. 
 into ships of war, and merchant crews into fighting crews, at 
 a moment's notice; and that Englishmen endorsed Bacon's 
 dictum: — "The dominion of the sea is- an epitome of mon- 
 archy... The treasures of both Indies seem but an accessory to 
 the dominion of the seas^." 
 
 4. England's colonial policy in tlie eighteenth century. 
 
 Though the opening up of the mines of the New World 
 did not alter the keynote of trade policy as regards the precious 
 metals, it undoubtedly made that policy more prominent. Many 
 bold spirits crossed the ocean for the love of adventure: but 
 there was no touch of that desire for more elbow room, and 
 for the escape of a growing population from the pressure of 
 the law of Diminishing Return, which prompted the cities of 
 ancient Greece to send out colonies, and which has grown up 
 recently in Western Europe. 
 
 On the contrary, the most ardent advocates of colonial 
 expansion across the oceans were foremost in their eulogies of 
 the force that Holland and the City States had derived from 
 their compactness, and made light of those which Spain and 
 France derived from their large lands. They set themselves 
 to prove that the colonies either, as in the case of Virginia and 
 Barbados, attracted "loose vagrant people,... such as could 
 never have lived at home to do service to their country"; or as 
 ia the case of New England were mainly a refuge for "the sort 
 of people called Puritans," of whom many, "wearied with church 
 censures and persecutions," sought a refuge iu Germany and 
 
 ' Advancement of Learning (1605), Tin. Evelyn takes as the motto of 
 Navigations aiul Commerce, 1674, a doctrine, supposed by Cicero to have been 
 learnt by Pompey from Themistoclea : Qui mare teneal, eum necesse est rerum 
 potiri. 
 
 Full accounts of early English Navigation Laws are given by Maopherson, 
 and Craik. See also Sohanz, Englische Handdspolitik, n. ii; and an article 
 on "Schiffart" by Lexis in Conrad's Handworterbuch. 
 
 During a part of the eighteenth century the chief benefit of the laws went 
 to New England shipbuilders; and helped to build up a naval power which 
 was for a time stronger in proportion to its size than any other. Child's partial 
 anticipation of List's notion, that navigation laws, which would be useless to 
 the Dutch, were necessary for England, ia maintained boldly in spite of some 
 awkward facts {Discourse on Trade, 1688, ch. iv). A vehement attack on them 
 is made in Section IV of Britannia Languens, 1680. 
 
732 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 ' App. D, 4. Holland; and, "had there not been a New England found for 
 some of them, Germany and Holland had probably received the 
 rest: but Old England, to be sure, had lost them aU^." 
 
 The Mercantilists were not the first to claim the right of 
 Sole, or Exclusive Markets for the mother country in the trade 
 of her colonies. For the right is an old one, inherited by the 
 mediaeval from the ancient world: the Romans, for instance, 
 could not as a rule purchase products of the colonies of Carthage, 
 except through Carthage. But while Englishmen at home were 
 becoming ever more impatient of the shackles imposed on their 
 trade by the selfishness and inertness of privileged companies, 
 the monopoly of the colonial trade by the mother country was 
 exciting at least as much discontent among Englishmen beyond 
 the seas. They were beginning to put forward the claim either 
 to remain as part of the nation in all senses and share in its 
 rule, or to be allowed full economic independence. 
 
 The rule of the Sole Market was not applied quite 
 rigidly. Certain exceptions were made as to the markets in 
 which the colonists might buy and sell; but on the other hand 
 numerous rules were made, prohibiting them from making 
 things or carrying things for themselves, which the mother 
 country preferred to make for them or to carry in her own ships. 
 The story of these various devices is not without interest. For 
 almost every one of them some plausible excuse could be made; 
 and in partial recompense for almost every hardship inflicted 
 on the colony, there was some sort of set-off in the shape of 
 a special privilege granted to the colony in its trade with the 
 mother country. Of course the threads of naval and commercial 
 policy were intertwined; and one reason for favouring trade with 
 a country's own colonies was that the sailors engaged in it were 
 likely to retain a strong spirit of patriotism, and could be enlisted 
 in the Navy at need. 
 
 ' Child, Discourse o/Tr(K?e, chapter X. pp. 137— 8 of 1751 edition. Adam Smith 
 did not fall into the error, which became prominent in the nineteenth century, 
 of supposing that mere increase of territory must needs be an economic gain. 
 But his mistake in supposing that the thirst for gold and silver was the 
 almost exclusive motive for exploring the New World was specially inexcusable 
 as regards England; as is shown by Pioscher [Oeschichte der Englischen Volks- 
 wirlschaftslehre, ch. ii) on the authority of Hakluyt's Collection of Voyages: — 
 a collection so full of mikrvellous geographical discoveries that this planet cannot 
 aflord material for another hke it. 
 
COLONIAL POLICY IN THE EIGHTEENTH CENTURY 733 
 
 England was on the whole more generous to her colonies apf. d, 4. 
 than was any other country. They did indeed complain justly 
 that "negro slaves were the only considerable object of foreign 
 commerce, which England does not compel to be first landed on 
 her shores" before it may be imported into the colonies: and 
 that rigorous rules were made with the avowed purpose of 
 crushing in the bud colonial industries which, had they once 
 got a fair start, might have entered into effective rivalry with 
 the English. But it was open to England to threaten that if 
 the colonists were unreasonable "the Government would be 
 forced, contrary to their practice, to do what other nations do of 
 choice; viz. place standing forces among them to keep them in 
 order and oblige them to raise money to pay them^." 
 
 It is true that England could boast to her colonists that the 
 money proposed to be raised for them by taxation was to be 
 spent not for English purposes, but exclusively for the pro- 
 tection and defence of the colonies^- And yet it is also true 
 that Englishmen at home were to have the monopoly of those 
 manufacturing industries without which no modern country 
 can be in the first rank of civilization; and which Mercantile 
 exaggeration treated as the essential conditions of political 
 power and of intellectual progress. This selfishness, perhaps, 
 did more to lower the moral character of Englishmen than 
 to retard the higher development of the colonies: for the 
 colonists found unexpected ways of using their minds. But 
 in England's treatment of Ireland it was carried to its logical 
 extreme and " sapped the industrial instincts of the people^." 
 
 ^ Gee, Trade, and Navigation, ed. of 1750, p. 78 (first ed. 1730). He is 
 willing to "encourage them in the raising of silk, hemp, flax, iron" (we were 
 then largely dependent on foreign supplies of iron on account of the lack of 
 charcoal to smelt it), "potash etc., by giving them competent bounties in the 
 beginning, and sending over judicious and skilful persons at the public charge 
 to assist and instruct them in the most proper methods of management"; and 
 he is opposed to "the heat that some people have shown (without reason) for 
 destroying the iron works in the Plantations and pulling down all their forges, 
 taking away in a violent manner their estates and properties, preventing the 
 husbandmen from getting their ploughshares, carts, and other utensils mended " : 
 and so on. He would allow them to have their own hemp, flax, etc. worked up 
 by hoensed weavers for their own use. But if they want any of it worked up 
 for sale, even to their neighbours, that must be done at home; and similarly 
 as to iron. Of course all such policy pressed more heavily on the Northern 
 colonies, than on those which could raise sugar, tobacco, etc. 
 
 ^ Lecky, England in Hie Eighteenth Century, ed. i. vol. in. pp. 313, 323. 
 
 ' This is the keynote of Sir H. Plunkett's striking Ireland in the New 
 
734 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 App. D, 4. Adam Smith's criticism of the Mercantilist Colonial System 
 of the various countries of Western Europe and his picture of 
 the general relations between the Old World and the New are 
 of fascinating interest even now: though perhaps his lights are 
 a little too high and his shadows a little too deep. In par- 
 ticular he was certainly wrong, as Ricardo pointed out in his 
 masterly chapter on the Colonial Trade, in supposing that the 
 mother country could get no benefit by compeUing a colony to 
 deal exclusively with her. It is important to bear in mind that 
 the Colonial system was abolished before Ricardo's exposure of 
 his error was generally accepted. It was abolished not because 
 it could not conceivably confer any gain on the mother country, 
 but because it did not. 
 
 England's difficulties with her colonies came to a sudden 
 head partly because, though she was liberal, they were specially 
 inclined to resent interference; and partly for the paradoxical 
 reason that she was becoming able to hold her own on the seas 
 against all comers. Walpole, with masterly inactivity, had shut 
 his eyes to the enterprise of smugglers; and thus prevented the 
 monopolies from irritating the American Colonies. But the 
 defeat of the French removed from the colonies all fear of being 
 left to defend themselves against a powerful enemy: the narrow 
 quasi-Mercantile love of authority induced a pedantic King and 
 his ministers to override the wise tolerance of Chatham; and 
 the bond of union was quickly snapped. 
 
 The successfxil rebellion of American Colonists, and the 
 great increase in the trade between England and America which 
 came after the change of flag, brought home to the minds of the 
 mass of the people the force of much that Adam Smith had 
 spoken to deaf ears a short time before. But they had not 
 realized then, and perhaps men do not realize even yet, the 
 grandeur and the moral strength of Adam Smith's large Im- 
 perialism, when he proposed that England's chief Colony should 
 become the kernel of a great empire, in which she herself should 
 
 Century. He oontinuos, p. 13: "When the legislative restrictions upon industry 
 had been removed, the Irish, not being trained in industrial habits, were unable 
 to adapt themselves to the altered conditions produced by the Industrial Re- 
 volution, as did the people in England. And aa for commerce, the reatrictiona 
 which had as little moral sanction as the penal laws, and which invested 
 srauggling with a halo of patriotism, had prevented the development of 
 commercial morality, without which there can be no commercial success." 
 
COLONIAL POLICY IN THE EIGHTEENTH CENTURY 735 
 
 play a leading, but not a dominating part. So the Mercantile APr. d, 4. 
 element was gradually extruded from the relations between 
 England and her colonies^. 
 
 But there was nothing to take its place: perhaps there was 
 no room for a consistent pohcy. The chaos which followed may 
 even have possibly been the best thing under the circumstances. 
 For the economic and political conditions of the colonies, and 
 the means of communication between them and the mother 
 country changed so rapidly, that any complete system adapted 
 to one generation might have caused friction in the next. And 
 indeed the problems of colonial policy in the seventeenth and 
 eighteenth centuries, had but little real resemblance to those 
 of- the twentieth. Interferences with liberty of trade, which 
 once were thought reasonable, would not now be tolerated by any 
 "Dominion"; though they might be endured by such a settle- 
 ment as that of Algeria, in which the bulk of the inhabitants 
 are not of white race. Dominions take the position of younger 
 sisters, rather than that of daughters. Further, by aid of the 
 telegraph, many things can now be talked out, which could not 
 bear the delays of a postal return service lasting several months; 
 and which were then most advantageously treated by the almost 
 autocratic ruling of a kindly mother country. 
 
 Again, the only markets for loans at that time were local or 
 at best national. The international loan market belongs to 
 a later stage, and is indeed largely the product of the electric 
 telegraph and international civil law. The people of the mother 
 
 ' Dean Tucker, in 1774, boldly proposed to give the colonists freedom, and to 
 "guarantee it against all foreign invaders whatever" : and two of his arguments 
 for that course, coming as they do from a mind of the finest quality, show how 
 very recent is the growth of our present sentiments of economic nationaUty. It 
 is urged, he says, "that if we separate from the colonies we shall lose their trade. 
 But why BO ? The colonies we know by experience will trade with any people, 
 even with their bitterest enemies, during the hottest of a war, and a war under- 
 taken at their own earnest request and for their own sakes." {Four tracts, pp. 
 195—6.) He is proud of that "bold, free Constitution, which is the prerogative 
 and boast of us all" that set them for independence "the moment in which 
 Canada came into the possession of the English, and... they had nothing to fear 
 from a foreign enemy" (pp 153 — 4). But business is business. He would like 
 to regulate them out of opportunities for developing rival industries; the law, 
 making it "a capital offence to inveigle artisans and mechanics to leave the 
 kingdom,. ..is unhappily superseded so far as the colonies are concerned: and 
 a disjunction from the northern colonies would effectually put a stop to our 
 present emigrations" (p. 206). 
 
736 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 App. D, 5. country were always ready to send out capital to their own 
 branch houses in the colony; or to lend it direct to colonists with 
 whose personal character they were acquainted. For in case of 
 default they could appeal to courts where their own law was 
 administered under the ultimate control of their own courts of 
 appeal: but very few people would take the risk of lending to 
 a colony of any other country than their own. An agreement 
 for almost exclusive trade in goods with the mother country 
 might therefore cause the colony a little direct loss; and yet be 
 on the whole to her interest, because it multiplied and strength- 
 ened the threads by which she held on to the capital market of 
 the mother country. And even now the exceptional ease with 
 which loans of all kinds can be raised in the mother country 
 is an important asset to a young colony. 
 
 5. Some broad conclusions as to English Mercantile 
 legislation and administratioii. 
 
 There is no general economic principle which supports the 
 notion that industry will necessarily flourish best, or that hfe 
 will be the happiest and healthiest, when each man is allowed 
 to manage his own concerns as he thinks best. No considerable 
 thinker has ever denied that if the rulers of a people are 
 immeasurably superior to their subjects in knowledge and 
 insight, there are many directions in which the people may be 
 forced against their will for their good: and such conditions 
 undoubtedly did exist under the Norman and Angevin Kings. 
 But the gap in intelligence and resource between rulers and 
 the great body of the ruled had been narrowed by habits of 
 independent action that had been evoked when money pay- 
 ments took the place of services, more or less regulated by 
 custom, in regard to all varieties of tenure: and again by the 
 failure of the regulations by craft gild and town authority to 
 accommodate themselves to the changing methods of industry: 
 and again by the partial movement of industries into the 
 country: and again by the partial re-aggregation of industries 
 in large villages or towns, not always of ancient date: as 
 well as by the LoUard movement, and other precursors of the 
 Reformation. 
 
 Mercantilist statesmen might have been expected to see 
 
BROAD CONCLUSIONS AS TO ENGLISH MERCANTILISM 737 
 
 that the change in the structure of industry, which was already app. d, 5. 
 established, must inevitably go further: they might have made 
 provision for further growth, and devoted careful thought to 
 guiding it. But as a rule they seem to have adopted the 
 more easy course of crude prohibitions and restraints. They 
 prohibited changes of occupation, especially by agricultural 
 labourers; and again the ownership of more than two looms 
 by anyone in a rural district, and again the intervention of 
 a middleman for the sale of goods which the resistless march 
 of specialized industry was producing for general consumption. 
 Also their Act of Settlement (1662), "the most false, mis- 
 chievous and pernicious system that ever barbarism devised... 
 disenabled the poor from settling where they please^"; and 
 their prohibition of all new cottages with less than four acres, 
 was a crude careless act, because it was not accompanied 
 by any provision of such land. They seem often to have 
 sought the easier path out of a difficulty, in preference to that 
 which would have worked the most good in the long run; and 
 in particular to have lent too ready an ear to the representa- 
 tions of vocal, organized groups of producers and traders. They 
 seldom ranged themselves on the side of movements which, 
 though still weak, were yet destined to render great services to 
 the country. They regulated wages, using sympathetic phrases, 
 but in fact siding in the main with the employer against the 
 workman, and especially the farm labourer^. 
 
 ' Arthur Young, Political Arithmetic, 1774, pp. 90, 4. 
 
 ' Thus the famous Statute of Artificers, 1562, which continued substantially 
 unchanged, though not generally enforced, proposed to adjust wages to the 
 rising prices of provisions. No doubt it benefited some operatives. But its 
 penalties against paying wages higher than those ordained were more con- 
 spicuous than those against paying less. It lowered more rates than it raised. 
 It left money wages lower relatively to the price of provisions than they had 
 been: and their relative fall continued fast after it had been enacted. Money 
 wages indeed rose only 50 per cent, while prices rose 150 per cent, during the 
 sixteenth century (see Rogers' Work and Wages, ch. xn, especially p. 349; 
 Unwin, I.e. p. 120, but also p. 143, tending slightly in the opposite direction, 
 and compare the figures quoted from Steffen above, p. 708 f n. ). 
 
 Hewins, English trade and finance, p. 113, holds that the Statute of 
 Artificers "gave the working classes into the hands of landlords and employers" : 
 though an amendment passed in the first year of the reign of James I " forbad 
 Justices of the Peace, who were clothiers, to fix the wages of weavers." But no 
 such protection was thought necessary for the agricultural labourer: he was left 
 entirely in the hands of men who had an interest in buying his labour cheap. 
 
 M. I. T. 24 
 
738 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 App. o, 5. Mercantilism in its later phases was often almost consciously 
 obsolete; and, partly for that reason, weak and corrupt. And 
 there is a certain satisfaction in turning back to Tudor times, 
 when its policy had not yet fallen under suspicion. The 
 upright, incorruptible, capable Burghley is commonly taken as 
 a typical representative of English Mercantilism in its best 
 days: and its strength and weakness is well illustrated by the 
 resolute despotism with which he enforced his own irresolute 
 opinions. He was by nature neither a Catholic nor a Protes- 
 tant. He half inclined to Elizabeth before Mary's succession 
 to the throne was nearly certain. Then as a jealous CathoHc 
 he became intimate with Pole: but before Mary's death he was 
 intriguing with Elizabeth. Finally he based his policy on the 
 principle that the "State would never be in safety where there 
 was a toleration of two religions." The Achilles' heel of 
 Mercantilism lay in the eagerness with which its leaders 
 enforced conclusions, which they themselves had adopted with- 
 out any strong sense of intellectual responsibility^. 
 
 It is manifest that the term Mercantilism is not altogether 
 a satisfactory description of the economic characteristics of that 
 period intermediate between the Middle Ages and the modem 
 age; which may be taken to have begun with American Inde- 
 pendence, the French Revolution and a number of concurrent 
 mechanical inventions. List's suggestion, that Industriahsm 
 
 This evil effect of the Statute lingered on well into the eighteenth century. 
 Thus Vanderlint {Money answers all things, 1734, p. 148) eaya: "At length, aa 
 is notoriously knowTi, the deamesa of labour hath been found bo burdensome to 
 our farmers that the gentry and Justices of the Peace, in their open quarter 
 sessions, have lately in several places attempted to redress this evil by regulating 
 the servants' wages." This confidence of landowners in their own equity 
 explains a good deal of English economic history. It is probably true that no 
 other class has possessed for so long so unrestrained a power over the fortunes 
 of others and has abused that power so little; but yet they have abused it 
 grievously. 
 
 fortunately well-to-do artisans were often able to do better for themselves 
 than the Justices did for them. Thus in 1771, the wages of London tailors had 
 been settled at 2s. 6d.: but "many master tailors gave some of their men 3s. a 
 day"; they paid the 15s. at the end of the week openly; and then put Zs. more 
 for a man "in some place where he knows where to find it: and if this money 
 is not laid for him on the Saturday night, the master may be certain not to see 
 his face on the Monday morning" ; quoted by Galton, TJie tailoring trade, p. xlvi. 
 
 ' Professor Pollard, s.v. "Burghley" in the Encyclopcedia Britannica. 
 
BROAD CONCLUSIONS AS TO ENGLISH MERCANTILISM 739 
 
 would be a better name, points to the fact that Mercantilism— app. d, 6. 
 for we must continue to use the name — had two sides, one con- 
 cerned with the regulation of trade and the other with the 
 regulation of the industrial and social order of the population 
 at large. On both sides, the commercial and the social, its 
 general tendency was to relax and soften restrictions and other 
 regulations of earlier times; but yet to give to such of them, as 
 were retained, more power and cogency: for they were supported 
 by the whole force of centraUzed Government, which became in 
 each successive century, though not in each successive genera- 
 tion, stronger and more fully imbued with the spirit of economic 
 nationality. 
 
 During her centuries of apprenticeship England developed 
 her own version of Mercantilism. It was EngUsh in that it 
 stood in a middle position between the versions adopted by 
 the great countries, and those adopted by most of the City 
 States, and by Holland. For it was more under the influence 
 of merchants and of the people generally than in the Latin 
 countries; and it was more under the influence of kings, 
 statesmen and landowners, with no special trading experiences, 
 than in the City States and in Holland. 
 
 In the latter half of the eighteenth century England had 
 outgrown the stage at which Mercantile regulations were 
 capable of doing much good; and those of them, which had not 
 been repealed or fallen into disuse, were almost without ex- 
 ception working harm and causing irritation. Eor they were 
 old and detailed; and old details are nearly always inappropriate. 
 And they were used as bulwarks for monopohstic privileges, 
 which, whatever their original merits, were sure to be turned 
 to iU account by those who had inherited wealth from energetic 
 ancestors; and who for that very reason had less energy than 
 the average trader, and had more care to defend vested interests 
 than to overcome new difficulties. 
 
 6. Colhcrt's genius gave a great impetus to French 
 industries. But his Mercantile policy, crystalli'^ed in the 
 hands of weak successors, was an important contributory 
 cause of the cult of "Natural" freedom, which occupied tlie 
 minds of the French people a little later. 
 
740 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 ipp. D, 6. We must now turn aside to France. For, though the 
 English reaction against Mercantilism began earlier than the 
 French, the French moved much more quickly than the English, 
 which it influenced greatly. 
 
 So responsive were the French to authority and leadership 
 even in details, that in France perhaps more than anywhere 
 else, certainly more than in England, the success of a paternal 
 economic policy depended on the genius and wisdom with which 
 it was carried out, rather than on the soundness of its scien- 
 tific basis. Sully's Stoic preference for agriculture over trade 
 and manufacture had worked great good for France, because of 
 his fearless, energetic uprightness. And Colbert's more moderate 
 preference for trade and manufactures over agriculture had 
 wrought even greater good; because, while as upright and 
 strong as Sully, he had more knowledge of his business and 
 a greater mastery of details. In prescribing uniform sizes for 
 certain goods he misapplied, or applied prematurely, the 
 principles which underlie the modem movement towards 
 standardization. Other statesmen in England and elsewhere 
 had endeavoured to develop mediaeval traditions on similar 
 lines: but he went beyond all in resolution and even in 
 extravagance. 
 
 His rules turned to bureaucratic folly in the hands of feeble 
 successors: but he himself was ceaseless in his endeavours to 
 find out where his rules worked mischief, and to modify them; 
 or, on occasion, to wink at their evasion. Like all protectionists 
 of genius, he never lost sight of the fact that there is a prima 
 facie case against all obstacles to free trade; and that, to 
 justify their existence, it must be proved that they develop 
 industry and trade in some directions more than they check it 
 in others. But, even more than most other protectionists of 
 equal genius, he exaggerated the constructive force of his 
 expedients. He dwelt fondly on each little favourable sign; 
 and he instinctively looked away from its evils^- 
 
 But while strengthening the custom-houses at the frontier 
 and sharpening the outlines of international trade, he abolished 
 
 ' It may be noted that the extravagance of French Mercantile regulations 
 was prominent in the minds of English economists in comparatively recent 
 times. See for instance Mill, Political JEconomy, v. zi. 7. 
 
COLBERT'S POLICY MISUSED BY WEAK SUCCESSORS 741 
 
 as many local customs barriers as he could; and he blurred out app. d, 8 
 those features of .interprovincial trade which till then had had 
 much of the real character, and something of the form, of inter- 
 national trade. He aimed at welding France into a united 
 industrial country, which should export highly finished and 
 high priced goods in return for cheap raw materials and the 
 precious metals, the sinews of war, for his extravagant master: 
 and he aimed at creating the strongest navy in Europe. His 
 resolution and the despotic power, which he wielded, enabled him 
 in a decade to effect changes that seemed to belong to a century. 
 Nowhere else did Mercantilism develop so quickly its beneficial 
 influences: and its evil influences were kept well in check in 
 France, so long as his hand was at the helm. But it depended 
 for its success on one master mind; it did not enlist the critical 
 and constructive faculty of a nation in its service, and it lacked 
 versatility. The centralized administration of France, while 
 admirably adapted for turning existing knowledge to a speedy 
 account, proved itself inferior to England's enterprise in the 
 power of adapting itself to new wants and of devising new 
 methods for overcoming new difS.culties: therefore its mistakes 
 led to a sudden and fleeting reaction towards free trade^- 
 
 During the first half of the eighteenth century France was 
 learning more from England than England from France. But 
 French influence is clearly seen in the tone of the Scotch Hume 
 in the middle of that century: and, though his thought reacted 
 much upon that of France, yet that debt was far more than 
 repaid by the influence which France in her turn exerted on 
 Adam Smith; who was the pupil of the Physiocrats and of 
 Turgot in their pursuit of economic freedom, as well as of 
 Petty and Locke and Hume^. 
 
 ^ The paternal policies of the French rulers, of which Colbert's is the most 
 conspicuous, were much misunderstood, and unfairly judged in England until 
 recently; and this fact partly excuses the exaggerations of List's vehement 
 eulogy of Colbert. The whole movement is well described in Levasseur's 
 Bisioire des Classes Ouvrie.res en France avant 1789. See also Neymarck's 
 Colbert et son Temps, especially Part n. 
 
 " Hume's hatred of monopolies and artificial privileges, to wliioh reference 
 has already been made, seems to have been derived from his study of con- 
 temporary and past facts at least as much as from the general principles of 
 liberty. In fact, though he was fond of Turgot, he was impatient of the 
 confident dogmas of the French "Economists." 
 
742 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 AFP. D, 6. The new French system was the work of greater thinkers 
 and more interesting men than that which went before it. But 
 though it was in harmony with the words that were on men's 
 lips, it was alien to their latent habits and instincts: it never 
 became an eSective part of the principles of action of the 
 ordinary Frenchman in common Hfe. Economic liberalism has 
 been assimilated by many leaders of thought in France, but not 
 by the great body of the people; and, partly for that reason, 
 its doctrines have been stated there with more confident 
 precision than anywhere else. 
 
 The suffering of the French people under the pressure of the 
 extravagance and privilege of the ruling classes, had moved the 
 hearts' of Sully and Colbert, of Vauban and Boisguilbert: and it 
 became so grievous in the middle of the eighteenth century 
 as to dominate all French economic thought. Under the in- 
 fluence of Rousseau, and afterwards of tihe American Revolution, 
 the demand for the abolition of monopolies and privileges ceased 
 to be content with partial reform of details. The same spirit 
 that levelled all social distinctions without compromise, and 
 without consideration for special cases or for indirect effects, 
 bore fruit in the absolute wording of the economic dogma, 
 "Let people make whatever they like and move where- 
 ever they like": — for this is the true meaning of Laissez faire 
 and Laissez passer: phrases which have come to be used by 
 politicians in a sense entirely different from that which pro- 
 perly belongs to them; with results most detrimental alike 
 to clear thinking and fair controversy. Laissez faire did not 
 imply that Government should abstain inertly from construc- 
 tive work: it meant simply that anyone who thought that 
 he could make anything with advantage, whether on old lines 
 or by a new method, should be at liberty to do so. Laissez 
 passer had its chief application to difficulties that did not 
 exist in England. It meant that all the various obstacles 
 to the free passage of goods between the various Provinces 
 of France should be removed. England had realized her 
 Zollverein many centuries before. France got hers at the 
 Revolution: Germany had still to wait for another half cen- 
 tury. Laissez passer was however sometimes interpreted that 
 all frontier duties, even those between difierent countries, 
 
COLBERT'S POLICY MISUSED BY WEAK SUCCESSORS 743 
 
 should be abolished: and for that the world is not ready app. d, 7. 
 
 The American Revolution, which impelled England towards 
 broader views of her national economy and of the duties which 
 she owed to her colonists, set France for the time even further 
 on the path towards freedom of trade. Pitt welcomed the 
 proposal made by her that the two countries should trade 
 almost as though they were one. But the English people held 
 back; and shortly afterwards war obliterated all traces of the 
 great endeavour*. 
 
 The Physiocrats, and in a less degree Turgot, beheved that 
 an absolute government instructed by the philosophers was the 
 best adapted for enabling the people to thrive in the practice 
 of the new principles. But here Adam Smith, following the 
 tradition of his chief English predecessors, parted from them^. 
 
 7. Adam, Smith frequently showed that the interests of 
 individuals may lead them to action which is not the most 
 conducive to the ivell-bcing of the community, themselves 
 reckoned in. But he held that Government intervention 
 toas likely to be exjiloited by intriguing traders. 
 
 1 Turgot wrote to Hame in 1766, "Our eoonomio philosophers, followers of 
 Quesnay, will maintain vigorously their master's system. It is a system from 
 which English writers are at present very far; nor can we hope to see them 
 adopt it for a long time to come, so difficult is it to conciliate its principles with 
 the condition of monopolising the commerce of the universe." See Leon Say, 
 Turgot, ch. m. 
 
 ^ Lecky, Eighteenth Century, v. pp. 37 — id (ed. i), gives an instructive 
 account of the debate in the House of Commons on the proposal. 
 
 ' No doubt the Physiocrats were somewhat influenced by the fact that a 
 democratic nation is often harder than an autocratic ruler would be, to a nation 
 subject to it. For instance, the eoonomio and the general interests of African 
 slaves and American Indians were cared for better by the French, and even the 
 Spanish, Governments than by English coloni.sts, who were masters of their own 
 destiny. But the true cause of this fact is that no one is so good a judge 
 of his own case as are onlookers, who have no personal interest in it. The 
 Slave Trade indeed shows to a greater disadvantage than any other incident 
 the English "concrete" method of judging each case by itself and with 
 reference to its own special incidents. For the best knowledge of those special 
 incidents lies with those who are most nearly affected by them; and these are 
 the very people whose judgments are likely to be unconsciously warped by their 
 interests. It should be noted, however, that the laws relating to slaves in some 
 of the aristocratic colonies of the South were "of extreme ferocity" ; but those in 
 the bourgeois Pennsylvania were mild. See Lecky, England in the Eighteenth 
 Century, ed. i. VI. p. 282. 
 
744 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 App. D, 7. The Mercantilists have no doubt sufiered injustice by bemg 
 taken too literally. But to do more than justice to them, is to 
 hide away the real causes of the intense opposition to their 
 doctrines, which was aroused in the minds of Adam Smith and 
 other far-sighted men; who, being nearer to them than we are, 
 knew what sort of men the bureaucratic officials were, and 
 what sort of advice they would get from self-confident amateurs 
 such as Sir James Steuart and Gee^. 
 
 Adam Smith himself frequently stated or implied that it 
 would be possible for an omniscient and omnipotent Government 
 to direct the actions of merchants, and other people, in a course 
 more conducive to public well-being than that in which they 
 would be led by their own interests. But he did not beheve 
 that Governments, such as he knew them, would have any 
 considerable share of the knowledge of detail, the ceaseless 
 forethought, the untiring invention and resource, the constant 
 attention to the relative proportion of various elements and the 
 sound judgment of them, which would enable an omniscient 
 Government to have an advantage over the automatic action of 
 private interest. He held that, even if a statesman is the 
 ablest man in his country, he cannot divide out his mind 
 among a great number of trades and businesses; and give to 
 each of them a better judgment, than will be worked out by 
 the combined mental activities of hundreds of more or less 
 able merchants, who give much of their time and strength to 
 that one thing. And as to the moral integrity of statesmen, 
 he was less sanguine than the simple-minded Quesnay and 
 many of his followers; for they anticipated some modem 
 socialists in the faith that, so soon as a wise and righteous 
 
 ' Adam Smith never mentioned his contemporary Steuart; but probably 
 had him in mind all the more. Steuart was a Jacobite who lived much in 
 France, and whose political sentiments were much impressed by French 
 associations: his economic thought is mainly a mixture of fresh, shrewd indi- 
 vidual observations with crude remains of old Mercantile fallacies. 
 
 Gee, finding that many of our fisliing galleys went straight from Newfound- 
 land to the South of Europe, would discourage that practice; and even prohibit 
 it, unless they cleared from a British port on their way back. He would thus 
 make it "their interest to stick to their fishing and coasting, which I am 
 persuaded would be more to their advantage than their voyage to the Straits 
 [of Gibraltar] ; for where people have business enough in a very few employments, 
 it is the surest way to get riches." The fishing folk may think otherwise: but 
 the Statesman instructed by Gee will know better. 
 
ADAM SMITH'S DISTRUST OF CONTEMPORARY STATESMEN 745 
 
 system should have been established, the upright motives, by app. u, 7. 
 which they themselves are led, would be found in the ordinaty 
 man, frail as they knew his virtue still to be. 
 
 Adam Smith concedes that "by such [Mercantile] regula- 
 tions a particular manufacture may sometimes be acquired 
 sooner than it could have been otherwise, and after a certain 
 time may be made at home as cheap or cheaper than in the 
 foreign country^." But he insists that the immediate loss is 
 certain, and the future gain problematical. Here and elsewhere 
 he contrasts on the one hand the abstract chance that such a 
 pohcy might be carried through with benefit to the nation by 
 statesmen of superhuman knowledge, intelligence, activity, and 
 probity; and, on the other hand, the concrete realities of the 
 world in which he lived. Schmoller, the ablest apologist of 
 MercantiUsm, sums up the situation by saying: — "It is easy to 
 understand how disgusted an honourable man like Adam Smith 
 must have been by the filthy (schmutzig) hunting after their 
 private gains by the business men, whom he was able to 
 observe day by day in London^." 
 
 Another characteristic of Adam Smith's attitude to freedom 
 of trade, which had been but partially anticipated by the 
 Physiocrats, was the prominence which he gave to the interests 
 of the great body of the people; or, as is sometimes inaccurately 
 said, of the "consumers" as distinguished from the "producers." 
 The earlier free traders, Dutch and English, had not indeed 
 neglected that point; but they had urged the benefits of 
 freedom chiefly as a means of promoting the commercial 
 activity of the nation and augmenting the sources of public 
 revenue: and their opposition to the exclusive privilege of 
 a group of traders or producers was based chiefly upon the 
 injuries which it inflicted on others who were engaged, or might 
 wish to engage, in that particular trade or industry; or in some 
 other that was directly dependent upon it^. But Adam Smith 
 went beyond them in laying stress on the losses which the 
 people sufiered from an artificial constriction of a chaimel by 
 which their needs might be supplied. 
 
 ' Book IV. oh. n (p. 422 of vol. i of Carman's edition). 
 
 ' Die Englische Handds-poliiik des 17 und 18 Jalirhunderls, p. 23. 
 
 " Compare Laspeyres, VolksuiirthschaftUche Anachauungen der Niederldnder, 
 pp. 164—5. 
 
 24—5 
 
746 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 AFP. D, 7. It has been supposed by List and by otber writers, especially 
 in Germany, that when Adam Smith urged that it would be 
 wise to allow the individual greater freedom in trading with 
 foreigners, he desired to substitute cosmopolitan sympathies 
 for a national spirit in trade. But in fact he had a strong 
 national spirit himself; and the arguments, by which he and 
 his followers advocated their policy, would certainly have fallen 
 on deaf ears, if they had called on the ordinary Englishman to 
 count a benefit to his fellow-countrymen as of no greater import- 
 ance than an equal benefit to foreigners. 
 
 Adam Smith protests that "the modern [Mercantile] maxims 
 of foreign commerce by aiming at the impoverishment of all our 
 neighbours... tend to render that very commerce insignificant," 
 and that if England and France "were to consider their real 
 interest without either mercantile jealousy, or national animosity, 
 the commerce of France might be more advantageous to Great 
 Britain than that of any other country, and for the same reason 
 that of Great Britain to France." But he goes on, "Being 
 neighbours, they are necessarily enemies, and the wealth and 
 power of each become on that account more formidable to 
 theotheri." 
 
 Again, "If any particular manufacture was necessary for the 
 defence of the society, it might not always be prudent to depend 
 on our neighbours for the supply; and if such manufacture 
 could not otherwise be supported at home, it might not be 
 unreasonable that aU other branches of industry should be 
 taxed in order to support it. The bounties on the exportation 
 of British-made sail-cloth and British-made gunpowder may 
 perhaps both be vindicated upon this principle." And similarly 
 he admits the scientific plausibility of arguments in favour of 
 bounties to herring fisheries on the ground that "though they 
 do not contribute to the opulence of the nation... they contribute 
 to its defence by augmenting the numbers of its sailors and 
 shipping... at a much smaller expense than by keeping a great 
 standing navy^." These suggestions foreshadowed the impulse 
 which the recent world-war has given to Britain's inclination 
 to incur considerable present sacrifice, in order to increase her 
 
 ' Vol. I. pp. 459, 460 of Cannan's edition. 
 ' lb. vol. n. pp. 23, 19. 
 
ADAM SMITH'S DISTRUST OF CONTEMPORARY STATESMEN 747 
 
 self-sufficiency at times, when hostile submarines might lower app. d, 7. 
 her command of imports, in spite of her powerful navy. 
 
 Again in matters of purely trade policy, though he urges that 
 we should not injure ourselves merely for the sake of injuring 
 other nations, he admits that when there is a prospect that, 
 by injuring them we may cause them to cease injuring us, it 
 may be wise to do so even at some cost to ourselves. He 
 admits that the policy of retaliatory duties is not only defensible 
 theoretically, but may occasionally be prudent, even when 
 account is taken of all the complications which it involves. 
 
 He discovered numerous and important exceptions to the 
 "natural law of liberty," and these discoveries were seldom a 
 priori; they were nearly all supported by inductive studies of 
 the world around him. Further, his views of Nature and of hfe 
 were very broad. It may be true that he unconsciously assumed 
 that there was "something of a Scotchman" inside of every 
 body: but he was fond of watching varieties in national 
 character. He was the last person in the world to think that 
 wealth was the aim of life; the last person to suppose that the 
 ideals of a noble life should be subordinated to the growth of 
 riches by any wise and seK-respecting individual or nation. 
 
 And yet, as a shrewd observer of human nature in the 
 eighteenth century, he concluded that a strict logical separation 
 of the business element from the emotional elements of private 
 and public policy was the best, and indeed the only possible, 
 safeguard against the weaknesses of ambitious statesmen and 
 the wiles of fraudulent traders. His position was: — let us first 
 ascertain how the nation may best do its business, regarded as 
 business. That being done, let us bring into the problem 
 higher considerations: let us take account of the fact that the 
 hfe of a nation is something more than the aggregate of the 
 lives of its members; and let us face material loss bravely, if it 
 must be encountered on the way towards a higher end. But 
 let us count the cost; and let us move with special caution if 
 the cost to the State will bring with it any political advance- 
 ment, or any material gain to the individuals or the "interest" 
 by whom it is urged^. 
 
 ' Some misunderstandings of Adam Smith's position have been impoi'ted 
 into this country from Germany; but unfortunately the corrections of those 
 
748 ENGLISH MERCANTILISTS AND ADAM SMITH 
 
 4PP. D, 7. mistakes, which have been made in Germany, have not been noted here. Thus 
 Adam Smith says: — "By pursuing his own interest he [the individual seeking 
 an employment for his capital] frequently promotes that of the society more 
 effectually than when he really intends to promote it" (Book iv. ch. n. vol. i. 
 p. 421 in Cannan's edition), and Knies, in a spirited effort to induce his 
 countrymen to substitute a real broad-minded Adam Smith for that doctrinaire 
 whom many of their writings portray and label "Adam Smith," says that this 
 critical passage is commonly quoted from a German translation by Stimer, which 
 omits the word "frequently"; and thus makes Adam Smith express a doctrine, 
 as fundamentally opposed to the whole trend of his thought, as it is to that of List 
 himself. See Knies, Die poUtisclie Oehonomie vom geschichtlichen Standpuncte, 
 ed. of 1883, p. 226. In the preceding pages Knies had given many instances of 
 strong expressions of Adam Smith as to the failure of the private interests of 
 landowners, traders and others to direct their actions into that channel which 
 would be most to the aggregate wealth, their own of course being reckoned in; 
 and reckoning therefore being made only in terms of money value, not of true 
 social value. And Held {Sociale OescMchte Ervglanda, p. 180) is wroth against 
 those who take Adam Smith's "doctrine of the natural and necessary harmony 
 of all interests as a general and fundamental principle," ignoring his constant 
 arguments to the contrary; and laying excessive stress on occasional passages 
 in which he speaks of "the unseen hand which leads a man to this end, though 
 he has not intended it himself." Such men he concludes "can be excused only 
 on the ground that they neither see nor hear anything beyond a few phrases, 
 which dominate their minds." 
 
APPENDIX El 
 
 THE BRITISH MOVEMENT TOWARDS FREE TRADE 
 
 1. The policy of Protective duties was discredited in app. =, i. 
 Britain by the mismanagement of the Corn Laws : Sliding 
 Scales of duties, designed to keep prices steady at a high 
 level, made them very unsteady. 
 
 It has akeady been indicated that the British movement 
 towards free trade in the second quarter of the nineteenth 
 century was strengthened by the mismanagement of Protective 
 duties on wheat. This Section and the next are occupied with 
 details, which may not be of general interest; though they bear 
 directly on a great controversy. 
 
 Adam Smith's anger was roused by the inconsistency of 
 statesmen who compelled the farmer to sell his produce retail, 
 and forbad the manufacturer to do the same thing. Enghsh 
 statesmen, like others, had begun by prohibiting the exporta- 
 tion of grain; then they allowed it subject to taxes and 
 other conditions; and later still they encouraged it by bounties 
 when the price was below a certain level. These bounties 
 aimed at steadying the national market for grain: in an 
 ordinary year enough was to be grown to allow for exportation, 
 in a bad year all was to be retained at home, and thus scarcity 
 was to be avoided. But the boimty tended to send abroad the 
 surplus of a good year, so that in a bad year as much importa- 
 tion became necessary as if there had been no bounty. Thus 
 the double cost of carriage was wasted, and Enghsh people had 
 to pay for their food in good and bad seasons alike at rates 
 which would naturally arise only in bad seasons. During the 
 years 1773 to 1792 the Enghsh corn trade was left practically 
 
 ' Thi3 Appendix is associated with I. iv, 5, 6. 
 
750 BRITISH MOVEMENT TOWARDS FREE TRADE 
 
 ipp. E, 1. free to follow its own course; and Adam Smith's judgment as 
 to the evil influence of the bounties on exportation received 
 some support from the fact that during these years the price of 
 wheat fluctuated less than during the preceding period; in 
 which costly bounties had been given with the avowed purpose 
 of steadying prices, and with a side view at their efiect in 
 raising rents. 
 
 The course of prices during the war was irregular. War 
 risks and high freights, blockades, and currency troubles were 
 origins of disturbance in which efiects came at irregular inter- 
 vals after their causes: and to these were added an abnormal 
 number of very bad harvests^. 
 
 On the whole the war brought prosperity to landlords and 
 farmers: they learnt to take a lofty view of their stations and 
 the mode of expenditure appropriate thereto. They had been 
 shaken by a fall in the price of wheat from 155s. in August, 
 1812, to 73s. Qd. in December, 1813; and Committees of the 
 two Houses in 1813 — 14 investigated the price which was 
 necessary to give the farmer a fair profit, with just about that 
 amount of bias which is commonly found, when persons repre- 
 senting any one interest meet to appraise its claims relatively 
 to others. They thus prepared the way for the law which was 
 to prevent the peace from bringing its natural blessings to 
 the English people. In 1815 the importation of wheat was 
 prohibited except when its market price was above 80s.: 
 although when it was at that price, the wages of the ordinary 
 labourer and his family would barely purchase enough bread 
 to satisfy their hunger, if spent exclusively on bread. 
 
 The rents of land had been made very high by the war and 
 bad harvests, which raised the limited home supplies to 
 extravagant prices: the rate of interest had also been raised 
 high by the destruction of capital, as was shown by the low 
 price of consols. The landlords, like many people even now in 
 such cases, argued imconsciously in a circle: they thought that 
 
 ' In eleven yeara out of twenty-two, viz. 1794, 5, 9, 1800, 4, 7 — 12, the 
 harvests of com and especially of wheat were deficient: in some the scarcity 
 was "of a desolating character extending over the greater part of Europe." 
 (Tooke, History of prices, n. 347.) When crops were rather poor in England, 
 but not abroad, freights with insurance sometimes reached from 40s. to 603. a 
 quarter for voyages of no very great length. 
 
THE MISMANAGEMENT OF THE CORN LAWS 751 
 
 rents ought to be sustained so as to continue to pay about this app. ^i, i, 
 high rate of interest on the inflated prices; and in such 
 reckonings, though not when setting a price on their land for 
 sale, they were likely to leave out of account the income of 
 social amenity and political influence to be derived from it. 
 They believed that the stabiUty of Government and the 
 safety of the country depended greatly on the maintenance of 
 the dignity of their order^. 
 
