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Home -> H. S. Foxwell -> Papers on current finance -> The Nature Of The Industrial Struggle.

Papers on current finance - The Nature Of The Industrial Struggle.

1. Contents

2. Introduction

3. British War Finance

4. British War Finance - continue

5. Ways And Means

6. Ways And Means - continue

7. The Nature Of The Industrial Struggle.

8. The Nature Of The Industrial Struggle - continue

9. The Financing Of Industry And Trade

10. The Financing Of Industry And Trade - continue

11. The Banking Reserve

12. The Banking Reserve - continue

13. The American Crisis Of 1907

14. The American Crisis - continue

15. The American Crisis - continue

16. Inflation

17. Inflation - Continue

18. Appendix

19. Appendix II


THIS time last year I had the pleasure of inviting
your attention to the financing of the War. I propose
this year to treat of another form of finance : the
financing of business.

This is obviously a question of the first importance,
and the active discussions to which it has given rise
of late show that its importance is recognised. One
may fairly say, too, that they reveal a certain doubt
whether the particular methods of business finance
in vogue here are as complete and effective as they
might be, or perhaps are in other countries. Now it
is beyond question that at the conclusion of peace the
demands of business for financial assistance will be
quite unprecedented in their extent and their urgency.
It seems desirable, then,. in spite of our natural pre-
occupation with the War, that this form of finance, and
our provision for it, should receive a share of public

1 The first of two lectures delivered at the Royal Institution on April
19th and 26th, 1917 ; afterwards printed in the Economic Journal
for September, 1917.


I had originally intended to deal in these lectures
exclusively with the machinery of this business finance,
itself a more than ample subject for the time available.
But it has been borne in upon me of late, in reading
certain public utterances, that the utmost diversity
of opinion prevails as to the nature of the struggle for
which business is to be equipped. It seems idle to
discuss machinery without some definite conception
of the general purpose it is designed to serve. I have
thought it might be better, therefore, in this first
lecture to take a bird's-eye view of the business
struggle itself before passing in the second to consider
the best methods of financing it.

What, then, is the general character of economic or
business competition as it exists to-day ? Nothing, it
may be said, is more familiar to Englishmen than
competition, whether as a scientific conception or as
a feature of our social life. The fact of competition
sums up a large part of our economic activities, and
on the concept is built up most of our economic theory.
Yet we shall find that very opposite opinions are held
as to the nature of the competitive struggle, and that
very few careful attempts have been made by econo-
mists to define the term in its scientific use. What
is most familiar is not always most accurately known ;
it is too often taken for granted.

I do not propose to-day to consider competition
in its theoretical aspect, as an assumption or postulate
of economic science. I want to consider the thing


itself as it figures in tlie social life of the time : the
system of business habits, business methods, forms
of business rivalry in short, the general welter of
business activities, which, subject to restraints
imposed by the law, constitutes the modern struggle
for wealth.

There is the widest possible difference of opinion
as to the essential character of this struggle. Adam
Smith, a very shrewd observer of the world, described
it as a " species of warfare, of which the operations
are continually changing." His estimate would be
widely endorsed, and the conditions of the time
perhaps predispose us to adopt it. But we are often
presented, more or less authoritatively, with an
entirely different view. Take this pronouncement
from a memorandum of the Garton Foundation
issued last October, 1916 : c The conflict of war
and the competition of trade are different in land,
as well as in degree. The object of conflict is to
inflict injury. The object of business competition
is to serve a customer." To oblige, in short, as the
retailer would say. To the ingenuous Garton writer
and his school, competition is a generous emulation
in good works, where every transaction confers a
benefit on both parties ; like mercy, twice blessed.
Adam Smith, whose realism gives a spice of cynicism
to his judgment, regards it as a struggle for supremacy,
carried oh by methods devised to damage the economic
power of rivals, whether rival firms or rival nations.


To others again, like Carlyle and Robert Owen,
competition is essentially unmoral and anarchical.
Carlyle views its turmoil with aversion and contempt,
and regards it as a baser form of war. You remember
how he figures it in Sartor Resartus. " Weltering, shall
I say, like an Egyptian pitcher of tamed vipers, each
striving to get his head above the rest " ; and again,
" Where each, isolated, regardless of his neighbour,
turned against his neighbour, clutches what he can
get, and cries c Mine ! ' and calls it Peace, because
in the cut-purse and cut-throat Scramble, no steel
knives, but only a far cunninger sort, can be em-
ployed." The man in the street has no very definite
or considered view. Perhaps we may say that to
him competition is something of which everyone
complains in his own case, while he has a vague
feeling that somehow or other it may be good for
other people.

