306 IMPORTANCE OF CONCENTRATION important factor in so small a country-the transition to the preponderating production of manufactured goods from imported raw materials and similar causes kept her from monopoly. The change came gradually after about 1870, in many trades even later, with the growing tendency of industrial capitalists to concentrate production in a few undertakings. For those who wish to study the effect on monopoly of that concentration by itself, all other influences being excluded, England now offers the ideal field of inquiry. There alone it is seen over a whole economic area, with nothing to obscure its working. The same tendency must doubtless be counted among the chief factors of monopolisation in other countries also. But numerous examples show that in those countries monopolies were conceivable owing to other conditions, even without concentration, or arose at a comparatively early stage in its development. And further, given strong concentrating tendencies, their influence is hidden by the existence of other conditions of monopoly. For instance, the fact that a Bessemer Steel Rail Works in America requires an annual output of 400,000 to 600,000 tons to pay, and that existing concerns had as early as 1903 a theoretical productive power of over 3,000,000 tons, must certainly dissuade people from starting new works. They would need to be confident of finding a market for the additional output of the new works not only during a boom but in average years, while in fact in years of depression the consumption of iron rails often fell far below 3,000,000 tons (1903, 2,100,000 tons; 1908, 1,350,000 only !). This state of affairs must, of course, have aided existing concerns to maintain a monopoly, but its effect in actual fact was almost entirely overshadowed by another factor, the monopolist control of the iron ore deposits, which gives existing undertakings a power that practically precludes the rise of new Bessemer Steel Works, even if such a thing were in itself profitable. In other countries commercial policy, transport facilities, the chance existence of slowly reproducible minerals form UNIMPORTANCE OF OTHER FACTORS 307 ing a national or even world-wide monopolies, and other similar factors not essentially connected with the natural development of modern industrial capitalism can cause monopoly. Its rise under such conditions is not peculiar to a certain advanced stage of capitalism. Like the early cartels in English coal and copper mining, and so many German cartels and American trusts, such monopolies may be shortlived phenomena vanishing with the disappearance of some accidental or temporary condition. In England, on the contrary, the creation of monopoly is directly connected with the most modern development of industrial capitalism, and is its logical consequence. The recent rise of cartels and trusts must therefore be regarded as essentially the pure result of that economic law which we have called the movement towards concentration. There is no reason why the recently invented international cartels should not produce the necessary conditions for monopoly in England just as well as in other countries, inasmuch as international agreements have the same practical effect as a protective tariff. But up till the present time, as we have found, they have only appeared where concentration was already in a highly advanced stage. In dealing with the sphere of free competition we traced the possibilities of concentration in England, its rapid progress in some industries, its complete non-existence in many, and the probable continuance of that state of affairs in the near future. We have seen, too, that owing to the absence of those artificial aids which stimulated it in other countries, concentration developed comparatively late in England, and that English industry as a whole by no means represents the most advanced type of combination now in existence. Very different would the picture be if England broke with the free trade system. Protection would increase the number of trades in which the creation of monopoly would depend solely and singly on the amount of home competition. A great many industries in which at present concentration has very largely reduced the number of firms, 308 FREE TRADE AND MONOPOLY but in which foreign competition has so far prevented a monopolist combination, would, under a tariff, straightway be in a position to found cartels or trusts. As it is, many industries threatened by foreign competition now find it easier than it used to be to suppress home competition; and in proportion as this is so, the probability that protection would be the last thing requisite for a monopoly increases. In any case, the prospects of monopoly building in such industries would be much brighter than in the days when the main problem was to suppress domestic rivals. For this reason, free trade is much more important as a defence against monopoly than it used to be. Moreover, duties on half-manufactured goods and raw materials stimulate vertical combination, and so artificially hasten the tendency to concentration. Finally, a tariff would, as in other countries, encourage the monopolistic combination of far more firms than is now possible, because the attraction of monopoly would grow with the possibility of profiting by the protective duty, and therefore monopolies would be conceivable in England even where little or no concentration had taken place. British tariff reformers are so well aware of this connection that they often desire a protective tariff simply as means to creating trusts which they