 In 1828 recourse was had to a vigorous application of the 
 plan of taxing the imports of corn on a shding scale, that is, so 
 that the tax was high when the market price was low, and 
 low when the market price was high. Great benefits to the 
 farmers were anticipated from this plan; but it turned out to 
 be injurious to all concerned: and, since its failure contributed 
 greatly to the downfall of the system of Protection, the motives 
 which led up to it, and the causes of its failure deserve some 
 detailed notice. 
 
 Its advocates seem to have somewhat overrated the 
 advantages of steadiness of price; to have greatly underrated 
 the cost which the various schemes proposed by them for 
 obtaining it would inflict on the nation; and to have made no 
 approach to a solution of the scientific problem: — what are the 
 conditions under which an import duty, whether simple or on a 
 sliding scale, will make for stability? Conditions can indeed be 
 imagined under which a sliding scale might form part of a 
 poUcy that would make for stabiUty. But under the con- 
 ditions of wheat supply and demand in their time, it necessarily 
 made for instabihty. Let us look into this. 
 
 European wheat trade in the first half of the nineteenth 
 century was conducted under very difficult conditions. Wheat 
 is too heavy to be carried long distances, even on good roads: 
 and the roads in Central and Eastern Europe were very bad. 
 Some parts of North- Western Europe had good roads, and some 
 had excellent water communications: but, as most of them 
 
 ' The more old fashioned among them would have endorsed Arthur Young's 
 dictum: "None but a fool can imagine that the landlords of a great Empire are 
 to yield to the transitory sons of trade and manufacture." (Quoted by Buxton, 
 Finance and Politics, i. 74.) 
 
752 BRITISH MOVEMENT TOWARDS FREE TRADE 
 
 App. E, 1. bore a relatively dense population, they needed their own crops 
 for themselves; and, indeed, wheat is not partial to moist 
 lowlands. The main trouble however arose from the facts that 
 (1) large organized production and trade need confidence on 
 the part of producers and exporters that they wiU find a steady 
 market for any goods which they may ofier; and (2) the only 
 means by which the price of an uncertain crop, such as wheat, 
 can be steadied to the home producer, are just those which 
 make the country's demand for imported wheat uncertain and 
 unpredictable. The two chief means that might be adopted 
 for that purpose are (a) to give an export bounty on wheat 
 when its market price is below a certain level; and (6) to tax 
 highly or even prohibit its importation when the price is below 
 a certain other limit, not much higher than the first. Several 
 responsible writers have urged that, if it were thought worth 
 while to incur the expense of artificially steadying the price of 
 wheat, a two-sided arrangement on these lines would have been 
 the best. 
 
 Such a scheme might effectively maintain a steady price, 
 in a case similar to that of Greece to-day, though of course at a 
 great cost to the country: for her total demand on the world 
 market for wheat is very small relatively to the aggregate 
 supply, which will in any case pass through the Mediterranean 
 from the east and the west, the north and the south. But 
 even in such a case as hers, no arrangement of import duties 
 could steady prices unless accompanied by export bounties, 
 so contrived as to carry off any surplus of home production 
 over consumption which might be caused by several excellent 
 harvests in succession. 
 
 But England's position in the first half of last century 
 was very different. She was the only large importer of wheat: 
 and therefore it was to her interest to let the foreign producer 
 know what tax he would have to pay on selling it to her. A 
 moderate fixed duty would have discouraged him only a little: 
 he was almost wholly discouraged by being told that unless 
 England had a bad harvest his wheat would be admitted only 
 after paying an exorbitant tax. Tooke, after making a special 
 study of the subject concluded that, when wheat was scarce in 
 England, it was a good deal more likely than not to be scarce 
 
THE MISMANAGEMENT OF THE CORN LAWS 753 
 
 also in North- Western Europe generally: and, so far as this app. .-:, i. 
 was the case, the foreigner could expect to sell under a low tax 
 only when he had not much to sell. Consequently he grew 
 little or nothing definitely for the English market; and 
 England's imports were made up of the surplus of wheat crops 
 of districts, in many of which rye was the staple food; and the 
 supply which she got from any one port would often vary 
 tenfold from one year to the next^. 
 
 Thus the sliding scale made the foreign growing of wheat for 
 the English market to be an act of gambling rather than of sober 
 business: and it also induced, if it did not compel, the 
 importer to arrange his sales so as to intensify the fluctuations 
 of prices; and so that his wheat greatly injured the English 
 farmer without greatly benefiting the English consumer. The 
 farmer did not sell at very high prices, and the English con- 
 sumer often paid very high prices; while the English Exchequer 
 reaped scarce any profit. For the importer took care not to sell 
 till the English stocks were nearly exhausted; and the conse- 
 quent rise in price let his wheat in at a low duty. Of course 
 speculators are always inclined to hold back for an expected 
 rise in price: but, when a small rise in price will bring a large 
 reduction in duty, it is worth while to wait for that rise, even 
 at a great risk of failing to sell at alP- 
 
 * Thia can be traced for the years 1800 — 30 in J. Marshall's great Digest of 
 official statistics published in 1833, vol. n. p. 104; and for 1828 — 30 in Tooke's 
 History, vol. vi. pp. 451 — 3. The irregularity of the figures there given is in 
 great contrast to the regularity of the corresponding tables in recent numbers 
 of the Statistical Ahslract for the United Kingdom. 
 
 The total prohibition of the importation of wheat when the price was below 
 80«., which ran from 1815 to 1828, caused the highest price of a year to be often 
 nearly 50s. above the lowest. The expectation of a price approaching to 80s. in- 
 duced farmers to sow wheat even on damp, cold hillsides, hiring labour, in tacit 
 combination with one another, at wages that often needed to be eked out by 
 allowances from the parish. 
 
 The sliding scale was in operation from 1828 to 1843. The following 
 average prices (in shillings and pence) for these 26 years are eloquent: — 83, 8 
 72, 3; 65, 10; 54, 5; 43, 3; 51, 9; 02, 0; 66, 6; 56, 11; 56, 9; 60, 5; 66, 3; 64,3 
 66, 4; 58, 8; 52, 11; 46, 2; 39, 4; 48, 6; 55, 10; 64, 7; 70, 8; 66, 4; 64, 4; 57, 3 
 50, 1. 
 
 * A few more details may be added. The duty was practically prohibitory 
 when the price was low. It fell to 16«. 8d., when the price was 69«.; and 
 then the merchants received 52,?. 4d. net. But if they held back till the 
 price was 73s., they paid only \s.; and received 72s. net. Consequently they 
 
754 BRITISH MOVEMENT TOWARDS FREE TRADE 
 
 App. n, 2. In tie result prices were very irregular. In 1819 — 1822 great 
 numbers of farmers failed, because grain was abundant : a group 
 of indifferent medium harvests kept tbem fairly prosperous 
 till 1831, wben they were again brought into straits by good 
 harvests^. 
 
 2, The repeal of the Corn Lmvs could not produce its 
 full effect at once. It did not cause a great fall in the 
 price of wheat : but it Icept the price almost stationary 
 in Britain while it was rising in neighbounng countries. 
 
 Some authoritative writers have claimed that the 'history 
 of British wheat prices before and after 1850 proves that the 
 Corn Laws did not raise prices very much, and therefore did not 
 inflict great injury on the people. As much stress has been laid 
 on this argument, it calls for examination. 
 
 The difficulty of obtaining grain from abroad in the second 
 quarter of last century did not lie in scarcity of land for growing 
 it, or of people willing to work on the land for low remunera- 
 tion. If England had offered a fairly steady demand for ten 
 million quarters of imported wheat, many rich areas would have 
 improved their communications with great European rivers and 
 have been able to send her large supplies at a low cost. But 
 as things were they lacked the incentive for such developments: 
 
 manosuvred to get the price towards 73s.; and then they imported (or took out 
 of bond) suddenly large quantities: and thus lowered the price a little. That 
 brought the tax up somewhat; and therefore other merchants were warned off 
 from intruding on their market. Many English farmers could not wait, 
 and sold at relatively low prices. Therefore they did not gain much by 
 the tax: while the Exchequer gained very little: but the poor consumer 
 paid terribly. The foreigner who happened to have a, surplus gained on it. 
 But, as in another year he might probably be unable to sell for exportation to 
 England at all, he grew little or nothing specially for exportation. A full study 
 of the problem is made by Tooke and Newmarch, Ic. vol. m. ch. I. In vol. v. 
 p. 168, it is observed that many farmers being in arrear for rent, or pressed 
 for payment of a debt, force the whole or nearly the whole of their stock 
 for sale immediately after the harvest: and of course relics of this tendency 
 remain now. 
 
 ^ They weathered that misfortune better than the last, for by the preceding 
 experience "they had been taught prudence," and had become "a different 
 class of men to what they were" (H. oj L. Committee on Agriculture, 1836, 
 Q. 3163, 4). 
 
WHEAT CHEAPENED IN ENGLAND RELATIVELY TO CONTINENT 755 
 
 for they could not expect to sell their wheat in any country app. e,-2. 
 except England, at a price very much higher than that of their 
 own homes. So, when at last England's piarket was thrown 
 open, she had to rely largely upon those sources of supply which 
 were already in fairly close touch with the sea^. 
 
 Therefore the full effect, which the opening of England's 
 ports to wheat exerted on the available supply of wheat, would 
 not be likely to show itself for many years; and meanwhile 
 prices in the world's market for wheat were disturbed by the 
 new gold supplies beginning about 1850, by a series of wars 
 and by some exceptional harvests. In many years indeed these 
 disturbances exerted a much greater influence on the price of 
 wheat than had been exerted by the rather low import duties 
 levied in England after 1843. 
 
 To go into particulars: — Bad harvests had been exceptionally 
 frequent during the great war; but they were exceptionally 
 rare during the next twenty years. In each of the six years 
 1832 — 7 the home crops were sufficient for the people's con- 
 sumption: the import duty was practically inoperative; and 
 prices were relatively low in spite of it^. 
 
 ^ Accordingly, when Jacob, the beat authority on the question, was sent to 
 investigate the Baltic and Black Sea sources of supply in 182G — 27, he reported 
 that, "if the quantity of corn grown in this country were diminished one-tenth... 
 we should have to pay the foreigners double as much as we now pay the English 
 farmer. There is corn enough... but it must be drawn from such a distance 
 with land carriage." He adds that some of the mariners did not understand 
 the use of the compass: and that Russian grain seldom passed out of the 
 Mediterranean. 
 
 It is true that the coast hue from Hamburg to Riga was the chief source 
 of England's suppUes of wheat then and for some httle time afterwards; that 
 the five great river basins which these ports served were so far distinct that 
 variations in the price of wheat between different parts of Prussia were much 
 greater than between different parts of England : and that prices were habitually 
 rather high in WestphaUa, where population was relatively dense. See a study 
 of this problem for the years 1816 — 41 by Rawson in the Statistical Journal, 
 vol. V. He makes out his case both by exclusive reference to wheat, and 
 — which is fairer — by comparing wheat in England with rye in Prussia. His 
 analysis of the causes of such variations seems superior to that in the better 
 known study by Cliffe Leslie of "Prices in Germany ia 1872." Marshall's 
 Digest, 1833, Part u. pp. 98 — 100, contains the chief results of a Foreign OfSoe 
 inquiry in 1826 as to the prices of wheat in various places from 1700 to 1825: 
 towards the end, the inquiry ranged over 32 European and 4 American markets. 
 
 ^ See Tooke and Newmaroh, I.e. vol. v. pp. 53 — 06 and p. 223. France in 
 
756 BRITISH MOVEMENT TOWARDS FREE TRADE 
 
 App. E, 2. After two bad and several moderate harvests, the rains of 
 1845 together with the potato disease caused such distress that 
 Peel committed hiipself in 1846 to complete repeal (save for 
 the Eegistration duty) in 1849. The harvest of 1849 was good: 
 but, except in that year, the price of wheat was kept low in the 
 years 1847 — 52 by abundant, almost untaxed, supplies from parts 
 of the Continent in which the harvests had been good, though 
 those in England had been bad: it has been estimated that 
 under the old regime English prices would have been 20s. higher 
 than they actually were. In 1853 harvests were bad throughout 
 Northern Europe, and prices ruled high: but they were not 
 higher in England than on the Continent, though they always 
 had been under similar circumstances before. 
 
 During aU these years the main roads were being improved 
 everywhere: and railways were helping to keep the "Gazette" 
 prices of English wheat down nearer to those of foreign wheat at 
 English ports than before. But the railways of the Continent 
 were of relatively little service. They had indeed made an 
 appearance in Central Europe before 1846; but, of course, they 
 went first to thickly peopled districts, which had little grain 
 to spare. And it was not tiU the Crimean War had shown 
 the supreme military importance of railways running to the 
 frontiers, that many of them were driven through the large 
 wheat-fields of Central and Eastern Europe. 
 
 The Crimean War was accompanied by general bad harvests; 
 freights were for a time very high, and the Russian trade 
 was of course interrupted. To these powerful causes of high 
 prices another was added. For before the repeal of the 
 Corn Laws the world's stock of gold had been shrinking rela- 
 tively to the work it had to do; and, in consequence, general 
 prices had been falling: but the new supplies of gold, coming 
 suddenly from California and Australia, upset men's cool judg- 
 ment and forced general prices up to a temporarily inflated 
 level. 
 
 It was just when all these exceptional causes were working 
 together that that rise of wheat to a little over 70s. occurred, 
 
 particular was a large exporter: her high import duty was therefore inoperative; 
 and her wheat prioea of course fell very low. The significance of this fall has 
 sometimes been mistaken, and used amiss in controversy. 
 
WHEAT CHEAPENED IN ENGLAND RELATIVELY TO CONTINENT 757 
 
 which has been urged as a chief reason for doubting the in- app. b, 2. 
 fluence of free importation in lowering the price of wheat. And 
 a second rise in 1867 to a price a little above 60s. had been 
 forced to the same service; though it is amply accounted for 
 by simultaneous exceptionally bad harvests in America and 
 Europe in 1867, following after the indifferent harvest of 1866. 
 This brings us to the time when the conditions, which 
 govern the trade in wheat, began to assume their present 
 form: and the price of wheat in England ceased to be 
 materially higher than in neighbouring countries, in spite of 
 her rapidly increasing and unique dependence on foreign 
 supplies. She was favoured by her geographical position 
 relatively to America: and later on prices in Germany were 
 influenced by the increasing stringency of her Agrarian policy. 
 Thus prices in England have fallen increasingly below the 
 prices in Germany and France: it is true that they did not 
 fall much between 1849 and 1875: but in the same time they 
 rose greatly in those countries. This contrast embodies the 
 chief result of the repeal of the Corn Laws: it did not cause 
 a great fall in the gold value of wheat in England; but it did 
 prevent a great rise in that value^- 
 
 ' The following table is taken from the article by Conrad in the 
 EandwoHerbuch der Staatswissenschaften on " Getreidepreise." It represents 
 prices per metrio ton in marks. 
 
 
 
 
 
 Province of 
 
 
 Year 
 
 England 
 
 France 
 
 Prussia 
 
 Prussia 
 
 Westplialia 
 
 1816—20 
 
 364,0 
 
 265,5 
 
 206,2 
 
 181,8 
 
 240,8 
 
 1821—30 
 
 266,0 
 
 192,4 
 
 121,4 
 
 109,2 
 
 132,6 
 
 1831—40 
 
 254,0 
 
 199,2 
 
 138,4 
 
 133,8 
 
 147,8 
 
 1841—50 
 
 240,0 
 
 206,6 
 
 167,8 
 
 160,4 
 
 182,0 
 
 1851—60 
 
 250,0 
 
 231,4 
 
 211,4 
 
 199,6 
 
 223,6 
 
 1861—70 
 
 248,0 
 
 224,6 
 
 204,6 
 
 195,0 
 
 218,6 
 
 1871-75 
 
 246,4 
 
 248,8 
 
 235,2 
 
 225,0 
 
 240,0 
 
 1876—80 
 
 206,8 
 
 229,4 
 
 211,2 
 
 202,2 
 
 222,4 
 
 1881—85 
 
 180,4 
 
 205,6 
 
 189,0 
 
 182,6 
 
 197,6 
 
 1886—90 
 
 142,8 
 
 193,2 
 
 173,9 
 
 165,6 
 
 183,6 
 
 1891—95 
 
 128,2 
 
 178,5 
 
 165,5 
 
 163,2 
 
 173,4 
 
 1896—1900 
 
 134,3 
 
 178,6 
 
 160,9 
 
 157.9 
 
 168,4 
 
 1901—05 
 
 140,3 
 
 178,1 
 
 163,9 
 
 181,9 
 
 165,8 
 
 1906 
 
 142,6 
 
 — 
 
 173,4 
 
 170,5 
 
 178,0 
 
 1907 
 
 143,5 
 
 — 
 
 200,3 
 
 202,0 
 
 202,0 
 
 During the whole period France has produced nearly all the wheat sha 
 requires; but she has long ceased to export it in considerable quantities. The 
 
758 BRITISH MOVEMENT TOWARDS FREE TRADE 
 
 App. E, 3. 3. Although economic science was much advanced by 
 Adam Smith's successors, their views were generally less 
 broad than his: and their doctrines were sometimes con- 
 verted by weah or partisan adherents into absolute dogmas^. 
 
 Adam Smith's successors had less of that breadth and 
 moderation which come from a long training in philosophic and 
 scientific thought. Most of them had a great experience of 
 affairs, and had accustomed themselves to speak with that force 
 and directness, which give special value to the utterances of 
 a business man when he is speaking on matters within his 
 personal knowledge; but which, when he strays beyond them, 
 often tempt him to make simple sweeping statements of broad 
 scope without the necessary limitations and conditions. And 
 unfortunately two strong but exceptionally abstract thinkers, 
 Bentham and James Mill, threw their influence on the side of 
 large generalizations. As a rule however the dogmatism which 
 seemed to pervade the chief English economic writings of the 
 first half of the nineteenth century was apparent, rather than 
 
 Province of Prussia has always produced wheat largely in excess of her own 
 requirements. Westphalia has needed increasingly to import supplies from 
 other parts of Germany, or from abroad. Prussia, though formerly an exporter 
 on the balance, now imports more than any other country except England: 
 though of course ordinary statistics do not distinguish her trade from that 
 of Germany. A comparison between Westphalian and English prices is 
 specially instructive, because both Westphalia and England import wheat 
 largely. 
 
 The prices in London are about as low as anywhere in England. The 
 prices in Berlin for the more recent of the years here shown are rather above 
 those in Westphalia; though Berlin is on the border of the chief wheat lands 
 of Germany. 
 
 Germans have paid special attention to relative variations of prices of rye 
 in Germany and Russia: and have rightly laid great stress on the fact that, 
 there being no true world market for rye, these variations are more erratic than 
 those in the price of wheat. A few paradoxes which have disturbed some English 
 writers seem to be explained by the fact that a country may import rye on the 
 balance from another, where the average price is higher, if her own has been 
 harvested in bad condition, and that of the other in good. 
 
 • This Section and the next are, in part, reproduced from my Presidential 
 Address to the Economic Section of the British Association in 1890, which 
 is accessible in The Slatistical Journal for that year. Professor Nicholson 
 well remarks that " as Adam Smith had influenced Pitt, so Ricardo influenced 
 Peel": and in view of the relative lack of independence of Ricardo's chief 
 followers "fortunately it was Peel who translated his ideas into practice." 
 Cambridge Modern Hislory, vol. X. pp. 773 — i. 
 
COMPRESSION OF ECONOMIC PRINCIPLES INTO DOGMAS 759 
 
 real. It represented a dry businesslike mode of speaking, in app. ii, 3. 
 wMch much is left to be filled in by the common sense of the 
 listener; it was not a premature attempt at a systematization of 
 knowledge. But it misled adherents as well as opponents; and 
 the efforts of English economists during the subsequent half- 
 century have scarcely sufficed to liberate their science from this 
 tradition of dogmatism. 
 
 The change may, perhaps, best be regarded as a passing 
 onward from that early stage in the development of scientific 
 method, in which the operations of Nature are represented 
 as conventionally simplified for the purpose of enabhng them 
 to be described shortly; and entering on a higher stage, in 
 which they are studied more carefully, and represented more 
 nearly as they are, even at the expense of some loss of simplicity, 
 definiteness, lucidity and consequent popularity. The English 
 economists of fifty years ago were gratified, rather than otherwise, 
 when some faithful henchman, or henchwoman, undertook to 
 set forth their doctrines in the form of a catechism or creed; 
 whereas now they recognize that every short clear statement 
 of economic doctrine must be a' truism, unless it be false. 
 
 It has, indeed, been an unfortunate thing for the reputation 
 of the older economists, that many of the conditions of England 
 at the beginning of this century were exceptional, some being 
 transitional, and others, even at the time, peculiar to England. 
 Their knowledge of facts was, on the average, probably quite 
 as thorough as that of the leading economists of England 
 or Germany to-day, though their range was narrow. Their 
 thoroughness was their own, the narrowness of their range 
 belonged to their age; and though each of them knew a great 
 deal, their aggregate knowledge was not much greater than that 
 of any one of them; because there were so few of them, and they 
 were so very well agreed. 
 
 Their agreement with one another made them confident; 
 the want of a strong opposition made them dogmatic; the 
 necessity of making themselves intelligible to the multitude 
 made them suppress even such conditioning and qualifying 
 clauses as they had in their own minds. Therefore, although 
 their doctrines contained a vast deal that was true, and new, and 
 very important; yet the wording of these doctrines was often 
 
760 BRITISH MOVEMENT TOWARDS FREE TRADE 
 
 Avp. B, 4. SO narrow and inelastic that, wten applied under conditions of 
 time and place difierent from those in which they had their 
 origin, their faults became obvious and provoked reaction. 
 
 It was clearly to the interests of England that her manu- 
 factures should be admitted free by other countries: therefore 
 any Englishman who attempted to point out that there was some 
 force in some of the arguments which were adduced in favour of 
 Protection in other countries, was denounced as unpatriotic. 
 Public opinion in England acted like the savage monarch who 
 puts to death the messenger, that comes running in haste to 
 tell him how his foes are advancing on him; and when John 
 Stuart Mill ventured to tell the English people that some 
 arguments for Protection in new countries were scientifically 
 valid, his friends spoke of it in anger — but more in sorrow than 
 in anger — as his one sad departure from the sound principles of 
 economic rectitude. But killing the messengers did not kill 
 the hostile troops of which the messengers brought record; and 
 the arguments which Englishmen refused to hear, and there- 
 fore never properly refuted, were for that very reason those on 
 which Protectionists relied for raising a doubt in the minds 
 of intelligent and public-spirited Americans as to the scientific 
 soundness and even the moral honesty of English economics. It 
 is however to be remembered that, in that age as in the present, 
 exaggerated notions of the scope and cogency of economic 
 doctrines have been less frequent in calm academic discussions, 
 than in heated political controversies: and especially in those 
 in which business men, however capable and upright, have 
 sought to find in economic doctrine a support for practical 
 conclusions in harmony with their own experiences, opinions 
 and sentiments: — and, in some cases, their own business in- 
 terests. 
 
 4. Overstatements of arguments in favour of Free 
 Trade have retarded the general acceptance of that part 
 of it which may justly claim to he of universal validity. 
 
 The first great difficulty which English economists had, in 
 addressing themselves to the problems of cosmopolitan economics, 
 arose from the fact that England was an old country — older than 
 America in every sense; and older than the other countries of 
 
OVERSTATEMENT OF ARGUMENTS IN ITS FAVOUR 761 
 
 Europe in this sense, that she had accepted the ideas of the new app. « i. 
 and coming industrial age more fully and earlier than they had. 
 In speaking of England, therefore, they drifted into the habit of 
 using, as convertible, the two phrases — "the commodities which 
 a country can now produce most easily," and "the commodities 
 which a country has the greatest potential advantages for pro- 
 ducing"; that is, will always be able to produce most easily. 
 But these two phrases were not approximately convertible when 
 appUed to other countries; and when List and Carey tried to 
 call attention to this fact. Englishmen did Uttle more than 
 repeat old arguments, which implicitly assumed that New 
 England's inability to manufacture complex products had the 
 same foundation in natural laws as her inability to produce 
 oranges. They refused fairly to meet the objection that argu- 
 ments, which prove that nothing but good can come from a 
 constant interchange of product between temperate and tropical 
 regions, do not prove that it is for the interest of the world 
 that the artisans who are fed on American grain and meat 
 should continue always to work up American cotton for 
 American use three thousand miles away. Finding that their 
 case was not fairly met, the Protectionists naturally thought 
 it stronger than it was, and honestly exaggerated it in every 
 way. 
 
 Looking back then, it is easy for us to see that English 
 economists made a grave error of judgment as to the proportions 
 of one leading problem of their own age, though not of their 
 own country. They misjudged the needs no less than the 
 potentialities of backward coimtries, and especially of new 
 countries. They took too little account of the fact that, though 
 any one county of England, which had latent resources and 
 faculties for an advanced industry, would attract that industry 
 to itself from other counties; yet what is true of counties is not 
 true of countries. 
 
 If the neighbourhood of coal and other causes concentrate 
 those English industries in which man's command over Nature 
 is rapidly increasing, chiefly in the middle-west, the benefits 
 arising from this new power are in great measure spread over 
 the whole country. Those born in Devonshire and Sussex who 
 have a turn for the rising industries, can generally remove to them 
 
762 BRITISH MOVEMENT TOWARDS FREE TRADE 
 
 App. E, i. without snapping their main ties as human beings. But a new 
 country may be dominantly rural; may lack the stimulus and 
 culture of a nervous town life, and have no access to the 
 economies of manufacture on a large scale: she will then derive 
 comparatively little consolation from knowing that there are 
 busy hives of industry and thought in remote lands. 
 
 The failure of English economists to allow for the special 
 circumstances of new countries did not end here. They 
 saw that Protective taxes in England had raised the price of 
 wheat by their full amount; because increased supplies of it 
 could be raised in England only at a more than proportionately 
 increased cost of labour. They saw that the high price of 
 bread had kept a large part of the population on insufficient 
 rations, and had enriched the rich at the expense of a much 
 greater loss to the rest of the nation. They saw that this 
 loss had fallen upon those, who were unable to lose material 
 wealth without also losing physical, and even mental and moral 
 strength; and that even those miseries of the overworked 
 factory women and children, which some recent writers have 
 ascribed exclusively to recklessness of manufacturing com- 
 petition in its ignorant youth, were really caused chiefly by 
 the want of freedom for the entry of food. They were convinced 
 that the benefits claimed for Protection in England were based, 
 without exception, on false reasoning; and they fought against 
 it with the honest, but also rather blind, energy of a religious 
 zeal. 
 
 Thus they overlooked the fact that many of those indirect 
 effects of Protection which aggravated then, and would aggravate 
 now, its direct evils in England, worked in the opposite direction 
 in America. For, firstly, the more America exported her raw 
 produce in return for manufacture, the less the benefit she got 
 from the Law of Increasing Return {i.e. the law that manufacture 
 on a large scale is more economical than on a small). Thus her 
 case was contrasted with England, who could manufacture more 
 cheaply for her own use the more of her manufactures she sent 
 abroad; and for this and other reasons, a Protective tax did not 
 nearly always raise the cost of goods to the American consumer 
 by its full amount. 
 
FACTORY ACTS ACCORD WITH ECONOMIC PRINCIPLES 763 
 
 5. It does not appear that any eminent economist main- app. b, 5. 
 tained a position of hostility to the Factory Acts; though 
 they were bitterly opposed by some writers who had a super- 
 ficial knowledge of economics. 
 
 A reproach is sometimes brought against the British move- 
 ment towards free trade, to the efEect that the economic 
 principles on which it was based, led to a condemnation of the 
 Factory Acts. 
 
 It is to be observed that neither Ricardo, nor any other 
 member of the great coterie by which he was surrounded, 
 seems to have been quoted as opposing the early Factory Acts. 
 It is however true that Lord Lauderdale, a brilliant free lance, 
 keen withal and suggestive but erratic and unstable, opposed 
 the BiU of 1818 in the name of "the great principle of Political 
 Economy that labour ought to be left free." The Bill was 
 chiefly concerned with the conditions of work of young children: 
 and J. S. Mill may have had this contention in mind when he 
 remarked, that however undesirable it might be to interfere 
 with the freedom of labour without due cause, it was clear 
 that "freedom of contract in the case of young children is 
 but another word for freedom of coercion^." 
 
 The most eminent economists in the period intervening 
 between Eicardo's age and J. S. Mill's great work on economics, 
 were perhaps Tooke, McCuUoch, Newmarch, and Senior. The 
 first three, though they wrote mainly on business affairs and 
 said little on the human side of economics, were supporters of the 
 acts. Tooke was the author of the celebrated Merchants' Petition 
 of 1820, which initiated the movement for free trade, and the 
 founder of the Political Economy Club : he superintended during 
 many years the official investigations of the conditions of work 
 in mines and factories, which resulted in reform. Newmarch, 
 his coadjutor in the later volumes of the History of Prices, 
 wrote (vol. v. p. 421) that it was "difficult to overestimate the 
 importance of the factory acts." McCulloch, at whose bourgeois 
 attitude Carlyle gibed with more eloquence than knowledge, 
 endorsed their policy {Dictionary, p. 43). 
 
 ' See Mill's PriTiciples, v. xi. 8. Lauderdale's remark is quoted by Smart. 
 Economic Annals, 1801—1820, p. 668. 
 
764 BRITISH MOVEMENT TOWARDS FREE TRADE 
 
 App. E, 5. Senior had perhaps a stronger intellect than any of these: 
 and he was made Professor of Political Economy at Oxford, on 
 the groxmd of his reputation as a very able man, with great 
 knowledge of the world. He accepted the office, holding that 
 though in other sciences a man must travel far before he was in a 
 position to form a good opinion of his own, in political economy 
 he could speak with confidence, when he had merely walked 
 "to the end of his garden." After a five years' tenure of office, 
 he passed to other work; and, when reappointed after an interval, 
 he had learnt that economic problems were not simple; and he 
 made brilliant contributions to the science. In his earher phase 
 he had opposed the Factory Acts : in his later phase he was one 
 of their heartiest supporters^. 
 
 These facts raise suspicion that the term "economists" 
 must have been used in a sense in which it referred, not to the 
 leading students of economics, but to politicians and others 
 who affected to speak with economic knowledge, though with 
 but a slight foundation for their claim. It is to such men that 
 Greville refers in a passage which has been frequently repeated, 
 and has even been used by economic authority of the first rank 
 as sole and sufficient evidence for the statement, that English 
 economists generally had eagerly opposed factory legislation: 
 that is to say, it is taken to refer to the chief students of 
 economics at the time, whereas in fact it refers exclusively to 
 
 * There seems to be some reason for thinking that, in his earlier phase, 
 Senior feU into a rather common mistake as to the effects of such a change as 
 a compulsory reduction of the hours during which manufacturers kept their 
 machinery at work. He seems to have ascertained "by observation" that the 
 total net profits earned by many mills did not exceed the loss which they would 
 incur if compelled to reduce by an hour the time during which the machinery 
 was running; and to have converted this result into the conclusion that those 
 mills would make no net earnings if their hours were thus reduced. And yet 
 it was well known that Robert Owen's brilliant experiment at the Lanark Mills 
 claimed to have proved that the increased energy and care with which operatives, 
 and especially children, worked for shorter hours, increased the output per hour 
 greatly. And it was known that, even if a somewhat reduced output had resulted 
 from the change, the manufacturers would have received some compensation; 
 because the prices of their products would certainly have risen somewhat, both 
 in the home market, and in those numerous foreign markets of which England 
 had a firm hold. It was not possible indeed to be certain how far these palliatives 
 would reach. But to ignore them altogether was unreasonable. And, in any 
 case, it was wrong to claim for his conclusion, as Senior appears to have done, 
 that it was based on direct observation. 
 
FACTORY ACTS ACCORD WITH ECONOMIC PRINCIPLES 765 
 
 members of Parliament. Speaking of the 1844 debate on the app, m,6. 
 "Ten hours' bUl," he says: "Some voted, not knowing how they 
 ought to vote. Melbourne is all against the bill; all the political 
 economists of course : Lord Spencer is strong against him^." 
 
 This use of the term "economist" is not unknown in our 
 day. It was adopted by those who, desirous of "keeping down 
 the rates," organized themselves to oppose liberal public ex- 
 penditure on the education of children; ignoring the fact that 
 those who were giving their main energies to the study of 
 economics, much as they might differ on other matters, were 
 to a man convinced that parsimony in popular education is 
 uneconomical and even wasteful. The following extract from 
 a leading organ of public opinion when the case "Regina v. 
 Cockerton" had made prominent the question whether rates 
 might be levied to defray the expense of continuation schools is 
 in point: "the judgment will not result in justifying either the 
 elation of the economist or the despair of the educationist." 
 
 And a similar misuse of the term had found vogue in the 
 discussions on the Factory Acts. Thus "Alfred" writes: "There 
 had arisen in this country a school of political economists who 
 professedly pointed to The Wealth of Nations as the text book 
 of their practical philosophy, though they as a rule omitted to 
 state that that celebrated book contained contradictory doctrines ; 
 they preferred popularizing the portions of Adam Smith's great 
 work, which supported what they believed to be their own 
 interests, failing to take any notice of portions of the same 
 book fundamentally opposed to their favourite dogmas. These 
 political economists were 'on principle' opposed to all state 
 interference between labourers and capitalists^." There can 
 be little doubt that "Alfred" has Miss Martineau in mind. 
 W. Cooke Taylor refers to her "The Factory Controversy" 
 as to be studied with great advantage for a knowledge of 
 "the doctrine of the orthodox economists^." She wrote a 
 
 ' Greville, Memoirs, vol. v. p. 241. 
 
 • History of the Factory Act, p. 115. This, the standard work on the 
 subject, is attributed to Samuel Kydd. Miss Martineau's aid was acknowledged 
 by a considerable present from manufacturers. Her simple diction, her honesty 
 of purpose, and her lack of scientific capacity, combined to make her s good 
 instrument for their purpose. 
 
 • Modern Factory System, p. 397. 
 
766 BRITISH MOVEMENT TOWARDS FREE TRADE 
 
 App. E, 5. series of tales designed to enforce what she thought were 
 economic doctrines: and, describing her preparation for the 
 work she says: "In order to save my nerves from being over- 
 whelmed by the thought of what I had undertaken, I resolved 
 not to look beyond the department on which I was engaged^." 
 Now everyone who has endeavoured patiently and thoroughly 
 to work to the roots of economic problems, has learnt that so 
 many lines of communication run from every one of them to 
 others, that no sound opinion on any of them, which is not 
 exceptionally simple, can be formed, without a considerable 
 knowledge of economics as a whole^. 
 
 ' Autobiography, i. 19<t. 
 
 ■' A short statement to the efEeot of this Section haa been already made in 
 my Principles, Appendix B. 
 
APPENDIX pi 
 
 THE ZOLLVEREIN 
 
 1. Though the first fruit of Germany's consciousness of app. p, i. 
 her unity was a desire for commercial federation, yet par- 
 ticular interests rided many of the devious steps by which 
 tlie goal was ultimately reached. 
 
 Stein's liberation of tke peasant from the yoke of customary 
 service, and List's striving to hinder the merchant from im- 
 porting English and other wares which might enter into 
 competition with the weak manufactures of Germany, were 
 in outer appearance movements in opposite directions: the 
 one increased economic freedom, while the immediate tendency 
 of the other was to check it. But they sprang from the same 
 rqots and their ultimate tendencies were in harmony. 
 
 The only part of Germany in which manufactures flourished 
 vigorously early in the nineteenth century was Saxony; and 
 perhaps partly as cause, partly as effect, she alone adopted the 
 pohcy of free trade. By aid of the splendid system of education 
 which she pioneered, she was able to hold her own in competi- 
 tion with British hosiery and other manufactures, in spite of 
 her scarcity of capital, and her partial adherence to old fashioned 
 methods^. Prussia and several other states, which had much 
 
 ' This Appendix is associated with I, vii, 1, 2. 
 
 ' In 1812 more than a quarter of her spindles were worked by horses and 
 other cattle; more than an eighth by hand; the remainder only being driven 
 by water. Pohle, Erdwiclcdung des deutschen, Wirtschaftslebens im 19 Jahr- 
 hundert, p. 12. In 1845, when Saxon hosiery had almost driven EngKsh out of 
 American and many Continental markets (partly indeed because of cheapness 
 attained by a very large use of cotton as a material), an English hosiery 
 manufacturer reported (evidence as to Frame-Worker Knitters collected by 
 Commissioner Muggeridge, Q. 2819, 2820) Saxon operatives to be "much better 
 clad and have a much more reputable appearance than the same class of opera- 
 tives here, being much better educated," though their average wages were 
 from 3s. 6d. to 4s. 6d. weekly. 
 
768 THE ZOLLVEEEIN 
 
 App. F, 1. through traffic, were inclined to facilitate the internal trade of 
 Germany; but nearly all desired to levy taxes on imports of 
 foreign manufactures, especially from the rich and highly 
 equipped factories of Britain. They were able to make strong 
 points of the "slaughter sales" of British goods in their 
 markets, in times of commercial distress: and to insist that the 
 British sliding scale tax on imported wheat, caused violent 
 fluctuations in the price of wheat in many parts of Germany. 
 Without attributing malignity to these actions, they were 
 wilhng to give ear to such declamations as that of List, when 
 he declared that between 1820 and 1840 the Germans had 
 been to no good purpose "debased to be carriers of water and 
 hewers of wood for the Britons: they were treated even worse 
 than the down-trodden Hindu^." Therefore it was inevitable 
 that internal free-trade should be combined with a broad 
 moderate system of duties on imported manufactures^. 
 
 In one sense List was a free-trader: for he believed that the 
 restrictions of the Zollverein as regards external trade would 
 ultimately prepare the way for a perfect freedom of trade on 
 the part of Germany, when she had grown to full strength, and 
 could speak in the gate on even terms with England. And 
 another South German, the economist Nebenius, a chief advo- 
 cate — Roscher says the chief advocate — of the Zollverein, was 
 an adherent of the English classical school, and regarded the 
 astringent element in the ZoUverein as a medicine, needed by 
 a temporary malaise^. 
 
 • See Koscher, Geschichle der Nationalokonomih in Deuischland, pp. 965 
 and 973. 
 
 * The belief that German customs ofGciala could not be trusted to form a 
 good opinion as to the value of imported goods pushed simplicity to absurdity. 
 Some things were not taxed at all: of the remainder all but 43 were charged 
 1». Gd. per cwt., without any reference to their value. Each of those 43 had its 
 own rate of taxation per cwt., with the promise that the charge should never be 
 more than a tenth of the value. But that value was taken from fine quaUties 
 of the goods: so the coarse qualities destined for the poorer consumers some- 
 times paid taxes equal to their values. Bowring, Evidence before the Committeo 
 on Import Duties, 1840, Q. 793, 834. 
 
 ' Eoeoher says {I.e. p. 960): "If List rendered the service of making so- 
 called public opinion receptive of the thoughts of the Zollverein, though indeed 
 only on large vague lines, and in a way that must have been more deterrent than 
 attractive to statesmen; yet his contemporary Nebenius was the first to give 
 vitality {LebensfdhigJceii) to the same thoughts by a practical formulation of 
 them that claims oui' admiration." He is jealous lest any suspicion should 
 
GERMANY'S DEVIOUS COURSE TOWARDS FEDERATION 769 
 
 Although the tendencies which were working all over app. r, 2. 
 Germany towards unity were largely idealist and even spiritual, 
 yet the main driving force came from the needs and the 
 ambitions of Prussia. Her position was exceptional: for her 
 territory consisted of some seventy fragments; and her frontier 
 lines were, in the aggregate, about eight times as long as those 
 of a fairly compact coimtry of equal area. She therefore eagerly 
 desired a fusion, at least so far as trade was concerned, of her 
 territory with that of the adjacent states. The patriotism and 
 the broad ambition of the rulers of Prussia combined in "the 
 first step towards what is called the Germanization of the 
 people^." 
 
 2. The general drifts of the German tarif subsequent 
 to the full establishment of the Zollverein. 
 
 Up to 1865 the taxes levied on imports by the Zollverein 
 were generally high, though seldom extravagant. But there 
 then set in a movement towards free trade, stimulated by the 
 continued prosperity of England under her free-trade regime, 
 and the sudden prosperity of France under the relatively 
 liberal tarif which she had adopted in 1860. We have already 
 noted that England's prosperity was partly due to exceptional 
 and transitional causes: and the splendour of France under 
 Napoleon III was partly the result of lavish borrowing. But 
 neither of these facts was noted at the time; and the valid 
 arguments in favour of free trade were exaggerated by Prince- 
 Smith, and the other members of the so-called "English" 
 
 fall on his hero of being a follower of Adam Smith, or a friend of England. 
 He says Nebenius even rejoiced at the advances of Russia in Asia, because they 
 were injurious to England, ib. p. 965: but he is revolted by List's reckless 
 misrepresentations of Adam Smith and England. 
 
 A good account of the Zollverein is given in P. Ashley's Modern Tariff 
 Bisiory. See also Miss Hirst's Life of List; and Eokert, Zur Vorgeschichte des 
 deutschen Zollvereine in Sohmoller's Jahrbuch xxvi., especially p. 101. 
 
 ' Bowring's Report on the Prussian Commercial League, 1840. Prussia yielded 
 at every point good bargains to those, who joined her Union; and she put some 
 pressure on those, which remained outside, by charging high transit duties on 
 goods passing through the Union to the sea and elsewhere. 
 
 Of course Saxony was very unwilling to come in. But her manufacturers 
 even then wanted a good vent for their hosiery; and the King could not resist 
 the money, which would make him independent of his Parliament (Macgregor 
 in evidence before Committee on Import Duties, 1840, Q. 308). 
 
 M. L T. 25 
 
770 THE ZOLLVEREIN 
 
 App. F, 2. financial school in Germany. Bismarck also favoured the move- 
 ment on pohtical grounds; because it would oppose an additional 
 obstacle to the entry of Austria into the ZoUverein. The 
 movement was sustained for twelve years: and 1865 — 1877 may 
 be regarded as a time of relative free trade. 
 
 The reaction which began in 1877 was the result of many 
 causes. The crisis of 1873 — 4 had affected France but slightly; 
 because the inflation, which preceded it, had found her in a 
 chastened spirit: and it struck Germany very hard because her 
 military successes, and the rush of fresh capital, obtained through 
 the war indemnity, had thrown her people off their balance. 
 Business men formed extravagant expectations, discounted them; 
 and then launched into large enterprises and speculations, for 
 which the resources of the country were as yet insuiScient. The 
 subsequent depression lasted long: and its burden was exagge- 
 rated in appearance by a fall in prices; which was caused partly 
 by the adoption of a gold standard by Germany and some other 
 countries, partly by a check to the yield of the new gold-mines. 
 Thus there was a great "over-production," in the sense that 
 many industries had increased their productive plant to such 
 an extent that their products, while in full work, exceeded the 
 amount which the public would buy, when credit had been 
 shaken, except at prices much below those which had been 
 expected when the plant was set up. Consequently people were 
 willing to listen to suggestions that the home market should 
 be protected in the interests of producers against the incur- 
 sion of foreign goods. The depression of prices was general: 
 English and other manufacturers were forcing some of their 
 goods at abnormally low prices on the German market: and 
 this intensified the demand for Protective tarifs. 
 
 Further, the Imperial revenue was inadequate to the demands 
 on it. To levy increased contributions from the separate States 
 would cause friction; diminish the freedom of the Imperial 
 Government; and be open to the objection that, being assessed 
 in proportion to population, they pressed unfairly on the poorer 
 States. Bismarck was never a convinced free-trader; and he 
 used the discontent of the manufacturing classes as a lever for 
 raising the tarif to as high a level, as was consistent with his 
 dominant aim of obtaining increased revenue. It was not an 
 
GERMAN TARIPS UNDER THE ZOLLVEREIN 771 
 
 extreme, or so-called "prohibitive" tarif: and it was in part app. f, 2. 
 "educative"; that is, designed to carry weak industries through 
 their early difficulties in competition with older rivals in 
 England and elsewhere. But it was also largely governed by 
 parliamentary exigencies even at the outset: and, as time went 
 on, these became very powerful. In particular, the leaders of the 
 heavy iron and steel industries made common cause with the 
 leaders of agricultural industries in support of high import 
 duties on metals, and on those kinds of agricultural produce in 
 which large landowners were most interested. 
 
