THE GROWTH OF MONOPOLY, AND ITS BEARING
ON THE FUNCTIONS OF THE STATE.
AFTER a century of the keenest and most unbridled com-
petition the industrial world has ever known, economists
find some of their gravest problems in the consideration of
the growth and future of monopolies.
It is difficult to picture the astonishment with which the
contemporaries of Adam Smith would regard this outcome
of the reforms they did so much to set on foot. They imagined
that we were passing out of an age of monopoly into an age
of competition, the distinguishing mark of which would be
equal opportunity and equal remuneration. Abolish artificial
restrictions, they urged, and natural equality will prevail.
By nature, said Adam Smith, there is little difference between
a philosopher and a coalheaver. Let the careers be free to
all without favour, and competition will prevent inequality.
Liberty granted, in short, equality was a necessary conse-
It is easy now to see how great was the mistake they made,
and how they came to make it. The obvious, conspicuous
1 A Paper read at the British Association, Bath Meeting, September
7th, 1888. Reprinted from the Municipal Review, October 13th, 1888.
Afterwards translated by Professor Gide, and published in the Revue
tftfconomie Politique, September, 1889.
causes of inequality and monopoly in their day were privilege,
corporate and private, and governmental activity by military,
fiscal, and industrial measures. These causes of monopoly,
which they called artificial, were largely swept away in the
first half of this century. But more permanent, and as they
would have said, natural, causes remained. The reforms of
that age were very destructive, but they could not destroy
monopoly. What they actually did was to shift its basis,
and give it freer play. The industrial advantage which
formerly rested largely on privilege, and was limited to loca-
lities, now rests on abilities, opportunities, and possessions,
and has the world for its sphere of action.
It is in fact a mistake to suppose that a state of competition
can be a final permanent state a state of stable equilibrium.
Where one man is as good as another, competition ensures
that men shall be indifferently and equally remunerated.
But this is not its main office. The points in which a man is
on a level with his fellows are of small importance to society
in comparison with those in which he has a superiority, however
small. The main function of competition is that of selection.
It is an industrial war, more or less honourably carried on,
leading to the more or less disguised supremacy, the com-
mercial monopoly, of the victorious firm, whose initial advan-
tage is strengthened by every victory. From this point of
view it is competition which is transitional ; and monopoly
presents itself, not as something accidental, a stage through
which we pass in a backward age, but as something more
permanent, more fundamental, than competition itself. We
begin and end with it. We start with private property, the
monopoly every individual has of his abilities, opportunities,
and possessions ; and we end with the impregnable com-
mercial position which is the result of a fortunate (or possibly
a fraudulent) use of these advantages.
What is more, the more perfect the competition the more
certain and strong is the resulting monopoly. Where com-
petition is very keen, and the markets of the world are open
to the competitors, an initial difference of one or two per cent,
in efficiency might be sufficient to give the control of the
market. This control once gained, the expansion of the
business rapidly increases the advantage, until a practical
monopoly is secured. Though this tendency to monopolies
of ability is nothing new, it is clear that it has assumed a new
importance since the great advances in communication. In
past times artists have furnished the most conspicuous examples
of it, because great artists have always had the civilised world
for their market. But such has been the advance of transport,
that the heaviest manufactures now enjoy the same advan-
tage. The products of Armstrong and Krupp command the
markets of the Antipodes as easily as those of their own
capitals, and the facility with which this control is exercised
increases every day. In the case of articles of general con-
sumption the tendency is greatly strengthened by the develop-
ment of the parcel post, money order, and cash on delivery
systems. A similar effect is produced by the system of dis-
counts and of uniform retail prices. These devices, by
placing all localities on the same footing, extend the market
of the monopolist, depriving local competitors of the advan-
tage of their geographical position. The development of
banking and joint-stock enterprise has removed all difficulty
in obtaining capital, once so severely felt by private employers.
So abundant is the supply of capital, that it forms a temptation
to monopolise instead of a check upon it. Thus the expansion
of undertakings passes all previous bounds, stimulated by
the well-known advantages of division of labour and large
scale of production.
Of course there are practical limits to the extent to which
an industrial monopoly can be thus developed. There is a
limit to the size of an enterprise in the difficulty the master
finds either in supervising it himself or in obtaining efficient
responsible assistance. Personal friendships, too, and local
considerations, though weaker than formerly, still count for
something in dividing custom which would otherwise be
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concentrated. Then there is a constant change in the economic
situation, giving new men a chance. The rapid progress of
science, the incalculable caprices of fashion, the altered habits
of the public, all disturb the routine of business, and help to
dislodge the monopolist. The imperfection of heredity, too,
places a term on the most successful enterprises. A father
may leave his property to his son ; it is a very different
matter to leave him his business.