consider to be the most advantageous form of industrial organisation-a view strongly criticised on economic grounds by Prof. von Schulze Gävernitz.1 Whether sound or not, this project has no great influence on the practical development of English economic policy. It is true that some struggling English industries look upon a trust protected by a tariff as the remedy for dumping by foreign cartels and trusts, but the great bulk of the people, warned of the effect of trusts on prices by the experience of other countries, display no sympathy with such schemes, and the argument that trusts and cartels should be " encouraged " by protective duties will never carry weight with the English masses. Free traders no less than tariff reformers value the advantages of combination as a matter of 1' Englischer Freihandel und Britischer Imperialismus,' pp. 270-77. 14 FREE TRADE AND MONOPOLY 309 organisation; but they maintain that under free trade alone can monopolist organisations produce desirable economic results. This opinion finds support among English, German, and American economists alike. It rests on the argument that under free trade a monopolist combination cannot aim at raising prices, which must sooner or later provoke foreign competition, but only at reducing expenses, and thereby increasing profits. The facts which we have considered, however, show that foreign competition may be neglected in considering English industrial monopolies entirely in some cases, and in the rest up to a certain degree. The aim of such combinations is, at least in part, nothing more nor less than to profit more by freedom from foreign competition than would be possible if home competition continued unchecked. Just because they result from concentration it is an undoubted characteristic of English cartels and trusts, that by economies and better organisation they produce especially large reductions in the working expenses of an undertaking. In many cases this may have been the chief object of the founders of great combines. But that does not alter the fact that even such combines, if free from foreign competition and strongly entrenched at home, occupy a monopolist position, which no one prevents 1 Hirst, Monopolies, Cartells, and Trusts,' p. 169. He holds that English combinations cannot raise prices above the "natural" level, i.e. the level of import prices, and therefore are harmless. But in the case of goods which were cheaper in England than abroad, foreign import prices might seem to the consumers "unnaturally" high. It is rather utopian for the 'Economist' to say (July 4, 1908, p. 16): "It is next to impossible for combinations to maintain prices in a free trade country above the legitimate (sic) level determined by the conditions of demand and supply." Mr. Pierce, in his very remarkable book, 'The Tariff and the Trusts' (New York 1907), p. 57, says: "That trusts exist in free trade countries as well as in protectionist countries is undeniable, but while in the former the economy in production which results from their promotion goes to the benefit of the consumer in the shape of reduced prices, in the latter they are identified with high prices to the consumer and large profits to the producers." Prof. Brentano ('Die beabsichtigte Neuorganisation der deutschen Volkswirthschaft,' p. 278) also thinks that under free trade "cartels are limited in their beneficial effects." Compare also Dietzel, 'Sozial Politik und Handelspolitik,' 1902, p. 23. 310 ENGLISH ORGANISATIONS AND PRICES them from using. As we have seen, this commanding position is not so strong, especially in the matter of prices, and its profits are not so great as in countries with high tariffs or heavy freights or natural monopolies in minerals. But we have also seen from examples that it may have effects not in principle different from those of trusts and cartels in other countries. It is admittedly a matter of very great difficulty to estimate the effects of English cartels and trusts on prices. In protected countries import price plus freight and duty are the measure of monopoly price, and it has been proved that in certain circumstances a trust or cartel has succeeded in raising the former competitive price by the whole amount of the duty. But in England prices often stand below the import price in spite of a monopoly rise, or, again, they develop quite independently of foreign prices and themselves fix the price in foreign markets, in which case no measure of the prices of English monopolists can be gathered from a comparison with foreign prices; while the absence of accounts of expenses makes it impossible to compare prices and costs before and after the rise of monopoly. The history of various cartels and trusts points, however, to the following tendencies. In the first place, the fixing of prices exclusively by competition is in general superseded by a more or less entire autonomy of the monopolist combinations, even where there is no complete monopoly. The decisive factor in prices in the particular industry affected is the price of the cartel or trust, whose power is no doubt definitely limited, but whose influence on prices is large and systematic. We find it almost universally stated in the reports of trade papers and similar documents that monopolist combinations "raised," or "reduced," or "tried to maintain" prices. In other words, prices no longer depend merely on the results of unrestricted competition. In the second place, monopolist combinations usually achieve their avowed aim of raising prices above com'petitive prices. For this purpose cartels (for instance, the |