 This drift continued long and brought a general increase 
 in nearly all import duties, the chief exceptions being for raw 
 materials. Germany's neighbours followed suit and raised 
 their tarif s also; partly because they were influenced by her 
 example; and partly because, if their trade with her was to be 
 restricted by taxes, they thought it well to secure as large a 
 part as possible of the revenue from those taxes. Thus the 
 poUcy of commercial agreements, both general and special, 
 became increasingly prominent. The chief of the general 
 agreements was the "most favoured nation clause," whereby each 
 party to a treaty bound itself to give to the other at least as 
 favourable treatment as to any third country: while special 
 clauses were continually abating the severity of certain items of 
 the general tarif. But on the whole its pressure increased till 
 1891; when Count Caprivi arranged treaties, mostly for ten 
 years, by which great reciprocal concessions were made between 
 Germany and some other European countries. Though there 
 was a bitter tarif war between her and Russia in 1893, her 
 foreign trade in those ten years was rather more free than 
 between 1879 and 1891; but much less free than between 
 1865 and 1877. 
 
 Meanwhile, however, various causes had increased the 
 dependence of the Imperial Government on the political 
 support of the landowners of North-East Prussia: they urged 
 that Germany's food should be grown under the protection of 
 German cannon; and that the population of the agricultural 
 districts, and especially of the military provinces in the north- 
 east, should be induced to stay on the land. In concert with 
 the leaders of the iron and other staple trades, they induced 
 
772 THE ZOLLVEREIN 
 
 App. 1?, 2. the Reichstag to pass in 1902 a bill providing for an extremely , 
 high tarif. Its details were however so arranged that it en- 
 riched the great landed proprietors, who raised broad crops of 
 grain largely by aid of Slavonic migrant labourers; but at the 
 same time injured on the balance the small cultivators, who 
 raised very little grain as a rule. 
 
APPENDIX Gi 
 
 EARLY INDUSTRIAL CONDITIONS AND FISCAL 
 POLICIES OF THE UNITED STATES 
 
 1. Tlie course of internal and external trade was for long app. a, i. 
 governed mainly by difficulties of communication and by 
 scarcity of capital. But steam traffic opened European 
 markets for wheat, and the people moved to western prairies. 
 
 The Plantations in America were at first little more than 
 patches on the coast, and in the neighbourhood of a few rivers. 
 Their industries were nominally restricted by the stringent 
 prohibitions of Mercantile statesmen at home to manufacture 
 anything which English manufacturers wished to sell to them. 
 But these prohibitions could not always be enforced: indeed 
 many of them were probably not expected to be. America was 
 not ready for the finer branches of manufacture: but the 
 simpler clothes and utensils used on farms and in the villages 
 could be, and were, made largely in the winter months from 
 native material by local labour. For indeed, when machinery 
 was still simple, nearly everybody even in English villages was 
 an agriculturist during three months in the summer: and in 
 the depth of winter nearly everybody helped to make or repair 
 the rude predecessors of things which the modern farmer buys 
 of the ironmonger, the clothier, or the dealer in boots, harness, 
 or furniture^. 
 
 ' This Appendix is associated with I, vni. 
 
 ' In 1800 there were in tlie States but six cities, each containing more than 
 8000 inhabitants: together they had about 200,000 inhabitants, or a twentieth 
 of the population. In 1900 there were 545 such cities with an aggregate popu- 
 lation of about 25,000,000, about a third of the whole population. 
 
 The crudity of the economic life of the poorer agriculturiata is the starting 
 point of Dr Quintance's Influence of farm machinery on prodtiction and labor, 
 1904. He says (p. 2) on the authority of Mr McMaster: "The poor whites 
 of Virginia in 1790 lived in log huts with the chinks stuffed with clay: the 
 
774: EARLY AMERICAN INDUSTRY AND TARIP POLICY 
 
 App. G, 1. The soil and climate of the Atlantic border were not very 
 favourable to the production of grain, and its transport to 
 Europe was costly; while meat of course could not be exported 
 except in salt. But the forests of New England still supplied 
 the materials for ships, which could more than hold their own 
 against any other of equal size : and it was not by accident that 
 America built the first effective steam-boat. That boat was 
 clear notice that the New World was about to become a teacher 
 of Europe in industry: but in fact preparation for that task had 
 been long in progress. 
 
 In the old world a man, who happened to be a little raised 
 above his neighbours, could get them to work for him at low 
 wages: but in America he could not; so he turned his shrewd- 
 ness to labour-saving inventions. His affairs were generally on 
 a small scale; and his inventions penetrated down to petty 
 domestic difficulties. It is therefore easy to see the humorous 
 side of many " Yankee notions " : but the spirit which lay at the 
 back of them was pregnant with great things. It was the spirit 
 of protest against the servitude of free man to dull, heavy work. 
 
 Here may be noted a strong contrast between America and 
 Europe which was prophetic of the future. England continued 
 well into the nineteenth century the old practice by which 
 industrial centres had endeavoured to maintain a monopoly of 
 their skill and knowledge; and she prohibited the exportation of 
 machinery and the emigration of skilled artisans: so Europe 
 smuggled in the machinery, and copied it with the aid of 
 imported artisans. America did not disdain to do the same on 
 occasion. But she preferred to find out what was the human 
 task which an English machine had taken over, and to re-invent 
 other machinery for herself; and this in some cases turned out 
 to be better than the English. 
 
 walls had no plaster; the windows had no glass; the furniture was such as they 
 had themselves made. Tlieir grain was thrashed by driving horses over it in 
 the open field. When they ground it, they used a rude pestle and mortar: or, 
 placed in the hollow of one stone, they beat it with another." See also 
 Weeden, Economic and social history of New England. 
 
 Marshall's Digest, a.d. 1833, points out that the exports of grain and other 
 agricultural produce from the United States for the twenty years 1806 to 1826 
 were leas than those of Ireland: much went to the West Indies, and was paid 
 for by sugar-bills drawn on London. 
 
EARLY COMMUNICATIONS: CHANUES CAUSED BY RAILWAYS 775 
 
 Early in last century Jefferson prophesied that the West app.o, i. 
 would not be settled for a thousand years. Few people were as 
 capable of forming as good a judgment on the matter as he 
 was; and that he was so wrong, shows only that he did not 
 anticipate the nature of the forces which were to weld together 
 the East and the West. It is difficult for us to think ourselves 
 back into his world, where those forces were as yet not 
 dreamt of. 
 
 In 1800 there was very Httle popidation west of the 
 AUeghanies: but in 1830 the populated area to the west of 
 them was larger than that of the east. People crossed them 
 by rough roads; and, as soon as possible, betook themselves to 
 rude barges on the Ohio and its branches. They came upon 
 fertile land, but their produce could not go back by the way by 
 which they themselves had come: so it was marketed south- 
 wards; and for some years the Middle West was bound to the 
 Southern rather than the Eastern States^. 
 
 In 1825 the Erie Canal brought traffic from the great lakes 
 to New York, and other canals were contemplated for uniting 
 the Mississippi valley with the Atlantic. But at that very time 
 the "appUcation of steam to the navigation of the land," as 
 Cobden said, was bringing to bear that great economic force 
 which was to make Jefferson's prophecy appear foolish: there 
 were 3000 miles of railways in 1840, and 30,000 in 1860. 
 
 Meanwhile the Irish famine, the European ferment of 
 1846 — 8, and the fame of the abundant rich land and the high 
 wages to be had in the United States, had swollen the tide of 
 immigration; and the repeal of the English corn-laws had 
 opened the prospects of a large foreign market for wheat. The 
 more enterprising agriculturists moved westwards, leaving farms 
 in the east to be had by immigrants almost for nothing: they 
 themselves sought the richer land of the Mississippi valley, where 
 the soil would yield almost continuous wheat crops, when indulged 
 by occasional fallows. This was the first of those great move- 
 ments of the more adventurous part of the population, which 
 
 ' As Prof. Emery points out, the Middle West might perhaps have sided 
 with the South in the great Civil War, if that had taken place before 1850 
 {Cambridge Modern History, vol. vii. p. 695). In early times the American's 
 sense of patriotism was mainly directed towards his own State. 
 
776 EARLY AMERICAN INDUSTRY AND TARIE POLICY 
 
 App. a, 2. caused them to multiply more rapidly than their fellows; and in 
 this and other ways endowed the nation with enduring vigour 
 and growth. The ranchman indeed has marched ahead of the 
 wheat farmer; but the large areas, over which his cattle roam, 
 have found occupation for only a few men, and very few of these 
 have had homes of their own. To the wheat farmer, on the 
 other hand, "the acquisition of the home, not the market, has 
 been the primary impelling force^." 
 
 The mere wheat farmer does not require, nor even find much 
 use for tha,t technical knowledge which is almost essential to 
 mixed farming*. The experience of his immediate neighbours, 
 who know the ways of the soil and the climate, is generally a 
 better guide than traditions brought from the old world. He 
 is called on only to be brave, alert, and willing to work hard 
 for a deferred reward. Without these qualities he is not fit to 
 be a pioneer: with them, he has a fairly secure prospect of 
 leaving behind him a well-to-do family strong in mind and 
 body. 
 
 2. Protective tarifs in favour of American manufac- 
 tures icere originally advocated as an investment of national 
 capital in national education, which would bring rich re- 
 turns in the future. 
 
 The early fiscal policy of the country was intimately con- 
 nected with her early industrial structure: the present brief 
 account of it was originally intended to accompany a study of 
 present fiscal policies : but it is kept in this place for reasons 
 explained above (p. 12). 
 
 The keynote of the claim of early American protectionists 
 was set definitely in 1789 by Hamilton's often quoted argument: — 
 "Though it were true that the immediate and certain effect of 
 regulations controlling the competition of foreign with domestic 
 fabrics was an increase of price, it is universally true that the 
 contrary is the ultima,te effect of every successful manufacture. 
 
 ' See Mr Powerg' weighty testimony in the Report of the Industrial Com- 
 mission, vol. x. p. 180. 
 
 * Nearly the same may be said of "com" (i.e. maize); which is the pioneer 
 crop for some soils and climates. It is favoured by the negro population: and 
 is now the heaviest grain crop in the States, but its influence on economio 
 development has been much less than that of wheat. 
 
PROTECTION DESIGNED TO SHELTER YOUNG INDUSTRIES 777 
 
 When a domestic manufacture has attained to perfection, and app. o, 2. 
 has engaged in the prosecution of it a competent number of 
 persons, it invariably becomes cheaper. Being free from the 
 heavy charges which attend the importation of foreign com- 
 modities, it can be afforded cheaper, in process of time, than was 
 the foreign article for which it is the substitute. The internal 
 competition which takes place soon does away with everything 
 like monopoly, and by degrees reduces the price of the article 
 to the minimum of a reasonable profit on the capital employed." 
 
 Here, as in The Wealth of Nations, stress is laid on the 
 force of acquired skill and high organization, rather than on 
 that of large capitals. And it is to be remembered that that 
 lack of acquired skill, for which Hamilton demanded an artificial 
 remedy, was itself in large measure an artificial product of 
 selfish Mercantilist Protectionism by the English Government 
 in the days of its power. But yet his argument was not to 
 bear much fruit till a new quarrel had arisen between England 
 and her old colonies^. 
 
 For up to about 1807 America's rapidly growing mercantile 
 marine was earning very high freights in the carrying trade; 
 and she had eager markets at high prices for food in the West 
 Indies, and for food and timber and other requisites of war in 
 Europe. This gave her merchants a great command over 
 European goods, in which English textiles took a large place. 
 English cloth was indeed not able to pursue triumphantly rough 
 cloth woven from home-made yarn into its crevices in the 
 industrial system: but it met American factory-made cloth on 
 nearly equal terms in open market, and could beat it there. 
 During all this time the maritime provinces were more interested 
 in trade than in manufactures, and their political influence went 
 mainly, with that of the South, in favour of free trade. 
 
 But in 1807 commercial quarrels in Europe had begun to 
 stretch across the Atlantic; and in 1812 there was again war 
 between England and her old colony. From 1807 to 1815 
 English goods were excluded from American markets more 
 
 ' Considerable progress had however already been achieved by simple in- 
 dustries even under that hard rule: and the list of the industries described by 
 Prof. Dewey, Financial History of the United States, pp. 77 — 8 as existing in 
 1789 is largo and various. 
 
 25—5 
 
778 EARLY AMERICAN INDUSTRY AND TARIF POLICY 
 
 ipr. a, 2. thoroughly than they would have been by a very high Protective 
 tarif. Capital and enterprise, driven from the sea, turned to 
 home industries, and expensive plant increased apace. New 
 England, whose industries had been overshadowed by her com- 
 mercial and shipping interests, swung round through a neutral 
 attitude to one of gradually increasing eagerness for fiscal 
 legislation on Hamilton's lines. In 1816 the first systematically 
 Protective tarif in favour of manufactures was adopted^. 
 
 The tarif was raised in 1820 and in 1824: while in 1828 
 a strange political combination led to one so extreme and so 
 ill devised as to cause a reaction. In particular the South was 
 offended by it: and in 1833 it was displaced by a tarif, which 
 went very far in the direction of free trade. That was followed 
 by remarkable prosperity, which however led to over-confidence 
 and a severe crisis in 1837^. 
 
 On the whole the evidence seems to show that until about 
 1825 there was much public spirit, and comparatively httle 
 sordid self-interest, in the forces that sustained Protection to 
 native industry. The reason for this was that the people 
 engaged in manufacturing industries, of such a nature as to 
 benefit from Protective duties, were as yet not very numerous; 
 and they had not great weight at the polls: so that politicians, 
 as well as others, were able to regard tarif questions from the 
 point of view of public well-being rather than of particular 
 private interests'. 
 
 ' There voted for it 17 Representatives from New England, and 23 from the 
 South and South-west: while 10 from New England and 34 from the South 
 and South-west voted against it. The middle and western States gave 48 votes 
 for it, and 10 votes against it. See Dewey, I.e. p. 163. 
 
 ' The clumsy "tarif of abominations" of 1828, was suspected of being 
 partly the work of people who wanted to make Protection odious. The 
 "compromise tarif" of 1833 was suggested by Henry Clay, who was to 
 become the leading parliamentary advocate of Protection, but thought it was 
 necessary to appease the spirit shown in South Carolina's "nullification ordi- 
 nance " by which she declared the tarif of 1828 to be "null and void." See 
 Dewey, I.e. ch. vm. 
 
 ' Some exceptions to this general statement will be found in Sumner's 
 Protection in the U.S. Many interesting details as to the conditions of industry 
 from contemporary Americans are given in Taussig's Tarijf History; and others 
 by American witnesses are to be found in the British Official Reports of the time. 
 It is clear that in textile work the Americans were hampered mainly by the high 
 price of machinery, and the high rate of interest which they had to pay on loans: 
 they economized machinery and labour by using rather bettor cotton, than was 
 
PROTECTION DESIGNED TO SHELTER YOUNG INDUSTRIES 779 
 
 The half century, of which 1833 is the middle point, is the app. a, 2. 
 chief battle-ground for advocates and opponents of "educative" 
 tarifs designed to protect nascent industries: such Protection 
 being claimed on the ground that they are required, (a) in the 
 interests of military and political security, or (6) in the interests 
 of variety of social life and industrial opportunities, or (c) be- 
 cause they have so great undeveloped economies of production 
 on a large scale, that sacrifices incurred for their education wiU 
 be returned with abundant surplus to future generations. Both 
 sides appeal to the evidence of facts, and especially statistical 
 facts. But the facts are too complex, and the interweaving of the 
 results of different causes is too intricate for such a treatment; 
 and therefore each side has been able to find in the facts that 
 conclusion which it desired. 
 
 Looking' away from details to broad considerations, we can 
 see that Protective tarifs increased the manufacturing popula- 
 tion relatively to the agricultural; and thus developed centres 
 of complex and various social life and high culture, and provided 
 an ever-widening choice of occupations for people of varying 
 temperaments and capacities: but at the same time they 
 hindered the development of the agricultural resources of the 
 country. This involved some retardation of the growth of 
 commercial centres; which are nearly, though not quite, as 
 important from the social point of view as the industrial centres. 
 So far there appeared a valid, but not a strong, ground for 
 intervention by the State in favour of nascent manufactures, 
 under the particular circumstances of time and place. And, of 
 course, another prima facie valid ground lay in the fact that 
 
 used in England even for those rough goods, which alone they attempted to make. 
 The labour in the New England mills was intellectually of the highest class that 
 has ever given itself on a large scale to such routine work; it appears to have 
 been more efficient than the English in all matters needing merely promptitude, 
 energy, and general intelligence; though inferior in manual training: it was paid 
 well, but not very highly paid in proportion to its efficiency. The English 
 Committee on Manufactures of 1833 was told that self-acting mules were avoided 
 because " labour is cheap and machinery dear " ( Q. 2 65 1 ) ; also that the Americans 
 chiefly used home-made machinery, especially for the coarser kinds of goods. 
 Large use was made of wood, because iron was dear; and American contrivance 
 had already enabled each operative to control several looms for the simpler kinds 
 of work. A Coimeotiout manufacturer said to them, "In making fine yam we 
 lay aside all our advantages, and have to take up all our disadvantages" (see 
 Q. 640, 2649—50, 2678—0). 
 
EARLY AMERICAN INDUSTRY AND TARIF POLICY 
 
 . o, 2, many, tbougli not nearly all, manufactures had great latent 
 powers of economy through production on a large scale; and 
 that those who pioneered the way had a prima facie claim to 
 public aid in the public interest. But unfortunately such aid, 
 when given in the form of Protective duties, is seldom free from 
 serious indirect evils, economic, political and moral, which cannot 
 be discussed here. A little may however be said as to some 
 peculiar features of the American controversy in the middle of 
 the nineteenth century. 
 
 The advocates of Protection to manufactures were able to 
 argue that the main source of America's wealth lies in her 
 great expanse of rich agricultural land very much more even 
 than in her mineral resources: that the farmers had been 
 allowed to appropriate that land; and that therefore there was 
 no injustice in compelling them to contribute to the building 
 up of progressive industries, which would enrich them, or at all 
 events those who inherited their properties. This end, if desir- 
 able, might perhaps have been better attained by other means 
 than those which were advocated by the manufacturing 
 interests: but their argument was not without force. The 
 agriculturists could however reply that they, or their pre- 
 decessors in title, had only availed themselves of opportunities 
 for hard, if not hazardous, ventures, which were open to every 
 one: that no exclusive favour had been granted to them after 
 they had once committed themselves to their tasks; and that 
 therefore they were not in a similar position to manufacturers 
 who asked for favours, which their predecessors in title had 
 protested were not to be expected after the first difficulties 
 had been overcome. "No one," said Clay in 1840, "in the 
 commencement of the protective policy ever supposed that it 
 was to be perpetual. We hoped and believed that temporary 
 protection extended to our import manufactures would bring 
 them up and enable them to withstand competition with those 
 of Europe." And in 1860, when the tarif was again raised after 
 some fluctuations, very little was heard about the need of edu- 
 cating young industries. 
 
DEFENCE AGAINST MALIGNANT UNDERSELLING 781 
 
 3. Subsequently more stress was laid on instances of app. o, 3. 
 malign underselling by British manufacturers. Statistical 
 evidence as to the influence of high tarifs on national pros- 
 perity is necessarily inconclusive. 
 
 By 1860 the mclst prominent naanufaCtuies had emerged 
 from their infancy; and obtained increased voting power at the 
 polls by that very increase in their strength which lessened their 
 moral claims to the support of the patriotic citizen. Politicians 
 therefore had a strong motive for attracting the votes of those 
 interested in manufactures, and especially those which could not 
 claim the protection due to the weakness of infancy without 
 provoking the amusement and the anger of the general public. 
 Consequently they were compelled to fall back on arguments, 
 which had no special connection with the peculiar conditions 
 of the rapid development of a Continent by an alert western 
 nation: and these they fdund in exaggerations of the harm 
 caused by the occasional descent of some British manufacturers 
 to the hateful practice of selling below full cost in America in 
 order to crush rivals less amply provided with capital. 
 
 Adam Smith protested against those Mercantilist practices, 
 by which each nation strove to flourish through the misfortunes 
 of others: and his chief successors held high the banner of 
 international comity which he had raised. The common man is 
 indeed apt to justify modes of conduct by his own country to 
 others, which he would condemn as mean or oppressive in 
 the relations of private life; and English manufacturers and 
 statesmen have been ready to boast of the commercial injury 
 which their policy would inflict upon other nations. But this 
 temper brings its own penalty in the life of nations, even more 
 surely than in the life of individuals. And amidst the new 
 commercial problems which England is required to face at the 
 present time, attention may be called to the fact that the 
 high Protectionist policy of America, from which England has 
 been a chief suflerer, was largely due to the sedulous spreading 
 among the American people of stories as to her own ungenerous 
 dealings, which had unfortunately some solid foundation. 
 
 For instance great stress was laid by protectionist writers 
 on the alleged fact that "upon the adoption of the first tarifi 
 law in the United States in 1792, the merchants of Manchester 
 
782 EARLY AMERICAN INDUSTRY AND TARIF POLICY 
 
 kvr. o, 3. contributed $250,000 to be invested in goods, to be sold in the 
 markets of the United States at low prices, or to be given away 
 if necessary, in order to discourage the investment of capital in 
 manufacturing. ' ' 
 
 Again List quotes from an American official Report 
 Brougham's saying in 1815 that "it is worth while to incur 
 a loss on the exportation of English manufactures in order to 
 stifle in the cradle foreign manufactures." And an American 
 witness told an English Committee in 1833, that the EngUsh 
 cotton manufacturers sent goods, that were a little out of fashion, 
 to America to be sold for what they would fetch; "preferring to 
 do it where it would do the most mischief to their competitors" 
 and "with a view to breaking up the system of manufacturing 
 in America^." 
 
 Perhaps the most frequently quoted statement is one taken 
 from the Report of the Committee on the state of industry in 
 the mining districts in 1854. In England it never attracted 
 much notice and was speedily forgotten: but in earlier decades 
 almost every American had it brought to his notice. It begins: 
 "The labouring classes generally in the manufacturing districts 
 of this coimtry, and especially in the iron and coal districts, 
 are very little aware of the extent, to which they are often 
 indebted for being employed at all, to the immense losses which 
 their employers voluntarily incur in bad times in order to 
 destroy foreign competition, and to gain and keep possession 
 of foreign markets. The great capitals of this country are the 
 great instruments of warfare against the competing capital of 
 foreign countries, and are the most essential instruments now 
 remaining by which our manufacturing supremacy can be main- 
 tained." 
 
 It is probable that the injury done to American manu- 
 factures by all these paltry processes of international warfare 
 was small; and certainly less than that which has been worked 
 in America and elsewhere by manufacturers and traders who sell 
 below cost price in their own country, not under the goad of 
 necessity, but with the deliberate intention of supplanting a 
 
 ' List, National System, p. 87 ; and Report of Committee on Manufactures of 
 1833, Q. 845—854. See also Carey, Social Science, i. pp. 289—291; and 
 Curtisa, Protection and prosperity, p. 408. 
 
DEFENCE AGAINST MALIGNANT UNDERSELLING 783 
 
 neighbour. Such as it was, however, the injury roused a pa- app. a,3. 
 triotic indignation, and was systematically exploited for the 
 furtherance of their own ends, alike by interested manufacturers 
 and by disinterested advocates of a Protective policy^. 
 
 Statistical evidence relating to our own times is apt to be 
 distorted by personal bias, of which neither party to current 
 controversy is willing to acquit the other. There may be 
 therefore some advantage in attempting to gauge the difficulties 
 of interpreting such evidence by reference to a notable con- 
 troversy of past times. Now as then statements as to sales of 
 imports below cost, with the malign purpose of ruining home 
 manufactures, were commonly based on particular cases: but 
 statistical evidence was brought to show that Protection raised 
 national prosperity in general. 
 
 A chief difficxilty arose from lack of agreement as to the 
 length of time which elapsed between a tarif change and the 
 full development of any of its good or evil results. For the time 
 to be allowed would vary with the nature of the product, and 
 also with the character of the good or evil result under discus- 
 sion; and each case needed to be treated on its own merits: 
 but on this point no agreement was reached, or even systemati- 
 cally sought. And since tarif changes followed one another at 
 intervals shorter than might reasonably be claimed for the full 
 development of their results, advocates of free trade were apt to 
 think that advocates of Protection attributed a benefit to a high 
 tarif, which should more properly be put to the credit of a low 
 tarif which preceded or which followed it: and vice versa. 
 
 ' Much stress waa laid on this class of facts in Thomson's Naiional Economy 
 (see especially p. 285). It was based on Carey's work, and was the chief text, 
 book of American Protectionists several decades ago. 
 
 Inquiries made in America in 1875 convinced me that the relatively few 
 cases of such practices as had occurred in an earlier generation, had had some 
 considerable influence in checking new industrial experiments, through the effect 
 which they exercised on the imagination. For those who were contemplating a 
 bold venture often knew their own stocks of capital to be small, and had formed 
 exaggerated notions of the amount of English capital ready to be devoted to 
 underselling them. In Ontario at that time the rising manufactures were stiU 
 weak technically and were poorly supplied with capital : so it seemed clear that 
 there was real cause to dread the hostile selling of American goods at special 
 export prices. But there was no evidence that the well-established and rich 
 industries of the United States had then any great cause for fear in this matter. 
 
784 EARLY AMERICAN INDUSTRY AND TARIF POLICY 
 
 App. o, 3. Again the tarif did not afiect directly more than a small 
 fraction of the industry of the country; and, while its results for 
 good or evil were being developed, other changes often occurred, 
 which modified the bases of national prosperity. Such changes 
 were the growth of the European demand for American produce; 
 which was in some measure dependent on changes in European 
 tarifs, and even more on the development of improved means 
 of transport by land and water, at home and abroad. Again 
 changes in currency and credit altered temporarily or perma- 
 nently the real value of the money unit in which prosperity 
 was measured; and so on. Disputants on either side were apt 
 sometimes partially to ignore these disturbing causes, and 
 sometimes to attach to them vast importance. How could 
 the questions thus at issue be decided? The most refined and 
 elaborate analysis, the most patient and intimate study of details 
 were needed as a preparation for the task: and though it may 
 be over bold to say that the task can never be performed, it is 
 certain that no one has claimed to perform it, who has realized 
 any considerable part of its difiQculty. For the present, though 
 probably not for ever, it is true that in this matter "the in- 
 ductive or historical method absolutely fails us^." 
 
 ' This is the conclusion of Prof. Taussig's profound study (Tariff History of 
 the United States, p. 122) in regard to the period in view. He continues the 
 argument on similar lines down to recent times : but the issues raised then are 
 not appropriate to the present volume. 
 
 It may be noted that Carey's Social Science and Grosvenor's Does Protectiori 
 Protect?, basing themselves on almost identical statements of fact, applied them, 
 tbe one to prove that nothing but good had ever resulted from a high tarif and 
 nothing but evil from a low tarif; and the other to prove the exact opposites. 
 I endeavoured on my return from America in 1875 to form an independent 
 opinion by tracing in a book (each page of which contained a hundred horizontal 
 lines, one for each year of the nineteenth century) curves showing all th^ 
 available and relevant statistics for the United States and other countries; 
 grouping each class on a separate page, and writing across the page brief state- 
 ments of relevant events which were not in statistical form. That plan led me 
 to the conclusion that each party to the controversy unconsciously stretched or 
 compressed, so as to suit his case, the length of time which he supposed to 
 elapse between a particular tarif charge and its chief results. But in this 
 matter, as well as in the neglect of important causes relevant to the issues under 
 discussion, the laxity seemed greater on the Protectionist than on the Free- 
 trade side. 
 
APPENDIX H 
 
 TECHNICAL INFLUENCES ON AGGREGATION 
 IN PARTICULAR INDUSTRIESi 
 
 1. Influences of way-leaves: railways; petroleum imlls; app. h, i. 
 water and gas supply and postal industries. The mining 
 industry. 
 
 High roads have often been broken up into short divisions, 
 each under a separate management; and bridges, which are 
 vital links in them, have been private property. But in every 
 case public authority has regulated the tolls which might be 
 levied: for otherwise tolls at any one link might be so heavy 
 as to choke through traffic, and thus in effect to be taxes on 
 all the neighbouring links. 
 
 Railways were originally designed as high roads : anyone was 
 to be free to run a train in return for fixed toUs. But as the 
 trains became faster and more numerous, and long distance 
 traffic became more common, each company needed to have ex- 
 clusive control of its own traffic; and ere long consecutive links 
 were welded into a compact imit, with through trains and an 
 organized time table for them. Such fusions increased the 
 services which the railways could render to the public, and 
 were generally welcomed. They were not open to the ob- 
 jections, raised against a combination between parallel lines, that 
 they created powerful monopolies: and indeed, by supplying 
 new alternative routes between distant industrial centres, they 
 often introduced effective competition as regards services, if 
 not as regards charges, where it was much needed in the public 
 interests. So the main lines have gone from strength to 
 strength: they have increased in length, and their feeders have 
 
 ' This Appendix is associated with the second and third chapters of Book II. 
 Its introductory remarks as to railways refer briefly to matters discussed more 
 fuUy in Book III. 
 
786 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 App. H, 1. multiplied. The consolidation of railways has proceeded almost 
 without interruption in nearly every country of the world, in 
 which they are not all in the hands of Government; and 
 the power of a great railway to starve out small independent 
 railways within its domain has often proved irresistible, in 
 spite of legislative efiorts against it. 
 
 The plant of great railways may of course become obsolete, 
 and need to be changed. But (it being assumed that the aerial 
 traffic will not supersede that on the surface of the earth) their 
 position as landowners will ever increase in strength; and 
 will, as a rule, be the stronger the longer their strips of land, 
 and the more numerous the industrial centres which they 
 connect. Improvements in the construction of ordinary roads 
 may indeed enable nearly all detailed trade, and personal 
 traffic over moderate distances, to pass in motor cars on public 
 highways; but the hold of railways on long distance heavy, 
 but rapid, carriage of goods and passengers seems not to be 
 threatened. 
 
 A petroleum well has much in common with the shaft of a 
 mine: but when access to the surface is once provided, the oil 
 generally rises to the surface automatically under the pressure 
 of its own beds: and in many places the industry of crude 
 petroleum is a transport industry, dependent in great part 
 on long pipe Unes. These need large way-leaves; and thus 
 resemble in many respects the pipes and wires along which 
 water, gas and electricity travel in that large group of under- 
 takings which are often described as practically "indivisible"; 
 because a breach in continuity of transport would be very 
 wasteful. 
 
 The way-rights of this group of industries are essential to 
 them, and make large use of public property. Therefore they 
 have attracted the attention of Local Authorities; and are 
 beginning to claim that of Central Governments. For instance, 
 the bringing of water supply from Wales or the English Lake 
 District to large cities in remote counties is apt to raise 
 conflicts of interest among the various locahties affected; and 
 thus to give rise to large national problems. Similar conflicts 
 have arisen in regard to municipal tramways, when they shoot 
 
INFLUENCES ON TRANSPORT AND MINING 787 
 
 out feeders into districts under the control of several Local app.h, i. 
 Authorities. But the ever enlarging enterprise of motor traffic 
 on public roads is throwing such controversies into the shade: 
 for it has concentrated the searchlights of public inquiry on 
 the suggestion that the provision of a system of main roads, 
 open freely to all, and extending over the whole country, must 
 be regarded as a single transport business, so immense that 
 the nation as a whole is alone fully qualified to undertake it. 
 
 Somewhat similar remarks are applicable to the great 
 transport and communication industries of the Post Office, 
 Telegraph and Telephone. The most costly business of aU, that 
 of national defence, is of necessity unified, so far at least, that 
 its strategy can be treated as a whole: and it is to be noted 
 that strategy involves mobilization, that is transport and com- 
 munication: and railways themselves, if not owned by Govern- 
 ment, are necessarily taken under its control in war time. 
 
 The command of all convenient routes of access to the shore, 
 where it offers sites for deep-water berths, might be a source of 
 great monopolistic power, were not the charges of docks con- 
 trolled by public authority. Again owners of land surrounding 
 a rich mine might charge way-leaves, which would absorb nearly 
 the whole net profits of the mine, if the law had not provided 
 against it. 
 
 Although mining is commonly classed as a "productive" 
 industry, yet, since the plant of a large mine is little more 
 than a long series of narrow railways through long tunnels, 
 with a few shafts for vertical traffic, it is in fact very much of 
 a transport industry; and unbroken continuity from the face 
 of the working to the top of the shaft is essential to it. This 
 may be a small matter if the rich veins lie near to the surface; 
 and in such a case, a small mine can hold its own against a 
 large one, provided it works for local consumption, and can be 
 well financed locally. The main causes of the general increase 
 in the size of mining concerns in old countries are, that the 
 veins near the surface are becoming exhausted: and that 
 improved and cheaper apparatus for hoisting, together with 
 increased value of the product, causes shafts to be sunk very 
 deep; and deep shafts cannot pay their way without long lines 
 of railway underground. 
 
788 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 APP; H, 2. 2. Electricity in the service of man. 
 
 It is well known that the business of the military strategist 
 is to bring fighting power to bear promptly and decisively oil 
 each critical issue as it arises: electricity enables energy to be 
 brought to bear instantly where and when needed, not indeed 
 without some limitations, but in general much more easily and 
 efficiently than can be done by any other means; and this over 
 both large distances and small. The expense of a copper cable 
 of sufficieint diameter to carry a large volume of electricity 
 without much waste over long distances is indeed heavy. But 
 there are already many cases in which electricity generated by 
 water power, by the waste gases of furnaces, and by burn- 
 ing inferior coal at the pit's mouth, is used to light far ofE 
 cities and to work railways, factories, etc. at a distance; Rand 
 mines receive power brought from several rather distant water- 
 falls: and it has even been suggested that Alpine streams in 
 summer, and Rhine- Westphalian coal in winter (when most of 
 the Alpine streams are frozen) will supply electricity for a good 
 deal of western Germany. The economic value of great waterfalls 
 is indeed apt to be exaggerated, especially when little account 
 is taken of the seasonal variations, in their volume : but there is 
 reason to believe that small streams, descending from great 
 heights, may ultimately be an important source of energy 
 available for domestic and industrial uses. Something may also 
 be expected from the co-ordinated use of multitudes of small 
 inexpensive windmills; and perhaps even from the rise and fall 
 of the sea, provided that good and cheap means of storing 
 electricity can be discovered^- 
 
 The economy of powerful generating engines is of course 
 within the range of the large manufacturer; and at first it 
 seemed probable that the small manufacturer would have to 
 pay a good deal more for the energy, which he bought from a 
 central supply company, than it cost to his more powerful rival. 
 
 ' The rise and fall of the tides cannot be utilized without disproportionate 
 expense, save under very exceptional conditions. On the other hand (as has 
 been observed above, p. 162) the sun's heat may conceivably be turned to account 
 so effectively as greatly to raise the economic strength of the tropical zones rela- 
 tively to the temperate zones; provided a supply of water, or some other cooling 
 agent, is accessible. 
 
ELECTRICITY IN THE SERVICE OE MAN 789 
 
 But in fact a municipality or private company, which supplies app. h, 2. 
 a considerable district with electricity, can produce it more 
 cheaply than almost any other undertaking can (the chief 
 exceptions being found where electricity can be obtained by 
 turning to account the heat of waste gases); and it can supply 
 energy with greater steadfastness and uniformity than anyone else 
 can. It can produce cheaply because its numerous customers 
 are likely to spread their aggregate demand for power not very 
 unevenly over nearly twelve hours of the day: and therefore 
 the maximum load for which the central supply has to 
 make provision is much less than the aggregate of the maxi- 
 mum loads for which provision would need to be made by the 
 individual consumers independently. Also it can supply a 
 steady driving force; because the draft, made on its strength 
 by the sudden starting of one of the heavy machines driven by 
 it, is practically negligible in proportion to the total energy 
 which it is producing; while the same cannot be said of the 
 private electrical supply even of a very large factory. This 
 steadiness of work is especially important in regard to looms 
 and other machines which need to be started smoothly at the 
 same pace as that of their normal working: and the small 
 textile manufacturer, who buys his electricity, can use a 
 separate motor for each machine more safely than can almost 
 any rival who makes his own electricity. 
 
 It has recently been proposed by responsible persons to 
 link up the whole country through central power stations 
 placed at the most economical points and near coal. By this 
 means it is claimed that fifty miUion tons of coal annually 
 would be saved; and also a great part of the present immense 
 cost of transporting coal large distances. There seems good 
 reason to hope that some tentative steps will soon be taken 
 in this direction. 
 
 On the whole then it may be concluded that the advance of 
 the electrical industries will help the small factory in competition 
 with the large factory, and the workshop in competition with the 
 factory, etc. The cheapness, handiness, and versatility of the 
 implements, to which electricity can be supplied, may sometimes 
 aid the poor man to make experiments at his own risk; and it 
 may thus contribute to the maintenance of strong, independent. 
 
790 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 App. H, 3. individual character. In this it wiU cooperate with or perhaps 
 supersede oil and gas engines, which are now its rivals in many 
 uses. The importance of electricity in connection with past and 
 probable future developments of the technique and ownership 
 of transport agencies and other businesses belongs to other parts 
 of our study. 
 
 3. Tlie expansion of the carrying capacity of ships, 
 and of the business unit in the shipping indtistry. 
 
 The services which water has rendered to industry and 
 trade always have been so general as to be inconspicuous; and 
 therefore apt to be underrated. But water power was the first 
 to raise hopes that mankind might be eased from severe toil 
 by the benignant help of Nature^. Water power inaugurated 
 the modern era; in which man directs while Nature does nearly 
 all the hard work, and in consequence massive production has 
 marched from victory to victory. No heavy conamerce could 
 be carried over long distances even a hundred years ago, except 
 by water; and in some parts of the world wells are, even now, 
 the most important forms of fixed plant. Water has ever been 
 an absolute necessary to all, and has opened out large oppor- 
 tunities for the wealthy. 
 
 Ships have always been the largest things that have moved 
 under man's control, for the same reason that the largest animals 
 find their home in the seas. Nature's forces were first harnessed 
 to the work when a boat was set to run before the wind, while 
 man sat in the stern to steer with a pole. Sails were developed, 
 and set to tack against the wind: ships increased in size 
 and speed; and man no longer used his own muscles, even 
 when aided by a windlass, to control the massive rudder. He 
 
 ' As to the hopes raised by water power, Karl Marx quotes Antipaios, a 
 Greek poet, whose elegiacs may be rendered thus : 
 "Spare now your weary limbs, ye women that work at the hand-mill; 
 Spare them, and sleep while the cock crows to awake you in vain. 
 For the good water-nymphs have undertaken your labour. 
 And they hop lightly along over the spokes of the wheel : 
 So that the great thing turns on its axle, ceaselessly groaning. 
 
 Making the vast mill-stones grind out the nourishing corn. 
 Let us then live the light lives of our fathers, and resting from labour, 
 Gladly enjoy the rich gifts granted by bounteous Gods." 
 
INFLUENCES ON THE SHIPPING INDUSTRY 791 
 
 harnessed steam power in that work also, calling electricity to app. h,3. 
 his aid for its easy transmission; and now he merely moves an 
 easy handle, which directs the power to direct the rudder, to 
 direct the course of a ship that carries the population of a 
 good sized town with all their effects across the Atlantic in five 
 or six days. For, when once a ship has become so large that 
 almost every part of its equipment is too heavy to be moved 
 by hand, every further increase of size must bring economies 
 with it. A navigating ojB&cer can direct the course of a big 
 ship as easily as of a small one. An increase in the size of 
 winches and cranes driven by steam and electricity adds nothing 
 to the difficulty, and not very much to the responsibility, of 
 turning the handles which set them in motion. 
 
 Meanwhile the improved organization of appliances for 
 lifting heavy masses, and sucking up grain in bulk from the 
 hold of the ship to warehouses or railway trucks, enables the 
 largest ship to discharge its old cargo, take a new one and 
 depart in less than a quarter of the time that was required by 
 a small ship fifty years ago. Therefore large ports which ac- 
 commodate very big ships, and can supply a continuous large 
 stream of passengers, or goods, or both, have an ever increasing 
 advantage over smaller ports: and so on. 
 
 This tendency is of course most marked in regard to long 
 distance traffic. Coasting vessels and those which trade in the 
 narrow seas will long continue to frequent small and shallow 
 harbours: coal is still carried most cheaply to some English 
 villages by vessels which "jump upon the sands," very much as 
 their Dutch prototypes did many centuries ago: and the long 
 threatened extinction of "tramp" traders by the competition 
 of the subsidiary cargo ships of the large lines, is constantly 
 being deferred by the opening out of new trades for the 
 cheaply built, versatile tramp of moderate size. But, while the 
 average size of the vessels that enter the Eastern ports of 
 England and Scotland is likely to continue to be rather small, 
 it seems probable that the chief trade across the Atlantic, and 
 between it and the Pacific wUl be carried in very large ships. 
 A few passenger ships will be very fast; but, as coal and oil 
 become dearer, very large cargo ships will make long voyages 
 with a consumption of fuel for each thousand tons of cargo very 
 
792 TECHNICAL INFLUENCES ON INDUSTRIAL AGGREGATION 
 
 App. n, 3. much below that which is oustoniary now. So long as coal 
 remains cheap, a slight economy in its use per ton of freight 
 carried at a given pace seems to be practically of less importance 
 than the numerous advantages which a ship of moderate size has 
 over a large one in making up its cargo. Nevertheless the 
 expansion of the shipping unit has had an important influence 
 on the size of the business unit in the shipping industry, as 
 is indicated in Book III, Chapter iii. 
 
 However great had been the commercial demand for very 
 large ships, it could not have been satisfied until not only the 
 scientific construction of the girder bridge, of which the large 
 ship is a noble example, had made great progress; but also the 
 methods and plant of the steel industries had reached a very 
 high development: larger stiU are the demands which the great 
 navies make on that industry^. 
 
 * The manufacture of a huge armour plate needs the concurrent efforts 
 of several of the most powerful fixed machines; and all independent move- 
 ments must be intrusted to locomotives. A chief task of the most costly cranes, 
 is to handle naval cannon; and the armour of a big ship weighs several times 
 as much as all its cannon, though it carries twelve of the largest size: the 
 ship, in which Columbus discovered America, could not bear a cargo whose total 
 weight equalled that of one of them, together with its mountings, etc. 
 
APPENDIX I 
 
 NOTES ON THE DEVELOPMENT OF BROAD MARKETS 
 FOR GRAIN AND OTHER CRUDE PRODUCTS^ 
 
 1. The catastrophic condition of food supply in early app.i, i. 
 tirms and its gradual imiyrovcment. 
 
 This Appendix supplements the account of wheat exchanges 
 in II, V, first by developing Maitland's great dictum that 
 "agrarian history becomes the more catastrophic, the further 
 we trace it backwards"; and secondly by a few remarks on 
 recent movements towards the organization of markets for cotton 
 and some other crude products. 
 
 There have been vast improvements, mechanical, chemical, 
 and biological in the arts of agriculture: but grain is raised, and 
 its flour is prepared for food and consumed on essentially the 
 same plans now as in the time of the Pharaohs; though the 
 processes of milling, and the methods of the marketing of 
 grain, belong in the main to the age of steam and electricity. 
 In fact a modern wheat market is as representative of modern 
 ideas, as the wheat field and the loaf of bread are of the 
 unchanging elements in human life. Further, so closely has 
 man's progress depended on the supply of his "daily bread," 
 that the history of the economic well-being of the great bulk of 
 mankind has been commonly taken to be almost convertible 
 with the history of the ordinary family income, expressed in 
 terms of the staple grain of the country. No other economic 
 records are so continuous and definite as those connected with 
 the prices of staple grains; and the history of countries with a 
 fairly dense population shows no instance, until recent times, in 
 which the incomes of the great mass of the people exceeded 
 very greatly the price of the grain needed for their sustenance. 
 
 ' This Appendix is associated with the fifth chapter of Book II. 
 
794 SOME BROAD MARKETS FOR RAW PRODUCTS 
 
 App 1, 1. For this reason, records of the price of grain, in normal and in 
 abnormal years, afiord the best simple measure for comparisons 
 of the real purchasing power of money over many centuries; as 
 is to be argued in a complementary Volume to the present. 
 But, while the average value of grain in terms of human 
 life has been fairly stationary over the centuries, its price 
 has often varied greatly between neighbouring districts at the 
 same time: and it has fluctuated violently from one year to 
 another, in all those ages and places in which the marketing of 
 grain over long distances was impracticable. 
 
