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

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

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

Hence a constantly increasing proportion of business
energy is being directed to the conquest of markets.
Where these markets are not new creations, but
acquired at the expense of rival firms, or rival countries,
we may call the competition predatory. From the
point of view of efficiency, this predatory competition
represents sheer waste, though it may sometimes be
important, and even necessary, from a national or
political standpoint. In Adam Smith's phrase, it
is " a species of warfare." It is a warfare which
enters largely into modern economic life. As Pro-
fessor Mackenzie says, ' When a State becomes
industrial, it remains military. The difference is
that the war has become civil : it is a helium omnium
contra omnes." But it cannot be limited in this
way. This predatory competition has never been
confined within national boundaries. It is avowedly
international in its scope to-day.

What are its methods ? " Sound production," says
a German writer, " is largely subordinated to success-
ful sale. This again is found to depend largely on
advertisements, commissions, discounts, anything
except genuine excellence of products." Let us
glance at these expedients. Advertisement, with
its " damnable iteration," if I may use a Shake-
spearean phrase, is one of the most wasteful and


mischievous. Our forefathers had a saying that
" Good wine needs no bush." It will sound to many
hopelessly behind the times. But there are firms
to-day whose products have world-wide sale, and
who never seem to advertise. I was brought up to
believe that an advertised article was probably
inferior or a fraud ; and such experience as I have had
has shown me my teachers were not far wrong. It
may be that a more ignorant public is in the market
to-day, which confuses notoriety with reputation ;
anyhow, different views seem to prevail. Mr. Lowes
Dickinson tells us that, even in China, " the skin-
disease of advertisement is beginning to disfigure the
face of the country, and German art nouveau appears
in the stations of the railway from Tsinam to Pekin.
The grip of the West has begun to close, and will
more and more be felt in the general dissemination
of ugliness, meanness, and insincerity throughout the
Empire." Observe that all this semi-fraudulent
appeal to ignorance absorbs large activities at enor-
mous cost. I noticed some years ago that a firm,
in making a return under the Companies Act, showed
a rapidly increasing expenditure on advertisement,
which had at last exceeded in amount the whole net
profits of the business. Mr. Goodall, in one of the
latest works on advertising, estimates the annual
expenditure in this country as from 80 millions
to 100 millions ; enough to pay more than half the
interest on the war debt. Surely it is the business of



the honest retailer to inform the public as to the best
products on the market. If more is wanted, moderate
advertising in the Press should suffice. Nine-tenths
of this expenditure might be saved with positive
advantage to the nation. The public is not inter-
ested in the transfer of trade from one trader to

Predatory competition is not exhausted by adver-
tisement. A whole army of commercial travellers
is enlisted to push sales with retailers. The main
objection here is the expense, which might be greatly
reduced if our producing firms were larger or more
closely associated. There are less innocent methods
of pushing trade. Retail prices are fixed, and
retailers are induced, by the attraction of larger
discounts, to buy and recommend inferior articles ;
thus entirely betraying, though under unfair temp-
tation, the trust placed in them by their customers.
Worst of all, trade has been subject to a dry-rot of
direct corruption, by double invoicing, secret com-
missions, and the like, on the extent and mischief
of which our highest judges have again and again
remarked. 1

1 The Financial Times of Oct. 2nd, 1918, calls attention to a passage
in a recent circular, issued by the American Exchange National Bank of
New York, on the prevalence of commercial bribery in the United
States. The writer says :

" Bribery of purchasing agents and foremen is an ancient evil which
was reduced to a scientific system by German salesmen throughout the
world and formed an essential part of Germany's war for the control
of international trade which she will attempt to resume after peace is