Here are views differing radically as to what may
be called the essential character of modern business
activity. We can hardly expect to agree as to the
principles of trade policy until we come to some
understanding as to where the truth lies in this
divergence of opinion.

The question is, after all, one of fact. Difference
of opinion, here as elsewhere, is due to first impressions
based on incomplete observation. It can only be
reduced by that method of patient induction, of which
the history of this Royal Institution shows so many


brilliant achievements. The field to be surveyed is
immense, embracing a very large fraction of human
activity ; hence the answer cannot be a very simple

The forms of business practice are of infinite variety.
They differ in their objects, their methods, their rules
of conduct, their standards of honour ; in no two
occupations, perhaps, are these precisely similar. We
may group them, for convenience of view, under three
general heads, broadly distinguishable, though the
distinction is often only in degree, and hence not so
easy to draw in practice :

1. All business activity counts on profit as an
ultimate return. But in some cases profit is pursued
through efficiency ; the immediate objective is effi-
ciency ; profit is expected as the result of efficiency.

2. In other cases the aim is profit at all costs, by
fair means or foul. Profit is the primary objective ;
efficiency only one of many means to the end.

3. In a third group of cases competitors fairly
matched in efficiency devote themselves frankly to
the destruction of the economic power of their rivals
and the capture of their markets.

These forms of competition are so different in their
nature and social effects that it is evidently hopeless
to bring them all under any general characterisation.

Take, first, the competition aiming honestly at
efficiency in production or service, the kind so many
English economists presume to be typical, not to say


universal. Probably a great part of tlie activity of
producers and manufacturers is really of this type-
that is, a genuine attempt to give good work or good
service. Even here, however, we have vital differ-
ences in practice. Some are intelligent and scientific,
others mere slaves of habit and routine. Some are
equipped with the necessary capital and plant ;
some, notably amongst our smaller industries and
in agriculture, are not. Some have only the crudest
notions as to the organisation and handling of labour ;
others may fairly claim to be capable captains of
industry. It may seem incredible, but many English
business men are ignorant of the very elements of
scientific accounting. I was told by a very high
authority that a large proportion of the firms in one
of our greatest industrial cities " did not know whether
they had made a profit or a loss on the year's working
until they had called in a professional accountant."
On some of these deficiencies the war experience
has thrown a vivid light. Even granted, then, that
much of modern competition is aimed at efficiency
in production, it certainly does not guarantee it.
Competitors seem to be able to hold their own in spite
of striking defects in efficiency. 1

But further, though the aim may be efficiency, there

1 Sometimes, perhaps, because shortcomings in efficiency are made
good at the expense of labour, or by imposing on the consumer. But
it is doubtful whether these considerations entirely account for the
economic paradox, which deserves more attention than it has yet


is a wide difference in the conventional methods of
competition in various callings, very important to the
national interest. Take two brothers brought up
under similar influences. One becomes a doctor or
a man of science. All his discoveries are made
matter of common knowledge, placed at the disposal
of his profession and the public ; though he might
have made great personal profit by monopolising
them. The other brother goes into a great manu-
facturing firm, where he makes inventions of similar
value. As a matter of course these are reserved, so
long as the law allows, for the profit of the individual
firm. You may have shades between the extremes :
where valuable knowledge is pooled with associations
or contributed to trade journals. I do not want
to praise or blame ; my object is simply to insist on
the fact that under the vague term " free competition "
are included practices very different in tendency, very
different in their effect on the public interest.

This kind of honest competition for efficiency is
often assumed to lead to " the survival of the fittest."
No doubt it tends this way. If the assumption were
rigorously true we should have to regard competition
as merely a transitional selective process, logically
ending in monopoly. For the fittest should become a
monopolist. 1 [In practice, of course, this theoretical
limit is seldom, if ever, reached, for reasons I need
not notice here.]

1 See the paper on Monopoly in the Appendix.


There is, unfortunately, a second type of com-
petition to be considered, in which efficiency is quite
subordinated to profit. Its objective is profit at all
costs, by any means, fair or foul, subject, as the
American phrase puts it, to " keeping outside prison
bars." Competition of this kind sometimes cloaks its
operations under the pretence of affording cheaper
products ; but cheapness and real economy are
usually the poles asunder. Let us glance at some
of its methods.