 These exceptional features of the value of grain were 
 probably always recognized more or less by thoughtful people. 
 But they were first clearly set out about a hundred years ago, 
 when Tooke convinced the Commission on the Depression of 
 Agriculture, 1821, that an exceptional "principle" applies to 
 staple grain; because a fall in its price cannot generally increase 
 its consumption as human food; and, when it becomes dear, 
 people will still buy enough of it to keep them alive so long as 
 they have any means of purchase: in modern phraseology the 
 demand for it is exceptionally inelastic'. 
 
 Under the rule of Rome the ports of the Mediterranean 
 were united into a coherent market of wheat, and were connected 
 with a network of good roads. But during the greater part of 
 history, few places, that were not near to great waters, could 
 draw any considerable supply from distant lands, to meet their 
 urgent demand when faced by a continued deficiency of their 
 harvests. 
 
 Gradually traffic by land and sea became easier and less 
 perilous, while local monopolies were weakened by a growth of 
 movable capital; and consequently the irregularities in prices 
 from place to place gradually diminished. England has been 
 less severely and less frequently devastated by wars than other 
 
 ' The Report, drafted by Huskisson, quoted Tooke's statement (see Tooke 
 and Newmareh, History of Prices, vol. v. p. 69). It is of course true that when 
 wheat is scarce, inferior grains, potatoes, etc., may be taken from livestock and 
 used as human food: but Tooke had eoUeeted evidence, which has been enlarged 
 recently, that an exceptional cheapness of wheat does not cause the well-to-do 
 working classes to eat more bread; though some wheat is lost through negligent 
 treatment on the farm and in the kitchen and some is fed to cattle, and some 
 stands over for future consumption. It appears that the present large consumption 
 of wheat in the United States is due to similar causes. 
 
INFLUENCES OF FOOD SUPPLY IN EARLY TIMES 795 
 
 European countries: almost all of her territory has been reached app. i, i. 
 by imported grain, without the need of any long land journey; 
 and the central authority has been able to overrule the desires 
 of Provincial Governments to set up barriers against their 
 neighbours. It might therefore be expected that her history 
 of grain prices would be less catastrophic than that of other 
 European countries: and this appears to have been the case. 
 But strange variations are occasionally recorded even as regards 
 English prices. Thus Macpherson tells us that in 1288 the 
 price of wheat was five times as high in London as in the North 
 and West of England: and in nearly all the years, in the period 
 1259 — 1400 for which Rogers has more than a few entries of 
 wheat prices, his highest is at least twice as great as his lowest; 
 while in many it is three times as great. The intensity of 
 these local variations diminished irregularly on the way through 
 the centuries: and so did the fluctuations from year to year; at 
 all events when exceptions are made for times of civil war and 
 unrule, and for currency disturbances^. 
 
 Similar results have been collected for France by d'Avenel 
 from a very broad and fairly homogeneous basis. Her movement 
 towards steady conditions was broken by internal wars, religious 
 and other; and by foreign wars, especially those of Louis XIV, 
 and the exhaustion which followed them: but in the main it 
 was on the same lines as those of the English movement^. 
 
 ' Rogers' results are smoothened, perhaps unduly, by his rule to omit, as 
 possibly erroneous, all extreme quotations; and by his obtaining the greater 
 part of his data from Monasteries, Colleges and other great corporations, which 
 bought generally wholesale, and often from great distances: some of them even 
 brought their wheat habitually by sea and river from remote parts of the country 
 {History, iv. p. 213). His practice of assuming that all payments were measured 
 in weight may have overrated some local variations and underrated others : and 
 wages, when paid in silver at all, were sure to be reckoned by tale; and there- 
 fore he seems likely to have overrated the purchasing power of wages generally. 
 Internal trade in grain was permitted only to licensed dealers during the greater 
 part of English history. In 1663 it was permitted to everyone so long as the 
 price of corn did not exceed iSs. The main outlines of these movements of law 
 and opinion are shown clearly in the chronological tables inserted in Walford's 
 Famines of the World. 
 
 ' France lacked the advantage possessed by England of being able to draw 
 grain by water carriage from distant places nearly up to distressed districts: 
 and her records often show the highest local price to bo ten times as great as the 
 lowest for the same year. But d'Avenel, Histoire dconomique de la propria... el 
 des prix 1200 — 1800, boldly undertakes to reduce the silver content of coins, and 
 
796 SOME BROAD MARKETS FOR RAW PRODUCTS 
 
 App. 1, 1. Let us turn from the West to the East. Indian records 
 extending back into the eighteenth century show violent 
 fluctuations of prices even in great central markets, such as 
 Delhi: they show much more violent changes in secondary 
 markets; while, in places remote from any metalled road, their 
 movement upwards was limited only by the price of a man's 
 life, after a series of bad harvests; and by the value of the grain 
 as fuel, after a series of good harvests. Gradually the local un- 
 evennesses were smoothed out by the making of metalled roads 
 and railways. Thus Sir Theodore Morison tells us that in the 
 eighteenth century, and even later, a village of Northern India, 
 which did not lie on its one great metalled road, and had no 
 share in its scanty water communication, was in efEect isolated: 
 there was but slender accommodation in shallow grain pits for 
 the surplusses of successive good harvests: and after bad harvests 
 when those pits were exhausted, there was practically no further 
 reserve on which to draw: so the price of the village went its 
 own way, with but little reference to the prices even of this 
 neighbouring country. But now "the whole of Northern India 
 is practically one market for food grains, and the price of wheat 
 in a district in which the crops have failed is the same, with 
 but a very small addition for the cost of carriage, as the price 
 in a district which had a bumper harvest." In regard to 
 India generally he concludes that before 1850 prices fluctuated 
 violently, and fluctuated in different localities independently. 
 After 1860 they were comparatively stable, and fluctuated 
 simultaneously^. 
 
 the varying measures of grain, to modem units. His diagram, representing 
 mean prices for the years 1200 — 1890, is a document of surpassing instruotioil. 
 All that can be done here is to select almost at random a few groups of the 
 prices, which he records (reduced to francs, or their equivalents in silver, 
 per hectolitre) for different places. In 1180 they varied from 0-87 to 16-60; in 
 1250 from 2-60 to 3100; in 1313 from 8-37 to 3600; in 1315 from 2-47 
 to 2863; in 1464 from 0-56 to 7'85. The years about 1420 were exceptionally 
 disturbed by local famines and shif tings of currency: and (neglecting entries 
 marked as doubtful), we 6nd 2-82 and 61-80 in 1419; 1207 and 79-03, both for 
 Paris, in 1421, a year in which Strasburg shows 3-68; while AIbi shows 152-22 
 in 1422 and 14-64 in 1423, a year in which Strasburg shows 2-72. 
 
 * Indian Industrial Organisation, pp. 172, 216, 305. He quotes the 
 following inverted prices into the rupee for a chief grain (Gram) in Lower 
 Bengal: 1714, 130; 1774, 16; 1751, 70; 1752, 20; 1756, 59; 1769, 15; 1790, 
 90; 1792, 36; 1794, 82. (/I. p. 293.) Variations of inverted prices are of course 
 
INFLUENCES OE FOOD SUPPLY IN EARLY TIMES 797 
 
 We are thus brought to consider, from a different point of 4pp. i, i. 
 view, those characteristics of custom, which have already (II, ii, 1) 
 been noted in relation to the development of technique. There 
 is a sense in which it is true that custom dominates early forms 
 of civilization; for in them status and methods of work, utensils 
 and implements are aU ruled by custom: and, though even in 
 such matters, custom is found on investigation to be much more 
 plastic than it appears to those who live under its sway; yet 
 conscious, deliberate, direct breaches of custom were undoubtedly 
 very rare. Wages also were in large measure governed by 
 custom; though they varied greatly between neighbouring 
 locaUties under influences, which cannot now be traced. Of 
 course they often consisted largely of board or allowances: 
 these, not being rigidly defined, had large scope for fluctuation 
 in times of scarcity: and, then as now, harvest wages varied 
 more than others in accordance with passing circumstances. 
 
 Thus, even in these relations of life in which custom 
 appeared to hold sway, its authority was temporarily overthrown 
 by the near approach of famine: and it was undermined, when 
 the population of any locality had so far outgrown the means of 
 subsistence that some emigration was almost compulsory; or, 
 on the other hand, had been decimated by plague or flood or 
 any other calamity. There seems to be no evidence that it 
 ever had any sway at all over the market prices of harvest 
 products or of cattle; and dealings in these were far more 
 important than any other among primitive agricultural peoples^. 
 
 variations in the amount of a thing that can be bought for a rupee, or other uni- 
 form payment. 
 
 The following peaks and depressions of inverted prices for the period 
 1763 — 1800 for wheat at Delhi, are taken from a paper by the Chaplain to the 
 East India Company in the Statistical Journal, 1843, p. 248: 1763, 20; 1768, 47; 
 1773, 10; 1777, 60; 1783, 6; 1787, 45; 1792, 12; 1798, 120. Reference may 
 also be made to a paper by Colonel Sykea in the Statistical Journal, 1847, 
 
 pp. 289 316; and to diagrams relating to Indian prices in the last century, 
 
 prepared by the present writer and published in the Report of the Committee on 
 the Indian Currency, 1899. 
 
 • Conversations held some years ago with experienced Indian administrators, 
 in which the practice of Indian village dealings in agricultural products, and the 
 minor commodities of the Hat (or village market), was compared with the deal 
 ings of the villagers in remote English rural districts, led me to the conclusion 
 that custom had less to do, and keen bargaining had more to do, with the 
 purchases of Indian Raiyats than with those of the English vUlage. It may be 
 
798 SOME BROAD MARKETS FOE RAW PRODUCTS 
 
 App. I, L The revolution efiected by modern methods of transport is 
 conspicuous, when the conditions of mediaeval Europe or of India 
 a hundred years ago are compared with those, under which the 
 populations of Western Europe draw large supplies of wheat 
 from new countries. But many new countries would still be 
 poorly provided with railways, if they were dependent on their 
 own stocks of capital : technical advance is the chief source of 
 their prosperity; but it would not have availed them very much, 
 had not the capital needed for marketing their crops been 
 mostly provided from external sources. It is true that they are 
 dependent on their own resources for making roads: but that 
 difficulty is partly overcome by trusting to railways, made by 
 external capital, to do most of their transport; while they 
 themselves make but few roads, and those of poor quahty. 
 For in the West of America "the average cost of transportation 
 on wagon roads has been estimated at about 25 cents per ton 
 per mile, and on the best improved roads in this country 
 [America] between 10 and 15 cents, as compared with 8 cents 
 on some European roads, one half of one cent by railroad, and 
 one mill by steamship on the Great Lakes^." 
 
 Eailway and other companies build elevators to store and 
 grade this grain; and these aided by "loan companies, banks, 
 implement companies, and general dealers" aU help to make it 
 
 hoped that suggestions derived from studies of India and other countries in like 
 conditions, conducted in the spirit of Maitland and Professor Vinogradoff, may 
 explain many of the apparent paradoxes of English mediaeval history : and show 
 that custom is often the gradual result of economic conditions; even where it 
 appears at first sight to be their governing cause, rather than their effect. 
 Contemporary facts, statistical and other, can be cross-examined freely: 
 fragmentary records of past times cannot. Something more is said on this 
 subject in my Principles, VI, x, 3 ; and in my Present position of Economics, 
 1885. 
 
 * Report of the Industrial Commission, about 1900 a.d., vol. i. p. Iv. 
 
 Some reasons, independent of the lack of capital, militate against the 
 making of good roads in districts whose atmospheric and geological conditions 
 are those of the chief wheat regions of Canada and the United States, and in 
 parts of Russia. Stone Is not easy to be had in vast stretches of prairie land: 
 a cart can make its way over the prairie in dry summer, and a sledge moves 
 easily over the snow in winter. And when the country was being opened 
 up, the first connections between considerable towns were often efieotcd by 
 broad gauge railways, which cost less to make than good roads: in IS75 
 I travelled between two considerable towns whose only connection was, for this 
 reason, by railway. 
 
INFLUENCES OF FOOD SUPPLY IN EARLY TIMES 799 
 
 "possible to bring a vast area under cultivation by means of a app. i, 2. 
 relatively small amount of agricultural capital." The economies 
 of the world market for wheat are mainly due to improvements 
 in transport, and the communication of news; combined with 
 modern facilities for bringing command over capital from rich 
 districts to those which hunger for it. And as we have seen 
 above (pp. 258 — 262) they owe much to subdivision and speciali- 
 zation of the risks of constructive speculation, such as would 
 have been impossible without the aid of an organized market. 
 The farmer can now either sell his wheat, and set all his capital 
 in it free at once: or he can store it, if he expects its price to 
 rise, and meanwhile borrow money on it. 
 
 2. Cotton Exchanges. Partially organized marlcetsfor 
 wool and some other crude products. 
 
 While the most important markets for products in the world 
 are those that deal in staple grains, and especially wheat; the 
 next most important are those connected with cotton. The 
 cotton markets of New York, New Orleans, and Liverpool are 
 intimately associated; and may for some purposes be regarded 
 almost as a single market. Together they practically control 
 the price movements of the chief sorts of cotton for the whole 
 world. 
 
 The grading of cotton is a more delicate and difficult affair 
 than that of grain. For the manufacturer of cotton stuGs is 
 generally very nice in regard to the quality of the yam on 
 which he works: and therefore the spinners must be equally 
 nice as to the quality of their raw material. Further, as pay- 
 ments for work in cotton mills are chiefly by the piece, the 
 introduction of inappropriate material is apt to breed friction; 
 and it often leads to disputes, that are more costly than the 
 direct losses occasioned by slight faults in the product. Partly 
 for this reasou, a heavy strain is placed on those, whose duty 
 it is to adjust the differences that must be paid when cotton is 
 tendered, which is not exactly of a standard grade, but yet is 
 so near to it as to be good tender. It might appear that the 
 
 ' See Professor Mavor'a illuminating article on "The economio results of 
 specialist production and marketing of wheat," Pol. Sc. Quarterly, Dec. 1911. 
 
800 SOME BEOAD MARKETS FOB RAW PRODUCTS 
 
 App. 1, 2. difficulty should be solved by still further curtailing the range 
 of sorts which may be ofEered as legal tender in lieu of the exact 
 standard grade. But that course would much increase the 
 chance that a powerful clique might succeed in engineering a 
 "corner": for it might buy cotton (or wheat) of a specified grade 
 for delivery at a certain date to a greater amount than the 
 total stock available; and thus be able to demand ruinous terms 
 from those who could not deliver^. 
 
 The cotton market is more complex than the wheat market: 
 for yam itself is a raw material for cotton cloths which are 
 themselves raw materials for many iadustries: and both yam 
 and cotton cloth are apt to be sold forward in great volume, for 
 long periods and at prices rim very fine. The spioner, who 
 contracts to deliver yarn at a price, generally secures himself by 
 buying futures of raw cotton: and the manufacturer undertakes 
 engagements for the delivery of piece goods a long while ia 
 advance; because spioners or brokers are willing to undertake 
 to deliver to him, at prices and times specified beforehand, such 
 qualities and quantities of yarns as he may desire. Even the 
 broker dealing in raw cotton often buys "futures" to match 
 each of his sales; for his sales are apt to be in some narrowly 
 specified sort of cotton, and his dealings on the general market 
 must be in a standard grade: he thus bears himself only the 
 risk that the sort of cotton which he has contracted to deliver 
 
 * There ha3 consequently been some tendency to enlarge the range of sorts 
 that may be offered on payment of a difference, in spite of the fact that a 
 miller or spinner may be much inconvenienced by failing to get almost exactly 
 what he wants : for it has been observed that such success as has been reached 
 by attempts at corners on wheat and cotton exchanges, has been largely caused 
 by the narrowness of the range allowed. And indeed it has been suggested that 
 the authorities of an exchange should be empowered to relax the rigidity of the 
 rules (several methods have been suggested), when divergence of the prices at the 
 time of settlement for the contract quality differs widely from those for othef 
 qualities at the time, and from prices for that quality in the past, and in terms 
 of rather distant futures. 
 
 The Report of the U.S.A. Commissioner of Corporations on Cotton ExcJuing'^, 
 1908 — 1909, devotes the greater part of three considerable volumes to a study of 
 the advantages and difficulties of the various methods adopted in various Cotton 
 Exchanges, notably those of New York and New Orleans: the general upshot 
 apparently is that the Committee of the Exchange should adjust those 
 differences from time to time to existing commercial conditions ; In spite of the 
 possibility that their decisions may on rare occasions be biassed by their own 
 interests, or by the manoeuvres of powerful speculators. 
 
OEGANIZED MARKETS FOR COTTON AND OTHER PRODUCTS 801 
 
 will rise relatively to that which he has bought. But as in the app. ^ 2. 
 parallel case of a wheat market, this is a small affair. Dealings 
 in yam futures have never been common except in i England; 
 and it appears that they are declining, in consequence of the 
 tendency to an increase of the differences in value between 
 yarns of different makers, which would be classed together in 
 an official grading. 
 
 Futures in cotton are quoted many months ahead and may 
 therefore exercise some direct influence on the sowings of the 
 coming crop: but at present cotton growers are less alert than 
 the greater part of those who grow wheat for export. The 
 influence of organized marketing has gone together with a very 
 great diminution in the addition, which is made to the price 
 received by the grower for raw cotton, by the time the cotton 
 reaches the manufacturer: and there seems good reason to 
 beUeve that it has contributed to this result; though the de- 
 velopment of railways, telegraphs and telephones has no doubt 
 been the dominant cause of it. Until recently it appeared that 
 the same causes had combined to diminish the fluctuations in 
 the price of cotton. But between 1900 and 1909 these fluctua- 
 tions increased; and for this retrogression the reckless use of the 
 future system must be held in part responsible^. 
 
 Wool cannot be graded as easily as cotton. Not merely 
 does each fleece present widely different qualities, which must 
 be "sorted" before they can be used: but, further, each district 
 has its own varieties; and,' even if the breeds were all the same, 
 differences of soil and climate would soon differentiate them. 
 Consequently a bale of English wool is apt to be of uncertain 
 
 ^ The Commissioner of Corporations, I.e. vol. m. p. 304, seems to prove this. 
 ,The movements of cotton prices during the world- war are yielding matter for an 
 instructive study at a later date. 
 
 A good deal has been written as to causes and results of the absence of 
 organized markets for cotton in Germany. The chief causes seem to be the 
 'lack of concentration of German cotton industries; and the great distance of 
 Bremen, the chief port of importation of cotton, from any of them. It is 
 however to be noted that Bremen traders could speculate freely on the Liverpool 
 exchange; and, what is more impoctant, they were able to insure constructive 
 ventures by "hedging" operations there. See also the papers on "Anticipation 
 in the cotton market," and "Dealings in futures in the cotton market" by 
 Chapman and ICnoop, Economic Journal, 1904, and Statistical Journal, 1906. 
 
802 SOME BROAD MARKETS FOR RAW PRODUCTS 
 
 App. 1, 2. quality, and to trouble the manufacturer by not being through- 
 out perfectly adapted to exactly the same methods of handling. 
 This difficulty is less in the case of wool from new countries. 
 New Zealand sheep for instance are descended from similar 
 ancestors, imported not long ago; and raised on large runs, 
 where there is much uniformity of average circumstance and 
 great freedom of interbreeding. Thus certain standards of 
 imported wools give a definiteness to the great markets of 
 London, and other large centres: while the local wools are per- 
 haps less under international influences than are local wheat 
 crops. Also, fashion is constantly displacing one kind of wool 
 from a high place, and putting another in its stead; whereas 
 what Uttle fashion is seen in cotton goods, hes in the pattern 
 rather than in the texture. Changes in relative values of dif- 
 ferent fibres are therefore much greater in wool than in cotton. 
 
 But still the total market for wool is so great, and the 
 demand of the western world for woollen goods is so much less 
 easily satiated than for cotton, that the wool market of the 
 world is very highly organized on a pattern, which resembles 
 that of the cotton market as closely as the difficulties of the 
 case wiU allow. The Bradford Conditioning House takes samples 
 carefully, and weighs them, before and after they have been 
 desiccated, on machines accurate to within a twenty thousandth 
 part of the weight tested: and it appears that markets for wool 
 "futures" have existed at Roubaix-Turcoing and Antwerp. 
 
 There are more or less highly organized markets, in which 
 "futures" are bought and sold, for maize, rice and other grains; 
 for jute and other textile materials; for petroleum and for 
 vegetable oils; for cotton seed, quinine and for many other 
 goods. And at the centres of certain industries a large specu- 
 lative! business is done in some of their special products; as for 
 instance in beef and pork products at Chicago. 
 
 We may pass to the markets for iron and metals. Some of 
 the chief products of ore and coal can be graded fairly well: the 
 demand for them is liable to extreme fluctuations under the 
 influence of changes in commercial credit generally, and especially 
 in the credit which the public accords to new joint stock 
 companies, and to extensions of old companies. Consequently 
 
ORGANIZED MARKETS FOR COTTON AND OTHER PRODUCTS 803 
 
 highly organized markets exist only for certain definite iron and app. i, 2. 
 steel bars, etc.: "futures" are sometimes sold so recklessly as to 
 invite a corner; and the price of Scotch or Cleveland bars may 
 rise for a time to an unreasonable level, relatively not only to 
 the general prospects of trade, but even to the prices of other 
 descriptions of iron and steel of substantially the same quality. 
 
 Nearly every important branch of modern industry, except 
 agriculture, is apt to be thrown out of gear at once by a check 
 to the supply of coal: while a check to the supply of iron, how- 
 ever widespread its indirect effects may be in the long run, 
 does not strike sharply on more than a few industries. But 
 these few are important; and their business is in general quick 
 and urgent; partly because prompt delivery of the machinery 
 and other plant which they produce is often essential to their 
 customers, and is likely to be enforced by contract under rigid 
 penalties. The largest users of iron are getting more and more 
 into the habit of owning iron mines, with results that are 
 studied in Book III^. 
 
 The markets for copper and tin are highly organized and are 
 liable to great fluctuations, and that for two reasons. One is 
 that the old and narrow sources of supply are giving way to 
 new and richer sources: these are largely in places remote from 
 the chief seats of industry, and are apt to move almost as fitfully 
 as the sources of supply of gold and silver themselves. Another 
 reason is that these two metals are imperiously needed for 
 certain specific purposes, and a scarcity of either may arrest, 
 or throw out of gear, large industries. Electrical developments 
 have indeed increased the demand for copper at an almost 
 unparalleled rate : though some authorities hold that the demand 
 for it, as weU as for some other metals, wiH be largely modified 
 by aluminium; for its abundance, lightness, electrical conduc- 
 tivity and strength in certain alloys seem to promise a new era 
 when the already great progress in the methods of its production 
 and treatment has gone a little further^. 
 
 ' The peculiarities of the English speculative market in iron, its relations to 
 the world iron market, and the curious episodes of 1904 — 5 are described by 
 Mr Macrosty in the Economic Journal, September, 1905. 
 
 " The control which German financiers obtained over the chief sources of 
 some metals before the world-war, may ultimately be found to have been a con- 
 tributory cause to these fluctuations. 
 
APPENDIX J 
 
 SOME MINOR PROBLEMS OP MARKETING^ 
 
 App. J, 1. 1. The costs of marJceting perishable products, when 
 demand is imperious and supply is uncertain, are always 
 high. 
 
 No modern has carried his demand for choice food to as 
 extravagant lengths as Lucullus did: but all weU-to-do people 
 consume many things which would not have borne the journey 
 to the table of Lucullus, pay what he would for them; and 
 opportunity has developed a habit of consuming things out of 
 season and out of place. The habit has spread downwards. It 
 has passed over those of the middle classes, who are forced to 
 keep up on slender means a certain dignity of house, dress and 
 education: but it reached the better paid artisans of Anglo- 
 Saxon countries some time ago; and it is making its way 
 throughout the western world. 
 
 Even a century ago and even in the richest countries, only a 
 few persons could afford to pay prices for ordinary comforts and 
 luxuries sufficient to defray the expense of bringing them from 
 far: the systematic massive trade over large distances for 
 various sorts of food, to be consumed by the people at large, 
 waited for cheap and rapid transport by railway. The 
 leadership which England obtained in the service of railways 
 was a chief contributory cause to the relatively luxurious life of 
 the artisans of her cities and industrial districts in the middle 
 of the last century^. 
 
 ' Tliis Appendix is associated with the sixth and seventh chapters of Book II. 
 
 " In The food of London, '"which discusses the sources of supply..., and 
 machinery of distribution of the food for a community of two millions and a 
 half," by George Dodd, 1856, will be found a full and suggestive account, which 
 may be compared with present conditions. The tonnage of British steamships 
 at that time was only a twelfth part of the whole: but they were of course 
 
IMPERIOUS DEMAND AND UNCERTAIN SUPPLY 805 
 
 The more perishable a product is, the greater of course are the app. j, i. 
 losses of the trader who handles it; and the higher the charges 
 he must make for those parts of it, which he sells in good 
 condition, in order that his business may be fairly profitable. 
 But his losses may be smaU if the demand for the product is 
 steady, and its supply is under perfect control. For instance, 
 the hot morning rolls which nearly every well-to-do family 
 before the war consumed in Continental towns could be supplied 
 cheaply, because the demand could be anticipated before the 
 baking began. But a Cafe, dependent on excursionist traffic 
 which varies with uncertainties of weather, cannot afEord to 
 keep a supply of perishable food at low prices. And yet fruit 
 and vegetables in rural markets are cheap: because everyone 
 is contented to buy the things that are on hand, and little goes 
 to waste. 
 
 Speaking generally, extreme influences of perishableness on 
 costs of supply are exerted only when it is associated with 
 imperiousness of demand, and with imcertainties both of demand 
 and supply; as in the case of an imperious wealthy demand for 
 choice fruits, flowers and fish, which pays relatively little 
 attention to seasonal variation and temporary changes of supply. 
 It is well known that retailers who are able to meet almost any 
 sudden demand for things, which must on occasion be supplied 
 from afar at great expense, and with much loss on the way, are 
 to be foimd only in fashionable districts. They must devote 
 care and expense to a certain dignity of appearance: there 
 is seldom any efiective competition to compel them to sell even 
 
 pressed into the service of perishable food. There were a good many large 
 dairies in the outer ring (now regarded as one of the inner rings) of that "district 
 covered with houses" called London; but in 1853 the "Eastern Counties" and 
 other railways brought 3,000,000 quarts of milk annually from the country. It 
 has been said, partly in earnest, both in New York and London, that a family 
 returning from a summer holiday at a farm house had some consolation in 
 being able henceforward to rely on a constant supply of fresh garden and dairy 
 produce. 
 
 When passing in 1 875 through boundless fields covered with cattle on either side 
 of the Union Pacific Railway, I asked the wife of a local farmer what was the price 
 of butter. She replied that no one took the trouble to make it, except one farmer 
 two hundred miles down the line; he sold it for half-a-dollar a pound and sent 
 it along the line to anyone who might want it. Similarly the early great ranch 
 holders in California — a splendid fruit and vegetable country— when they wanted 
 to provide deUoacies for a visitor, opened a tin of Eastern peaches or pears. 
 
806 SOME MINOR PROBLEMS OF MARKETING 
 
 App. J, 1. common things cheaply; and their prices all round are very 
 high^- 
 
 The influences exerted on the price of fish by the diflSculty 
 of preserving it are notable. It can be had at low prices ui 
 East London and other places, where the popular demand for 
 fried fish is very large and constant, and it can be obtained 
 direct from wholesale markets. But well-to-do customers pay 
 generally prices, that exceed those received by the fishermen, 
 by larger percentages for the inferior than for the better kinds 
 of fish2- 
 
 Some apparent irregularities are seen in the retail prices of 
 things which are joint products coming from a single source. 
 For instance the relative prices of the better and the inferior 
 joints of beef vary very greatly from place to place, and in some 
 cases from season to season; because the demands for the two 
 kinds vary irregularly. Thus in some country districts on the 
 Contiaent, where beef is nearly always boiled or stewed, the 
 prices of the best parts are not much above those of others, 
 and are very much below those of all large cities, and of England 
 generally: but a concourse of rich summer visitors in a place, 
 where but few of the people eat fresh meat, will often raise the 
 price of the best joints much above those current in England. 
 The vast and almost exclusive demand for those joints in the 
 fashionable quarters of London, exercises but a moderate 
 influence on their price, because the inferior joints of the 
 same animals are sent to the poorer districts from the central 
 markets which supply all London'. 
 
 * Universal Providers are however making some exceptions to this general 
 rule. 
 
 * The prices received by the fishermen for inferior fish are generally low: 
 but the costs of conveying them, duly preserved, through wholesale and retail 
 dealers to customer? are not much below those for the better sorts. Though the 
 excess of retail prices for fish over those paid to the fishermen is very high ; the 
 inherent difiSculties of the trade, aided perhaps by strategical movements on 
 the part of professional dealers, have proved very fatal to attempts at its direct 
 cooperative retail distribution. 
 
 ' Except in very hot weather meat can be kept a long time by modern 
 appliances: and the influence of weather on its price is most noticeable in 
 working class districts, where such appliances are rare. On » Saturday night 
 in summer before the war the prudent housewife could buy good meat for four- 
 pence a pound. 
 
VARIETIES OF INDIVIDUAL NEEDS AND TASTES 807 
 
 2. Influences on the costs of marheting exerted hy app. j, 2. 
 varieties of individual requirements and tastes. Illustra- 
 tions as to furniture and as to fashion goods. 
 
 Fiimiture is a representative of goods, which the retaUer 
 must select with reference to the general requirements and 
 tastes of those by whom he is surrounded. If he is situated 
 in a working class quarter, a comparatively small stock, calling 
 for but little thought, will satisfy nearly all demands: it can be 
 turned over rather quickly: and, if cash payments are in vogue, 
 it can be profitably marketed at prices not much iu excess of 
 the very low costs of the steady, massive, mechanical production 
 of such things. It can be sold cheaply and therefore it must be 
 sold cheaply; for his customers, especially those who buy for 
 cash, are alert: many of them can judge fairly well the strength 
 and durability of the things shown to them, and they are likely 
 to have made comparisons of various stocks before purchasing. 
 
 But a wealthy district offers scarcely any scope for a shop 
 which presents only a few varieties of each sort of furniture for 
 inspection. It is not enough to make provision for the different 
 scales of expenditure of the several sub-classes of the well-to-do 
 class: for each customer will have his own preferences among 
 similar things of about equal costs. In fact a person may easily 
 prefer one piece of furniture to another, which serves a similar 
 purpose but is more costly : and, in that case, he may make a 
 better bargain at a shop where a large choice is offered at high 
 prices than at another, where prices are kept low in order to 
 force a rapid sale on a relatively small stock scantily displayed^. 
 It has been generally assumed until recently that no retailer 
 is likely, even in a good thoroughfare, to attract as much 
 custom as would enable him to turn over rapidly a stock 
 containing a great variety of similar goods for the choice of 
 
 ' This may perhapg be made clearer by a numerical illustration. Let U3 
 suppose that the wholesale prices of three pieces of furniture serving the same 
 purpose are £10, £11 and £12 respectively. The purchaser would at equal 
 prices have preferred the first to the second, and the second to the third. Going 
 to a shop which shows all three, but adds 5s. in the £ to wholesale prices, he gets 
 the first for £12. 10s. If he had gone to a shop which added only 3s. in the £, 
 but happened to show only the second, he would have paid £12. 13s. for what ho 
 liked less than what he did buy for £12. 10s. : and if it happened to show only 
 the third, he would have paid £13. 10s. for what he liked much less. 
 
808 SOME MINOR PROBLEMS OF MARKETING 
 
 AFP. J, 2. tlie fastidious. But modern abundance of capital, modern 
 developments of the arts of advertising, and modem facilities 
 for attracting customers from a territory containing several 
 hundred thousand well-to-do inhabitants, have changed the 
 situation. It has been proved that a vast and well appointed 
 establishment, well placed and under fine management, may 
 earn so good a reputation, and attract so large a custom, as 
 to secure rapid turn-overs of a vast and varied stock at re- 
 munerative prices. Everything then goes on a great scale; 
 and lavish, though careful, expenditure on every side is good 
 economy. 
 
 The new-born desire, even among people whose taste is not 
 very highly cultivated, for furniture that shows individuality, 
 and does not bear the mark of massive production by machinery, 
 has done much to revive the artistic energy that distinguished 
 the furniture trades of England and France in the seventeenth 
 and eighteenth centuries. But the machine is found to be 
 capable of imitating much of that fine individual work, with 
 a dehcacy and appearance of wayward fancy, which deceive 
 all but experts^. 
 
 Nearly all the conditions just discussed are intensified in 
 the case of fashion goods. Those who create them must have 
 
 * A piece of noble old furniture can be taken to pieces; and the carving on 
 each part of it imitated by an inexpensive machine, which guides a cutting tool 
 on a fresh piece of wood to follow the movements of a iine metal finger that 
 moves along the model. If the copies are to be sold as originals; care is taken 
 not to send two of them to the same neighbourhood. 
 
 True and subtle originality is most frequently found in work, the full design 
 of which is gradually evolved in the mind of the worker as he proceeds. But it 
 seems that there is very little truth in the opinion that all furniture, which has 
 been made by hand, has shown traces of the individuality of the craftsman. 
 Some of it did : and because it was good, it was defended from rough wear, and 
 has come down to us almost unharmed. But in places where nearly all 
 furniture is made by hand, there is much monotonous weary work, without 
 interest or initiative. Thus a visitor to the Grodener Tal, in Tyrol, may find 
 a nest of artists whose wooden statuary is sought for the adornment of 
 cathedrals far and wide : and he may come across a peasant, with hard hands, 
 who loves haymaking more than his winter work at wood carving, though that is 
 of high artistic excellence. But he may also find in the same neighbourhood 
 people who carve toys by the cartload, many of which are crude, ill- shaped 
 reproductions of a pattern that has been set to them. An inquiry as to such a 
 load evoked the answer: — "Before out father died, he taught us to make horses 
 like this, and we cannot venture on anything new." The horses' necks were all 
 bent in the same impossible and ugly curve. 
 
VARIETIES OF INDIVIDUAL NEEDS AND TASTES 809 
 
 high faculty, reaching up towards a real, if rather slender, sort app. ., 2. 
 t»f genius: and those who handle them must be intensely alert. 
 It is true that, in this as in other industries that are rapidly 
 changing, disproportionately large gains are reaped by men, 
 whose ability resembles that of the bird that is specially quick 
 to run in and pick up some of the grain that another has 
 unearthed: but his customers get what they want, and have 
 no cause to complain. He is a representative of a class that is 
 becoming increasingly prominent: for the rule of fashion is 
 spreading, tUl it will soon have little ground left to conquer. 
 Neighbours are becoming strangers to one another as persons: 
 but in matters of etiquette, even country-folk look to the 
 arbitrament of the larger world, and in matters of costume 
 they now learn quickly what passes there^. 
 
 Changes in fashion are not now products of a wayward fancy, 
 which is its own reward. They are, in large part at all events, 
 deliberately planned several months before they obtain vogue. 
 They are planned with a view to successful efiect: for if they 
 fail in that, they reap only a short-lived commercial success. 
 But those who control them have always a general interest in 
 causing anyone, who wishes not to be out of fashion, to discard 
 the costumes of last season: and they are able to secure for 
 themselves some of the gain which arises out of the ownership, 
 or early preparation, of large stocks of material adapted for 
 fashions which they have foreseen further ahead than other 
 people. In every such movement there is much exercise of 
 skin and taste of a high order: but since everything is done 
 hastily, the effects are generally cruder than those which 
 people of a lower mental quality would have evolved by the 
 patient method of ancient custom: and this would be so, even 
 if the commercial value of their schemes did not depend in part 
 
 ' Even so long ago as 1893 it was said by one who spoke with knowledge on 
 "Nottingham lace trade and fashion" (Economic Journal, vol. in. p. 714), "A 
 peculiar hat is seen in M. Worth's rooms, and in a week women readers of weekly- 
 papers in the remote country districts of England are fully acquainted with all 
 its peculiarities : though the richest and best creations of Paris are never exposed 
 in shops, partly for fear they may be copied. It is no uncommon thing for the 
 retail dealer to be told what is the fashion by his customers. Twenty years ago 
 the customer came into the shop with the question on her lips." (Bray, A 
 about dress, p. 233.) Newspaper dealers in working-class districts, find that a 
 very large portion of their business is in cheap fashions journals. 
 
 26—5 
 
810 SOME MINOR PROBLEMS OF MARKETING 
 
 App. J, 3. on the extravagance of tlie changes introduced, and on the large 
 opportunities for display of wealth and of alertness by those who 
 discard the declining fashion most promptly and completely. 
 
 3. Some variations in the additions made by the retailer 
 to wholesale prices, which are due to causes other than 
 variations in direct costs of marJceting. 
 
 The retailer's hold on his customers is largely dependent on 
 their general belief that he is acting well by them: he is not 
 compelled to adjust the price of each particular thing to its cost 
 together with a proportionate share of the general expenses of 
 his establishment. Of course in any case he would need to add 
 a large percentage to the wholesale price of things that are 
 likely to spoil, or go out of fashion; that need much care and 
 technical knowledge in selection and handling; and of which 
 the stock must be large relatively to the sales: while in any 
 case he would not need to add a large percentage to the wholesale 
 prices of such things as sugar, or plain calico, or simple stationery. 
 But in fact he goes far beyond this natural inequality in the 
 rate of gross profits which he requires from different classes of 
 goods. He sells at a very low profit everything which is bought 
 so habitually, and of the quality of which the customer is so 
 good a judge, that the market would not bear his charging a 
 price appreciably higher than that at which a pushing rival can 
 afford to sell it. But on the other hand, the traffic will often 
 bear an extravagant rate of profit on things of which the 
 customer is no good judge, especially if they are such as appeal 
 mainly to wealthy, people who do not trouble themselves much 
 in order to save a little money. 
 
 At one time the retailer used to discriminate between 
 different individuals by bargaining with each, in order to get as 
 much as possible out of each. But this petty form of discrimi- 
 nation was early discarded in England, and even broader 
 discriminations between different classes of purchasers are on the 
 whole less prominent than they were. It was in fact England's 
 early recognition of the high value of time, that led her to 
 pioneer the way in having only a single price in the same shop 
 for all customers who bought imder like conditions^. 
 
 ' If a greengrocer charged the same price for vegetables which a customei 
 
INFLUENCES OF LOCAL CONDITIONS ON RETAIL PRICES 811 
 
 An instance of broad differentiation between different classes app. j, 4. 
 of customers which is not opposed to modern usage, is that of a 
 shopkeeper with one establishment near the terminus of a 
 suburban line chiefly frequented by season-ticket holders; and 
 another near some large hotel, which is chiefly frequented by 
 foreigners. Unless his prices at the former shop are about the 
 lowest in the town, he will hardly earn his rent: even if he 
 ofiers a new class of goods with which his customers are not 
 familiar, he must price them low, or otherwise his repute will 
 sufier: and, for the same reason — unless he deals in works of 
 art or other goods of which no two are just alike — he must 
 charge the same prices to all. In the second shop he is tempted 
 to charge much higher prices: because he will in any case never 
 see again the greater part of his customers, and they wUl not 
 compare notes about him. 
 
 4. The standardization of raw food products for 
 marketing purposes. 
 
 As the standardization of engineering plant promotes the 
 standardization of other engineering products, so the standard- 
 ization of seeds tends towards the standardization of vegetable 
 products. Grains and fruits raised from the same stocks under 
 similar conditions will always vary in some degree: but the 
 task of standardizing raw food products, sufficiently to enable 
 them to be marketed fairly well by description and quantity, 
 is likely to become easier. At present however it is often a 
 large and laborious task. 
 
 The growing imperiousness of demand, combined with the 
 growing subtlety of the brewing trade, makes the brewer in- 
 creasingly willing to pay a little premium to middlemen for 
 supplying him with hops carefully graded: he would often 
 
 carries away, as for those which he sends out in a cart, he would give unequal 
 services for equal prices, even if he gave no credit in the latter case. Placards 
 announcing "Fixed prices," or "English prices" (the two phrases being 
 convertible) were commonly exhibited in many of the best shops in the larger 
 towns of the Continent a generation ago: but in most places they have done 
 their work, and there is no longer any need for them. In some Oriental 
 bazaars several thousand words often go to every pennyworth of deahng. 
 Dealers in the South of Europe have been known to ask six times the lowest 
 price which they were prepared to accept. 
 
812 SOME MINOR PROBLEMS OF MARKETING 
 
 *ST. J, 4. lose more than lie gained by buying at first hand from the 
 farmer. 
 
 Again experience shows that a retailer does not succeed as 
 well with butter of varying qualities, as with a steady supply of 
 a uniform quality, even though that be rather below the average. 
 The consumers get accustomed to that kind; whereas where the 
 quality varies, they resent any sorts that fall markedly below 
 their best experience. Therefore various devices by wholesale 
 marketing, or large scale production for the steady supply of 
 particular qualities of butter are found to render services for 
 which the retailer is ready to pay, because the consumer in- 
 creasingly demands them. 
 
 But the middleman is being ousted from remimerative 
 functions in regard to dairy produce by the spread of cooperative 
 association among farmers. This movement has been pioneered 
 by the highly educated Danish farmers: a creamery using the 
 most advanced plant, and uniting in the same process the milk 
 from perhaps a thousand cows, attains automatically a steady level 
 of uniformity. The level is high, because the demand for a high 
 standardization of product leads to high standardization of 
 plant — in this case the cows; and this has been effected by co- 
 operative cow-testing associations. Finally, the trade-marks, 
 used by the various export associations, which conduct practi- 
 cally the whole of the Danish external trade, have been merged 
 in a national compulsory trade-mark, applied with due tests by 
 a Government official to alU. 
 
 ' A similar movement on a smaller scale has been applied to eggs : they are 
 collected at short intervals, and each collection is kept together; for youth is 
 the chief merit of an egg. There are however few agricultural products, whose 
 merits are as simple and as much under human control as these. Even as 
 regards butter, an instructive, if biassed, argument that grading is best accom- 
 plished by a powerful merchant after the butter has been made, was recorded in the 
 Report oj ihe Moyal Commission on Agriculture, vol. iv. 1896 (Q. 62,333 — 62,393). 
 It is suggested (Q. 62,349) that a rise in the minimum standard demanded 
 in London for butter, so great that sorts which were sold twenty years previously 
 for a shilling a pound had become unsaleable, was connected with the arrival 
 of cheap, whplesome margarine. The 800 Minnesota creameries which make 
 butter for New York, do not sell direct to wholesale dealers. They find it 
 advantageous to employ "a receiver" (a special sort of commission agent). His 
 operations, as described by Professor Weld to the American Economic Associa- 
 tion in December, 1914 (Report, pp. 128—9), illustrate the view that a stratum 
 of middlemen, which appears at first sight superfluous, often does work which 
 would need about an equal number of men if the stratum were eliminated. 
 
STANDARDIZATION OF FOOD PRODUCTS FOR MARKETING 813 
 
 This lead has been followed in France, Ireland and other app. j, 5. 
 countries; and even in America. But American mobility 
 goes, as a rule, better with forms of association responsive to 
 quick changes of condition, and readily influenced by strong 
 individuals^. 
 
 5. The hold which small shops retain on poor districts. 
 
 Mere otiose habit plays some part in the persistency with 
 which many of those, who can least afEord it, indulge in the 
 luxury of buying in small quantities from small shops near at 
 hand. But the hold of the small shopkeeper on poor districts 
 rests for the greater part on solid economic foundations: some 
 of these foundations are themselves the product of evil and 
 unnecessary conditions: but others are likely to endure so 
 long as a considerable part of the population live on small 
 incomes and are inadequately housed. 
 
 To begin with, the cost of service in one of these shops is 
 often so small as to be almost negligible. It may be attended 
 by the wife of an artisan: he and she may want to increase 
 their small incomes; or perhaps to accumulate a little capital 
 
 It is to be noted that butter and oggs, though perishable, are marketed on 
 a relatively small margin between prices paid by consumer and received by 
 producer: though fruit and vegetables, as to which supply and demand in any 
 one market are uncertain, require large margins {ib. p. 131). 
 
 ' It has been very successful in the cooperative organization of the great 
 trade in citrus fruit from the Pacific Coast to the Eastern States. Local 
 associations guarantee honest packing, etc. : and send their fruit to officers of 
 a broad based federation, to be forwarded to wliolesale dealers; who alone 
 have as yet been successful iii marketing these products, that are uncertain in 
 supply as well as in demand; and they are apt to perish through gluts in 
 particular markets, even while other markets are relatively bare. The Federa- 
 tion itself can however organize broad telegraphic information, which enables 
 it to start the fruit in directions, in which it is not very likely to fall from the 
 first grade to a low one, or even beyond, by being kept waiting too long. 
 