But in the main it is true that everything which is most
characteristic of our age, from the consolidation of Empires
down to the quackeries of advertisement, is favourable to the
growth of these monopolies of efficiency.
Nor is there anything, as has been sometimes assumed, in
the progress of education, or of political equality, to arrest
this tendency. Education does not level natural advantages ;
it merely enables their possessors to use them with greater
effect. The slow progress of co-operative production, and the
gradual extinction of the small employer, force us to accept
the conclusion of President Walker. " Whatever," he says.
" may be true in politics, the industry of the world is not
tending towards democracy, but in the opposite direction."
The significant fact of modern industry is the increasing value
and importance of business ability.
When, therefore, we are considering the principles that should
determine the future dealings of the State with industry, I
think that monopolies of efficiency deserve our closest atten-
tion. They are not, however, the first to catch the public
eye ; and it might be objected that, strictly speaking, they
are not monopolies at all. I should, therefore, explain that
by a monopoly I understand an enterprise which, no matter
for what reason, is so established as to be practically unassail-
able by competition : and the only monopolies we need
specially consider here are such as by virtue of this secured
advantage become undertakings of exceptional size and power.
Now, if we disregard such minor monopolies of patent and
copyright as are now secured by law, and which are really
forms of property in the product of labour, the principal
varieties of monopoly may be classed under three heads.
These are monopolies by efficiency, monopolies by combination,
and monopolies of local service. Of the first class, which I
regard as the monopolies of the future, I have already spoken.
It remains to say a word on the other two, and more familiar
Robert Stephenson, in his evidence before the Railway
Committee of 1853, laid down that " where combination is
possible competition is impossible." 1 And it would certainly
seem that where competition has been unrestrained, there is a
strong tendency for it to end in agreement of a more or less
comprehensive kind. But the difficulties in the way of
making and maintaining such agreements are so formidable
that they are not likely to make much headway in general
industry, until industry is much more highly organised.
Most of the great trading corners have been failures. The
few industrial combinations, such as the steel-rail ring, seem to
have been unable to hold together long. The greatest successes
are to be found in the history of railway enterprise. But
this really falls more properly under the third head. It is
the force of considerations of locality which accounts for the
persistence of railway combinations. Otherwise we may say
generally that combination, as distinguished from amalga-
mation of interests, is not a fruitful source of enduring
The third class of monopolies maybe said to hold an accepted
and recognised position in the economic world. It has long
been admitted that competition in the ordinary sense of the
word is out of the question when we have to deal with certain
cases of local supply and of communication or transport.
The geographical facts are too strong for the theorists of free
competition. Mr. Chadwick, in one of his admirable reports,
gives a drawing of a section of a London street under the old
1 Report Select Committee Railway and Canal Bills, 1853. Qns,
268 PAPERS ON CURRENT FINANCE
regime of competing gas and water companies. No one could
forget the lesson given by that simple picture. The waste,
danger, and inefficiency of that preposterous maze of pipes
was too obvious to be tolerated. For such purposes unity
of administration is essential.
The case is similar, though not so strong, with the services
of transport and communication. There is enormous waste,
sometimes physical impossibility, in so multiplying these
services as to admit of competition ; and even then there is
no means of preventing the termination of competition by
agreement, which local conditions make it easy to enforce.
Mr. 0. F. Adams, in his very able book, Railroads : Their
Origin and Problems (New York, 1878), tells us that " railroad
competition has been tried all over the world, and everywhere,
consciously or unconsciously, but with ene consent, it is slowly
but surely being abandoned. In its place the principle of
responsibility and regulated monopoly is asserting itself"
(pp. 204, 205). His general conclusion seems to be that in
this, and presumably in similar cases, the best policy is to
allow amalgamation, not so much on account of its obvious
economies, as because the larger the concern the more easily
responsibility is fixed, and the more easily the pressure of
public opinion is brought to bear upon and control it.