I say nothing here of the immorality of such
action. It is fairly obvious, and has been forcibly
pointed out by the Courts and the Press in connection
with a recent legislative measure. What the econo-
mist should note is that so far as such practices
prevail the ordinary assumption as to the benefits
of competition is absolutely reversed. The funda-
mental advantage of free and healthy competition
is that it gives room for a variation of methods, out
of which we may hope for that selection of the fittest,
whether natural or self-conscious, which is the prime
cause of progress. But the effect of corruption, as
of adulteration, is that not the fittest, but the most
unfit, survive. Instead of progress you get degene-
ration. Unless the proper measures are taken to
deal with these forms of dishonourable and predatory
competition, there is no guarantee whatever that
the honourable competition for efficiency will succeed.
There is ample evidence to show that it may fail.
When, then, we are told, as recently by a great
iron-master, that all his trade needs is " to be relieved
of the fostering care of the State," for which he would

restored. The Federal Trade Commission has found the practice to
be so common, so unfair and so corrupt that it has asked Congress to
penalise it. State laws against such bribery are not effective. Com-
mercial bribery of employees adds to the cost of the goods. In some
cases employees exact a commission of 20 per cent, and we may be sure
that it figures in the bills employers pay. The only remedy is to make
such bribery a crime and punish both briber and receiver of bribes."

The Financial Times, while it doubts whether the practice is as rife
here as in the United States, is glad that it is likely to be taken in hand
on the other side.


like to see substituted " some wholesome neglect/'
we are inclined to ask how he proposes to deal with
these evils. If the trade itself will take them in
hand, well and good. If not, it is clear that the
public interest is concerned. The State cannot
content itself with merely keeping the ring for the
combatants. It must see that the fight is fairly
fought. Everything depends on the rules of the
great competitive struggle. Those who capture and
control markets can largely impose their own rules.
If only for this reason, we could not afford to neglect
attacks on our markets.

As a matter of fact, the force of these considera-
tions is generally recognised. All modern States
do concern themselves, more or less effectively,
with the regulation of the competitive contest. So
far as their own subjects are concerned, laissez faire
has long been abandoned. Some States profess to
adhere to the old maxim so far as international rela-
tions are concerned. Others go to the opposite
extreme, and have embarked on a formidable pre-
datory competition against the subjects of other
nations. In practice all States find some sort of
national trade policy forced upon them, if only by
way of defence.

There is another reason to be found for a national
trade policy in the enormous size of some of the
competing units, and the consequent increase in
their power of injuring rivals. Industry, trade,


and transport are more than ever coming under the
control of huge combines or cartels, wielding powers
almost comparable with those of the State. Like
the old Hanseatic League, they almost rank as States
themselves, and compel recognition in national policy.
When the State associates itself with the aims and
operations of these combinations, and places its
resources at their disposal, their powers of aggres-
sion are dangerously increased. (-Srermany furnishes
the best example of such a national organisation.

Naumann, in his Mittel-Europa, says with much
truth that the old individualistic capitalism, of what
he calls the English type, is giving way to the new,
more impersonal, group form ; to the disciplined,
scientific capitalism he claims as German. He de-
scribes this as " a mechanism of work based on trained
and educated workers, a spirit of industry inspired
by reason, a systematic working alliance between
thought and business ; better organisation ; in short,
systematised national economy." " Our great mer-
chants," he says, " are almost economists by pro-
fession. Into everything to-day there enters less
of the lucky spirit of discovery than of patient, edu-
cated industry. To put it otherwise, we believe in
combined work. The German is at last becoming,
heart and soul, a political economic citizen. His
ideal is, and will be, organic unity, and not freedom
of action ; reason, and not the blind struggle for
existence. The regulation of production from the


standpoint of political necessity is the end he has
in view. This conception of national economic
business has been imposed on Germany by the war ;
an event of the first importance in international
economics. The German spirit has received its
baptism of fire." l

It follows, says Naumann, that the period of imi-
tation of the already declining English economic
system has gone by. [I may observe that the
declining English system has given a very fair account
of itself since these words were penned, as the Ger-
mans have reason to know.] The new develop-
ments, he affirms, imply that the future rests with
Germany. Organisation, especially on scientific lines,
he thinks foreign to the English genius. This genius
was supreme when private enterprise was the order of
the day [say 1780-1880]. But the times have changed.
The present age is one of methodical, scientific
organisation, the speciality of Germany, which is
even regarded with aversion in France and England.