 Cooperative marketing is discussed in two instructive st\idies:— Co-operation 
 at home and abroad, in regard to Europe, by C. R. Fay: and Co-operation in 
 agriculture, in regard to America, by G. H. Powell. The general conclusion 
 that cooperation in marketing among producers, must serve an apprenticeship 
 to the work of professional dealers, before it can undertake the task of selling 
 fickle products to distant consumers generally, was reached by the Industrial 
 Commission (Report, vol. vi. pp. 430-2). In many cases, "there must mter- 
 vene brokers or commission men of sojne sort, capable of handling receipts in 
 bulk, and breaking them up among the representatives of the wholesale and 
 retail trade." 
 
814 SOME MINOR PROBLEMS OF MARKETING 
 
 AFP. J, 5. which may enable the man to set up as a small employer in his 
 own craft. The wife wastes no time in the shop; but is busy 
 with household affairs tiU she is summoned by the shop beU. 
 This source of supply of small shops seems likely to endure 
 long. 
 
 And there is perhaps an equally permanent demand for 
 them. When an unexpected need suddenly arises, it is con- 
 venient to send out a child to shop close by. But the chief 
 sources of the demand for numerous very small shops are the 
 improvidence of many, and the want of storage of all who have 
 no adequate houseroom. There are indeed some people not 
 habitual drunkards, who cannot keep away from any alcohol 
 they may have in the house: so they pay the retaUer a very 
 high wage for taking charge of their stock of it, and serving it 
 out to them a Httle at a time; and under the circumstances 
 they make a good bargain. In many districts no one buys coal 
 by the ton, except to sell it again; and even a hundredweight 
 in a box may tempt to extravagance, and attract greedy neigh- 
 bours asking for a loan. So it is often bought by the penny- 
 worth-- 
 Further the small shopkeeper may often indulge in the 
 honest boast, that he is the banker of his poorest neighbours 
 in their time of distress. He in effect lends to them on far 
 lower terms than anyone else could, except as a matter of 
 charity: for his ordinary business automatically gives him an 
 insight into their character and their needs. The occasions, on 
 which this aid from him is really necessary and on the whole 
 beneficial, are indeed happily diminishing under the influence 
 of improvements in education, sobriety, insurance by various 
 
 ' Miss Ootavia Hill, on taking a room in a poor district, found no coal-box; 
 and for that and other reasons, she thought it best to fall in with this practice. 
 And, when Prof. Conrad started a cooperative store in the country and tried to 
 sell oofEee by the pound, the men told him that their wives consumed it so much 
 faster, when bought by the pound than by the quarter ounce, that they spent 
 more on it than before, even though he was selling it at a cheaper rate. (See 
 his Report on Retail prices, p. 122.) Similar habits seem to prevail even more 
 strongly in southern and eastern countries; and it has been well said that the 
 size of the smallest coin in common use is an inverse measure of the stage of 
 civilization. In some Indian villages a whole rupee is an unknown coin: while 
 See maintained that an American workman must be so lacking in stamina as to 
 be of httle use, if he "buys his groceries by the quarter dollar." 
 
TRADES AND INDUSTRIES OF CAPITAL CITIES 815 
 
 agencies; among which cooperative stores are to be held in app.o.b. 
 exceptional honour, on account of their courageous endeavours 
 to induce the people at large to make expenditure run a little 
 behind income: and the time is not in sight at which there will 
 be no need for such aid. 
 
 On the other hand the plea that has been urged with some 
 vehemence especially in France, that the small shopkeeper 
 has a right to live, cannot be accepted without qualification: 
 though a sudden economic change like that which deprived 
 hand-loom weavers of a livehhood may indeed call for emergency 
 measures*. 
 
 6. Marketing and industrial peculiarities of various 
 capital cities. 
 
 The remarks made above (II, vi, 6) as to the industrial con- 
 ditions of large cities generally, apply in the main to capital 
 cities: but yet they stand in a class by themselves. For they 
 offer the best opportunities to those traders, who aim at earning 
 very high rates of profit on relatively small sales of choice 
 goods, made in part by artisans with whom they are in im- 
 mediate touch. Also they are the largest general markets for 
 common goods; and they have always been chief centres of 
 government and finance, of wealth and fashion and luxurious 
 expenditure. Again, while many of the functions of Government 
 tend increasingly to be delegated to Local Authorities, modern 
 means of communication have increasingly concentrated the 
 supreme control of the financial enterprise of each country in 
 her capital. London, Paris, and especially Berhn, have greatly 
 increased their dominion over the industry of finance during 
 the present generation: and this change is representative of 
 a general tendency for industries, that need little space and 
 horse-power, but much wealth and much alertness, to seek 
 
 ' Some opponents of Grandg Magasina have maintained that no one has the 
 right to follow more than one occupation. "If you allow a Grand Magasin to 
 sell everything, draperies, hats, boots, umbrellas, books and perfumes you rob 
 me, who am a specialist of my livelihood." Many proposals, some of which 
 have been partially accepted by the legislature, for retarding the growth of these 
 intruders by taxes increasing progressively with the variety or the magnitude of 
 the sales of a retail dealer, are set out in full by Ef. Martin Saint L^on {Le petit 
 commerce franfais, sa luite pour sa vie, ch. v.). 
 
816 SOME MINOR PROBLEMS OF MARKETING 
 
 App. J, 6. capital cities. They do so partly for reasons of industrial 
 economy, but chiefly for the sake of the special advantages 
 in marketing which they find there. 
 
 The high grade industries of London are of several kinds. 
 Some of them work up the choicest materials, by labour of 
 the highest and most varied qualities. London's import trade 
 brings to them rare materials, the best of which are chosen in 
 docks and warehouses for London iudustries; and the rich resi- 
 dents of London offer a critical but generous demand for their 
 products. Similar customers from elsewhere go to London for 
 their finest purchases; because the local demand has called into 
 existence employers, who will pay the highest price for the best 
 of materials. The most capable and critical of workers in nearly 
 all the smaller industries, and in some of the larger, seek 
 London; where the highest wages are to be earned by working 
 on the most costly materials for the most exacting customers. 
 Thus, though printing is the only very large industry which 
 looks to London as its head quarters, there are many important 
 industries of which the highest excellence is found only in 
 London^. 
 
 On the other hand, the low grade industries which congregate 
 in London owe comparatively little to the marketing advantages 
 which are to be found there : and indeed many of their products 
 are among the lowest of England's exports. They are developed 
 in London by a peculiar class of workers who are fairly alert, 
 
 ' "In certain trades, even though the dominant influences are against her, 
 there are special kinds of work which tend to be retained by London. In some 
 cases this is explained by the necessity for prompt execution of work; or when, 
 from its artistic or complicated character, the direct and constant supervision 
 of the buyer or his agent is desirable. It happens also sometimes when great 
 excellence is demanded. Thus we find that, while Birmingham makes much 
 jewellery from well-known patterns, London is the centre of the finer work that 
 is marked by originality of design; that the best carriages are still made, and 
 made throughout, in London; that the best surgical instruments and the best 
 cutlery are secured by the combination of London workmanship and Sheffield 
 steel; that the best scientific instruments, the best work in stained-glass windows; 
 and, in spite of the number of provincial factories, the best organs continue to 
 be made in London." Booth and Aves in Life and Labour of the People, 
 A.D. 1903, IX. p. 184. The London market attracts and educates tailors, who 
 earn nearly the best wages of their trade in the world, and make quite the best 
 coats: on the other hand, London rookeries shelter men and women from 
 Eastern Europe, who make nearly the lowest grade of coat for nearly the lowest 
 wages. 
 
TRADES AND INDUSTRIES OF CAPITAL CITIES 817 
 
 ■and keen; and, though not very strong in body or character, app. .,8. 
 can do light monotonous work quickly and well. Also they are 
 keenly appreciative of the excitements of London life: they 
 buy fish and other food to suit them at prices far below those, 
 which are commonly entered in official price lists: house-room 
 is dear; but they are content with little of it. 
 
 Since French genius generally excels in fine work, for which 
 great mechanical power is not needed, it is only natural that 
 Paris should be unrivalled in the attractions which she ofiers to 
 delicate and artistic manual skill; and be herself the factory 
 and the mart for nearly all the finest French products: but 
 she is without a great specialized industrial entourage, such as 
 those of which Lille and Lyons are centres. 
 
 Berlin, Vienna, and other capital cities resemble London 
 and Paris in having the largest populations and the largest 
 aggregate of manufactures of any cities in their several lands. 
 But no one of them is the central mart of a very widely spread 
 specialized industry; though it is true that a group of men 
 of rare genius and energy have made Berlin the chief seat of 
 the German electrical industries, which are at present the most 
 important in the world. New York, though not a centre of 
 Government, may yet be classed for the present purpose among 
 capital cities. For instance she has almost a monopoly of the 
 finest American jewelry; though common jewelry is seldom 
 made there. She has special difficulties, because many of the 
 poorest and weakest immigrants are dropped within her borders 
 by the stream that passes through her to the West. 
 
 Speaking generally, however, the wealth and knowledge and 
 sense of social responsibility of the Governments; and of the 
 wealthy populations of capital cities, are lessening the causes 
 which have specially adapted many of their industries to 
 decadent populations. New facilities for traffic are enabling 
 large pumbers of those, who work in them, to have their homes 
 in suburbs, where the children can play in fresh air: and 
 the same facilities are giving to the residents in such suburbs 
 advantages that are beyond the reach of country folk. Bus in 
 urbe, urbs in rure, the cherished ideal of the philosopher, may 
 ere long be realized in old countries, and even more fully in 
 alert new countries, in a degree that seemed beyond hope 
 
818 SOME MINOR PROBLEMS OF MARKETING 
 
 App. J, 6. even a short time ago : and the economies of making and mar- 
 keting may no longer promote imwholesome overcrowding^- 
 
 ' It is true that the rate of mortality is not exceptionally high in London 
 and several other great cities : but that does not prove that the general conditions 
 of life in them are healthy, any more than the high mortality in hospitals proves 
 that their conditions are less healthy than those of ordinary houses. People, 
 who are strong and vigorous, flock to a great city in quest of the high earnings to 
 be obtained there by energy and ability in all the various ranks of life: and 
 those who fall into ill-health are apt to retire to places where rents are lower: 
 not infrequently indeed to the homes of their childhood. A country district that 
 yielded specially high earnings and attracted specially good lives, while shaking 
 itself free from lives that show signs of weakness, would probably show a far 
 lower rate of mortality than is to be found in any great city. In an article 
 entitled "Where to House the London Poor," published in the Contemporary 
 Review, February, 1884, the present writer advocated tendencies, of which 
 Mr Ebenezer Howard was already a leader; and subsequently bore fruit in his 
 crusade for "Garden Cities." 
 
APPENDIX K 
 
 ON EDUCATION, WITH SPECIAL REFERENCE 
 TO A BUSINESS CAREER 
 
 1. The develojJment qf/acidties at schoolK 
 
 Studies cannot be arranged in order of merit absolutely. 
 Those studies are best for a child in any phase of its develop- 
 ment, which call into the fullest play the highest activities of 
 which it is capable in that phase. For instance, kindergarten 
 methods of assorting flowers may probably be more educative 
 to the very young child than formal lessons in language. That 
 phase being outgrown, a boy is likely to get more true education 
 for a time from the study of words than from almost any other: 
 for he is still too young to apply scientific method in spontaneous 
 study of things. His mind is now ripe for a little, but only a 
 little, of the strong discipline of mathematics; and some training 
 in music and drawing seems to be enjoined by Nature as well as 
 by Greek precept. But he has more to gain from handling 
 words than from any other exercise: for the materials for his 
 work come to him gratis and in abundance; and in building 
 with them, he is called on to exert the highest spontaneity of 
 which he is as yet capable. Demands are made on his general 
 intelligence, his judgment, his sense of proportion, his logical 
 acumen, his perceptive sensibility and his taste; and in a 
 greater or less degree he can rise to these demands. He is 
 architect, engineer, and skilled artisan all at once. There seems 
 also no doubt that Latin is the best language for some parts of 
 this work. 
 
 The boy passes gradually out of this phase and becomes fit 
 for the next. In that he may begin to make a scientific study 
 
 1 This Section is associated with II, x; especially pp. 356—7. Much of it 
 is reproduced from a letter published in the Times, 5 March, 1 905. 
 
 APP. K, 1. 
 
820 THE EDUCATION OF BUSINESS MEN 
 
 4PP. K, 1. of things, whether they be material, or the ideas which are the 
 truest realities. This work cannot be pushed far at first without 
 a strain. But the study of the relation between cause and effect 
 should be begun early: large use being made of verifications by 
 experiment, such as are afiorded by elementary hydrostatics, 
 even without the aid of mathematics. History should also be 
 treated in some degree as a study of cause and effect: though 
 here verification is seldom possible, and the bias of a historian 
 or a teacher may make the worse appear the better reason. 
 
 Studies of the laws of nature of chemical products and of 
 mechanical agencies, with reference to successive increases in 
 their efficiency, are of primary importance in the education of 
 youths who are likely to hold responsible positions in industry, 
 or in almost any branch of trade. They tend in high degree 
 to stimulate alert intelligence in general; and in particular 
 that kind of intelligence in which British manufacturers led 
 the world in the first half of last century; though now they 
 are outpaced often by Americans, and sometimes by other 
 peoples. For these and similar reasons, it seems desirable that 
 the study of languages should retreat gradually into the back- 
 ground after the age of about fifteen; though it should retain a 
 considerable place for several more years. And, as a corollary, 
 it seems to be required that the headmasters of some, at least, of 
 the chief schools should be thoroughly imbued with the spirit of 
 science in its relations to things, as well as to events and human 
 actions. But while language falls into the background, the spirit 
 of literature should come into the foreground. Appreciative 
 study of Enghsh classics should be encouraged: and, above all, 
 the difficult task of teaching boys to write their own language 
 well should have precedence over the easy task of correcting 
 relatively crude faults in Latin and Greek composition^. 
 
 ' The practice of compelling boys to learn Greek accents, which they 
 are told to neglect in pronunciation, and which were unknown to the Greeks 
 themselves, occupies precious time and energy. It injures character, by sug- 
 gesting a low appreciation of the value of time; while the study of constructive 
 science has the opposite effect, for its ever-growing ambitions are greedy of 
 time. 
 
 No doubt many of the ablest business men and statesmen have received an 
 almost exclusively classical education. But that result is fully accounted for by 
 the facts that nearly every boy, who has had first-rate educational advantages in 
 childhood, has gone to a classical school; and that nearly all the ablest pupils 
 
THE DEVELOPMENT OF FACULTIES AT A UNIVERSITY 821 
 
 2. University training for the responsibilities ofbusinessK app. k, 2. 
 
 The higher education of professional men has always been 
 arranged with reference to the services which they may render 
 to the State: but little care has been taken, tiU recently, to 
 make similar provision for business men. Britain is now setting 
 herself to that task; though as yet with less energy than 
 America and even Germany are doing. 
 
 It is indeed true that a man is likely to be more efficient in 
 business who has braced his mind to hard work in subjects that 
 have no connection with it, than if he had occupied himself with 
 an enervating form of technical instruction, however directly 
 that might bear on his after work. But, provided the studies 
 be themselves of a truly liberal character, the closer their rela- 
 tion to his after work, the more active is his interest in them 
 likely to be. To a colliery manager, who has made a thorough 
 study of geology, the shafts and galleries of a mine are a scientific 
 museum and laboratory: his mind grows with his work, and he 
 may increase the world's wealth of knowledge. As geology is 
 related to mining, so is economics to general business. As the 
 miner needs to make more intensively, but with a narrower 
 range, the same studies as the geologist makes; so the business 
 man needs the same kind of studies as the economist does: but 
 
 from such schools have gone to Universities, at which a knowledge of Greek and 
 Latin is required, and classical studies have had a chief place. 
 
 Some measure of the disturbing influence thus caused may be obtained by 
 reflecting on the large preponderance of artistic ability at Florence in her 
 prime: art was the chief route to public esteem, and therefore able, high- 
 spirited youths became artists. To take another illustration: let us suppose 
 that in England the headmasters of the chief schools had been selected for their 
 musical attainments; and that music had dominated her University curricula. 
 Then the ablest boys would have been regarded as the peculium of a musical 
 headmaster: and, if he had happened to be colour-blind, and a lad with the 
 genius of a Rembrandt had unfortunately shown some musical ability, he might 
 have grown up to be a moderately good musician. One of the ablest and most 
 enterprising headmasters in England not long ago objected to mathematical 
 studies, on the ground that Euclid calls for no mental faculty except memory. 
 Being himself "science-blind," he had no notion that a boy with a mathematical 
 bias quickly grasps Euclid's method, and afterwards merely glances at the 
 general line of one of Euclid's arguments, filling La the details for himself. 
 
 ' Much of this Section is taken from papers printed in connection with the 
 foundation, in 1903, of the Cambridge Curriculum in Economics and some allied 
 branches of Political Science. 
 
THE EDUCATION OP BUSINESS MEN 
 
 his range is more circumscribed, and his penetration reaches 
 further into particular details. 
 
 Every study exercises, in various degrees, perception, ima- 
 gination and reason. Perception may be trained in childhood. 
 The springs of imagination belong to early youth: it is the 
 greatest of all faculties; and in its full development it makes 
 the great soldier, the great artist, the student who extends the 
 boundaries of science, and the great business man. Reasoning 
 cannot be carried far in complex problems, till youth passes into 
 manhood. The business man needs all three: especially he needs 
 imagination to put him on the track of remote and invisible 
 effects of causes which are obvious, and of the hidden causes of 
 visible effects. General intelligence and common sense will, of 
 course, go some way towards the solution of his problems: they 
 are, in fact, better guides than mere academic training unaided 
 by them; and in simple matters they abnost suffice. But in 
 others a greater effort, a larger range of view, and a more powerful 
 exercise of the imagination are needed. For instance, to get at 
 the real effects of plausible schemes for increasing steadiness of 
 employment he must have learned how closely connected are 
 changes in credit, in domestic trade, in foreign trade competition, 
 in harvests, and in prices; and how all of these affect steadiness of 
 employment for good and for evil. He must watch how almost 
 every considerable economic change in any part of the Western 
 world affects employment, in some trades at least, in almost 
 every other part. If he is to look for those causes which are 
 far off and weigh them in the balance, then the work before him 
 is a high discipline for the mind. In such problems as this it is 
 the purely intellectual, and sometimes even the critical faculties, 
 which are most in demand. 
 
 In addition to a strong and alert mental faculty, the business 
 man needs to have acquired a knowledge of human nature, 
 together with the power of managing men, and to this end the 
 social training afforded by life in a residentiary university of 
 the Anglo-Saxon type is specially serviceable. For such a life 
 draws out the faculties which are needed in the social relations 
 of those who have to deal with large bodies of men and large 
 public interests. On the river and in the football field the 
 student learns to bear and to forbear; to obey and to command. 
 
THE DEVELOPMENT OF FACULTIES AT A UNIVERSITY 823 
 
 And, what is even more important, the comradeship of app. k, 2. 
 generous youth, unless marred by extravagance or vice, tends 
 to develop the sympathies, which separate man by an impassable 
 gulf from the most powerful machine which modern skill has 
 taught "almost to think." Indeed an employer, whose sym- 
 pathies are dull, often falls short even as a profit- winner; unless 
 he has thought much, and cared much, about those sides of his 
 work-people's life and characters, which are not directly reflected 
 in the wages bargain. To learn this from personal contact is 
 ever more difficult : for he is now often separated from the mass 
 of his employees by several ■ strata of subordinates. He lives 
 among his own class; and this association is apt to make him 
 look at labour questions from the employer's point of view. But 
 undergraduate sympathy tends always towards what is, or appears 
 to be, the weaker side: any bias, which an undergraduate may 
 bring to these questions, is apt to be on the side of the employees. 
 And such a bias does him no harm: for he will not take long to 
 learn the full force of the employers' side of the case. Thus 
 trained, he is often able, as both English and American experiences 
 show, to read the minds of the employees more readily than can 
 be done by an employer, even if much older than himself, who 
 has not had that training. He interprets between the two sides: 
 and thus that broad sjTnpathy grows, which enables different 
 social classes to put themselves in one another's points of view 
 and welds the nation into one. 
 
APPENDIX L 
 
 CONDITIONAL MONOPOLIES IN MULTIPLE 
 OWNERSHIPi 
 
 1. Problems relating to an industry, which wovld con- 
 stitute a powerful monopoly if in a single ownership. Illus- 
 tration from the incidences of taxes on agriculture in a 
 densely peopled country. 
 
 There are two chief cases of multiple ownership of properties 
 each of which would constitute a monopoly, if in a single hand: 
 they illustrate important, but widely difierent principles. The 
 ownership of the agricultural land of a country would confer a 
 hard monopoly of the supply of food; if it were in a single hand, 
 and food could not easily be imported from abroad. The monopoly 
 of aU the land and buildings of a great city, if in a single hand 
 would appear as a latent menace to all its inhabitants : but the 
 power given by it could seldom be abused without lasting injury 
 to its owner; and, in fact, the multitude of owners of land and 
 bmldings in an ordinary town have an exceptional interest in 
 developing its prosperity. These contrasted cases are now to be 
 discussed. 
 
 It is a common belief, at aU events in a country which has no 
 foreign trade in agricultural produce, that land has a monopoly- 
 value; because its total area is fixed by Nature. The belief 
 would be fuUy justified if the cultivators of the land acted in 
 concert, and so adjusted the supply of produce, that its aggregate 
 price yielded the maximum excess over the costs (all included) 
 of cultivating it and marketing the produce. 
 
 But the problem is more complex in a country where there is 
 no such combination; whether the cultivators are tenant farmers 
 or independent owners. It is indeed true that, even in such 
 ' Thia Appendix is associated with III, n, 4, p. 421. 
 
INCIDENCE OF VARIOUS TAXES ON AGRICULTURE 825 
 
 a country, a fixed tax on the land itself, taking no account of app. l, i. 
 tte manner in which it is cultivated, would act on the owners 
 of land in the same way as would a similar tax in a country in 
 which all the land was in a single ownership, thus constituting 
 a vast monopoly. For such a tax would not afiect the action 
 of the cultivator (whether owner or not), nor the pressure which 
 an owner could put on his tenant farmers: and, since it would 
 not affect the amount of produce raised, therefore it would not 
 afiect the consumer. A landlord might stipulate that the tax 
 should be paid by the farmer; and that would affect the in- 
 cidence of an unexpected change in the tax. But, in so far as 
 the future of the tax could be anticipated, the amount of the 
 rent which the farmer could be induced to promise to pay would 
 be diminished by the tax: therefore in effect the tax would be 
 paid by the landlord^. 
 
 In fact, however, nearly all taxes on agricultural land are 
 assessed on its market value: and their incidence is much 
 affected by the varying degrees of viscosity of the several 
 elements of the problem. For the market value is partly due 
 to recent investments of capital in the land; and the expecta- 
 tion that a tax will be paid on further investments tends to 
 check a generous investment in improvements; and therefore 
 to diminish production. The extent to which it will do so 
 within a few years cannot be set out in any definite formula: 
 but its effects have some af&nity to those of a tax on agricultural 
 produce in general, to which we may now pass, it being re- 
 membered that the country is supposed to have no external 
 trade in such produce. 
 
 Agricultural produce is consumed by everyone: it absorbs 
 a great part of the incomes of the working classes, a con- 
 siderable part of those of the middle classes; but only a small 
 part of those of the rich, even when the consumption of their 
 domestics is reckoned in. All industries are interested in it 
 about equally from the point of view of consumption: but the 
 makers of agricultural implements and artificial manures and 
 
 ' The tithe rent charge on each piece of land is fixed without reference to ita 
 yield (except as regards hops) : and, though it varies with the official prices of 
 staple grains in recent years, it does not materially affect the inducements to 
 apply labour and capital to any particular piece of land. Therefore it acts 
 almost as a fixed tax on land regarded as a monopoly in single ownership. 
 
826 CONDITIONAL MONOPOLIES IN MULTIPLE OWNERSHIP 
 
 ipp. L, 1. the transport industries alone look to it for any exceptional 
 market for their products or services. 
 
 The greater part of the burden of this tax would therefore 
 be distributed among the people generally as consumers, the 
 pressure diminishing almost regularly with every step upwards 
 in normal income. Farmers and agricultural labourers, besides 
 bearing their shares of the burden in about equal proportion 
 with others in the same ranks of the social scale, would further 
 suffer from any shrinkage in their employment which resulted 
 from a shrinkage of consumption caused by the tax: but no 
 other very large class of producers would be affected by the tax 
 in an exceptional degree. The consumption of most kinds of 
 agricultural produce is however seldom very elastic: and there- 
 fore the reduction in their output caused by the tax would 
 probably not be very great. Thus the chief influence of the 
 tax would be a rise in their values on the market after paying 
 the tax; and that would enable the landlords in the long run 
 to make bargains with tenant farmers on more favourable terms 
 to themselves. 
 
 It is an old remark that it a tax of one-tenth were imposed on 
 agricultural produce; and yet (the demand for it being inelastic) 
 its consumption were not diminished, nine-tenths as much as 
 before would serve to remunerate the labour and capital em- 
 ployed in raising it; while one-tenth of the share, that used to 
 be retained by the farmer for himself and his men, would go ia 
 taxation. Therefore the share left for the landlord to retain and 
 to pay his tax with would be the same in amount as before: 
 one- tenth would go to the taxgatherer; and the remaining 
 nine-tenths would have the same value as his old rent had, 
 except of course in so far as the landlord himself was a consumer 
 of agricultural produce. That is to say a tax on raw produce, 
 the demand for it being very inelastic, would not injure the 
 landowners; because the produce of their lands is sold at com- 
 petitive prices. But if land were a monopoly, and its produce 
 were sold at prices fixed on monopoly principles, the price 
 might have already been put so high, that an increase in it 
 would compel some diminution of consumption at whatever cost 
 of well-being: and in that case a part of the burden (in addition 
 to the tax on their own consumption) would fall on the landlords. 
 
INCIDENCE 01' VARIOUS TAXES ON AGRICULTURE 827 
 
 Even as things are, the tax might possibly exert a small app.i,, i. 
 mfluence in this direction. For, if the increased expenditure of 
 the poorer part of the population on their food crippled their 
 consumption of other requisites of efficiency and vigour, it might 
 m the long run so restrict the growth of the population in energy, 
 if not numbers, as to hinder the rise in the real value of rents 
 which would otherwise have occurred. Whether it did so or 
 not, would depend mainly on the way in which the proceeds of 
 the tax were spent; in other words, whether it was onerous to 
 the population generally, or not. 
 
 It should be noted that the peculiar position, which land 
 holds in the economic system of densely peopled countries, arises 
 from the two facts (1) that the area of land is absolutely fixed 
 by Nature; and (2) that the other requisites of economic develop- 
 ment are capable of increase. In Russia the wealth of a landed 
 proprietor has been measured by the number of "souls" which 
 he could command to work on his land: and in some parts 
 of Australia, where the soil is favourable to pasture and com 
 cultivation, but water is scarce, the effective value of land is 
 governed mainly by its water supply. It is possible to con- 
 ceive a planet in which the total available water is insufficient 
 for nearly as large a population as the land would support with 
 an adequate supply of it: and in that case, though water is 
 mobile and land is not, water might hold as dominant a position 
 in the economics of the population, as land does in a densely 
 peopled country of this world. 
 
 Allowing yet more free play to fancy, it may be observed that 
 if the stock of some important machines, say printing presses, 
 could be supposed to be permanent and fixed in the same way 
 as is that of land, a tax on them (independent of the work done 
 by them) would be paid entirely by the owners of the existing 
 printing presses, provided it did not drive any of them out of 
 use; just as would a similar tax on all land. For they would 
 all sell their services for what could be got (without any re- 
 ference to the cost of production of printing presses). So the 
 tax woidd not afiect the output of printing, nor therefore its 
 price: it would simply intercept some of the earnings of the 
 presses on their way to the owners. 
 
828 CONDITIONAL MONOPOLIES IN MULTIPLE OWNERSHIP 
 
 App. L, 2. 2. Interests which oumers of land, and of good btisiness 
 connections, have in the semi-monopolistic advantages, that a 
 city may develop by large local expenditure, well adminis- 
 tered. 
 
 Local taxation is commonly divided into that which is 
 "onerous," and that which is "beneficial" or "remuneratory." 
 Onerous local taxes, or "ratSs," are said to be those which are 
 levied for purposes in which the locality has but a partial 
 interest. Remuneratory rates are said to be those which supply 
 the means of obtaining local benefits, in such wise that — under 
 good management — they render services to the locality which 
 outweigh their costs. These descriptions are adequate for some 
 purposes: but they ignore the fact that, as a locality has some 
 special interests which are not shared by the rest of the country; 
 so the permanent residents in a locality, and especially the 
 owners of land and buildings in it, have some interests which 
 do not extend in full measure to other residents. Let us go into 
 some details. 
 
 A national tax levied evenly on a whole people and spent 
 on education, sanitation, etc., in such a way as to confer on them 
 benefits in the form of health and energy and earning power, 
 which are more than equivalent to the charges levied on them, 
 is remunerative. In so far as it is levied mainly on the well- 
 to-do, and spent mainly in the service of the working classes, 
 it is prima, fade onerous to the well-to-do: but the purposes, 
 for which it is levied, tend to make the country rich in material 
 wealth and in the amenities of life; and therefore the tax is in 
 some degree remunerative even to them. 
 
 Exceptionally heavy local rates levied in a town for the pur- 
 poses of education, are said to be in some measure onerous; 
 because those, who have benefited by the education, may leave 
 the locality. But, if local industry and trade are developed by 
 the facilities to which good education has given increased strength, 
 the expenditure may lead to net immigration; and thus greatly 
 benefit local owners of land, buildings, and established businesses. 
 
 On the other hand, if mismanagement caused the rates of 
 a town to rise greatly, while there was no corresponding increase 
 in the attractions which the town offered to industries in 
 general (that is if there were a great increase in those rates 
 
INCIDENCE OF URBAN RATES 829 
 
 wtich were in the main onerous), its population would grow iPP.L,2. 
 slowly and might even shrink. Those who for any reason could 
 not leave the town would tend to avoid industries on which the 
 rates pressed with exceptionally heavy weight, and to drift 
 into those on which the rates pressed Ughtly. Conversely taxes, 
 so spent as to add to the advantages of Hving ia a town more 
 than the equivalent of their cost, would develop its industries 
 generally: though, if devoted to a purpose, which was of great 
 importance to some industries and of but little to others, its 
 influence would act unevenly. Thus, if there were a scarcity of 
 available building ground in the town, those industries, which 
 gained very little on the balance from the expenditure of the 
 new taxes, might actually decline to make way for those which 
 stood to gain greatly by the change. An increase of onerous 
 national taxes will no doubt tend to drive the industrial popu- 
 lation out of a country: and good finance will tend to attract 
 industries to it: but the rates of growth of population of neigh- 
 bouring countries do not differ nearly as widely as do those of 
 neighbouring towns or cities in the same country: and such 
 difEerences as exist, are due, save in a very few cases, to broader 
 and deeper causes than difEerences in the pressure of taxation. 
 
 Much of the collective property, which the inhabitants of a 
 well-managed town have built up, is at the disposal of any who 
 choose to come to it, provided they can obtain suitable premises 
 on moderate terms : but a considerable part of it is the exclusive 
 property of those who own the soil, the buildings and the busi- 
 nesses established there. The firmer their hold on the town, 
 and the firmer the hold which the town has on them, the more 
 nearly do their interests approach to those of a town, such as 
 Eastbourne, which was planned by a single owner on his own 
 land, and remains largely under his control. Its permanent 
 residents, if well advised, and able to override those residents 
 who have no permanent interest in the development of the town, 
 may sacrifice present income to relatively large deferred gains, 
 in a constructive policy resembling that of a far-seeing mono- 
 polist. They seldom attain to so high a level; but they yet rise 
 much above that of monopolistic ownership in weak or tyrannous 
 hands. 
 
APPENDIX Ml 
 
 NOTES ON RAILWAYS AND THEIR PROBLEMS 
 
 App. M, 1. 1. Early phases of English railway traffic and finance. 
 Causes of the rise and decline of canals. 
 
 "Railroads" were originally roads on wLich rails of wood 
 or metal were laid down to facilitate the passage of ordinary 
 vehicles. They were introduced generally in some colliery 
 districts during the first half of the seventeenth century: they 
 enabled a horse to draw rather more than two tons, whereas, 
 on an ordinary good road (of the kind then usual) his load was 
 under one ton. Thin plates of iron were soon put on the wood; 
 and in 1738 cast iron rails were used, and cast iron wheels 
 followed. In 1804 Trevithick's locomotive drew ten tons of 
 iron on a railroad: but stationary steam engines remained for 
 a long while in effective competition with it. Stephenson's 
 engine ran on the Stockton and Darlington Railway in 1825: 
 but no railroad was licensed for passengers tUl 1830^. 
 
 The early locomotive could move fast; and it had no 
 difficulty in routing the mail coach. But it had very little 
 power; and it was so extravagant of coal, that it could not 
 draw heavy and bulky goods of low values at rates comparable 
 with those charged by canals. If therefore the canals could 
 have adapted themselves quickly to the increasing demands of 
 
 • This Appendix is associated with III, iv, v, vi. See also I, iv, 4. 
 
 ' The Companion to the British Almanack, 1841, contains an account of 
 the 135 Railway Acta passed from 1800 to 1839. Horses are the "power 
 used" almost exclusively till 1826: soon afterwards locomotives predominate. 
 A treatise on railroads... and the comparative value of canals and railroads, by 
 Nicholas Wood, 1825, contains a thoroughly scientific study of the mechanical 
 problems concerned. But he sees many advantages on the side of canals, 
 provided they be administered vigorously. The history of artificial waterways 
 in England from 1761 to recent years is sketched in the Final Report of the 
 Royal Commission on Canals and Waterways, 1909 [Cd. 4979]. 
 
EARLY PHASES OF ENGLISH RAILWAYS AND CANALS 831 
 
 England's economic development, they might have even now app. m, i. 
 carried a great deal of the internal trade of England: and the 
 somewhat hazardous movement of her heavy industries towards 
 the sea might have been kept within more moderate limits. 
 
 But unfortunately large capital, enterprise and organizing 
 faculty were needed for developing chains of small canals 
 into a great system. It was not an easy task to enlarge 
 a canal, so that it could carry and pass through its locks, 
 barges much larger than those for which it had been con- 
 structed: and there were but few canals which were so far 
 self-contained as to be able to derive much benefit from such 
 an enlargement, unless similar improvements were made by its 
 neighbours. No doubt exceptional outlay is sometimes made 
 by a particular locality for the improvement of an inland 
 water-way, as in the case of the Manchester Canal: but the 
 financial aid, which the shipping industry has derived from 
 pubHc outlays on the improvement of harbours and of the chan- 
 nels which connect them with the sea, was not forthcoming to 
 EngUsh canals in the time of their distress. So some of them 
 were speedily choked up; and this further narrowed the scope 
 for the profitable iavestment of capital in improvrag canals that 
 had made connection with them. Lastly steamships completely 
 outbid those canals (of which the Avon and Kennet canal con- 
 necting Bristol with Eeading may be taken as a tjrpe), whose 
 province it had been to enable goods received on one coast of 
 England to be delivered near the other, without the uncertain 
 delays of a long coasting voyage. 
 
 Even if railway locomotives had long remained unable to 
 haul heavy loads economically, these causes would have ruiued 
 nearly all English canals, unless public funds had come to their 
 aid. The time had not yet arrived for the general recognition 
 of the fact that canals, being in efiect public highways, need to 
 "oe organized by Government, and perhaps financed by it. Nor 
 is that surprising: for, till recently, roads were partly financed 
 by private enterprise in return for toUs; and it was not easy to 
 foresee how great an injury to the country might be caused by 
 the lack of adequate depth and breadth of any link in the chain 
 of canals^. 
 
 ' The Avon and Kennet canal adds much to the beauty of a branch of the 
 
832 SOME RAILWAY PROBLEMS 
 
 4PP. M, 1. As things were, technical advance in the laying of railway 
 tracks and the construction of locomotives proceeded steadily; 
 and the load of a goods train soon surpassed that of a string of 
 barges of moderate length. Two uniform gauges, one "broad" 
 and the other "narrow," were adopted: and intercom muni cation 
 between railways became easy. The coach from London to 
 Oxford had occupied two long days in 1742: and its time had 
 not been reduced below six hours, when it was supplanted by 
 a train which took but one and a half hours. Before 1850 
 Lardner had sometimes found himself travelling at seventy 
 miles an hour; and the 193 miles between London and Exeter 
 were traversed in four and a half hours. These conditions had 
 been partly cause, and partly efEect, of the growing eager- 
 ness of Government and the public to welcome the fusion of 
 railways which fed one another, the prohibition of fusions 
 between parallel lines seemed an adequate safeguard against the 
 development of railway monopolies. In the "thirties" railways 
 served their apprenticeship: in the "forties" they learnt much 
 of what they could do, and what they could not do. In 1844 
 a wave of confident expectation set in: it reached its cUmax 
 in the violent speculation of 1845 — 6 ; and it broke down in the 
 panic of 1847 — 8, of which it was a chief contributory cause. 
 When it had passed away, England's economic pohcy had 
 entered on a new career, and passed out of the special con- 
 ditions to which this Section relates^. 
 
 Great Western Railway, which faithfully preserves it in good order: and its lack 
 of traffic has been claimed as a proof that canals are unable to render important 
 services to England now. But some railways, even in England, were abandoned 
 as being in unsuitable places. And, as is argued above (pp. 497 — 506), the last 
 word has not yet been said in defence of English canals. As late as 1836, the 
 first year in which speculation in railway securities ran wild, the canals attracted 
 more new capital than any other class of investment, except railways, baniks, 
 insurance companies and mines (Levi, History of British Commerce, p. 220). 
 
 ' A map of aU the English railways sanctioned in 1844 (reproduced in the 
 Jubilee number of TAe Railway News, 1914) shows the lines so scattered, and 
 with so few common points, that there could not have been much effective 
 competition among them; while their combination would not have much 
 increased their monopolistic power. But the map (reproduced in Mr Cleveland- 
 Stevens' excellent study of the development of English Railways) shows that by 
 1 848 the foundations had been laid for the existing system of main lines with all 
 their possibilities of far reaching competition, and eventually of their combined 
 action. There is some interest in the comparison of the meteoric career of 
 Hudson, the English railway king of the forties, with that of the American 
 
EARLY PHASES OF ENGLISH RAILWAYS AND CANALS 833 
 
 Ifc may however be added here, as belonging to early rather app. u, i. 
 than recent history, that in 1844 an Act was passed, on Gladstone's 
 motion, providing that every new licence granted for the con- 
 struction of a railway, should embody a provision that the State 
 might purchase it after twenty-one years at a very high price. 
 He suggested two and a half times the railway's capital as the 
 maximum purchase price: but eventually that was made the 
 minimum price; and this was in face of the fact that a Parlia- 
 mentary Committee had reported in 1840 that "as far as 
 regards heavy merchandise, it appears probable that the canals 
 wUl always secure the public against any unreasonable demands 
 on the part of the railway companies." The net profits earned 
 by a company were commonly assumed, in discussions on the 
 Bill, to be Ukely to exceed ten per cent.: but they soon settled 
 down to less than half that amount. In 1846 the securities 
 of several Unes had been selling at more than double their 
 nominal amounts. 
 
 The next two years were full of trouble, but their lessons 
 were well learnt; and the outlook for such railways, as were 
 soberly financed and ably administered, remained without any 
 considerable cloud; for the steam power, to which they had 
 owed everything, had not yet moved towards its almost equally 
 rich harvest on the ocean. For a long time all went well with 
 England's railways; their expansion was not hindered by the 
 narrowness of her territory; and they had no effective rival. 
 Nearly all the existing main lines were well developed in the 
 third quarter of last century. Railway outlay increased fast; 
 but net receipts increased a Httle faster, till in 1872 they 
 averaged 4'74 per cent, on the total "paid up" capital. Since 
 that time the progress of railways has been less satisfactory, 
 at all events from the financial point of view. Their capital 
 has been doubled: and the proportion of net receipts to it has 
 ahnost steadily diminished; though the gross receipts have 
 increased faster than the capital, and the total amount of work 
 done by the railways has increased much faster still^- 
 
 Harriman in recent years. Each had daring and powerful constructive genius: 
 each thought himseli above the counsels of prudence, and perhaps even those 
 of morality, of ordinary men. 
 
 » The number of passengers exclusive of season ticket holders increased 
 
 M. . .. 27 
 
834 SOME RAILWAY PROBLKMS 
 
 AFF. U, J. 
 
 2. Curious contrasts in passenger traffic. 
 
 Before 1844 English railways were of little use to the 
 working classes. But a law was then passed that compelled 
 every railway to run at least one train a day, in which people 
 could be conveyed at a rate of not less than 12 miles an hour; 
 at a charge not exceeding a penny a mile; and in carriages 
 provided with seats and protected from the weather^. The rail- 
 way companies resisted the change as far as they could; and, 
 even twenty years later, there were few third-class carriages, 
 except on Parliamentary trains; and these were often run 
 (the Railway Commissioners not exercising their legal powers) 
 at inconvenient hours, and kept in a dirty condition. For it 
 was even then thought that the ordinary travelling of the 
 working classes could not be worth encouraging: though they 
 were tempted to make excursions by extremely low rates, three 
 and sixpence being a common return fare from London to the 
 southern watering places. But the notion that it would be 
 good business to make third-class travel comfortable and rapid, 
 gradually made its way; and finally triumphed in 1875 when 
 the Midland put fairly good third-class carriages on all its 
 trains*. 
 
 It must however be admitted that there is some hardship Lq 
 the rule that the ordinary charge for the poor man is adjusted 
 to a comfortable method of travelling; so that he has not the 
 choice of a rather less expensive method of travelling at a much 
 lower cost, as he has on the Continent. It is true that the 
 
 about seven-fold in the fifty yeara ending 1912; but part of thia increaae in 
 numbers was due to the rapid growths of urban and suburban traffic, and does 
 not indicate a corresponding increase in volume. The number of tons of goods 
 carried increased rather more than five-fold; the number of mineral tons which 
 was rather more than twice that of general merchandise at the beginning of the 
 period, had become three and a half times as great at the end. 
 
 ' Lardner [Railway Economy, ch. x.) gives statistics showing how the total 
 number of miles travelled by third-class passengers was less than that travelled 
 by first-class passengers in 1844, but more than twice as great in 1848. The 
 average distances travelled were about 26 miles by first-class, and 13 by third- 
 class passengers. The extreme measures, by which railway companies used to 
 make travelling in third-class carriages uncomfortable, and even intolerable to 
 well-to-do persons, are humorously described in Acworth's Railways oj England. 
 
 ^ Gladstone warmly supported the movement. Its principles are well set out 
 in an article on "Railways in their Social Relations" in the Briliah Almanack 
 for 1865. 
 
SOME CONTRASTS IN PASSENGER TRAFFIC 835 
 
 artisan, when seeking work, can often got his railway fares paid app. m, 2. 
 by his Trade Union; but a minimum charge of half a crown for 
 the equivalent of a day's walk is too high. This evil might be 
 removed by adding fourth-class carriages to a few passenger 
 trains, and to some goods trains. The official English conten- 
 tion that the latter practice is unsafe, is inconsistent with the ex- 
 perience of other countries. Special workmen's tickets, adapted 
 to those who live some distance from their work, are palUatives 
 of these hardships; but inadequate^. 
 
 The excess of ordinary fares above the direct costs of 
 transport is so great, that railways are apt to meet specially 
 elastic traffic by very low fares, even when much of it must be 
 carried at somewhat more than the average direct cost. Thus 
 British railways, which carry comparatively few first or second- 
 class passengers in the greater part of their work, seU first and 
 second-class season tickets at charges below those of ordinary 
 third-class tickets for an equal aggregate mileage: and yet 
 the carriages used by them have to travel for the greater part 
 empty one way in the morning and the other way in the 
 evening; unless indeed they are put to sleep on a siding for 
 the greater part of the day. 
 