About these monopolies of service, indeed, the common
sense of the business world seems to have at last arrived at a
settled opinion. In America, sometimes supposed to be pre-
eminently the land of competition, the most thoughtful
writers agree with our own in accepting monopoly as inevit-
able and economical, and in occupying themselves with the
legislation necessary to prevent that monopoly from becoming
It must be added that monopolies, once established, have
a tendency to beget other monopolies. It is convenient for
a railway company that its traffic should be in the hands of
the smallest possible number of shippers. By giving special
rates, it creates big traders, economises its yards and sidings,
and simplifies its book-keeping. At its heart, it creates huge
works for the construction of its plant ; along its arteries,
news and refreshment monopolies ; at its extremities, great
delivery systems and monster hotels. The same thing goes
on, less obviously, over the whole face of industry, greatly
stimulated by the growth of municipal and joint-stock enter-
It must be apparent, then, that really effective competition
is a much rarer phenomenon in the greater forms of enterprise
than people sometimes suppose. It is very commonly assumed
that competition exists wherever the State does not interfere.
This is a very loose and misleading abuse of words. The
mere absence of State interference has never given us compe-
tition in any real sense of the term. On the contrary, nothing
has been more favourable to the growth of practical mono-
polies than the regime of laissez faire. A century's experience
of even a partial application of this regime finds us everywhere
confronted with growing monopoly. Monopoly, in short,
seems to be nearly as significant a feature of our time as com-
petition was of the time of Adam Smith. It is possible, there-
fore, that the political economy and industrial legislation
which suited the earlier period may require some adjustment
or development in view of the new force. At any rate, the
new force deserves our careful and unprejudiced study.
What is the reasonable position to adopt towards industrial
monopoly ? The very name monopoly is, by long usage,
dyslogistic ; it seems to carry censure with it. Lord Coke
said that " Monopolies were ever without law, but never with-
out friends." Certainly it is only of late they have had any
friends in the camp of the economists. The old monopolies
of which he spoke were granted by favour, at the public
expense, and against the common law presumption of free
dealing. Those who sold them, and the individuals or cor-
porations who fattened on them, were their friends ; but they
had no others. They were execrated by the public whom
they plundered, and the jealousy aroused by their privileges
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blinded the people to the real services they sometimes rendered.
The cry was for competition, for competition presented itself
as the abolition of privilege.
The monopoly we have to deal with is of a different origin,
and the temper of the public towards monopoly is sensibly
changing. Modern monopoly does not spring from privilege
or legislation, but from competition itself. It is competition
which now comes in for popular odium ; even monopoly, with
its order and permanence, seems a welcome relief from the
iron rule and terrible uncertainties of so-called free competition.
Besides, monopoly is gaining ground, and Darwin has taught
us to be respectful in presence of success. Perhaps most of
us feel towards monopoly much as we do towards popular
government. Its evils are obvious enough, but we have to
reckon with it. Our wise course is to make the most of its
possibilities for good, and to exert ourselves to minimise its.
powers of mischief.
It cannot be denied that whatever evils may be attendant
on monopoly, it has enormous advantages ; advantages which
suffice to explain its success, and to induce us to view that
success with a certain degree of sympathy. There are the
enormous economies in administration and division of labour,
the concentration of knowledge and skill, the unbroken tradi-
tion of trade mysteries and crafts, the esprit de corps, which
go with great firms. The monopolist, says Proudhon,
centralises, capitalises, and consolidates the victories of
industry. We save, too, the wasteful rivalries of competitive
firms, the costly litigation of rival schemes, the utterly useless
expenditure on advertisement. The consumer profits by the
guarantee of quality, by the uniform, easily ascertainable
price, by the absence of temptations to adulteration, by the
greater variety of choice. Within limits, too, monopoly gives
low prices. This is the American experience in the matter of
railway freights. The amalgamations of 1869 to 1882 resulted
in a reduction of freightage charge of 60 per cent., according
to Mr. Ed. Atkinson. " Modern industry," says Mr. Seligman,
another American authority, " is a period of industrial anarchy.
Combinations are designed to put an end to this anarchy.
They do away with the excessive fluctuations of prices, per-
forming much the same functions as legitimate speculation."
Probably no class gains more by the rise of these huge
firms than the employes. The larger the firm, the more
effective is the public opinion of the employed. Their loyalty
is of greater consequence to the employer. The adminis-
tration is on regular and generally better principles. The
master lives in face of the public. He pays the penalty of
greatness in his exposure to criticism. The name of his
firm is a household word, and its reputation must be above
suspicion. It is hardly necessary to point out the very im-
portant bearing of this upon the problem of State control.
It is in the smaller, fiercely competing workshops that State
control is most required, and by common consent it is almost
an entire failure. In the larger concerns inspection is ex-
tremely easy, and nearly superfluous. It is replaced by the
public opinion of the employed, and the honour of the
It is, of course, equally true that monopolies have their
special dangers, and are peculiarly open to abuse in certain
directions. In some cases the monopolists may take advantage
of their monopoly to enforce excessive rates or prices. But
a due regard to their own interest will generally check this
to a greater extent than is always supposed. There is more
probability that though charges may be reasonable enough,
the net profits may be indefensibly large, and the public may
ask that in some way or other they should share in a gain
partly due to an exceptional position.