Adulteration is so extensively practised that the
Courts often have difficulty in deciding what a good
delivery means. Falsification is so easy, and so
difficult for the consumer to detect, that this dishonest
practice often succeeds. Read the very notable
book, Food and its Adulterations, containing the
Reports of the Analytical Commission of the Lancet
in 1851-4. Thousands of products are analysed ;
adulteration is shown to be rampant. What is
worse, many of those who then adulterated largely
are now among the best-known firms ; many firma
whose products at that time were described as
" commercially pure " are now unknown, at least to
me. The fittest have not survived. Short measure of
all kinds is another trick having similar effects ; and
still more serious is the resort to degradation of
quality both in materials and in work. When the
Exhibition of 1851 was held, people were astonished
to see how far this degradation of quality and craft


had gone as a result of half a century of unbridled
competition. Again, patents are stolen, trade-
marks are falsified, agents are bribed ; but time
will not allow me even to hint at the innumerable
forms this perverse type of business activity has

There is quite a large literature of works on dis-
honourable competition in German, French, and
Italian, and not a few by English writers. I may
refer those who are interested to one of the latest
of these, the valuable Report of the U.S. Bureau of
Corporations just issued on " Trust Laws and Unfair
Competition." More than 400 pages of this Report
are concerned with unfair competition and the various
attempts made in various countries to deal with it.
Herbert Spencer was a close observer of the business
practice of his day. Let me quote two sentences
from his Morals of Trade (1859) : " Illicit practices
of every form and shade, from venial deception up to
all but direct theft, may be brought home to the
higher grades of the commercial world. Tricks
innumerable, lies acted or uttered, elaborately devised
frauds are prevalent, many of them established as
' customs of the trade ' nay, not only established,
but defended." " A system of keen competition,
carried on as it is without adequate moral restraint,
is very much a system of commercial cannibalism.
Its alternatives are, ' Use the same weapons as your
antagonist, or be conquered and devoured.' '


Thus at length we come to a state of things in which
we find two different standards of honour and morals
at the same time and in the same country. " Between
gentlemen," is to be a rule confined to private life
and the professions ; in trade, a critic will be told,
" Business is business." This would have startled
our ancestors in the so-called Dark Ages, whose guilds
were religious no less than business societies. I lay
stress on this seamy side of competition, because
nothing is more necessary, if competition is really
to have the beneficent effects often claimed for it,
than to maintain the best business standards of
honour against a certain tendency of inferior practices
to drag them down. There is a kind of Gresham's
law at work in business. The best men often find
their own standards degraded by an irresistible
pressure of circumstance, as, e.g. in the Russian trade
when double-invoicing prevailed. This is the " iron
law " of the business world under unregulated com-
petition. Legislation and State inspection may do
something to check these evils ; but I am more
inclined to rest my hopes upon trade organisation
and the modern tendency to an increase in the scale
of business. Large firms are more intelligently
conducted and less disposed to resort to base tricks.
They are easier to inspect, and have so much at stake
that it is not worth while to risk exposure. Publicity
is even more important than regulation. It is well
known that many disease germs are sterilised by


sunlight, and business will be most effectively purged
of these abuses by publicity. American experience is
emphatic on this point. Let the facts be known;
public opinion will do the rest. The larger a business
is, the more sensitive it is to this control.

I pass to a third kind of competition, very vital
for our present problems. This is not concerned
with production, honest or dishonest, but with sale,
and, above all, with what is called the capture of the
market. Superior efficiency is often enough to
command the market. But when a general level of
high efficiency prevails, other methods are resorted
to. The d priori academic economist is very fond
of saying that products make their own market :
goods are bought by goods. There is an element of
truth in the position : but business men know that
in practice it is often less difficult to make a good
article than to find a market for it. Jeremy Bentham,
in one of the most brilliant of his writings, addressed
to the National Convention of France, advised them
to set free their colonies. They were not wanted
as markets, he thought. "It is quantity of capital,
not extent of market, that determines the quantity
of trade." This dictum was long a first principle with
English Free Traders. But however this may have
been in Bentham's time, it is not in scarcity of capital
that trade finds its effective limit to-day. Capital
is now cosmopolitan in its habits ; it is as mobile as
quicksilver : a sound 10 per cent, profit proposition
will usually obtain, on terms, whatever capital it
may require. But markets are jealously guarded, and
increasingly difficult of access.

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