 The principle of adapting passenger fares to what the traffic 
 will bear, rather than to cost, is further illustrated by the 
 practice of charging specially low rates for return tickets avail- 
 able only for a fortnight and lower rates stiU for week-end 
 tickets. Those who can take but a short holiday are specially 
 likely to be influenced by a low charge; and a reduction of a 
 few shillings on the total expense of a week-end holiday, is 
 more likely to influence conduct, than when it is but a minute 
 fraction of the total expense to be incurred^. 
 
 • On the Continent generally the working classes travel for about a halfpenny 
 a mile J while in Prussia they travel fourth class for a farthing a mile. Where 
 however the railways are sparse and circuitous, and especially in the mountainous 
 regions of Central Europe, a journey on foot may be not very much longer in 
 time than one by railway; and, partly through poverty, those who migrate in 
 search of work, commonly go on foot. In France many express trains are only 
 first class. But generally one can travel on the Continent in express trains 
 second class for the English third-class fare; or for less, if one has a return 
 ticket; but this saving is sometimes lost by charges for luggage. 
 
 ' Further applications of this principle are when tickets lor Family, School, 
 Religious Society, Pilgrimage and other groups are issued at a low rate especially 
 
836 SOME RAILWAY PROBLEMS 
 
 App. It, 3. 3. The development of American railway regional and 
 blanJcet rates. 
 
 When the centre of the population of the United States 
 had receded a considerable distance from the Atlantic, but had 
 not yet reached the watershed of the Ohio, much goods traffic 
 had about equally good access to the ocean by railway to 
 Atlantic ports on the one side; and on the other by railway to 
 the Ohio or the Mississippi itself, and the Gulf of Mexico. 
 Difficult, rapid and ever-shifting as are those river courses, the 
 ton- mile charges by steamers on them were much lower than 
 those at which the railways could afford to carry ordinary 
 traffic. But, in order to compete with the steamers, the rail- 
 ways made specially low rates between the Atlantic and the 
 whole of the area, which had fairly good access to the Missis- 
 sippi: and the rule, that railways might lower their rates in 
 competition with water-routes, was generally adopted. 
 
 When the Pacific coast was developed, railways running 
 west offered extremely low rates to San Francisco, in order to 
 divert traffic from the naturally less costly route to Atlantic 
 ports, and thence round Cape Horn to the Pacific coast: (the 
 details of this conflict are being modified by the Panama 
 Canal, but its main features are unchanged). Farmers and 
 others in the Middle States, who saw goods carried past their 
 doors to San Francisco at charges much lower than those which 
 they were forced to pay for a "short haul" over a part of the 
 same route, made complaints: and these evoked a clause in the 
 Interstate Commerce Law of 1887 prohibiting a higher charge 
 for a part of any route than for a longer part of the same route. 
 This "Long and short haul clause" has however been found some- 
 what difficult of interpretation under ever-changing conditions^. 
 
 in Franco, Switzerland and Italy, countries much frequented by rich foreigners. 
 I<'or tlie plan of a general reduction of fares, which works well enough in such a 
 country as Hungary, would let o£E this foreign traffic at much lower charges 
 than it can bear. These special facilities are not generally accessible to the 
 foreigner; and they enable the poorer classes and others to make many pleasure 
 excursions at a low cost. Compare the account of "Tarifs Sp6ciaux pour 
 voyageurs " in Colson's Transports et Tarifs. 
 
 If anyone wants to go to London and back on a Saturday, he is not allowed 
 to use a cheap week-end ticket; because such journeys imply urgent cause, and 
 they are not likely to increase much in response to a lowering of fares. 
 
 '■ An article by Prof. H. Q. Brown in The American Economic Seview, 
 
AMERICAN REGIONAL AND BLANKET RATES 837 
 
 Meanwhile the economy of sending large trainloads, with app. m, 3. 
 Uttle break of bulk, to Chicago and other great centres, 
 together with the intense railway competition at those centres, 
 had caused them to be adopted as "basing-points": that is, 
 the charge for distant traffic to any point in the neighbourhood 
 of a base was made up of a low rate per mile to the basing- 
 point, together with the ordinary rate from the base to the 
 station of delivery. If that station was nearer the place of 
 origin than the basing-point, the charge became less for a long 
 journey than for a shorter one. If this was prohibited, as 
 it originally was, then the charges to all such stations were put 
 at the same amount as those to the basing-point. That intro- 
 duced some simplicity of arrangements, together with the 
 inequalities and complexities that result from forced simplicity: 
 and these results were extended much further when, instead of 
 a single basing-point in a district, there were several. In this 
 way in fact there was set up a single rate from St Louis to all 
 stations south of the Texan border. For "as railroads were 
 built and extended, one line would reach station A by passing 
 through station B\ and another line would reach station B by 
 ' passing through station A; and so on through a ramifying net- 
 work^." And when this process had gone some considerable 
 way, no great further change was made by adopting a single 
 "blanket" rate between the whole region and St Louis. Such 
 arrangements may claim to strike out paths of least resistance: 
 but they do not seem capable of general application; and they 
 are open to grave objections. 
 
 A strict interpretation of the "Long and short haul clause" 
 was perhaps advisable in early days when struggles for the 
 mastery of particular railways, as well as conflicts between 
 railways, were often waged with unscrupulous ferocity. For, 
 when rates between competitive points were liable to be put 
 down to very low levels for strategical purposes, such a purpose 
 might well be hindered by the fear that the railway would lose 
 on its intermediate traffic. There were some cases in which 
 
 December 1914, show3 in entertaining fashion oases in which it may be in the 
 general interest that traffic should be diverted from a short to a long haul. ^ 
 
 » See p. 94 of an instructive chapter on "Regional rate structures'' in 
 McPheraon's Railroad FreiglU Rates. 
 
838 SOME RAILWAY PROBLEMS 
 
 App. M, 4. the rigid application of the clause worked harm : but latterly 
 the Interstate Commerce Conjmission, having obtained increased 
 powers, has seen its way to relax rules, which pressed hardly 
 in special cases. Thus was afforded additional evidence that the 
 function of a Legislature is to give powers to authoritative 
 Commissions; and in case of need to recast a Commission, or 
 modify its powers: but not to attempt to govern by law^. 
 
 4. The importance of railway statistics, and their difficulties. 
 
 The operations of railways are apparently much more homo- 
 geneous than those of most other industries; and international 
 railway statistics relate to exceptionally large volumes of 
 similar facts. But much of this apparent uniformity is illusive. 
 The conditions of railway work vary greatly between different 
 countries and sometimes even between different districts served 
 by the same railway; and therefore things represented by the 
 same name, and necessarily classed together in statistical returns, 
 differ widely. 
 
 For instance, the work done on the average by a passenger 
 or goods train in going a mile — a "passenger train mile," or 
 a "goods train mile," — means very different things on the main 
 line, and on a minor branch of a great English railway. An 
 American train-mile often represents thousands of "ton-miles"; 
 that is, tons of freight moved a mile: on English railways it 
 seldom represents many hundreds and often not many tens of 
 ton-miles. If "wagon-miles" be substituted for train-miles 
 we get units that are more similar in some respects, but less 
 in others: for though the service rendered by a train with 
 
 • For instance, the Commission still allows a railway to lower its rates to 
 any seaport far enough to meet, though not to extinguish, water competition. 
 And (see its Reporl for 1913, p. 25) after referring to such a case, in which the 
 railway's long-h.iul rate was not reduced below what was necessary to prevent 
 its being "obliged to retire from competition at the water-competition point," 
 declined to compel it to reduce all charges to intermediate points to the same 
 level, when that was below those rates that were " reasonable per se " for those 
 points. It goes on to indicate concessions, mostly temporary, which it makes 
 in cases in which the new rules appear to press heavily. 
 
 The Hepburn Act strengthened the Commission by making its authority 
 valid, unless and until over-ruled by the Supreme Court on a question of law. 
 The causes that led up to this change are set out by Ripley, Railroads, Vol. I, 
 chs. xiii. — XX. See also an account of "Public sentiment and the Hepburn 
 Bill," MoPherson, I.e. oh. xix. 
 
RAILWAY STATISTICS 839 
 
 thirty wagons is three times as great as that of another with app. m,4. 
 ten similar loaded wagons, the costs of the two services do not 
 differ nearly so much. Ton-miles, wagon-miles and train-miles 
 are all needed as the basis of statistical comparisons. 
 
 A million ton-miles on a "heavy" English railway such as 
 the Midland or the North Eastern represent much less work 
 than a miDion ton-miles on a "light" railway in the South 
 of England. Train-mile and wagon-mile statistics make the 
 services of English trains appear greater relatively to those of 
 American than they really are; while ton-mile and passenger- 
 mile statistics mislead in the opposite direction. And, as has 
 been argued, small wagons, many of them not nearly full, are 
 in some degree necessary conditions for the prompt delivery 
 of small consignments starting from any of several thousand 
 stations to be delivered at any other^. 
 
 Sharp tools cut inexpert fingers: and railway statistics, like 
 most others that relate to complex matters, are open to the 
 charge that they often mislead the ill-informed. It is also some- 
 times objected that they are of less service in administration 
 than the careful observations and reports of the loading, working, 
 etc. of individual trains; while these are regularly made on well- 
 managed lines, to serve as a basis for the policy adopted by the 
 central authorities. Statistics supplement, but make no claim 
 to supersede, that essential work. The Committee on Railway 
 Accounts and Statistical Returns, 1909, reported that without 
 statistics it is not possible, but with them it is possible, to 
 ascertain train load, or wagon load and length of haul: as well 
 as the transport effected per engine hour in passenger traffic 
 and in goods traffic : also the average receipts per passenger-mile 
 and per ton-mile; and the average density of traffic per mile of 
 road and per mile of track ^. 
 
 1 See above, pp. 452 — 3. 
 
 » See [Cd. 4697], § 45. Conferences of British railway men, and their 
 professional journals, do much for the cooperative advance of knowledge. But 
 there seems to be some grounds for the severe judgment of a competent critic 
 that "the defect in the prevalent British statistical system is that the manager 
 actually never knows what his neighbour is doing: he has no opportunity as 
 the American manager has to whet his curiosity on the good performances, 
 which somebody else is making. Consequently, improvements in British 
 practice spread but slowly, whereas in America every efficiency-producing device 
 is studied and imitated as soon as it makes itself apparent in the ton-mileage 
 
840 SOME RAILWAY PROBLEMS 
 
 App. M, 4. It is now universally recognized that cost of service can be 
 no more than one among several considerations, to be weighed 
 together "by the exercise of a wise discretion" before reaching 
 a conclusion as to the reasonableness and justice of any par- 
 ticular railway rate: but yet American railways have already 
 "made limited apphcation of the principles of cost-accounting 
 to more than one-half" of their vast mileage for "internal 
 corporate administrative purposes^." And "an order was issued 
 [by the Interstate Commerce Commission] effective as of July 
 1915, requiring all carriers, having operating revenues in excess 
 of $1,000,000, to classify each of the various items of disburse- 
 ment relating to operating accounts, according to the relation 
 which such item bears to the freight service or to the pas- 
 senger and allied services of the carrier; rules being given 
 for apportioning items of expense common to both classes of 
 service, excepting as to certain items under maintenance of 
 way and structures, which are for the present to be left 
 undivided.... It is expected that this class of information will be 
 of assistance, not only in rate cases, but also in making com- 
 parisons of changes in operating costs from year to year, and 
 among various railroads in a given year 2." 
 
 It may be noted that an assumption that the cost of each 
 service is known, underUes every suggestion that the charge 
 for it is put at that point which is most advantageous to a 
 railway from a purely business point of view. For, if the gross 
 receipts of a railway from a certain traffic are only a little 
 greater than its direct and immediate costs, a reduction of the 
 charges for it might be unwise (except for combative purposes), 
 
 figures" (Railroad Administration, 1910, p. 229, by R. Morris, Managing Editor of 
 the Railway Age Gazette, N.Y.). A good short account of uses of the ton-mileage 
 statistics was read by Mr Wedgwood of the North Eastern Railway before the 
 British Association in 1906 and printed in the Economic Journal, March, 1909. 
 The English North Eastern Railway made rapid progress under the guidance 
 of Sir George Gibb, who paid special attention to railway statistics: he is 
 known to have owed much to the stimulation of Mr J. J. Hill, whose devotion 
 to them la regarded by many as an important contributory to the success with 
 which he overcame the obstacles that a mountainous, sparsely inhabited country 
 opposed to direct railway communication between the upper Mississippi Valley 
 and the Pacific Coast. 
 
 ' B. H. Meyer, at the meeting of the American Economic Association, 
 1912. 
 
 ■ Report of the Commission, 1915, p. 46. 
 
RAILWAY STATISTICS 841 
 
 unless it greatly increased the traffic: while an expectation of app.m.s. 
 even a moderate increase of the traffic would have made the 
 reduction of charges remunerative, if the direct costs of work- 
 ing had been much below the present charges. Suppose, for 
 instance, that a certain traffic yields £10,000 of gross revenue; 
 of which £8000 are reckoned as direct or prime costs of moving, 
 and £2000 are allotted for general costs and profits. Suppose 
 that a reduction of charges by one-fifth would double the 
 traffic: then the whole of the receipts, £16,000, would be swal- 
 lowed up by prime costs, leaving nothing for general costs 
 and profits beyond the economies on the mere direct costs 
 of operation from an increase of the traffic. If however the 
 prime costs, accurately estimated, were only £6000; then after 
 the same change, under like conditions, there would remain 
 £4000 for general costs and profits, in addition to these 
 economies of work on a larger scale: and the reduction would 
 be excellent business. These figures illustrate the dictum that 
 "railway business must be unbusinesslike so long as prime 
 costs are reached by mere guesswork and are liable to wide 
 error." 
 
 5. The small and indirect, hut yet valuable, aid which 
 a study of the capitalization of railways may afford in 
 regard to the regulation of the general level of their charges. 
 
 Thus we are brought back to the suggestion, made in 
 Book II (p. 336), that the correct capitalization of a railway or 
 other semi-monopolistic business is matter of larger public 
 concern than that of an ordinary company. The State must 
 in any case take all reasonable measures to protect investors 
 against the fraudulent infusion of "water"; that is additions to 
 the nominal capital of a company, which are not justified by 
 corresponding bond fide payments into its exchequer : though, as 
 a rule, excessive capitalization of a company injures only those 
 who buy its securities. For, if it has no monopoly, those who 
 buy its products are protected against excessive charges by the 
 competition of similar products in open market. 
 
 The nation has, however, an interest in the capitalization of 
 any important public service, which is required to possess stability, 
 solidity, and power of expansion. If a railway issues securities 
 
 27—5 
 
842 SOME RAILWAY PROBLEMS 
 
 ipp. M, 5. much in excess of its actual outlay, it is unlikely to earn enough 
 to pay good dividends. This will tempt it to issue more 
 securities, and pay its expenses partly out of capital: but such 
 action will soon bring it into disrepute, and it will be unable 
 to borrow more on good terms. It wiU perhaps stint outlay on 
 repair's and renewals. It may probably wish to raise its charges, 
 but be unable to do so directly; and, if so, it is likely to let 
 its services deteriorate, and in other ways to make the pubUc 
 pay the penalty of its inflation. 
 
 British business generally is renowned for the soundness of 
 its financial methods: but British railways are sometimes 
 tempted to charge to capital account, expenditure that is 
 required for keeping their plant abreast of advancing technique: 
 though, since such expenditure only places them on a level with 
 new railway enterprise, and makes no extension of their business, 
 it is of a kind which would be generally charged to income 
 by a "conservative" American railway. Every such charge to 
 capital increases the difficulty of maintaining dividends at a 
 high level in the future^. 
 
 Some strong American railways, desiring to evade popular 
 demands for lower charges, have kept their dividends down by 
 charging many organic improvements and extensions to income. 
 But, if they contiaue to prosper, and to act on this plan, their 
 net incomes will rise to so high levels relatively to their capitaU- 
 zation that the public will at last demand concessions in their 
 interest. On the whole, even strong American railways tend to 
 increase their nominal capitals; and their weaker neighbours 
 are tempted to do the same, because they are weak. 
 
 In view of these difficulties a law was passed by Congress 
 in 1913 directing the Interstate Commerce Commission to report 
 in detail as to each piece of railway property "the original cost 
 to date; the cost of reproduction new; the cost of reproduction 
 less depreciation; and an analysis of the methods by which 
 these several costs are obtained, and the reasons for their 
 
 ' Parliament has sanctioned nominal additions, without any real change, to 
 the capitalization of British railways, amounting in the aggregate to £198,000,000. 
 In consequence the average net earnings in 1912 were 3-51 per cent, on the 
 capitalization, instead of 4-51 as they would have been on the actual investments. 
 These additions were made publicly: and a few people recoUeot some that are 
 of recent date; but nearly all are forgotten. 
 
RAILWAY CAPITALIZATION AND RAILWAY CHARGES 843 
 
 differences, if any." This direction is in harmony with the app. m,5. 
 Supreme Court's definition of "reasonable rates," which had 
 been accepted by the Commission, viz. that they are "such rates 
 as will, on the whole, make a reasonable return on the property 
 fairly and honestly dedicated to the public service." The 
 Commission has accordingly thrown itself with energy into this 
 inquiry; which is perhaps destined to be exceptionally arduous 
 and instructive to economists. [It may also be of supreme im- 
 portance to British statesmen, in case measures for some sort of 
 unified control of railways, which have come into view since this 
 was in print, should be developed.] 
 
 "Physical valuation" has been adopted as the name for the 
 subject of the inquiry: and it conveniently gives warning that 
 some elements of the whole problem to be solved lie outside its 
 scope, and must be treated separately. For instance a new 
 railway is not wholly exempt from the general rule that almost 
 every business is likely to make some mistakes, before it attains 
 the best adjustment of its resources to its work^. 
 
 When the studies of the Commission have made considerable 
 progress, it will probably be possible to arrive at an approximate 
 judgment as to the relations between the total costs and the 
 total charges of any particular railway that may fall under 
 suspicion. Its original cost can be estimated roughly from the 
 statistical history of the railway, and can be compared with 
 sipiilar estimates as to other railways: and its methods of 
 administration can be noted; with special reference to the 
 question whether fresh capital was raised to carry out simple 
 improvements, the cost of which should have been defrayed out 
 of income. Also, a direct comparison can be made of its charges 
 
 ' This value clue to a "trying out of the plant," or its adjustment of parts, 
 called by engineers "adaptation or solidification" is one of the "intangible 
 values," noted by Professor Ripley {I.e. II, p. 238) as lying outside Physical 
 Valuation, which he describes at length. The general procedure of the Com- 
 mission is indicated in its own Reports. Mr H. N. Hayes in the Harvard 
 Quarterly Journal of Ecotiomics, argues that, though it is often impossible to 
 get directly at the "original cost" of a public utility, yet an indirect route 
 to it is available. For the ages of the units of expense being known, units 
 of the same kind and age can be grouped together, and the prices paid for each 
 unit in each year can be obtained from the books of the concern, or from other 
 sources: but he admits that this method would not generally be available in 
 regard to the cost of railway land (pp. 621 and 628). 
 
844 SOME RAILWAY PROBLEMS 
 
 App. M, 5. as a whole, with those of other railways which have about equal 
 facilities for obtaining a dense and regular traffic, equal costs for 
 materials, etc. Some of these railways are sure to be managed 
 efficiently and honestly: and they will serve as a touchstone 
 for the rest. 
 
 In all such valuations it is difficult to decide what value to 
 assign to railways' land, and especially such of it as is situated 
 in the centres of great cities. It is said that the land needed 
 for Paddington Station and its approaches cost only two million 
 pounds; but that fifteen millions had to be paid fifty years 
 later for the neighbouring Marylebone Station and its ap- 
 proaches: and the rise in value of the sites of some American 
 termini has been much greater. 
 
 It may be added that, though the studies by the Interstate 
 Commerce Commission in regard to railway capitalization have 
 as yet made but Uttle advance, it has seen its way in 1914 to 
 allow an increase of five per cent, on the charges levied by the 
 railroads between New York and Chicago; on the ground that, 
 existing rates did not enable the weaker of those lines to obtain 
 reasonable remuneration on their presumed capital; and "rail- 
 ways must live." In 1908 it had called attention to the fact 
 that, the numerous holdings by railways of each other's securities, 
 have caused the capital, on which the power of earning income 
 might reasonably be claimed, to appear to amount to sixty-eight 
 thousand dollars per mile; whereas only fifty-eight thousand 
 dollars per mile of securities were in the hands of the pubhc. 
 It had pointed out also that, though these intercorporate hold- 
 ings are not sufficient to give absolute control; yet, individual 
 holders seldom vote, and the proxies given by them are not 
 based on investigation : so that the intercorporate holdings being 
 "in concentrated form, virtually dictate the poUcy of the 
 corporations, whose securities are thus held"; with the result 
 that vast systems of railways have come under the domination 
 of the same group of financiers^. 
 
 '■ This Report on Intercorporate relations of railways is a very instructive 
 document. It starts from the position that "a single carrier in making a 
 return of capital 'in the hands of the public' regards another carrier as one of 
 the public. ..If however the problem be to state the amount of securities which 
 are an actual or contingent claim upon the revenues of the country considered 
 as a whole, the phrase 'in the hands of the public' must exclude all railway 
 
RAILWAY CAPITALIZATION AND EAILWAY CHARGES §45 
 
 Financial complications of this kind do not materially affect app. m, 5. 
 the relations between competition and monopoly in the British 
 railway systems. British railway directors have the virtues, 
 together with the defects, of their partial detachment from the 
 speculative, as well as the technical, excitements of railway 
 affairs. Most of them are well advanced in life: they have won 
 the esteem of others by capable and upright control of large 
 affairs; their pecuniary interests in the general prosperity of 
 the country often exceed their personal interests in the finances 
 of the railway, for which they are responsible. In short they 
 are at least as incapable both of underhand intrigues and of 
 indifference to the common good, as any body of men that can 
 be found. It may be true that they have hitherto been inclined 
 to adhere to well-trodden paths rather than venture boldly on 
 new courses that hold out promise of advantage. But the 
 importance and the resource of modem railway science are 
 becoming recognized steadily, though slowly: and there is reason 
 to hope that the general broadening of the scope of British 
 education will ere long raise the alertness and resourcefulness 
 of the supreme control of British railways to as high a level as 
 that which has long marked its probity and public spirit. 
 
 holdings." Until 1908, no allowance had been made for this. The incident 
 illustrates the extreme difiBoulty of rightly reading company statistics, even in 
 cases where nearly all aSairs are conducted in public. 
 
 The strategy of great railroads, 1905, by F. H. Spearman, contains a fasci- 
 nating account of great campaigns in which Vanderbilt, Cassatt, Harriman, 
 Hill, Gould and other men of Napoleonic genius for construction, and in some 
 cases for destruction, won dominion and occasionally lost it. Illustrated by 
 maps, it presents in short compass a general view of the more sensational epi- 
 sodes in American railway history, not easily to be obtained elsewhere. 
 
 In Vol. II of Ripley's Railroads will be found analytical accounts of various 
 forms of pooling and combination, with their relations to Anti-trust Laws. 
 
APPENDIX N 
 SOME AMERICAN INDUSTRIAL STATISTICS 
 
 AFP. N. Tlie recent increase in the size of the representative 
 
 industrial establishment in America^. 
 
 The American Censuses from 1850 to 1880 relate to in- 
 dustrial establishments of all sorts, including those in "hand 
 and neighbourhood industries" (or as we may say shortly, though 
 not quite accurately, "workshops industries"), as well as in 
 manufactures properly so called. The Census of 1890 gives 
 returns on the old plan; and also in regard to factories only — 
 the plan which has been followed since then. Consequently the 
 most important comparisons for our purposes are between the 
 years 1900 and 1910: though earlier figures have some useful 
 suggestions. 
 
 The unit throughout is an "establishment": which is 
 generally "a separated plant or mill": its size suggests the 
 command possessed by it of the economies of production on a 
 large scale. Economies of marketing are often better represented 
 by statistics of "businesses": but on the whole, the establish- 
 ment is doubtless the best unit^. 
 
 The table given below' shows that the 208,000 establish- 
 
 ' This Appendix is attached to p. 511. 
 
 • Further the boundaries of an establishment are more definite and ascertain, 
 able by Census officers than those of a business: and, as one important concern 
 of a Census is with the local distribution of iiiaustries, confusion would have 
 been introduced by grouping together plants in difierent places. But "two or 
 more plants operated under a common ownership, or for which one set of books 
 of account is kept," are sometimes regarded as a single establishment. (Ahslraci 
 of the Census of 1910, p. 435.) 
 
 ' The following is part of a table in the Abstract of the Census of 1910. 
 p. 439: 
 
INCREASE IN SIZE OF THE BUSINESS UNIT 
 
 ments engaged in manufacture in 1900 had increased to 268,000 
 in 1910: but meanwhile the total value of their output had 
 increased from $m.4,831 to $m.8,529: that is their average 
 output had increased from 232,000 dollars to 318,000: if we 
 go back to 1850, when workshops etc. were reckoned in, we find 
 the average output of an establishment to have been less than 
 4,000 dollars. 
 
 The wages bill of factories etc. increased between 1900 and 
 1910 considerably faster than the number of workers; but not 
 nearly so fast as the value of the total output of products 
 (which of course includes the cost of the material used); or of 
 the net product (which is the value added to the material by 
 the process of manufacture). This difEerence is mainly to be 
 accounted for by the increased use of expensive plant, which is 
 indicated by the fact that the horse power used had increased 
 meanwhile from 10 to nearly 19 million units; that is, at almost 
 the same rate as the capital employed. But prices were rising 
 fast during this period and therefore the increases in total and 
 net real output were less than is shown by these figures. The 
 years 1900 and 1910 were years of climax: the Census figures 
 in regard to manufactures belong to the years 1899, and 1909, 
 preceding the nominal Census years^. 
 
 847 
 
 
 if 
 
 I 
 
 .■St3 
 
 
 1 
 1^ 
 
 
 ided by 
 
 acture 
 
 dollars) 
 
 -3 
 m 
 
 6 
 
 ;3 3 
 
 1 
 
 li 
 
 a. 
 
 •sg 
 
 it 
 
 Value a 
 
 manuf 
 
 (million 
 
 1850 
 
 123 
 
 533 
 
 957 
 
 237 
 
 1,019 
 
 463 
 
 1880 
 
 254 
 
 2,790 
 
 2,732 
 
 948 
 
 5,370 
 
 1,973 
 
 (1900) 
 
 (512) 
 
 (9,8U) 
 
 (5,306) 
 
 (2,320) 
 
 (13,000) 
 
 (5,657) 
 
 1900 
 
 208 
 
 8,975 
 
 4,712 
 
 2,003 
 
 11,407 
 
 4,831 
 
 1905 
 
 216 
 
 12,676 
 
 5,468 
 
 2,010 
 
 14,794 
 
 6,294 
 
 1910 
 
 2G8 
 
 18,428 
 
 6,615 
 
 3,427 
 
 20,672 
 
 8,529 
 
 The figures in brackets for 1900 in the upper line relate to manufactures in 
 the old broad sense of the term, and are therefore comparable with those for 
 1850 and 1880: those in the lower line relate to manufactures in the narrow 
 sense, and are comparable with those for 1905 and 1910. 
 
 1 The returns as to capital have always been untrustworthy: and indeed 
 General F. A. Walker, who put the Census of 1880 at u, single bound near to 
 the very high level since attained by it, thought that they should not be 
 
848 SOME AMERICAN INDUSTRIAL STATISTICS 
 
 App. N. These statistics have an interesting bearing on the influence, 
 
 which the growth of giant businesses exerts on the relative 
 demands for capital and for labour, and on the character of the 
 work required of labour. The two sets of figures from the Census 
 of 1900, given in the table of figures on p. 847, indicate that 
 the cost of materials bears about the same ratio to the total 
 value of the product in workshops as it does in factories. This 
 suggests that the stages through which material passes in very 
 small establishments are so small, that they can be worked by 
 manual labour with but slight assistance from plant, as easily as 
 the larger stages worked by factories with more elaborate plant. 
 But a comparison of factories and other considerable estab- 
 lishments of various sizes shows that the cost of material is 
 less than half the value of the finished product in rather small 
 estabUshments ; about equal to it in medium factories, with an 
 annual output of $20,000 to $100,000; and about two-thirds 
 of the whole value in plants with output of a milhon dollars 
 and over. One reason seems to be that very large factories 
 are chiefly concerned with work which can be done by expensive 
 machinery, aided by a comparatively small amount of human 
 effort: much of it does not require to be highly skilled; and 
 the total cost of each process of manufacture is therefore rather 
 small. 
 
 Industrial establishments having a less output than a 
 $100,000 accounted for 20-7 per cent, of the whole in 1904; 
 
 published at all. They are perhaps a, little less inaccurate in some directions 
 now, than they were then : but their ambiguities have increased with the great 
 increase in the number of establishments in the same ownership. 
 
 The following index numbers for the wholesale prices of commodities, are 
 taken from Bulletin 200 (a.d. 1916) of the Bureau of Labor Statistics, p. 17 : they 
 show, of course, a less rapid rise in the prices of manufactured than of raw 
 commodities. 
 
 
 1898 
 60 
 
 1899 
 
 1900 
 71 
 
 1901 
 71 
 
 1908 
 
 1909 
 
 1910 
 
 1911 
 
 1915 
 
 Raw commodities 
 
 65 
 
 82 
 
 90 
 
 04 
 
 86 
 
 100 
 
 Manufactured 
 commodities 
 
 70 
 
 75 
 
 80 
 
 78 
 
 89 
 
 93 
 
 96 
 
 90 
 
 100 
 
 AU commodities... 
 
 65 
 
 70 
 
 76 
 
 74 
 
 85 
 
 91 
 
 95 
 
 88 
 
 100 
 
INCREASE IN SIZE OF THE BUSINESS UNIT 849 
 
 but only for 17-8 in 1909. In the same few years the share of app. n. 
 establishments with output between $100,000 and $1,000,000 
 fell from 4G-0 to 43-8 per cent.; while that of giant businesses 
 with not less than $1,000,000 output rose from 38 per cent, 
 to 431- 
 
 Of course some large establishments had many more than 
 500 wage earners; and several such establishments had been 
 set up as part of the same business unit. Business units so 
 large were inclined to compete fiercely; then to enter into parley, 
 and agree on terms of peace in regard to one another, supple- 
 mented perhaps by arrangements for the discomfiture of com- 
 petitors who could not be brought into the agreement. Next, 
 the alliances were strengthened and fortified: and, if they thus 
 came into conflict with the law against combination in restraint 
 of trade, a way out was found by amalgamation. But that did 
 not lessen the dangers which they threatened to the public 
 interest: it merely altered their form and thus called for new 
 investigation and regulation. 
 
 ' Abstract of the Census of 1910, p. 464. The corresponding figures for 1900 are 
 not comparable, for they follow the old plan of including workshops etc. : indeed 
 nearly half of the 512,254 establishments to which they relate, represent hand 
 trades; and "in 68,323 of these all the work was done by the proprietor without 
 hired assistance." {Report of Census of 1900, Vol. vii. p. Ixxiii.) The neglect 
 of this fact seems to have been the cause of some important statistical errors. 
 
APPENDIX O 
 
 NOTES ON EMPLOYMENT IN BRITISH AND GERMAN 
 STEEL INDUSTRIES 
 
 A comparison of the steel industries of Britain and 
 Germany, with special reference to the pleas that Germany's 
 cartel and fiscal policies in association have benefited the 
 people. 
 
 [The greater part of this Appendix was ia print before the 
 World- war: and the present tense, used in it, refers to the 
 decade preceding the war. It takes no account of a suggestion, 
 which has recently been made, that some sacrifice of general 
 interests to the advancement of the heavy steel industry was 
 deliberately made by the German Government, in view of the 
 strength which predominance in that industry would afiord in 
 the great war, which it was preparing.] 
 
 Eeference may be made at starting to the summary account 
 given above (III, ix, 4) of the numerous causes, which united 
 to give the German heavy steel industry a more rapid develop- 
 ment than the British towards the end of last century. The 
 chief of them were sudden access to abundant iron ores, suitable 
 for making good steel by a new method: technical skill and 
 alert energy on the part of Germans in using this method: 
 ill-informed opposition to the method by the British Govern- 
 ment, and indifference on the part of British iron-masters: and 
 the great advantage which a young industry, not encumbered 
 by obsolete plant, has over an old industry, when the time has 
 come for recasting old methods. Nevertheless German policy 
 has resulted in causing those, who make her steel, to receive low 
 wages; and those Germans, who buy her steel, to pay dearly 
 for it. 
 
 The tasks involved in cartellization are appropriate to the 
 temper of the German people. The long hours of more or less 
 intensive work, to which they are accustomed, enable them to 
 attend numerous discussions without difficulty: the discipline. 
 
INFLUENCES ON THE CONDITIONS OF THE WORKERS 851 
 
 to which they have been seasoned in miUtary service, inclines app.o, 
 them to submit easily to cartel regulation; and, what is perhaps 
 equally important, the semi-mUitary organization of cartels is 
 well adapted to the purposes of an autocratic rule, which regards 
 peace as the time of preparation for war. Moreover an auto- 
 cratic Government can exert certain kinds of discipline, which 
 are not congenial to the temper of a self-governing people; and 
 would, partly for that reason, involve lengthy discussions, and 
 obstruct the proceedings of Parliament, if attempted in Britain. 
 For instance, a cartel, which offends the German Government, 
 may find that the charges for the railway traffic, in which it is 
 specially interested, are quietly raised: or those on important 
 rival products may be lowered, or the Protective tarif may be 
 modified to its disadvantage: no such discipline would be 
 tolerable in Britain^. 
 
 There is another reason for the bias in favour of cartels that 
 is shown by a Government that is largely under the control of 
 a wealthy minority. It is, that cartel policy is greatly depen- 
 dent on the aid of a Protective tarif, which tends to enrich 
 many of those who are already rich; though it lowers the 
 purchasing power of incomes generally, and especially those of 
 the poorer classes. This again is an advantage from the point 
 of view of German military autocracy: for the wealth of the 
 rich is more accessible to the tax collector, than are the wages 
 of the working classes, when once the taxes on ordinary neces- 
 saries have been pressed as far as they can well go: and the 
 relatively low standard of comfort enjoyed by the German 
 working classes in time of peace has lessened the expenditure 
 needed for maintaining a large army in peace and in war. These 
 injurious influences are apt to be obscured by invalid argu- 
 ments, one of which calls for attention here. It is to the effect 
 that Germany's system must be advantageous to her working 
 classes, since it enlarges the funds which cartellized industries 
 have at their disposal for the employment of labour: and it 
 is suggested that Britain might therefore advantageously follow 
 her example. 
 
 This suggestion seems based on exclusive attention to the 
 interests of some industry that is being overridden in its own 
 > These remarks may be considered in connection with pp. 633—4 above. 
 
GEEMAN AND BRITISH POLICIES IN REGARD TO STEEL 
 
 market by the foreigner; and to ignore the interests of other 
 British industries, whose alertness enables them to get the better 
 of rivals abroad. No doubt increased employment in the former 
 industry can be given by shutting out its rivals: but, for every 
 million pounds worth of increased employment so given by it, 
 about a million pounds less employment is likely to be given by 
 those industries whose exports have provided Britain with her 
 power of purchasing imports. Capital will gradually shift from 
 those industries, which are doing most to make the country 
 strong; and will pass to those, to which she has so far owed less. 
 Of course they may be "nascent" industries: or they may be 
 such as can properly receive financial aid (direct or indirect) 
 from the State for mihtary, or other exceptional reasons. The 
 easiest, though not the best, way of doing this may be to enable 
 them to sell their products at higher prices and give increased 
 employment, in consequence of the partial exclusion of rival 
 imports: but such action will, as a general rule, only alter the 
 distribution of good employment, and will not increase its total 
 amount. Therefore, unless this shifting of employment is re- 
 quired for some exceptional reason of high poUcy, its net effect 
 is Ukely to be an injury to employees as a body. 
 
 Protective tarifs and cartel-organization enable the German 
 steel industries to obtain higher gains from their outputs of hard- 
 ware, textile machinery etc., when destined for use by Germans, 
 than they otherwise could ; and the German people may perhaps 
 derive a minute indirect gain from this. But that gain is 
 generally only a small part of what has been artificially taken 
 from them. The Steelworks Union is indeed able to boast 
 that it divides out the benefits of the Protective tarif equitably 
 among all steel "users": but, as has just been argued, that is 
 true only with regard to those capitalist users, who apply steel 
 material in business. Those who use the steel products as 
 utensils in their houses, or buy products made by steel plant, 
 have no place in this arithmetic. 
 
 The German people have indeed some relief in regard to the 
 transport industries. For the Government has a special interest 
 in the supply of steel for railways and ships. It buys steel for 
 railways on advantageous terms. And, it allows steel for making 
 ships to be imported freely; by which excellent provision it has 
 
INFLUENCES ON THE CONDITIONS OF THE WORKERS 
 
 conferred great benefits on the people. If that provision were 
 extended generally, Germany would obtain the necessaries of 
 life on the same advantageous terms as Britain does; and the 
 purchasing power of wages would be at least as high relatively 
 to their money value as in Britain. Not long ago it was higher: 
 but now it is much lower in consequence of that Protective 
 system, of which German cartel policy is a part^. 
 
 > An American onlooker says :— " The English workingman gets higher wages 
 than the German workingman. All the salaried men in English factories get 
 higher wages, and work shorter hours, than the salaried men in German fac- 
 tones. The English agents in foreign parts not only get higher salaries, but 
 msist on week-end holidays and on having several afternoons off during the 
 week in order to play golf and tennis; whereas the German agent works every 
 day and Sunday." Professor Carver, Principles of Political Economy, 1918, 
 p. 347. The President of the North German Steamship Company, referring in 
 Hong Kong to the question how it was that Germans had ah-eady (in 1910) 
 obtained nearly halt the trade of the port, though the port belonged to Britain, 
 called attention to the early desertion of the English offices; and added, "But 
 in some of the German offices those lights will be burning up to nine o'clock. 
 That is the answer. We Germans are winning the trade of the world because 
 of our capacity for, our willingness to work, worh, work" (The Times, 21 March, 
 1919). 
 
 The Report of the Board of Trade on The cost of living in German towns, 
 
 1908, p. lii, sums up its results as to the comparative purchasing power of 
 wages in Germany and England in the building, engineering and printing 
 trades, by saying that "the German rate of money wages per hour is about 
 three-quarters of the English rate: and the cost of rent, food, and fuel nearly 
 one-fifth greater than in England": that is, English real wages are more than 
 half as much again as German. The second half of this statement "is based 
 on the English standard of consumption": the difference would have been 
 rather less, if based on the German standard. 
 
 This result is confirmed by the evidence published in several Reports of 
 the Tariff Commission. For instance, in that on The engineering industries, 
 
 1909, many witnesses referred to the rates of money wages in England and 
 Germany: every one of them said that the rates per week were higher in 
 England, and the hours of work shorter; and twelve gave numerical estimates 
 of the difference. Three of these put it low: an equal number put the money 
 wages per hour in England twice as high as in Germany. The average of all 
 the estimates seems to coincide with the Board of Trade estimate, quoted above, 
 that before the World-war the English money rate per hour was one- third greater 
 than the German. The Report on the shipping and shipbuilding industries 
 [Cd. 9092] 1918, p. 27 lays stress on the fact that in the steel industry "com- 
 petition with Germany was, in the view of the steel makers, rendered difficult 
 by the low wages prevailing there." Of course uniformly high wages throughout 
 all industries in a country do not materially affect the relative values of her 
 imports and exports of manufactured products: and therefore they have less 
 influence on the course of trade than is suggested by the consideration of one 
 industry alone. But this does not affect the authority of the Committee on the 
 matter of fact. 
 
 APP. u. 
 
APPENDIX P 
 
 COOPERATIVE AND COLLECTIVE ORGANIZATION OP 
 INDUSTRY: METHODS PROVED AND UNPROVED 
 
 The great services to progress rendered by cooperation 
 and copartnership ; and their limitations^. 
 
 Experience has partly moderated and partly confirmed the 
 bright hopes that were entertained in this and other countries, 
 about half a century ago, to the effect that cooperative production 
 and copartnership together would gradually develop a set of 
 working class leaders with wide business experience, and well 
 able to judge what business risks can advantageously be carried 
 by working men, either separately or in "copartnership" with 
 experienced business men: and what must remain over for 
 management by business men alone, or by the State. In the 
 last two generations much has been learnt as to what can be 
 done even under present conditions, and what could be done 
 under a nearer approach to ideal perfection of human nature. 
 
 To begin with, the provinces of cooperative production and 
 of production under some copartnership arrangement have been 
 in a measure marked out. "Cooperative" undertakings in the 
 technical sense of the term, that is those which are entirely in 
 the hands of the manual labour classes and other people of 
 small means, are seldom able to engage successfully in industries 
 other than those of marketing staple goods for general consump- 
 tion, especially by the working classes: and in the production 
 of some kinds of these goods^. 
 
 Copartnership has a wider scope. For it leaves the chief risks 
 of the business concerned to men who have had experience in 
 selecting risks, and abiding by the results of their selection: and 
 
 ' Thia Appendix ia associated with III, xiv. 
 2 See above, pp. 293—5. 
 
HOPES AND FEARS OF COOPERATION AND COPARTNERSHIP 855 
 
 yet it gives to employees a substantial direct interest in the app.p. 
 prosperity of the business; and a share in its direction, which 
 places them in some respects almost on a level with their 
 employers. 
 
 But the plan has some disadvantages. A business which has 
 special methods of production, or special knowledge as to favour- 
 able markets, may fear that working men directors wiU be drawn 
 on, without evil purpose, to communicate to comrades informa- 
 tion, apparently imimportant, but yet likely to help any rival 
 business that it may reach by indirect routes. And if the working 
 man director is reticent, his comrades may suspect him of want 
 of loyalty to the collective interests of his class. In vain do 
 advocates of copartnership urge that the interests of employers 
 and employed are closely allied; and that an exclusive loyalty 
 to one side is antisocial: the fact remains that many trade- 
 unionists, including nearly aU who are of militant temper, look 
 with some suspicion on copartnership^. 
 
 Thus it has resulted that those copartnership schemes which 
 have attained a lasting success have generally owed much to 
 men who have anticipated by a generation or more that attitude 
 to socio-industrial problems, which has become prominent in the 
 last few years and has found a partial expression in the Whitley 
 Report. They seem to have all been endowed in exceptional 
 degree with the master faculties — sympathy, imagination, 
 strength and tact^. 
 
 ^ An extreme instance may be quoted from a manifesto issued on behalf of 
 National Guilds, as to which something will be said a little later on: "la there 
 any objection to profit sharing and collective partnership with the men, not 
 collectively as a Union, but individually?" "Yes: for every man so singled 
 out is spiritually transferred from the side of labour to the side of capital. His 
 concern is no longer to abolish the wage-system for himself, his fellows, and 
 the nation at large, but to obtain all the profit he can extract from it." (Quoted 
 by Bechhofer and Reckitt, The meaning of National Guilds, p. 295.) 
 
 Lord Leverhulme, writing with exceptional knowledge from the opposite point 
 of view, throws part of the blame for the slow progress of the movement on 
 suggestions that the adoption of copartnership by an employer is "generous" 
 or "philanthropic." (The Six-hour day, p. 105.) Its true claim to be welcomed 
 by employees, and therefore to succeed, is that it invites them to contribute to its 
 efficiency such elements as lie within their power as comrades. There may be an 
 element of benevolence in comradeship; but it must be unconscious: if it is 
 obtruded, the verdict to be passed on it is felo de se. 
 
 * The Labour Commission of 1891 — i was much occupied with the aims and 
 difficulties of copartnership. One of its members, Mr Livesey, was workinj; out 
 
METHODS OF COLLECTIVE INDUSTRIE ORGANIZATION 
 
 There seems to be but little force in an objection, sometimes 
 raised agaiast profit-sharing, to the effect that it gives an ad- 
 vantage to some classes of employees, relatively to others: for 
 as a rule that advantage has been earned. Nevertheless there 
 is something to be said for the proposal that, where practicable, 
 the profits made in an industry in each year (or half year) 
 should be ascertained; and some definite percentage of the 
 whole be paid into a common fund, to be divided among all the 
 workers in the industry in proportion to the wages earned by 
 them in that period^. 
 