There are worse evils too than high rates, flowing from the
enormous power wielded by a great industrial organisation.
The Americans have found discrimination or personal prefer-
ences, whether or not for value received, to be a more formid-
able evil than high rates. Great corporations boast that they
can make or ruin not only individuals but whole towns. They
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may tyrannise over their employes, socially and politically.
There is an English Railway Company [the West Lancashire]
which will not allow alcoholic liquors to be sold on its premises,
and will employ no one who has not been for some years a
total abstainer. Only teetotallers will be allowed to travel
Nor is it to be supposed that such powers will always be
used in the interest of the Corporation itself. Corruption is
rife throughout the length and breadth of modern business.
Privileges are sold by subordinates. Commissions are freely
given : double tenders submitted. In fact, corruption is
emphatically the curse of the age. Measured by every one
of Bentham's tests, it is the most serious of modern offences.
The temptations are strong ; the direct public injury very
grave ; the indirect effects are all-pervading ; the whole tone
of business life is lowered, and the respect for success and
for property, as in general the reward of merit, is palpably
These defects are brought out strongly in proportion as an
undertaking approaches the character of a monopoly ; but
it is a mistake to suppose that competition is any remedy for
them. The competition of brewers does not prevent their
control over the licensed houses, with all its mischievous
restriction of the consumer's choice, and attendant abuses.
Mr. Seligman tells us that on American railways " personal
discriminations are most glaring where competition is most
active during the railway wars." He adds that "the surest
method of preventing them is universal combination or
monopoly, in other words State ownership." " This," he
says, " was one great reason why the railways were bought
up by the Prussian Government."
Time will not permit me to make a special reference to
monopolies of raw material and to trading corners, which have
often been worked so as to inflict grave injury on the public.
It is unnecessary to dwell on the evil thus caused ; but it ia
only fair to notice that it is not solely due to the fact of mono-
poly. It is largely due to the speculative mania which infests
all forms of modern business. Moreover, the power of such
monopolies to injure the public is very limited, if the mono-
polists study their own interest, and have no indirect means
of profiting by their operations.
What, then, should be the policy of the State in view of
this new tendency of industry to assume more or less com-
pletely the character of monopoly ? I have tried to show
that monopoly is inevitable, and in many respects of public
advantage. It is a natural outgrowth of industrial freedom.
It would be idle, therefore, for the State to attempt to repress
it. For some time it was thought, especially in the typical
case of the railways, that the State could keep it in check
by promoting competition. The best authorities on State
railway policy have everywhere abandoned this idea. It is
recognised that competition will be both ineffective and
wasteful ; and the tendency everywhere is towards what I
may call the English policy of regulation. In fact, as soon
as it is clearly seen that effective competition is impossible,
the only alternatives are State control or State administration.
The experience of Anglo-Saxon countries is, in my opinion,
strongly against the policy of extending State administration.
Industry can never be efficiently organised by popular suffrage.
But the Anglo-Saxon race would tolerate no other principle,
if the organisation is to be - governmental. The greatest
danger of modern industry is corruption. State administra-
tion is no remedy for this. It may itself become a new source
of corruption in politics. I believe that the economical
efficiency of State administration has been greatly overrated.
We have not always clearly distinguished between the advan-
tages due to monopoly, and those due to State direction. I
see no reason to believe that the Post Office would be less
efficient, if it were farmed by a private corporation, and merely
controlled by the State. It is almost certain that this system
could be applied with great profit to the work of the dockyards.
Nor does the position of labour seem to be better in State
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than in private service, except, perhaps, in the one important
matter of regularity of employment. The State is sometimes
urged to acquire the railways. Jevons, in my opinion, has
shown that there are very few economies to be secured by
further railway concentration. And whatever the grievances
of railway servants, their position will compare favourably
with that of the men in the dockyards or the Post Office. The
possible gains in the change to State enterprise are small ;
the indirect injuries by the stifling of private enterprise are
If, then, the State is not to administer industry directly,
what are to be its relations towards the individuals or cor-
porations who do administer it ? If competition is to land
us in monopolies, laissez faire is out of the question. A few
writers have been found, of whom only Bastiat and Mr.
Herbert Spencer deserve mention, to pretend that, by some
preordained magic, competition will give us universal harmony
of interests and greatest possible happiness to the body politic.