 The fact that cooperation and profit-sharing have done. much 
 excellent work is evidence that human nature is ready for 
 considerable advances towards an organization of industry on a 
 plan more generous and under a less rigid cash-nexus than at 
 present. But the fact that progress on these lines has been less 
 rapid and continuous than had been hoped by many, suggests 
 that further movements in this direction must be cautious as 
 well as resolute: that each advance must be well established 
 and consolidated before making new calls on the chivalrous 
 spirit that lies deep down in human nature; and that the 
 greatest error which reforms can make is to move so fast as to 
 induce reaction. These considerations seem to have been in- 
 sufficiently considered by advocates of speedy movement towards 
 the setting up of "National Guilds." 
 
 an excellent example at the South Metropolitan Gas Company's works, which 
 reckons two artisans and one clerk among its directors : see C. R. Fay, Copartner- 
 ship in Industry, 1913, p. 105. In 1917, 64 English Copartnership Productive 
 Societies made a profit of over twenty per cent, on a capital of £800,000, and 
 paid about a sixth of that as Dividend on wages. In Scotland the United Baking 
 Society made a profit of £80,000 on a capital of about £600,000 and paid a 
 Dividend on wages of over £7000. In connection with these matters, see above, 
 pp. 289—295 and 319, 320. 
 
 ' This suggestion was made by Professor Cannan to the Coal Industry Com- 
 mission in the course of a powerful argument against nationalization of the 
 mines (see The Times, 25 April, 1919). Some of the opportunities, which profit- 
 sharing plans aSord for suggestions from employees to employers, can now be 
 obtained through Works Committees. Joint Industrial Councils may not only 
 consider broader questions of organization than those that lie within the scope 
 of a single business : they may also tend to promote effective cooperation among 
 businesses in such cases as that of several adjacent mines, which could economize 
 shafts, internal transport, etc. by agreement or fusion. 
 
INDEX 
 
 [References under mch heading are arranged generally in numerical order: bvi 
 when the chief discussion of a subject is concentrated in » single place, that 
 place IS mentioned first,] 
 
 Abb^.and theZeiaa works 353 — i, 360 n. 
 
 Accounting, in early times 310; ideal 
 system of 365 — 6 ; in a small business 
 366 n. (See Cost-accounts) 
 
 Aoworth, on nationalization of rail- 
 ways 494; 834 n. 
 
 Adam Smith, Appendix D, his criticism 
 of mercantilism 44 — 5, 719; change 
 in point of vie w since he wrote 45 — 6 ; 
 on automatic cooperation 600; his 
 influence on progress of economics 
 673 — 4; on relation of towns to coun- 
 try 686; on State intervention 719, 
 743—8; on J. S. Companies 727— 
 29; on navigation laws 730; on 
 colonies 732 n., 734; his large impe- 
 rialism 734 — 5; his relation to the 
 Physiocrats 741,743,745; SchmoUer 
 on 745 ; his strong national spirit 746 
 — 7; his exceptions to "natural law 
 of liberty" 747; on bounties 746 — 7; 
 misunderstandings of his position 
 747 — 8 n. ; on exportation of com 
 749; in relation to his successors 
 758 — 60, 765; his protest against 
 selfish practices 781 
 
 Addis, Sir C, on British banking 
 619 n. 
 
 Advertisement, constructive and com- 
 bative uses of 304 — 7 ; in the clothing 
 trade 304 n. ; of typewriters 305 — 
 6 n. ; in U.S. 307 n. ; and newspapers 
 307 n. ; and psychology 307 n. 
 
 Aeroplane industry, standardization 
 in 227—8 
 
 Agent-in-oharge 615 — 16 
 
 Agriculture, its financial structure 51 — 
 2; English system of 63 — 4; Protec- 
 tion to, 82 — 3, 749 — 54 ; its empirical 
 character till recently 199 — 200; in- 
 cidence of taxes on 824 — 7 (See 
 Land, Diminishing Return) 
 
 Air pressure, subtle applications of 
 212 n. 
 
 " Alfred " (Samuel Kidd) on economists 
 and Factory legislation 763 
 
 Aluminium, and electrical develop- 
 ments 803 
 
 American I vn, III, vn, vin. Appen- 
 
 dices G, N; leadership in standardi- 
 zation 11, 140—1, 146—52, 232—3, 
 304 n. ; spirit of youth 141 ; early in- 
 dustrial conditions 143 — 6, 773 — 6, 
 778 — 9 ; homogeneity of demand 1 46 
 — 50 ; railways compared with British 
 151—3, 446—7, 452; locaUzed in- 
 dustries 151 — 2, 287 — 8n.; scien- 
 tific management 224, 370, 374, 382, 
 387 — 8, 390 n. ; lavish use of adver- 
 tisement 295, 304 n. , 307 n. ; massive 
 retailing 296, 299 n., 302—4; high 
 retail prices 303 — 4; J. S. Companies 
 318, 327; employees 327; company 
 promoters 332; "business men 156, 
 358 — 9, 361; railway science 445 — 
 6; protective tarifs 760 — 2, railway 
 discrimination 836 — 8; method of 
 way statistics 838 — 9; statistics of 
 industrial establishments 846 — 9 
 (See United States) 
 
 Anti-trust Act 513, 517 — 18;andinter- 
 locking directorates 542 n. 
 
 Appendices, function of 11 — 12 
 
 Architecture, and masons' strike 409 
 
 Aristotle, his doctrine as to trade 253 
 
 Armour, J. Ogden, his defence of the 
 beef monopoly 417 n., 489 n. 
 
 Art, in English industry 63, and in 
 French 110—12, 113, 116, 118, 120; 
 its relation to custom 197 — 8; and 
 retail prices 282 ; in Tyrol 808 n. ; in 
 Florence 821 n. 
 
 Ashley, P. 635 n., 769 n. 
 
 Ashley, Sir W. 686 n., 707 n., 724 n. ; 
 on England's early woollen trade 
 718 n., 769 n. 
 
 Association, in laboratory work 100 — 
 1, 180; for trade information 102 ( 
 (See Constructive cooperation) 
 
 Atkinson, H. 385 n. 
 
 Auerbach 354 n. 
 
 Australian, foreign trade 24 n. ; in- 
 dustrial character 160 — 1 ; control of 
 monopolies 523 n. 
 
 Automatic organization, in British wool 
 trade 49—51, 579, 716; in the cotton 
 industry 599—603; in Holland 694 
 
 Aves, E., on London trades 816 n. 
 
858 
 
 INDEX 
 
 Babbage, on utilization of by-products 
 239 n. ; anticipated ideas of scien- 
 tific management 224 — 5, 376, 378; 
 on methods of inquiry 376 n; his 
 "Differential Machine" 377 n.; his 
 work and Lardner's compared 449 n. 
 
 Bacon, on dominion of the sea 731 
 
 Bagehot 92 n. ; on private banks 346; 
 on definition 680 n. 
 
 Banking systems,British 63, 103, 313 n., 
 337—40, 346—9; 618—19; German 
 and American 341—8, 558, 566—8; 
 Dutch 695 — 6; expansion of unit 
 in 340, 618—19 
 
 Barker, J. Ellis 130 n. 
 
 "Basing-points" 837 
 
 Bechhofer and Reckitt, on National 
 Guilds 855 n., 659 n. 
 
 Bedstead Makers' Federation 606 n. 
 
 Beef, monopoly 417 n.; joint products 
 806 
 
 Belgium 107 
 
 Benn, on Science and Industry 609 n., 
 633 n. 
 
 Biology, and structure of business 
 163—4 
 
 Black Death 705—6 
 
 Blanket rates 837 
 
 Blondell 109 n. ; on French character 
 115 
 
 Bonar, Dr 390 n. 
 
 Booksellers, profits of 302 n. 
 
 Boot and shoe industries, standardiza- 
 tion in 232 — 4; tying contracts in 
 232— 3 n., 536, 626 n.; in Tyrol714n. 
 
 Booth, Charles, his estimate of London 
 poverty78; onLondon trades 816 n. 
 
 Bounties, and German protective duties 
 on coal 564 ; Adam Smith on 746 — 7 ; 
 on exportation of grain 749 — 50 
 
 Bowring 768 n., 769 n. 
 
 Bradford Dyers' Association 605 
 
 Branch-shop Companies 298; com- 
 pared with shipping companies 434 
 
 "Branded" goods, their influence on 
 methods of marketing 300 — 2 
 
 Brassey, Thomas, on diet of navvies in 
 England and France 115 n. 
 
 Bray, on changes of fashion 809 n. 
 
 Brentano, on Cartels 548 n., 572, 580 n. 
 
 Brilannia Languens, 1680, contrast 
 between English and French work 
 113 n., 711 n., 722 n., 731 n. 
 
 British III, iv — vi, xi — xii; and Ger- 
 man efficiency compared 95 n., 101 n., 
 103, 550 — 7 ; education reforms 95 — 
 
 102, 129, 132, 357; fruits of inven- 
 tion reaped by others 101 n. ; banks 
 
 103, 338—40, 347—9, 618—19; 
 Confederation of Nations 103 ;" Trade 
 Corporation" 348 — 9, 505 n.; rail- 
 way science 449; characteristics in 
 
 railway traffic 452—4, 464, 490—2, 
 Canals 451, 497—500; Trusts 510, 
 595—8; Trust legislation 542— 
 3 n. ; individuality 580, 582—3, 588 
 —9; coal vend 509, 585—6; steel in- 
 dustry, 587, 621—2; Pottery Manu- 
 facturers' Association 004 ; Dye-stuffs 
 Corporation 608; Manufacturing 
 Corporation 615 — 16 n. ; dependence 
 on mechanical appliances 650 (See 
 Englisli) 
 
 Brown, H. 693 n. 
 
 Brown, Prof. H. G. 836 n. 
 
 Browne, Sir Benjamin, on standardi- 
 zation and the skilled artisan 209 
 
 Biicher 55, 378 n. ; analysis of " do- 
 mestic industry" 718 n. 
 
 Bureau of Corporations (matured as 
 the Federal Commission) 517, 576; 
 in relation to the 17.8. Steel Cor- 
 poration 530, the Lumber industry 
 531, and the exploitation of water 
 power 532; its report on Petroleum 
 and other industries 533 n., 535 n., 
 536 n. 
 
 Bureaucratic control, its danger in a 
 democratic country 602 n., 851, 666 
 —7, 669—71 
 
 Business, elementary forms of 165 n.; 
 changes in 167—70, 179, 215—16; 
 ambiguity of terms "large business" 
 173 — 4, and " head " of 31 1 ; qualities 
 required for 173, 354—6, 358, 583— 
 4, 646 ; growing importance of exact 
 balance sheets in 310; esprit de corps 
 in 326—7; philanthropy in 353—4; 
 University training for 357, 361; 
 Scientific Management applied to 
 381-94; and risk taking 645—6 
 
 Business Finance, enlargement of its 
 basis 346—9, 018—19 
 
 Business men, and the study of Eco- 
 nomics 11, 679, 821 — 3; change in 
 their competitive character 179. and 
 in their relations to employees 350 — 1 
 
 Business unit, expansion of 214 — 21, 
 340, 509, 846—9; some technical 
 influences on its size 235 — 42; how 
 affected by standardization and 
 specialization 244 — 7, 508 — 9 
 
 Butter, standardization of 812 
 
 Buyer, in relation to seller 271 — 4, 
 402, 419—20, 620—1 
 
 By-products, and the expansion of the 
 business unit 238 — 42 
 
 Byron, on monopolistic power of " Con- 
 ferences" 438 n. 
 
 Cab fares, effect of a rise in 300 n. 
 Cable Makers' Association 607 
 Calico Printers' Association 597 n., 606 
 Calwer, on Berlin High-finance 343 n. 
 
INDEX 
 
 869 
 
 Campbell, C. W. 682 n. 
 
 Canada, relation of her leadership to 
 that of U.S. 160; and control of 
 monopolies 522 — 3 n., 542 — 3 n. 
 
 Canals III, vi; early history of 40, 831 ; 
 German systems of 1 25, 499, 500 ; pre- 
 sent weakness of British 498 — 500; 
 combined with motor traffic 501 — 2; 
 aided by electricity 501 — 3; in rela- 
 tion to railways 500 — 1, 504 — 6; and 
 the State 505 — 6; in France 499; 
 andnature of agricultural land 504 n. , 
 and decentralization of populations 
 502, 505 
 
 Cannan, Prof., on nationalization 
 856 n. 
 
 Capital, origin and early forms of 36, 
 47,51,67,691,709— 13;chieflysaved 
 by middle and upper classes 649 
 
 Capitalization and stock watering 
 331—7, 842—4; of U.S. Steel Cor- 
 poration 530 
 
 Carey, on Protection 761, 782 n.,783n., 
 784 n. 
 
 Carnegie, on the rise of the office boy 
 in business 156 n., 359 ; on attractive 
 power of raw material 169 n.; and 
 standardization in bridge building 
 222; on University training for 
 business 361 ; and the U.S. Steel 
 Corporation 364 n., 529, 605 
 / Cartels III, ix — x ; a form of " Regu- 
 lative Association" 216; monopo- 
 listic element in 280, 399—402, 
 420 — 1, 559 n.; their relation to 
 "pools" 488; growth of in Germany 
 341—3, 508 — 9; and Trusts com- 
 pared 510 — 11; and retail trade 
 547 — 8; and standardization 548 — • 
 50; statistics of 549 n.; allies of 
 strong rather than weak 558 — 9; 
 aided by banking system 341 — 3 n., 
 558, 560-8; and Protection 563— 5, 
 851 — 3; their claim to stabilize in- 
 dustry 629 — 35; their relation to 
 labour and to the State 570 — 6 
 
 Carter 577 n. ; on use of tying clause 
 by Bradford Dyers' Association 586 n. 
 
 Carver, Prof., on English and German 
 working man in U.S. 387 n. 
 
 Cement, adapted for local firms 236, 
 586; Trust in relation to the Steel 
 Union 563 n. ; cartel 571 n. 
 
 "Chain-stores" 298 
 
 Chalmers 38 n. 
 
 Chapman, S. J., on small manufacturers 
 231 n.; on working class factories 
 320 n., 601 n., 645 n.; and Knoop 
 801 n. 
 
 Character, eflect of migration on 34; 
 and cooperation 289, 295; and 
 English climate 700 — 1 
 
 Cheeks, in relation to size of businesc 
 324—5, 366—7 
 
 Chemistry, its industrial significance 
 (See Science in industry, and Colour 
 Industries) 
 
 Cherington 295 n.; on "regular" re- 
 tailers 298 n. ; on "chain-companies" 
 
 299 n., 306 n., 307 u. 
 
 Child, Sir Josiah 731 n., 732 n. 
 
 Children, employment of under do- 
 mestic and early factory systems 73, 
 75 — 7; education of 819 — 20 
 
 Chisholm, on trade in 1590, 683 n. 
 
 ChordcUs' Letters 283 n. 
 
 Clapham, Dr, on mechanical inven- 
 tions 62 u., 232 n. ; on Navigation 
 Acts 71 n. ; on Norfolk wool industry 
 707 n. 
 
 Clark, Prof. J. B., on trusts 521 
 
 Clay, and the "compromise tariff" 
 778; on Protection 780 
 
 Clayton Anti-trust Act 517—8, 542 
 
 Cleveland-Steven 832 n. 
 
 Cliffe, Leslie 755 n. 
 
 Coach services in relation to monopoly 
 and competition 426 — 9 
 
 Coal, marketing of 267, 451 n., 585—6, 
 789, 814; and canal transport 503; 
 "combination under proper super- 
 vision" of anthracite 531 — 2n. ; 
 Cartel 552 — 6, 548 n. ; and Britain's 
 future 628 n. 
 
 Coal-tar industries, Germany's ad- 
 vance in 95, 240 
 
 "Coal-Vend," anticipatedleadingideas 
 of Coke and Coal syndicates 509, 
 585—6 
 
 Coats, trade mark on cotton 403 — 4; 
 growth of its monopoly 595 — 7, 626 
 
 Cohn, on Coal-Vend 585 n. 
 
 Colbert and French industry 113; an- 
 ticipated standardization 740 — 1 
 
 Cole, G. H. D., and the "work fund" 
 640 n. ; on National Guilds 658—60 
 
 "Collective" piece work 642, 659 
 
 Colonies, changed problems of in twen- 
 tieth century 104r— 5, 735, 653 ; Adam 
 Smith on 142; age rapidly when iso- 
 lated 143; and the Mercantile system 
 731—6 
 
 Colour industries, German 232, 240—2 
 
 Colson 109 n., 400 n., 449 n., 836 n. 
 
 Combinations in relation to partial 
 monopoly 196; in retail trade 280, 
 
 300 n. ; "Defensive" 401; of buyers 
 and sellers 402; in the shipping 
 trade 433 — 9; and constructive co- 
 operation 519; SchmoUer on 544 n. ; 
 meanings of the term 654 (See Car- 
 tels, Monopoly, Trusts) 
 
 Commissions of inquiry, regulative in- 
 fluences of 440—4, 634 
 
860 
 
 INDEX 
 
 Common Law, in relation to Trusts 
 511—12 
 
 "Common"' or "allied" costs, dis- 
 tinguished from "joint" and "gene- 
 ral" 192^ 
 
 "Communities of interests" 340 — 3, 
 343—6, 540—2, 570 
 
 Competition III, rn — vi; not neces- 
 sarily aggressive 179 — 80, 396; its 
 interpermeation with monopoly 396, 
 397, 423—9, 448, 512; Stephenson's 
 dictum as to 409, 485; and road 
 traffic 426 — 9; and ocean traffic 
 435 — 8; deslructive forms of com- 
 bated by Federal Trade Act 518, 
 520, 521, 522; "unfair" methods of 
 537 ; meanings of the term 653 — 4 
 
 Conder, on canals in relation to rail- 
 ways 499 n. 
 
 "Conditional " or "incomplete " mono- 
 poly 397, 398 ; and railway problems 
 450 n. ; in multiple ownership (Ap- 
 pendix L) 
 
 "Conferences" 435—40; South Afri- 
 can 438 n., 439, 441—2 n., 444 n. 
 
 Conrad, on wheat prices 261, 757 n.; 
 on purchase of coffee 814 n. 
 
 Constant Return, and elasticity of 
 supply 188 n.; in relation to mono- 
 poly price 404 
 
 Constructive cooperation III, xi — xn; 
 and industrial research 99 — 102, 
 179—80, 604—9; contrasted with 
 destructive competition 179, 518 — 
 20; and cartels 179, 562; and the 
 work of the company promoter 329 — 
 31; of railways 487 — 92, and canals 
 505; automatic forms of 598 — 603; 
 in engineering and electrical trades 
 591 — 2, 615; in pottery and other 
 industries 603 — 10; in export trade 
 612—16; in marketing 611—16, 
 633, 813 n. 
 
 Consular service, improvement in 
 102 
 
 Consumer 215; effects of machinery 
 on 248 n. ; and price regulation 
 622; defenceless against network 
 of cartels 623—6; Adam Smith 
 on 747 — 8 n. ; changes in habits 
 of 804 
 
 Continuation schools, in England 98, 
 351; in Germany 131 n. 
 
 Cooke Taylor, W., on child labour in 
 domestic industry 73 n.; on Miss 
 Martineau 765 
 
 "Cooperation" on the Rochdale plan 
 289—95; and marketing 299 n., 301, 
 813 n., 815, 854; and mills owned by 
 working men 319 — 20; in dairy pro- 
 duce 812 (See Constructive co- 
 operation) 
 
 Copartnership 292 n., 295, 854^5 
 
 Copper, foreign supplies of 283 n. ; 
 Amalgamated Company 539 — 40 n.; 
 and electricity 803 
 
 Corn-laws 82—3, 749—54 
 
 " Comer " in wheat 260 n. ; Leiter's 
 263 n. ; in cotton 800 n. 
 
 "Corporation" 513 (See Joint Stock 
 Companies) 
 
 " Cost-accounts " 365 — 7 ; under scien- 
 tific management 367 — 9; how aided 
 by associations of industry 606, 610; 
 of railway property 840 (See Ac- 
 counting) 
 
 Cost of production real and money 
 183; relates to whole processes 181, 
 190—2, 269; for a market 183—4; 
 and profits of middle man 1 84 — 5 n. ; 
 of joint products 181, 191 — 2; its 
 relation to value 184, 194 — 6, to 
 monopoly price 404r^5, and to 
 price policies of far-seeing trusts 
 523—6 
 
 Costs of marketing 184; attach to whole 
 processes 269 — 71; and "costs of 
 production " 274 ; for different classes 
 of goods 274—82, 804—11 
 
 Cotton industry, and inventions 67 n. ; 
 and standardization 56 — 7; and 
 slave labour 145 n. ; vertical and 
 horizontal expansion in 230; and 
 localization 286, 595, 601—3; and 
 Joint Stock Companies 320 n.; and 
 standard wages 382 — 3; specializa- 
 tion in 601 — 3; and association for 
 scientific research 606, 608; early 
 history of in U.S. 778 — 9 n. ; mar- 
 kets 799—802 
 
 Countries, new and old contrasted 
 141—2, 696 n. 
 
 Craft gilds, early formed by weavers 
 and bakers 704; their regulations 
 707 n. 
 
 Craik 44 n., 712 n., 731 n. 
 
 Crump 264 n. 
 
 Cunningham, Archdeacon, on capital- 
 ism in exotic trades 717 n.; on 
 "domestic" industry 716 n., 718 n.; 
 702 n., 707 n., 724 n. 
 
 Carrie, Sir Donald 441 — 2 n. 
 
 Curtiss, 782 n. 
 
 Custom, its influence in early civiliza- 
 tions 197 — 9, 706 n. ; and in agri- 
 culture 199 — 200; its aid to indus- 
 trial technique 198, 201, 797; had 
 no sway on prices of harvest products 
 797 — 8 n. ; more plastic than it 
 seems 797 
 
 Cutlery trade, obstacles to machinery 
 in 213 n.; and "industrial atmo- 
 sphere" 284 
 
 Cycle industry, changes in 243 
 
INDEX 
 
 861 
 
 Dairy produce, and cooperation 292 n., 
 812—13 
 
 Darwin's "law of the survival of the 
 fittest" often misunderstood 175 
 —6 
 
 Davenant 724 — 5 n. 
 
 d'Avenel, on ransoms as a source of 
 wealth 171 n.; on wheat prices in 
 France 795 — 6 n. 
 
 Dawson, W. H. 124 n., 562 n., 575 n. 
 
 "Defensive" combinations 401 
 
 "Deferred rebates" 439 — 42; their 
 resemblance to "tying clauses" 234, 
 536, 626 — 7; and American railroads 
 650 n. 
 
 Definition in Economics 214, 680 
 
 Defoe, on character of the English 
 40 n. ; on child labour 73 n. ; on Eng- 
 lish workman 113 n., 706 n. 
 
 Demand, elasticity or responsiveness of 
 181, 186, 403, 405, 794, 826; its ad- 
 justment to supply 185 — 8 
 
 Democracy, in relation to Scientific 
 Management 389 — 94; and dangers 
 of bureaucratic control 602 n., 666 
 —7, 669—71, 851 
 
 Demolins 114 n. 
 
 Denmark, cooperation and standardi- 
 zation of dairy produce 812 
 
 Dent, on State railways 496 
 
 Denton, England in the Fifteenth Cen- 
 tury 702 n. ; on inland ports 703 n. ; 
 on Black Death 706 n. ; on wages 
 709 n. 
 
 Department Stores 296 — 9 
 
 "Deposits" of a bank, their relation 
 to national wealth 339 n. 
 
 Depression of trade, influence of price 
 regulations on 629 — 35 
 
 Dewey, Prof. 777 n., 778 n. 
 
 Diercke 109 n. 
 
 Diminishing Ketum, in agriculture and 
 mining 188 — 9; distinguished from 
 inappropriate distribution of re- 
 sources 189 — 90 n.; in building 
 190 n. ; and taxation 405 n. ; in re- 
 lation to colonies 731, and to Pro- 
 tection 760—2 
 
 Discrimination, in retail trade 282, 
 416, 439—40, 521, 810—11; in raU- 
 way traffic 416, 439—40, 460—2, 
 472, 482; in the beef industry 416— 
 17 n.; constructive and destructive 
 417—18; regional 836—7 
 
 Disraeli, on efieot of war loans 78 n. — 
 9n. 
 
 Division of labour, Abb6 on 353; rise 
 of 682 (See Specialization) 
 
 Dodd, George, The food of London 
 804 n. 
 
 "Domestic" industry 49, 715—16; in 
 Germany 124 n. 
 
 Dress, influence of Paris and I,ondon 
 on 112; and fashion 808 — 10 
 
 Drury 373 n. 
 
 Dudley North, on Money 723 
 
 Dumas, on fortunes amassed by states- 
 men 171 n. 
 
 Dumping, by Britain 157, 630— 1, 781 
 — 2 ; by railways 479 ; or "local price 
 cutting" 521—2; by Germany 563 
 — 4, 629 — 30; American legislation 
 on 630 
 
 Dyche, J. A., " the Jewish Immigrant " 
 247 n. 
 
 Dyeing and finishing, generally worked 
 by powerful firms 231, 595, 597 
 —8 
 
 Dyer and Martin 2Q5 n. 
 
 Dyestuff industries,and intercommuni- 
 cation of processes 241; secrecy in 
 508; in Germany 570; Corporation 
 608 ; state assistance to 672 n. 
 
 Eokert 753 n. 
 
 Economics, method of. Appendix A; 
 and business men 663 — 4, 805 — 7; 
 in first halt of 19th century 758 
 —60 
 
 Economies, external and irUernal 167 
 due to advance in technique 206 — 13 
 in the steel industry 219 — 28, 528. 
 of uniform and continuous process 
 235—42 ; in the clothing trade 304 n. 
 due to agreements of railways 487 — 
 92 
 
 Economists, not opposed to Factory 
 Acts 77, 763 — 6; their overstate- 
 ments of arguments for Free-trade 84 
 — 5, 758 — 60 ; and economic method 
 673 — 4; political use of term 755 
 
 Edgeworth, Prof., on theory of mono- 
 poly 399 n. ; on mathematical side 
 of railway science 449 — 50 n. 
 
 Education, Appendix K; in Scotland 
 53, 96 — 7; reform of in Britain 
 95—9, 636—8, 672; British and 
 German compared 97 n., 129 — 32, 
 357 ; technical and workshop 351 — 4 ; 
 and spelling reform 352 ; function of 
 356, 819—21; of business faculty 
 356—7, 583—4, 821—2 
 
 Efficiency, conditions of 350 — 4; and 
 scientific management 368 — 9, 
 374 n., 377—8, 384-8 
 
 Eggs, grading of 812 n. 
 
 Ehrenberg 171 n., 692, 722 n. 
 
 Elasticity, or responsiveness of demand 
 181, 186, 405, 794; in relation to 
 monopoly 403, 404, 826 
 
 Elasticity of supply, with regard to 
 short periods 188 n. 
 
 Electricity, Appendix H, 2; organi- 
 zation of its industry in Germany 
 
862 
 
 INDEX 
 
 569 — 70, 817; and small producers 
 717 n., 789—90 
 
 Electric Supply Company and exclu- 
 sive dealing 536 — 7 
 
 Ellison, 58 n. 
 
 Emerson, hia method and Taylor's 
 compared 368, 373 n., 385 n., 391 n. 
 
 Emery, Prof. 260 n., 775 n. 
 
 Emigrants, cost of transport of 430 n. 
 
 Employee, growth of esprit de corps of 
 326; and relations to employer 327, 
 350—4, 381—3 (See Labour) 
 
 Engineering trades, advance in tech- 
 nique of 206—10, 218—21; during 
 the world- war 223 — 8; in relation 
 to standardization 221 — 2 . 
 
 English I, ;ij — v; chara<;terist;os 35, 
 55— 6,gl— 2, 101 n., 247 n., 453, 404, 
 7(Jl, 810; agriculture 51—2, 63-^; 
 education reform 95 — 102 (See 
 British) 
 
 "Equal pay for equal output" 846 n. 
 
 Equilibrium price 194; instance of 
 tmstable 421 
 
 Esprit de corps as a business motive 
 325—7 
 
 Evolution of Industry 9—10, 097- 8 
 
 Expenses of production, in relation to 
 marketing 183— 4 n.; and value 
 194—5 
 
 Export prices, of German steel 564 — 5 ; 
 of potash 575; in Germany 708,770; 
 in U.S. 781—2 (See Dumping) 
 
 Export trade, changes in its methods 
 613; constructive cooperation in 
 613 — 16; functions of agent and 
 merchant in 614 — 18 
 
 External economies 167; in relation 
 to Increasing Return industry 187; 
 and standardization 227, 244 — 7 
 
 Factory Acts, not opposed by leading 
 economists 77, 763—6 
 
 Factory system, causes of degradation 
 which accompanied it 71 — 7, 183, 
 717—18 
 
 Fairs, and modem exhibitions 705 
 
 Fashion 118 — 20; and French indus- 
 try 112; in cotton and woollen goods 
 802; in retail trade 808—10 
 
 Fatigue, in relation to scientific man- 
 agement 386 — 8 
 
 Fay, C. N. 514 n. 
 
 Fay, C. R. 657 n., 813 n. 
 
 Federal Reserve Act of 1913, 344 
 
 Federal Trade Commission, and re- 
 strictive competition 517 — 8, 520 
 —2; and monopoly 531—2, 576; 
 and cooperation in export trade 634 
 (See Bureau of Corporations) 
 
 Federation of British industries 612 
 
 Ferry, traffio on, illustrates interper- 
 
 meation of competition and mono- 
 poly 424—6 
 
 "Fighting brands'' 435 n.; and Stan- 
 dard Oil Company 533 ; and Tobacco 
 trust 535 
 
 Finance, its control of industry 103 n., 
 343—6, 540—3, 558, 566—8, 570, 
 803 n. ; and company promoting 
 330—7 
 
 Fish, retail price of 610 n., 805, 806 
 
 Flint, on profits of industrial amalga- 
 mations 332 n. ; on leaders of con- 
 solidations 364 n. 
 
 Flour mills, growth in size of 236 
 
 Ford motor works and standardization 
 of operation 237 — 8 
 
 Foreign trade I, n; its relation to 
 national industry 3 — 5; and rela- 
 tions of imports and exports 627 — 8; 
 early forms of 682 — 4, 686 
 
 Fortrey 113 n., 709 
 
 Foville, on variations in price of wheat 
 in France 109 n. 
 
 "Franchise trusts" 514 
 
 Free Trade, Appendix E; and British 
 shipbuilding 590; and overstate- 
 ments by economists 760 — 2 
 
 Freight rates 430 n. ; influence of 
 Tramps on 431 — 2 ; of Liners 434 — 6 
 
 French I, vi; individuality 115 — 20, 
 817 ; leadership in fashion goods 1 12, 
 118 — 20; team work in design 116; 
 railway pohcy 477 — 8 ; canals 499; 
 mercantilism 740 — 3 
 
 French war, and British industry 64 — 
 7; distress caused by 73 — 7; and 
 fiscal policy 77 — 85; com prices 
 during 749 — 51 
 
 Fruit, marketing of 275, 805, 813 n. 
 
 Function, in relation to risks 266; 
 organization by 371 — 5 
 
 Furniture, costs of marketing 807 — 8 
 
 "Futures" 260; in wheat and other 
 organized markets 261 — 7, 801 — 3 
 
 G alton , on Evasion of Wages Acts 738 n. 
 
 Gambling and speculation 253, 258 
 
 Gantt and scientific management 368, 
 373, 385, 391 
 
 Garcke and Fells 369 n. 
 
 Garden cities 818 n. 
 
 Gardiner, W. M. 101 n. 
 
 Garton Foundation Report 393 n. 
 
 Gnskell, on employment of children 
 76 n. ; on domestic industry 716 n. 
 
 Gattie, and railway goods traffic 490 n. 
 
 Gee, on colonial trade 733; on fishuig 
 industry 744 n. 
 
 General and Particular Standardiza- 
 tion 201—2, 221—3 
 
 General charges of a business 181, 191, 
 192 — 4, 413; in relation to prime cost 
 
INDEX 
 
 863 
 
 274 ; in cost aocounting 367 — 9 ; and 
 monopoly 413 — 15; of a railway 
 407—71 
 German I, ^^I, III, ix— x, Appejndix Y ! 
 characteristics 101 n., 122, 136, 138, 
 545 — C; gain from Thomas' inven- 
 tion 94 — 5,135n.,557,834;ohemicftl 
 and colour industries 95, 133 — 4, 241, 
 570; methods of education 97 n., 129 
 —32, 357 n., 636—8; adaptability 
 104 n.; Universities 123, 129—30, 
 357; "scientific proletariat" 131; 
 "team work" 134; methods of mar- 
 keting 135 — 0; resemblance to a new 
 country 137; association of banks 
 with industry 341—3 n , 347—9, 
 558, 566—70, 803 n.; law against 
 stock watering 336 n. ; ports 435 n. ; 
 Hamburg-Amcrika shipping line 434 
 — 5n.; canals 125, 499—500, 447 
 —8; railways 125—6, 447—8, 478; 
 Metal Buying Combination 570; 
 leadership in cartels 343, 544 — 7, 
 568, 851; Company Law 545; ten- 
 dencies towards giant businesses and 
 trusts 569 — 70; monopoly of potash 
 575; protective tarif 563—5, 852—3, 
 769 — 72; wages and purchasing 
 power of money 853 ; debt to Jews 582 ; 
 semi-military organization of labour 
 582,851; commercialstrategy613n.; 
 cotton market 801 u.; misunder- 
 standings of Adam Smith 747 — 8 n. 
 
 Giant businesses, growing self-suf- 
 ficiency of 167 — 70; causes of their 
 increase 172—4, 242—4, 507—11; 
 and social well-being 174 — 6; in- 
 fluence of strong men in 363 — 4; 
 in U.S. 527—43; in Germany 556, 
 569 — 70; and export agents 614 (See 
 Trusts) 
 
 Gibb, Sir G. S., on State oivnership of 
 railways 494; and railway statistics 
 840 n. 
 
 Gilbreth, on economy of efifort 380 n. 
 
 Gilds 137; their patriotism and their 
 selfishness 685—6; their influence 
 on decay of towns 707 n. (See Na- 
 tional Guilds) 
 
 Gladstone, and the purchase of English 
 railways 833; on 3rd class travelling 
 834 n. 
 
 Glass industry and sectional interests 
 041 n. 
 
 Goldwin Smith 43 n. 
 
 Gothein, Dr G., on State ownership of 
 mines 574 n. 
 
 Government, III, xiv, 8; changes in 
 its possible and appropriate func- 
 tions 42 — 3, 45; industries during 
 the world- war 224, 593; regulative 
 influences in Britain 440 — 4, 480, 
 
 491, 840 n., 843; and America 616 
 — 20 ; discipline or ownership of rail- 
 ways 492 — 500; and shipping trade 
 442 — 4; in relation to electrical sup- 
 ply 502 — 3; and canals 505 — 0; 
 monopoly of tobacco 534 ; in relation 
 to cartels 674 — 0; in relation to 
 scientific research 608 — 9, 671 — 2; 
 and capital 648; and Adam Smith 
 719, 743—8 
 
 Grading of wheat 257 n. ; ore and coal 
 267; cotton 799; wool 801—2; hops 
 811; dairy produce and eggs 812 — 13 
 (See Standardization) 
 
 Grain, speculation in 258 — 62, 275 — 
 6; as measure of purchasing power 
 709 n., 794; inelastic demand for 
 794 n. ; d'Avenel's diagram of mean 
 prices of 795 — 6; Indian prices of 
 796 — 7; production and marketing 
 contrasted 793 (See Wheat) 
 
 "Grands Magasins" or Department 
 Stores 296; objections raised to 299 
 —300, 302 n., 815 n. 
 
 "Granger" meeting contrasted with 
 Socialist 446 n. 
 
 Greeley, H., on migration and co- 
 operation in U.S. 145 
 
 Green, Mrs 686 n. 
 
 Gresham, Sir T. 729 
 
 Greville, on economists and factory 
 legislation 764 — 5 
 
 Gross 685 n. 
 
 Grosvenor 784 u. 
 
 Gruber 127 n. 
 
 Hadley, President, on stock watering 
 336, 357 n.; on centralized admini- 
 stration of business 364; on State 
 management 668 n. 
 
 Hales, on taxation of imports 723 n. 
 
 Hamilton 776—7 
 
 Hammond, M. B., on distribution of 
 general costs of railway 469 n., 477 n. 
 
 Handicraft and machine work con- 
 trasted 639—40 
 
 Harvests, and wheat prices 261, 750 n., 
 755—6 
 
 Hauser, Prof. 342 n. 
 
 Hawkins, on standardization in Britain 
 224 n. 
 
 Hayes, on methods of obtaining 
 "original cost" 843 n. 
 
 Hcercn 682, 684 
 
 Held 718 n. ; on critical passages from 
 Adam Smith 748 n. 
 
 Hewins, on Statute of Artificers 737 n. 
 
 Heyman 559 n. 
 
 Hill, Miss Octavia, and purchase of 
 coal in East London 814 n. 
 
 Hilton 635 
 
 Hirst, Miss 769 n. 
 
864 
 
 INDEX 
 
 "Holding Company" 514 
 
 Holland, Appendix B, 3; antioipai^d 
 
 modern technique 33, 694 — 5 
 Hooker, on wheat prices 261 n. 
 Horizontal and vertical, expansions 
 
 215 — 16; in the steel industry 218— 
 
 21, 528 — 31, 559 — 65; in the cotton 
 
 industry 230 — 2; in relation to 
 
 Britain's prosperity 590 
 Household or "homely" industry 48, 
 
 276, 715 — 18; in Tjrrolese villages 
 
 714 n. 
 Howard, Ebenezer, and "Garden 
 
 aties" 818 n. 
 Hoxie 373 n., 385—6, 391 n. 
 Huber 684 n. 
 
 Huet, and Dutch trade 692 n., 694 n. 
 Hume, on money 723 n., 729— 30 n.; 
 
 and the "Economists" 741, 743 n. 
 Huskisson, his fiscal policy 81 n. 
 Hutchins and Harrison 73 n. 
 
 Ideals, and national life 3 — 4, 647, 
 650 — 1, 662 — 5; and cooperation 
 291—2 
 
 Ideas, their application to practice 172 
 —3, 203, 206 
 
 lies 203 n. 
 
 Increasing Beturn 187; in the field of 
 science 133; and elasticity of supply 
 188 n. ; and monopoly price 404, 405 ; 
 and taxation 405 n. ; and patents 
 407; and Protection 760—2, 778 
 
 India, her future 162; and Protection 
 653 n. ; fluctuations of wheat prices 
 in 796 — 7 n. ; influence of custom in 
 797—8 n. 
 
 Individuality, versus massiveness of 
 production in !France 116 — 20; a 
 British characteristic 580; its 
 strength and its weakness 583 — 4; 
 in the steel industry 588 — 9; as an 
 element of national wealth 683; in 
 furniture 808 
 
 "Indivisible" industries 786 
 
 "Industrial atmosphere." of Sheffield 
 and Solingen 284, 287 
 
 Industrial Commission, its scope and 
 authority 259 n. ; its investigation of 
 Trusts 523—4, 539—40 n. 
 
 Industrial Councils 393, 643^ 
 
 Industrial fluctuations, as aSected by 
 Trusts 540—3; by cartels 573—4, 
 629-35 
 
 Industrial leadership I, m — vm, 3 — 4, 
 9 — 11; and foreign trade 14 — 16, 26 
 — 7; and education 95 — 9; specula- 
 tion as to future 159 — 62 
 
 "Industrial Revolution," merely one 
 stage of Evolution 9; in limited sense 
 of term 71 
 
 Industrial technique II, n — rv; Its pro- 
 gress formerly dependent on custom 
 
 197 — 200; later on records and stan. 
 dards 201 — 2, 466; methods of its 
 advance 203 — 5 ; its debt to engineer- 
 ing 206 — 8; and the working classes 
 212—13 
 
 Industrial unrest, causes of 643 n. 
 
 "Instruction card," its place in Scien- 
 tific Management 372 — 4 
 
 Insurance 254; against opposite risks 
 255, 259—60 
 
 Interchangeable parts, anticipated by 
 Holland 33, 694 — 5; in aeroplane 
 engines 227 — 8 (See Standardization) 
 
 Interest, a fall in its rate indicates 
 generally diminished charges for the 
 services rendered by wealth to well- 
 being 408; and growth of capital 
 710—11 n. 
 
 Interlocking directorates 344 — 6, 540 
 — 3; provisions in Anti- trust Act 
 against 542 n. 
 
 Internal economies 167 
 
 International Harvester Company, its 
 exclusive deaUng 536 
 
 International trade (See Foreign trade) 
 
 Interstate Commerce Commission, 
 principles governing 468 — 9, 477 ; on 
 raUways 406, 477—8, 480—1, 838, 
 842—3; and "dumping" 522, 840 
 
 Invention, in textile industry 58 n. ; 
 characteristic of English 61 — 2, 
 101 n.; methods of 203—4, 207—10; 
 triumphs of 210 — 12; and patents 
 244 n., 730 n.; ever- widening scope 
 for 242; social gain from 325 (See 
 Industrial technique) 
 
 Ireland, her relations with England 54, 
 733—4; her cooperative dairies 54, 
 292 n. 
 
 Iron, and English leadership 60 — 1; 
 European sources of 126; German 
 production of 95, 557 n. (See Steel) 
 
 Italy 107 
 
 Jacob, on wheat supplies in 1826 — 7, 
 
 739 n. 
 Jannet, M. 540 n. 
 Japan, her education by foreign trade 
 
 22; her industrial characteristicsl61 
 Jenks, J. W. and Kemmerer, E. W., on 
 
 "securities of industrial combina- 
 tions and railroads" 540 n. 
 Jevons, H. S., on State management 
 
 668; 267 n., 586 n. , , > 
 Jews, characteristics of 48, 54, 247 n. ; 
 
 and financial activity 103 n., 696; 
 
 their value to Germany 582; Som- 
 
 bart on 696 
 Joint Committees of Employers and 
 
 Employed 392, 643-^, 645 n. 
 "Joint products" 181, 192—3, 413, 
 
 806; railways as illustrating 467 — 
 
 71 
 
INDEX 
 
 865 
 
 Joint Stock Companies II, vin — ix; 
 origin of 35, 36, 68 n., 311—12, 691, 
 712 — 14; successors to Regulated 
 Companies 36, 312, 725—30; draw- 
 backs to 317-18, 321—4; and the 
 cotton industry 320 n. ; systems of 
 checks in 324 — 5; and mutual 
 stimulus of officials 325 — 7; com- 
 pared with private businesses 327 
 — 8, 645 — C; and financial control 
 344 — 6; element of cooperation in 
 329; Adam Smith on 313, 712; 
 Prof. Scott 313 n., 711 n., 728—9, 
 SchmoUer 714 n., Fortrey 725 
 
 Jones, J. H. 284 n. 
 
 Jones, Richard 723 n. 
 
 Jutzi, W., on trusts v. cartels 561 n. 
 
 Kapff, Dr, on the colour industry 
 241 n. 
 
 Kariellen-Enguite, on profits in book- 
 sellers' trade 300 n. ; character of its 
 debates 546—7, 576 
 
 "Key" industries 671 — 2 
 
 King, Charles 724 n. 
 
 Kirdorf, on use of the word "bounty" 
 564 n. ; on cartels and wages 
 573 
 
 Knies, on tendency of industrial stages 
 to "synchronise" 698; on critical 
 passage from Adam Smith 748 n. 
 
 Knoppel 375 n. 
 
 Kropotkin, Mutual Aid 165 n. 
 
 Laboratories, and national industry 
 99 — 102; in France 116; in Germany 
 131, 134; and team work 205; and 
 large businesses 325 
 
 Labour, Marx on 71; net product of 
 72 n. ; its increasing adaptability 
 168 — 70; machinery and demand 
 for 152, 212—13, 237, 248 n., 698— 
 9; relation of scientific management 
 to 381—94; and cartels 570 — 4; 
 and Black Death 705—7, 708—9; 
 and Mercantilism 737 (See Working 
 class) 
 
 Laisser faire, laisser aller 84, 742 — 3 
 
 Lancashire, the home of automatic 
 organization 286, 599 — 603 
 
 Land, its ownership and management 
 contrasted 51; is in a class by itself 
 190 n., 827; speculation in Mel- 
 bourne 265; monopoly of 82 — 3, 531, 
 750 — 1, 824 — 5; in relation to 
 canals 504 n.; taxes on 827 — 9; for 
 railways in London 844 
 
 Landauer 231 n., 232 n. 
 
 Lardner, Law of Sguares 27, 28, 682 n.; 
 laid foundations of railway science 
 449; on passenger traffic 684 n., 
 834 n. 
 
 "Large business," an ambiguous term 
 173 — 4 (See Giant businesses) 
 
 Large cities, their industrial peculiari- 
 ties 284^5, 815—17 
 
 Laspeyres 745 n. 
 
 Lauderdale, Lord, contrasts English 
 and French export trade 112 — 113; 
 on Factory Acts 763 
 
 Launhardt 449 n. 
 
 Law oj Squares in transport and trade 
 27; as affecting England's leader- 
 ship 28; applied to Germany 127; 
 in early forms of trade 682 n. 
 
 Lawson, T. W. 539 n. 
 
 Leaf, on French artisans 1 1 6 n. 
 
 Lecky, on slavery laws 43 n.; 39 n., 
 727 n., 733 n., 743 n. 
 
 Lectures, function of 356 — 7 n. 
 
 Leroy-Beaulieu 117 n. 
 
 Levasseur, on art in French industry 
 HI n.; 109 n., 110 n., 113 n., 117 n., 
 741 n. 
 
 Leverhulme, Lord, on Copartnership 
 855 n. 
 
 Levi, Leone 68 n., 832 n. 
 
 Lew, on early monopolistic tendencies 
 of Enghsh 713 n.; 730 n., 590 n. 
 
 Lexis 670 n., 731 n. 
 
 Limited Liability Acts 312 
 
 List, on spirit of economic nationality 
 33; on English character 34 n. ; on 
 the ZoUverein 124, 767, 768; on 
 Protection 688—9, 761 ; on the "In- 
 dustrial" system 697 — 9; on navi- 
 gation laws 731 n. ; on Mercantilism 
 738—9, 741 n. ; on Adam Smith 746, 
 769; on English trade practices 768, 
 782; on German import duties 768 
 
 Livesey, 855 
 
 Lloyd, G. T. H. 284 n. 
 
 Local taxation and expenditure 89 — 90 
 
 Localization of industry, in Dutch 
 towns 33, 694; in America 150—2, 
 184, 287 — 8; influence of marketing 
 on 283 — 8, 816; and movement to- 
 wards the sea 283 — 4; in large cities 
 284—6, 816; of cutlery trade 284, 
 287; of cotton industry 286 n., 
 601 — 3; and railway discrimination 
 474—9 
 
 Locomotive industry, carried on by 
 railways 322—3, 591 
 
 Loeb, Dr Ernest, on influence of the 
 great banks 343 n. 
 
 London, external trade of 24; trade in 
 the Mercantile age 39 n. ; amalgama- 
 tion of means of transport 428 ; coal 
 supply 451 n.; wheat prices 795, 
 and meat 806 ; localization 815 — 16; 
 rate of mortality 818 n. ; railway land 
 844 
 
 "Long and short haul clause" 836 — 8 
 
 28 
 
866 
 
 INDEX 
 
 Lorenz, on Increasing and Diminishing 
 
 Return in railway problems 457 n. ; 
 
 on value and cost of railway service 
 
 465 n. 
 Lowe 66 n. 
 Luxury, in relation to French industry 
 
 111; early trade in 683; railways 
 
 and growth of 804 
 
 Macassey, Sir Lynden 641 n. 
 
 Macdonell, Sir John 635 n. 
 
 Macgregor, Prof. 577 n. 
 
 Machinery, and employment of labour 
 138 n., 152, 168, 209, 212—13, 237, 
 248 n., 639—40, 698—9; benefits of 
 to working classes 152, 640, 648 — 9, 
 698 — 9; effects of standardization 
 on 206 — 15; as creating machines 
 206 — 8, 210 — 12; increasing special- 
 ization of 226, 245; and hand work 
 contrasted 639 — 40; prohibitions 
 of its export 774; in the furniture 
 trade 808 
 
 Macpherson, on English fashions in 
 France (1785) 112 n.; on Prussian 
 character 123 n. ; on variations of 
 price of wheat in England 585 n., 
 795;726n., 727n., 731n. 
 
 Macrosty 577 n., 597, 624 n.; on 
 speculative market in iron 803 n. 
 
 Madsen, on tobacco monopolies 534 n. 
 
 Mahaim, Prof., on Belgian railways 
 495 n. 
 
 Maitland, F. W., his great dictum 
 701, 793; on amount of land in 
 relation to supply of food 701 n. ; 
 on mediaeval conditions of labour 
 705 n., 798 n. 
 
 Manchester, as an international trade 
 centre 286 
 
 Mandleberg, Sir C, and marketing of 
 exports 616 n. 
 
 Manufacture, characteristics of modem 
 55 — 9, 698 — 9; ever-rising prestige 
 of 171 — 3; change in meaning of 
 the term 718 n. 
 
 Marketing II, v — vn. Appendix J; in 
 relation to production 47 — 9, 181, 
 184—5, 249, 274, 509, 511, 611, 
 715 — 17; compared to fly-wheel 
 251 n. ; costs and risk attach to whole 
 processes of 269 — 271; changes in 
 character and distribution of its 
 general costs 274 — 8; and localiza- 
 tion 283—8, 601—3, 815—16; of 
 "branded" goods 300 — 2; of textiles 
 279 n., 286 n., 602 n., 799—801; of 
 steel 283, 287, 692—3, 802—3; how 
 aided by vertical expansion 587, 589, 
 and by associations 611 — 16, 723 n. ; 
 of perichable goods 805 — 16 
 
 Markets, general and particular 182, 
 
 400 — 1, 629; organized 256 — 8; as- 
 sociations for control of 400 — 2, 611, 
 620—2; for wheat 258—9, coal 267, 
 cotton 286, 602 n., and various com- 
 modities 801—3 
 
 Marshall, J., on wheat prices from 
 1700-1825, 753 n., 755 n., 774 n. 
 
 Martineau, Miss, and the Factory 
 Acts 765—6 
 
 Marx, Karl, his doctrine of "Surplni 
 Value" 71—2 n., 657; and the 
 growth of large businesses 176 — 7; 
 quotes Antiparos on water power 
 790 n. 
 
 Massive production I, m; methods 
 of 59 — 63; versus individuality 
 116 — 20; in German education 
 131; in relation to Protection 138 — 
 9 ; of powdered and hquid materials 
 235—8; of by-products 238—42; 
 in men's clothing 304 
 
 Mathematics, and theory of mono- 
 polies 450 n. ; and economic method 
 678 n. 
 
 Mavor, on marketing of wheat 799 n. 
 
 Maximum net revenue price 404 
 
 Maximum total benefit, illustrated by 
 ferry traffic 426 
 
 MoCuUooh, in favour of Factory Acts 
 763 
 
 McKillop on fatigue and cost 608 n. 
 
 MoPherson, Prof., excellence of his 
 railway tables 480 n. ; on regional 
 rate structures 837 n., 838 n. 
 
 Meade, 332 n.,, 331 n. 
 
 Meakin 353 n. 
 
 Meat, an illustration of "joint pro- 
 ducts" 192, 806; packing firms 
 237, 239 n. 
 
 Melbourne land speculation 265 n. 
 
 Mendelian doctrine 164 — 5 n. 
 
 Mercantilism, Appendix D; its policy 
 adapted to transient conditions 41 — 
 6; and the relation of buyers to 
 sellers 272; List on 697; and pro- 
 tection 723 — 4; and labour 737—8; 
 in France 740 — 3 
 
 Merchants, their work and that of 
 manufacturers compared 171 — 4; 
 services of 616 — 18; as financiers in 
 early times 710, 717 
 
 Meyer, B. H., on principles governing 
 Interstate Commerce Commission 
 468 — 9 ; on U.S. railway rates 840 n. 
 
 Middleman, in relation to cost of pro- 
 duction 184 — 5 n. ; functions of 
 278—80; profits of in fish trade 
 610, wall papers 610 n., and dairy 
 produce 812 
 
 Migration, of heavy industries to open 
 country 228 — 9; and to the sea 
 283-^ 
 
INDEX 
 
 867 
 
 Mill, James, 674, 758 
 
 Mill, J. S., on parlnership 313 n.; on 
 over production 640 n. ; hia writings 
 674; on French mercantilism 740 n.; 
 on protection 760; on Factory Acta 
 763 
 
 Milling, flour 235; paper 234; insur- 
 ance in 258 — 60; and action of 
 National Association 624 n. 
 
 Mining, a transport industry 787; 
 economy of large production in 787 ; 
 and State management 669 
 
 Mixed works 215; contrasted with 
 pure 220; in the steel industry 
 218—21, 554—9 
 
 Money, value and social value 45 — 6; 
 strengthened the position of buyer 
 relative to seller 271 — 2; "Trust" 
 641 ; depreciation of 709 n. ; and 
 mercantilism 720 — 4 (See Purchas- 
 ing power of) 
 , , . . ,/ Monopoly III, i — iv. Appendix L ; in 
 mediaeval history 43, 578, 685, 713, 
 725 — 7 ; partial and permanent 196; 
 in buying and selling 272, 402, 
 620; "conditional" or "provi- 
 sional" 397 — 8, 450 n.; obstacles to 
 absolute 398 — 9, 403 n. ; element of in 
 cartels 399^00; Profs. Edgeworth 
 and Pigou on theory of 399 n. ; net 
 revenue 404; maximum net revenue 
 price 404; and unfair uses of com- 
 petition 396, 512, 516—20; "and 
 the price which the market will 
 bear" 404—5, 425, 835—6; and 
 elasticity of demand 405 ; in relation 
 to Increasing and Decreasing return 
 industries 404 — 5; policies which 
 benefit the pubUc 405 — 9; taxes 
 on 410—12, 414, 824—7; distribu- 
 tion of general costs of 413 — 15; 
 and price discriminations 415 — 18; 
 problems of correlated 419 — 22, 
 559 n.; in multiple ownership 421, 
 824 — 9; traces of in road traffic 
 426—9; in the shipping trade 429— 
 31, 438 n. ; appropriate control of 
 based on thorough studies 516 — 20, 
 531—2, 576, 578—9; of landlords 
 531, 578, 750—4; and Bradford 
 ^ Dyers' Association 605 ; of cotton 
 
 ,, thread industry 595 — 7; and class 
 advantages 636 — 9 
 
 Monotony, Abbe on 353^-4; in relation 
 to scientific management 388 
 
 Moody, 539 n., 541 n. 
 
 Morgan, Pierpont, and the financial 
 control of trusts 541 
 
 Morison, Sir Theodore, on the Indian 
 market for wheat 796 
 
 Morris, R., and U.S. railway statistics 
 840 n. 
 
 Motor industry, standardization in 
 237—8 
 
 Motor traffic, and localization of in- 
 dustry 286; may aid canals and 
 railways 428—9, 501—3, 787; in 
 relation to London transport 428; 
 and distribution of parcels 428 n. 
 
 "Multiform" standardization, Amer- 
 ica's leadership in 140 — 1 (See 
 Standardization) 
 
 Mun, anticipates notion of "invisible 
 exports" of shipping services 38 n. ; 
 711, 722 n., 723, 724 
 
 Munition work, specialization in 224 
 — 6, 592, 641 — 2; and cost-accounts 
 610 n. 
 
 Munsterberg 307 n., 378 n. 
 
 Music, German training in 131 n. ; 
 standardized by unwritten tradition 
 198 n. 
 
 National Cash Register Company 537 n . 
 
 National Guilds, III, xiv, 7; 651; 
 and profit-sharing 855 n. ; their diffi- 
 culties 660, 662 
 
 National Income, distribution of 649 
 —50 
 
 Nationalization of railways, in Ger- 
 many 447; reasons for its success 
 in Prussia 447 n. ; good and evil of 
 492—7 
 
 Navigation Laws 71, 730 — 1 
 
 Nebenius, Roscher on 124, 768 
 
 Necessaries, absorb a diminishing 
 share of family income 275 
 
 Net product of labour 71 — 2 n. 
 
 "new" countries and "old" compared 
 141—2, 696 n. 
 
 Newmaroh, on economies after French 
 war 87 n. ; on Factory Acts 763 (See 
 Tooke) 
 
 Neymarck 741 n. 
 
 Nicholson, Prof., influence of Adam 
 Smith and Rioardo on Pitt and Peel 
 758 n. 
 
 Notz, W. 614 n. 
 
 Ochenkowski 722 n. 
 
 Oddy 66 n. 
 
 Olsson, W., on addition to British 
 banking system 347 
 
 Oppenheimer, Consul-General, on com- 
 mercial combinations 546 n., 572 n. ; 
 action of Coal Syndicate 553 — 4 n. ; 
 conflict between wire and nail cartels 
 559 n. ; export prices 564 n. 
 
 Over production 770 ; J. S. MiU on 
 640 n. 
 
 Owen, Robert 289 
 
 Palgrave, Sir R. H. Inghs, and the 
 financing of canals 503 n. 
 
868 
 
 INDEX 
 
 Paper mills, in Black Forest 235 
 
 Paris, attracts creative faculty of 
 Franco 119, 817 
 
 Parkhurst 374 n. 
 
 Particular, standardization 201; ten- 
 dencies for it to become Oeneral 202, 
 221—3 
 
 Passenger traffic, economy of time in 
 British 453 (See Railways) 
 
 Patents, and invention 244 n. ; and law 
 of Increasing Return 407; problem 
 of tax on 421; in the tobacco in- 
 dustry 534 — 6; laws 536 — 7; in early 
 times" 730 n. 
 
 Pax Romana, its influence on viability 
 684 
 
 Pax Cosmopolitana 2 
 
 Peel, his fiscal policy 82 — 4 
 
 Periods, long and short in problems to 
 value 185—8, 396—7; in relation of 
 "special" and "general" costs 192, 
 456 ; and the interests of buyers and 
 sellers 272 — 4; in railway problems 
 453—8 
 
 Person, Prof., on cooperation of em- 
 ployees in scientific management 
 390 n. 
 
 Petroleum, its by-products 239; a 
 transport industry 786 
 
 Petty, his great rule 33, 106, 112, 167; 
 on trade and heterodoxy 34 n. ; his 
 estimates of England's trade 38 n. ; 
 on labour of Seamen and Freights 
 as exports 693 
 
 " Physical valuation "of railways 843 
 
 Physiocrats 741 — 3 
 
 Piano manufacture, and German 
 training in music 131 n.; and air 
 pressure 212 
 
 Piece-work wages, generally preferred 
 by employers 381 ; objections to 382; 
 standard rate of 382 — 3 
 
 Pigou, Prof., on the theory of mono- 
 polios 399 n. ; and railways 449 — 
 50 n. 
 
 Pitt, on England's foreign trade in 
 1798, 66 n.; his loans 78; his fiscal 
 policy 80—2 
 
 "Planning Department" 370 — 3 (See 
 Scientific Management) 
 
 Plunkett, Sir H., and restrictions on 
 Irish industry 733 — 4 
 
 Poinsard 114 n. 
 
 Pollard 738 n. 
 
 "Pooling" of railway traffic 488—9; 
 and wagons 489 n. ; uses of term 
 511 
 
 "Poor," Charles Booth's definition of 
 78 
 
 Poor-law, increased the evils of early 
 factory system 76; and the French 
 Revolution 78 
 
 Population, of England 700 — 1; and 
 of her colonies compared 105; dis- 
 tribution of in U. K., Germany 
 and France 126 n. ; composition of 
 American 149 n., 152 n., 158—9; 
 canals and decentrahzation of 502, 
 505 
 
 Ports, increase in size of 433, 791; 
 remote from coast 703 n. 
 
 Postal services, anomalies of 428 n. 
 
 Potash, German monopoly of 126, 575 
 
 Pottery Manufacturers' Association 604 
 
 PoweU, G. H. 813 n. 
 
 Powers 776 n. 
 
 Pratt 473 n. 
 
 Preferential Rates (See Discrimina- 
 tion) 
 
 Price II, I; its relation to demand 
 and supply 182 — 9; "which the 
 market will bear" 404 — 5, 425, 810, 
 maintenance of in particular mar- 
 kets 400 — 1 ; regulations 620 — 2 
 
 Price, W. H., on early patents 62 n. 
 
 Prime Cost 181, 191; and normal 
 price 274; and "general" costs 191, 
 274, 413, 840 — 1 ; and cost-accounts 
 of a business 367 
 
 "Productive" industries 170 
 
 Profit-sharing 856 
 
 Profits, of small shopkeepers, how 
 estimated 294 n. ; of middleman 
 610 n.; in retail trade 810 — 11; rate 
 of in early times 710 
 
 Progress, and war 2; and the quaUty 
 of life 5; dependent on freedom of 
 initiative 174, 199, 249, 325, 645—6; 
 in relation to records and standards 
 199—202; influence of small busi- 
 nesses on 325, 525; and purchasing 
 power 392—3, 408 
 
 Promoter of companies, his functions 
 and methods 329—36 
 
 Property, in relation to distribution of 
 wealth 675—6 
 
 Protection, to English agriculture 
 81 — 5; in France 120; in relation to 
 massive production 138 — 9; to com- 
 bination 526, 530; and cartels 
 563—5, 632; in U.S. 157, 776—84; 
 its effect on wages 853 n. ; and na- 
 tional prosperity 578; and mercan- 
 tilism 723 — 4; in Venice and Spain 
 688 — 9; and Decreasing and Increas- 
 ing Return 760 — 2; and localization 
 of industry in U.S. 779 ; "educative" 
 777—80; in Germany 769—72, 851 
 —3 
 
 Prothero, R. E., 200 n., 706 n., 714 n. 
 
 Prussia, her railway policy 447 — 8,454 
 478, 493 n.; her canals 500, 502 n.; 
 and wheat production 758 n. ; and 
 Oermanization 769 
 
INDEX 
 
 869 
 
 Psychology, its use in Advertising 307 
 
 Publicity, in stock exchange transac- 
 tions 336—7; obtained by Royal 
 Commissions 442; gains from 634 
 
 Publisher, services of 302 n. 
 
 Purchasing power of money, in rela- 
 tion to wages 9, 385, 708 — 9, 737— 8 ; 
 how influenced by technical progress 
 408; as affected by Protection 794; 
 and price of grain 708 — 9 n., 794 
 
 Pure monopoly and railway problems 
 450 n. 
 
 Quesnay 744 
 Quintance, Dr 773 n. 
 
 Railways III, iv — vi, Appendix M; 
 growth and characteristics of British 
 68—70, 89—90 n., 449, 450, 453—5, 
 463-^, 516, 785—6, 830—3; in 
 France 109, 477, 495 n., 835 n.; in 
 U.S. 151—2, 445—7, 452, 454, 477, 
 495 n. , 764, 836 — 8 ; as manufacturers 
 322 — 3, 591 ; Lardner and science of 
 449 — 50 n. ; and economy of time 
 452—4, 463—4, 490—1 ; goods and 
 passenger traffic compared 462 — 4; 
 and shipping companies 456, 463 — 4 ; 
 as illustrating "jointproducts" 467 — 
 8; and localization of industry 474 — 
 9; and "keeping everyone in busi- 
 ness" 476 — 7; cooperation and pool- 
 ing 487 — 92; State regulation of 
 480, 840 n., 843; and ownership of 
 492 — 7; in relations to canals 478, 
 479,499—501,504—6; and war 492; 
 and the working classes 804, 834 — 
 6 ; Statistics 838 — 41 ; capitalization 
 841 — 5; British directors of 845 
 
 Rawson, on variations in price of wheat 
 755 n. 
 
 EecU cost of production, in relation to 
 social problems 183 
 
 Rebates, and American railroads 
 550 n. ; in the engineering trade 
 632 n. (See Deferred rebates) 
 
 Records, their aid to modern tech- 
 nique 201—2, 204, 466 
 
 Redfem, P. 293 n. 
 
 "Regulated companies" 36, 312, 711, 
 712 
 
 Rent, and the French war 78, 750—1; 
 and a tax on land 824 — 5 
 
 Representative or typical firml81,509; 
 in relation to the growth of Joint 
 Stock Companies 314 — 16; expan- 
 sion of 509; in U.S. 846—9 
 
 Research, in relation to industry 99 — 
 102; 671 — 2; in France 116; in Ger- 
 many 131, 135; and team work 205 
 
 Retail prices II, VI, Appendix J; in- 
 fluence of demand on 275, 804—6; 
 
 of various classes of goods 281 — 2, 
 807—10; high in America 304; of 
 fish 806 n. ; in wealthy and working 
 class districts 807 — 8 
 
 Retail trade II, vr, vii. Appendix J; 
 its relation to wholesale 278 — 80; 
 social waste in 280, 300; in U.S. 
 298 n.; cartels and 280, 547 — 8; dis- 
 crimination in 282, 416, 810—11 
 
 Rioardo, on foreign trade 19 n.; on 
 relation of cost to value 396 — 7; and 
 progress of economic science 674, 
 758 n. ; on colonial trade 734 
 
 Riesser, on German credit banks 341n., 
 342 n. ; cartels 549 n. ; the fusion of 
 industry and banks 567 n., 568 n. 
 
 Riley 721 n. 
 
 Ripley, on time element in railway 
 problems 457 n.; rule of direct costs 
 464 — 5 n. ; pooling of railway wagons 
 489 n. ; railway valuation 843 n. ; 
 838 n.; 845 n. 
 
 Risks II, v; dealings in 252 — 5, 258 — 
 60; balance of 255, 259—60; as 
 related to functions 266 — 8, 270, 
 645—6 
 
 Roads, and monopoly 426 — 8; in rela- 
 tion to canals 500 — 1; in England 
 in early times 702, 703; national 
 interest in 785, 787; cost of trans- 
 port on 798 
 
 Roberts, Map of Commerce 712 n. 
 
 Robertson-Smith 682 n. 
 
 Robertson, W. A., on railway dis- 
 crimination 474 n., 476; on railway 
 pooling 488 — 9 n. 
 
 Rockefeller, J. D., his "power of con- 
 trol" 359 n. 
 
 Rogers, on fluctuations in price of 
 stock 313 n.; on English roads 702; 
 on wages, 708, 709, 737 n.; 714 n.; 
 on fluctuations in wheat prices 
 795 n. 
 
 Roscher 682 n. ; on services rendered 
 by "old" peoples to "new" 696 n.; 
 on List 768 n.; 732 n. 
 
 Route clerk 375 n. (See Scientific Man- 
 agement) 
 
 Rowntree, G. Seebohm, on Belgian 
 railways 495 n. 
 
 Royal Commissions, regulative in- 
 fluence of 442 — 4 
 
 Saint L^on, E. Martin 815 n. 
 
 Salt, England's trade in 64 — 5 n. ; Eng- 
 land's predominant supply of 586 n. 
 
 Salzmann 707 n. 
 
 Sauerbeck 632 
 
 Savary 39 n. 
 
 Schanz 731 n. 
 
 SchmoUer, on English character 34; 
 on education of business men 357 n. ; 
 
 28—3 
 
870 
 
 INDEX 
 
 on combinations and cartels 544 n., 
 573, 575—6; on Nile delta and Hol- 
 land 684 n. ; on trade between towns 
 686 n. ; on early Companies 714 n. ; 
 on Mercantilism, 720 — 1 ; on Adam 
 Smith 745 
 
 Sohulze-Gavemitz, on high organiza- 
 tion of cotton market 231 n. 
 
 Schumacher, Prof., on relation of 
 banks to industry In Silesia 343 n. ; 
 his eulogy of Prussian railways 
 447 n. 
 
 Schwab, on the control of large busi- 
 ness 364 n. 
 
 Science, in industry, 95, 97 n., 101 n., 
 132-4, 179— 80," 203— 5, 232, 240— 
 3, 538, 569—70, 608 n.; demand for 
 extended study of 98—102, 593—4, 
 608 n. ; ever widening scope for 242 — 
 3; State in relation to 609, 671—2; 
 in education 820 — 1 
 
 Scientific Management II, xi — xn; its 
 aims and methods 368 — 70, 466; 
 specially suited to American in- 
 dustries 370, 374, 382, 393; "staff" 
 or "functional" organization of 371 
 — 5; a chief idea of, suggested by 
 Babbage 376 — 7; and "a standard 
 rate of wages" 381 — 4; andefBciency 
 of plant 384 — 5 ; and the well-being 
 of the worker 384 — 91; and demo- 
 cratic control 391 — 4; in relation 
 to the Whitley Report 393 n. ; and 
 business associations 607 — 8; Cole 
 on 640 n. 
 
 Scotland, forces making for her union 
 with England 53 — i; her education 
 53, 96 — 7; her banking system 54, 
 313 n., 338 
 
 Scott, Prof., on Joint Stock Companies 
 313n., 712n. ; on educative influence 
 of imitation 351 n. 
 
 Seager 537 n. 
 
 Secrecy in business, 583 
 
 Sectional interests, changes in char- 
 acter of 4 — 5, 8 — 9; in relation to 
 national interests 394, 620 — 1, 652 
 — 3; in railway politics 494, 495; in 
 the glass industry 641 n. 
 
 See, on selection of employees 247 n. ; 
 on markets for materials and for 
 products 283 
 
 Self ridge 297 n. ; "Organization Chart" 
 375 — 6 n. ; map of Stourbridge Fair 
 703 n. 
 
 Senior, and the Factory Acts 763 — 4 
 
 Sliaw, A. W. 304 n. ; on advertising 
 307 n. 
 
 Sheffield, and the cutlery trade 213 n., 
 587, 607 ; an epitome of Britain 587 ; 
 Cutlers' Technical Society 607 
 
 Sherman Act 513, 517 
 
 Sherwood, Professor, on early forms of 
 business 165 n. 
 
 Shifts, economy of 650 n. i[ ? 
 
 Shipbuilding, early history of 33, 90, 
 679; standardization 226—8, 690 
 ■ — 1; fluctuations in 334, 633; in 
 relation to steel industry 633; con- 
 structive cooperation in 591 — 2 
 
 Shipping Companies III, ni; and 
 
 railways, a ease of correlated i ' 
 monopolies 421; competition of ! ! 
 "Tramps" with 431—8, 440—1 n., i ' 
 791; their resemblance to Branch- 
 shop Companies 434; growth of : 
 433 — 4; German 434r— 6n.; and 
 railways compared 456, 463—4 
 
 Shipping Rings, Committee on 440 — 4 
 
 Ships, sailing and steam contrasted 90, 
 429; their growth in size 227, 431 n., 
 433, 691, 790—2; exports of British 
 and German compared 556; in long 
 and short distance trafSo 791; and 
 caravan transport compared 682 n. 
 
 "Shop disciplinarian" 374 
 
 Shovelling as illustrating elemental 
 time studies 376, 378—80 
 
 Silk weaving at Lyons 116 
 
 Sliding Scale, and price of wheat 82 — 
 3 n., 735—8 
 
 Slot-machine system, its possible ex- 
 tension 301 n. 
 
 Small producer, survival of 227, 247 — 
 9, 366 n.; in cutlery trades 213 n.; 
 aided by standardization 223, 227, 
 234, 242—9, 582; influence on Brit- 
 ain's industry 525; supersession by 
 large in steel trade 558; and elec- 
 tricity 789 
 
 Small shops, their hold on poor dis- 
 tricts 813—15 
 
 Smiles 39 n. 
 
 Smith, Rollin E., on the grading of 
 wheat 259 n. 
 
 "Social credit" 165 — 6 
 
 Social value, in relation to money 
 value 45 — 6 ; of invention 325 
 
 Socialism, and the growth of large 
 businesses 176 — 7; in Po-ankfort 
 446 n.; changes in 651, 660 n.; and 
 Physiocrats 744 
 
 Sombart, Prof. 59 n., 124 n.; on in- 
 fluence of Jews in finance 696 
 
 South Africa, industrial character of 
 160—1; and shipping rings 338 n., 
 439, 441—2 n., 444 n. 
 
 Spain 107 
 
 Spearman, on railway strategy 845 n. 
 
 Specialization of Industry, stimulated 
 by world- war 224—6, 593; Babbage 
 on 224; in relation to standardiza- 
 tion 233—4, 244—5, 592; and size 
 of business unit 508 — 9; in the 
 
INDEX 
 
 871 
 
 ^cotton industry 599—603; its an- 
 ticipation of by Holland OOi — 5 
 
 Speculation II, v; in ordinary life 
 252; "constructive" 252 — i; and 
 gambling 253 — i, 258; lessens risks 
 in grain trade 252, 258—62, 799; 
 manipulative 262 — 3; evil of ill-in- 
 formed 264; in land 264—5; in 
 cotton 799—801 
 
 Spelling, time wasted in 352 
 
 Spirits, consumption of in 1743, 44 
 
 Spontaneity, and German education 
 129—30 
 
 St«.bility of industry and trade, in- 
 fluence of trusts on 541; of cartels 
 573—4, 629—35 
 
 Standard, its place in modern tech- 
 nique 201 — 2; rate of wages 381 — 5 
 
 Standard Oil Company, its history 
 512, 532 — 4; its control of banks 
 541 
 
 Standardization, Multiform 141 ; Par- 
 ticvlar and General 201—2, 221—3; 
 its early use in Dutch shipping 33, 
 694 — 5; in English manufacture 
 56 — 8, and in American 146 — 52; by 
 custom 197 — 8; and alchemists 211; 
 and Colbert 201 n., 7^0<^velope^ 
 by Boulton, Maudslay, WWtwtSfth 
 206 — 9; and the skilled artisan 209 
 — 10, 213; and speculation 223; in 
 various industries 222 — 34, 304 n., 
 502—3, 594, 8U— 12; aids moderate 
 sized firms 223, 227, 234, 244—9, 
 582; of conditions and methods 
 of work by scientific management 
 385; in relation to cartel policy 
 548 — 9; lack of in locomotive in- 
 dustry 591 
 
 State (See Government) 
 
 Statistics, of wealth in U.S. 154 n.; of 
 trade in ships 556 n. ; of cartels 
 549 n. ; of wages in mediaeval Eng- 
 land 708 — 9 n. ; of corn prices in 
 England, France and Germany 
 757 n.; and tarif changes 783 — 4; 
 of railways 838 — 41; of expansion 
 of business unit in U.S. 846—9 
 
 Steel industry, and Bessemer's process 
 91; and Thomas' process 94 — 5, 135 
 n., 557, 850; progress of in Germany 
 94—5, 125—6, 556—8, 850; locali- 
 zation of 126, 283; expansion of its 
 business unit 218—21, 528, 589— 
 90, 594; and progressive standardi- 
 zation 223—7; exports, British and 
 German compared 556; and cartel 
 policy 554—9, 849—51; fusions in 
 British 605 n. ; in relation to ship- 
 building 590—1, 622, 792; market- 
 ing of American 618 n. ; speculation 
 in 802, 803 
 
 "Steel products'' corporation 618 n. 
 
 Steelworks Union, 559 — 65, 588; and 
 constructive cooperation 562; and 
 Protective tarif 563—5, 631—2, 
 852 
 
 Stefien, on the Black Death 706 n. ; his 
 analysis of history of wages in Eng- 
 land 708—9 n. ; 737 n. 
 
 Stephenson, on combination and com- 
 petition 409, 485 
 
 Stock Exchange, standardization of its 
 securities 256, 319; pubHcity on 337 
 
 Stocks, recent changes in amount and 
 distribution of 274 — 8 
 
 Stock- watering 333, 336, 841; German 
 law against 336 n. 
 
 Stourbridge Fair 703 
 
 Sumner 778 n. 
 
 Supply II, I; its adjustment to de- 
 mand 194—6, 274—6, 396—7; 
 "elasticity of" 188 n. 
 
 "Sweating" System 72 — 3 
 
 Swire Smith, Sir 97 n. 
 
 Switzerland, her facihties for foreign 
 trade 26; 655 n. 
 
 Sykes, Colonel 797 n. 
 
 Symons 115 n. 
 
 Syndicates 551, 552; in banking 349 
 n. ; and Trusts contrasted 561; 
 and price fluctuations 572 n. (See 
 Cartels) 
 
 Tarbell, Miss 534 n. 
 
 Tarif, and cartel poUcy 563—5, 851—3 ; 
 in Germany since the Zollverein 
 769 — 80; changes in American 776 
 ^80; influence of on national pros- 
 perity 783—4 
 
 Taussig, on danger of nepotism 538 n., 
 778 n. ; on the historical method 
 784 n. 
 
 Taxes, due to French war 78 — 80; and 
 loans 78 — 9 n. ; in relation to In- 
 creasing and Decreasing Keturn 
 industries 405 n. ; shifting of 410 — 
 11; on monopolies 411 — 12, 824 — 
 7; on "joint products" 414 n.; 
 their imposition may benefit traders 
 444 n. ; and German cartel policy 851 
 • — 3; on land and agricultural pro- 
 duce 824 — 7; "onerous" and re- 
 muneratory 828; local 828-9 
 
 Taylor, F. W., and Scientific Manage- 
 ment 368, 371, 374 n., 375, 386, 
 387; his method and Emerson's 
 373, 385 n'., 391 n.; in relation to 
 Babbage 377—8 
 
 Team work in scientific study 11, 134, 
 205; in French design 116 
 
 Telephone, in business administration 
 234, 363 n. 
 
 Temple, Sir W., his survey of trading 
 
872 
 
 INDEX 
 
 cities and nations 690; on local- 
 ization of industry in Dutch towns 
 694 n. 
 Tendencies and economic method 
 
 677—8 
 Terminal charges, in relation to rail- 
 way costs 29, 464, 470 
 Terms, use of in economics 214 
 
 680 n. 
 Textile industries, deal with materials 
 standardized by nature 66 — 7; in- 
 ventions in 58 n. ; standardization 
 in 209 n., 229—32; locahzation in 
 Lancashire 286, 599—603; markets 
 for 801—3 
 Thomas, effect of his invention on 
 
 Germany 95, 135 n., 557, 850 
 Thompson, C. Bertrand 373 n. ; on 
 increase of output due to scientific 
 management 374 n. 
 Thompson, Sanford E., his apprecia- 
 tion of Babbage 376 n. ; on elemental 
 time studies 380 n. 
 Thomson 783 n. 
 Timber, monopoly of 631 
 Time element in relation to custom 
 198; dominates problems of value 
 185—8, 396—7; in "special" and 
 "general" costs 192, 456; in the 
 interests of buyers and sellers 272— 
 4; in railway problems 456 — 8; in 
 tarif problems 783 — 4 
 Time, high value of, a British charac- 
 teristic 453, 464, 618, 810 
 Tinplate industry, in Britain and 
 
 Germany compared 621 — 2 
 Tithes, incidence of 825 — 6 
 Tobacco trust 534 — 6 
 Tooke, on harvests during French war 
 750 n.; on sUding scale 752 — 5n.; 
 in favour of factory acts 763; on 
 demand for wheat 794 
 Tosdal, Dr 561 n., 575 n. 
 Towns, their patriotism and their 
 selfishness 685 — 6 
 
 Trade, its relations to industry 3 4; 
 
 gain of 18, 253; of Mercantile Age 
 not large 37, 38— 9 n.; in early 
 times 682 — i 
 "Trade Corporation," a hnk between 
 British industry and the investor 
 348—9 
 Trade-marks, difficulties with regard 
 to their ownership 301 — 2 n.; value 
 of in fine cotton and thread industry 
 403—4, 596—7; in Danish trade 
 812 (See "Branded" goods) 
 Trade Unions, their influence on out- 
 put 103, 137, 352—3, 381, 409, 
 418—19, 639—42; and standard 
 rates of pay 382—3, 390 n.; and 
 scientific management 390 — 1; in 
 
 relation to cartels 573, 674 — 5 n • 
 ^ and national well-being 620-1 ' 
 "Tramps" 431; their effect on cost of 
 transport 431—3, 437; in grain and 
 eoal trades 432—3 n.; in relation to 
 Conferences" 437, 440 n.; their 
 extinction deferred 791 
 Transport III, m— vi, 423; its in- 
 fluence on course of trade 29—31, 
 40 n. ; and on prices of freely imported' 
 goods 627—8; and marketing 251, 
 276—8; its problems illustrated by 
 ferry traffic 423—6; on land and 
 sea compared 431 n.; early phases 
 of 684 — 7 
 Tribunal of Investigation 635 
 Trusts III, vn — vni; meaning of 
 term 217, 345, 514; and cartels 
 compared 607, 510—11; rise of in 
 U.S. 511—15, 540 n.; Standard Oil 
 512, 532—4, 641 ; estimates of their 
 numbers 514— 15 u.; their depend- 
 ence on supply of high and rare 
 ability 515, 525, 538; American 
 control of based on thorough studies 
 516—20; price policies of far-seeing 
 523—6; Protection and 526; U.S 
 steel 528—30; Tobacco and other 
 534 — 6; and stability of trade and 
 mdustry 637—40; control of by 
 financial groups 529—30, 640—2, 
 666; "Money" 541; German ten- 
 dencies towards 569 — 70; in Britam 
 610, 591—8, 621—2; Committee on 
 610 n., 634 — 5 
 Tucker, on English manufacturers 
 
 41 n., 727 n., 735 n. 
 Turgot, on free trade in Enaland 
 
 .. '^*^ "• 
 
 "Tying" or exclusive contracts 536— 
 
 7; in relation to questions of de- 
 ferred rebates 234, 439 
 Typewriters, advertisement of 305 n. 
 — 6n. 
 
 "Undertakers," their place in the 
 organization of English industry 
 47—9, 171-4, 716 
 
 United States, growth of her town 
 population 151 — 2 n., 773 n.; eco- 
 nomic study in 157; statistics of 
 her farm values 153 n.; conditions 
 apptoach those of the Old World 
 157; influence on other New Coun- 
 tries 159; leadership and that of 
 Canada 160; banking system 344—6, 
 540—3, 666—7; Trusts 217, 511— 
 15, 527 — 43; control of monopolies 
 516—22, 531—2, 576; associations 
 in export trade 613 — 14; protective 
 tarifs 776—84 (See American) 
 United States Steel Corporation, ils 
 
INDEX 
 
 873 
 
 economies 220 — 1; administration 
 
 of 364 n., 605; history of 527—32, 
 
 605; marketing of 618 n. 
 "Universal Providers," and early 
 
 cooperative stores 291, 296 
 Unwin, Prof. 40n., 50n.,707n.,715n., 
 
 737 n. 
 
 Urc, on use of the word "manufac- 
 ture" 718 n. 
 
 Valuation, difficulties of 333 — 7 (See 
 
 Capitalization) 
 Value II, I; money and social 45 — 6; 
 
 its relations to cost 194 — 6 
 Vanderbilt, W. H., on controllers of 
 
 the Standard Oil Trust 534 n. 
 Vanderlint, on Statute of Artificers 
 
 738 n. 
 
 Venice, List's verdict on 688 — 9 
 
 Vertical and horizontal expansion 
 215—16; in the steel industry 219 — 
 21, 528—9, 559—61, 587, 589; in 
 textile industries 230 — 2; relative 
 advantages compared 587, 589 
 
 Vinogradoff, Prof. 705 n., 798 n. 
 
 Viscosity and the shifting of taxes 
 411 
 
 Vogelstein, Dr 632 
 
 Wages, Marx's theory of 72; in re- 
 lation to net product 72 n. ; influence 
 of machinery on 138 n., 168, 213; 
 Protection and 82; "standard rate 
 of" 381 — 3; influence of scientific 
 management on 383 — 9; in Ger- 
 many and Britain compared 853 n. ; 
 cartels and573 — 4n. ; effect of Black 
 Death on 705 — 8; and wheat prices 
 709 n. ; and purchasing power of 
 money 640, 737, 853 
 
 Wagner, Adolf, in Kartellen-EnquSte 
 debates 547 n. ; on nationalization 
 of steel industry 558 — 9 
 
 Walford 39 n., 682 n., 795 n. 
 
 Walker, P. A., on Captains of Industry 
 169; on protection in relation to 
 combination 526 n. ; and the Amer- 
 ican census 847 — 8 n. 
 
 War, and economic progress 2, 87 — 8; 
 effect of French war on landlords 
 and farmers 78, 750 — 1; and on 
 England's fiscal policy 79 — 85 (See 
 World-war) 
 
 Waste, in retail trade 300; of com- 
 bative advertisement 305 — 7; busi- 
 ness checks on 366 n., 367, 368—9, 
 374; of rate- wars 438; in British 
 raUway traffic 454—5, 486, 490; in 
 marketing coal 503, 553, 789; of 
 anthracite 531 u.; in State manage- 
 ment 669 
 
 Water supply, and England's early 
 
 trade 702 — 3; a national problem 
 786; as a source of electricity 788; 
 its services to industry and trade 
 790 
 
 Watkins 361 n. 
 
 Way-leaves, influence of 786 — 7 
 
 Wealth, and quality of life 5; and 
 constructive speculation 253; and 
 the work of the promoter 330; and 
 banking "deposits" 339 n.; in re- 
 lation to well-being 527 ; and rights 
 of property 675; in relation to 
 money 720, 729 
 
 Webb, 707 n. 
 
 Weber, Adolf 343 n. 
 
 Weber, Alfred 27 n. 
 
 Webster, Jenkinson, on cost accounts 
 610 n. 
 
 Wedgwood, R., on use of ton-mileage 
 statistics 840 n. 
 
 Weeden 774 n. 
 
 Weld 812 n. 
 
 Well-being, sacrifice of material wealth 
 to 5; and routine work 152, 388; 
 large and small businesses in relation 
 to 175 — 7, 249; and monopolistic 
 policies 180, 405 — 9; and construc- 
 tive speculation 253; influences of 
 scientific management on 388 — 94; 
 in relation to sectional interests 394, 
 620 — 1; and fall of rate of interest 
 408; and the price of staple grains 
 793 
 
 Westerfield 50 n. 
 
 Westphalian Coal Syndicate 552 — 6 
 
 "What the traffic will bear" 404 — 5, 
 461; illustrated by a ferry 425; for 
 valuable freight 430; in relation to 
 Shipping Conferences 435; and to 
 railway traffic 835 — 6 n. ; in retail 
 trade 810 
 
 Wheat, trade in 18th century 65; 
 in relation to wages 78, 82; 
 protection and price of 82 — 3, 
 749 — 58; movements in its price 
 after 1849, 83 n. ; variations in its 
 price in France 109 n.; a pioneer 
 crop in America 144, 775 — 6; Ex- 
 change 258 — 03; grading of 259 n. ; 
 its price in Middle Ages 708 — 9 n. ; 
 prices and harvests 750 n., 755 — 6; 
 trade during first half of 19th cen- 
 tury 751 — T; price of in various 
 countries 757 n. ; inelastic demand 
 for 794; local variations in its price 
 794—6 (See Grain) 
 
 Whitaker, 704 n. 
 
 Whitley Report 643—4, 645 n.; in 
 relation to Scientific Management 
 393 
 
 Wholesale dealers, services of 278 — 
 80 
 
874 
 
 INDEX 
 
 Williams 473 n. 
 
 Wood, and iron in shipbuilding 90 
 
 V/ool combing, generally worked by 
 powerful arms 231, 595, 597—8 
 
 Woollen and Worsted industries, pio- 
 neers in organized transport and 
 industry 49—51, 579, 703—5, 714— 
 18; standardization in 56, 231 — 2, 
 801—2; decay of in Norfolk 707 n. 
 
 Work-Fund 640—1 
 
 Working class, and education 4 — 5, 
 96—8,351 — 3,636—8; and technical 
 progress 212—3, 640, 641, 646, 648; 
 ownership of factories 319 — 20; and 
 scientific management 388 — 94 ; and 
 faU of rate of interest 408 ; and car- 
 tels 570 — 4; and supply of business 
 power 359, 646, 661—2; and Pro- 
 tection 852 — 3; and railways 804, 
 834—5 (See Labour) 
 
 "Works Committees" 393 
 
 World-war, reveals national need of 
 science 99, 129; its demand on 
 standardization and specialization 
 224—8, 593, 641—2; in railway or- 
 ganization 491 — 2; on fiscal policy 
 519; and wages 641 n., 643 n. — 
 4n. 
 
 Yarranton, on navigation of rivers 
 40 n. 
 
 Young, Arthur, on large and small 
 farming 52 n. ; 61 n. ; on French ser- 
 vants 115 n. ; his dictum 751 n.; on 
 Settlement Act 737 
 
 Youngman, Dr 361 n. 
 
 Zeiss works 353—4, 360 n. 
 
 ZoUverein, Appendix F; in relation 
 to British Empire 124; in England 
 and France 742; and German pro- 
 gress 123—4, 768—9 
 
 Printed in Great Bujtain by Richard Clay & Sons, Limited, 
 bungay, suffolk. 
 
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