No one has ever yet viewed the action of monopoly with this
happy-go-lucky complacency. Though it may be granted
that the monopolist and the public have some common in-
terests, it is absurd to pretend that monopoly is self-regulating,
whatever may be said of competition. Those, therefore, who
oppose some kind of public control for the great industrial
monopolies are simply playing into the hands of the collec-
tivists. They are the true apostles of socialism.
Most of us will desire to see public control applied in such
a way as to minimise the amount required, to avoid unnecessary
detail, to leave the maximum of freedom to enterprise, and
to secure the utmost intelligence and knowledge where limita-
tions must be imposed. A large consensus of opinion among
practical men seems to point to two principles of policy as
best calculated to secure these ends.
First, there should be every possible form of publicity in
regard to all transactions affecting public interests, that is
to say, in regard to nearly all economic transactions. With
due publicity, self-help would be far easier, and public opinion
would come in to aid the right, and would largely dispense
with the necessity for direct legal control.
Secondly, where control is found to be called for, it should
be as far as possible delegated to local or trade bodies familiar
with the practical details of the case, and subject only to a
mild revision from the central authority. Precise and rigid
legislation should be avoided as far as possible. Most practical
questions are questions of degree. These cannot well be dealt
with by law. They are best referred to commissions or other
bodies with a large lay element, and partaking of the character
of a jury.
In this way we might get over the main difficulties which
arise in the administration of industry. But the knotty
question of the distribution of wealth would remain to be
attacked. The competition of the various monopolies for
labour would ensure a certain proportionality of remuneration
as between different employments. But what is to prevent
the governing corporations or individuals from making ex-
cessive profits by means of their exceptional position ? First,
I think, the potential competition of rival monopolists ; for
a monopoly is seldom absolute. Secondly, it is by no means
certain that the profits must be large. The railway companies,
for instance, though they compete very little with one another,
cannot charge more than the traffic will bear, and have to
compete with other modes of carriage. Hence, on the average,
they only make a modest 4 per cent. Thirdly, when excessive
profits could and would be made, it is open to the State to
insist on profit-sharing, either with the nation, the consumers,
or the employes. The former modes have been followed in
dealing with the London gas companies and some Indian
railways ; the latter mode has been adopted by the Paris
Municipality in all contracts under its control. Either plan
would seem to be preferable to a severely progressive income
tax, or other impost on property ; for such taxes act as a
direct discouragement to saving and premium on improvi-
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dence. It is conceivable, too, that public opinion may develop
until it is considered as shameful for a man to make 30 per
cent, in business as by usury, unless his gains are liberally
shared with those he employs.
Whatever is done, we must be careful not unduly to hamper
the operations of self-interest, a motive power of enormous
force, which we cannot at present replace by any equally
effective impulse. We must also beware of stereotyping
industrial methods. The best market must be provided for
inventors, and the fullest opportunity afforded to that tendency
to variation upon which the selection of the fittest, and
consequently progress itself, really depends.
In order to present a general view of the subject, I have
been obliged to treat very broadly of questions each of them
presenting grave difficulties, and deserving very detailed
What I have sought to show is, that in the growth of mono-
poly we have an economic fact of the first importance, which
must modify views as to State control founded on the assump-
tion that perfect competition prevails. I agree with Mr. John
Rae that the action of the State thus rendered necessary need
not proceed on different principles nor with wider objects
than those prescribed by Adam Smith. But it will necessarily
take somewhat different forms. Hitherto the tendency has
been to an increase in the complexity of the State control ;
and Mr. Rae thinks we must expect this complexity to con-
tinue increasing. I see many features in modern industrial
progress, however, which tend to lighten the burdens of the
central government ; and among them I think we may
reckon this tendency to monopoly. For if it renders control
more necessary, it also renders it more easy ; and it is possible
that such control as is required may be very largely secured
by the simple expedient of publicity.
In any case, and whatever be the amount of control required,
whether to prevent oppression by monopoly, or waste and
degradation by competition, it behoves us to see that that
control is provided. It is no longer a question between laisser
faire and regulation, but between wise and unwise regulation,
or worse, between regulation and collectivism. Supreme
power has been placed in the hands of a class not too much
given to reflect, and especially familiar with the seamy side
of the present regime. If the shoe pinches them too painfully
they will be apt to fling it off, without asking whether a new
one would be more comfortable, or even forthcoming at all.
" The State may become social reformer without becoming
Socialist," says Mr. Rae, one of our ablest writers on this
question. I entirely agree with him. I will only add, in
conclusion, that if the State does not become social reformer,
it inevitably will become Socialist.