1 For the latest development of the German conception of " national
economic business," see " Walter Rathenau et 1' Organisation Indus-
trielle d'apres- guerre en Allemagne," by Henri Hauser, Revue
^Economic Politique, Mars-Avril, 1918.

Hauser calls it a kind of productivist socialism. I should rather
describe it as militarism in business. But perhaps this is only a verbal
difference. All socialism must end in militarism : nothing less than
irresistible force could impose such violent restraints on personal
liberty and inclination as socialism necessarily involves.

It seems hardly credible, but the import into this country of German
books is prohibited. Hence Rathenau's writings, such as Die neue
Wirthschaft, read everywhere else in Europe, are unobtainable here !


There is a certain truth in all this, in spite of
exaggeration. We shall do well to consider it. After
all, if individualistic enterprise cannot altogether
meet the needs of the time, it has at any rate left
us, as a nation, with a quite exceptional power of
adapting ourselves to new conditions. We must
use this power for all it is worth. We have a good
deal of leeway to make up.

It is certainly the case that a prejudice against
science and the expert is characteristic of the English
business world. English opinion holds that scientific
ability is of little use in business, and indicates this
pretty clearly by the miserable remuneration and
inferior status assigned to such a modicum of scien-
tific service as it may in some cases employ. Yet a
scientific training, if a really liberal one, and not
too specialised, is the best qualification for many
of the highest forms of business activity. The
greatest achievements in business, as in science,
have been due to the faculty of imagination. In
Germany a large number of her foremost business
men are scientists and men of high university train-
ing. There will have to be something like a revo-
lution in the present attitude of the English business
world towards science if we are to hold our own.
The trouble has arisen out of the curious divorce
between the two worlds in this country. The result
of this unfortunate insulation is that scientific men
are unfamiliar with affairs, while business shows a


quite remarkable neglect of the most obvious and
assured results of science, or, if you like it better,
shows a complete freedom from scientific bias. Both
science and business stand to gain by a more intimate
association ; if I may judge from my own studies,
it is hard to say which would gain the most.

Fortunately the war has brought home to us our
inadequate use of the resources of science ; and it
may be hoped, in spite of the long-standing prejudice
on which Naumann relies, that we shall soon over-
take Germany in this respect. It is equally impor-
tant, I think, that we should change our attitude
on the other matter he emphasises ; I mean the
question of combination.

There has been a general hostility to combination
in this country, and perhaps still more in France.
English feeling is well expressed in our Common
Law, the whole spirit of which is adverse to com-
bination as " in restraint of trade." But it is beyond
doubt that unregulated competition has destroyed
more honest trade than all the combinations in the
world. Even in England, legislation has been more
occupied in restraining competition than monopoly.
The social history of the nineteenth century has been
one long protest, one great legislative reaction, against
the mischiefs of unregulated competition. I think
I was perhaps the first English-speaking economist
to put in a word in defence of business combinations.
In a paper read at the Bath meeting of the British


Association nearly thirty years ago (September 7th,
1888) l I showed that they were a natural develop-
ment, and offered certain unique advantages. I have
watched their growth ever since, and have seen no
reason to alter my conviction that they have come
to stay. Organisation on a large scale, whether for
production or trade, is inevitable and essential, if
only as a consequence of the immensely increased
facility of communications. Our age is witnessing a
Battle of the Giants, in business no less than in war.
Huge economic combinations, backed by national
resources, are competing for industrial and trading
supremacy, on which they count to build up political
power. Individual competition is outclassed ; in a
struggle of this kind the individual will be ground
between the upper and nether millstones, or smashed
like a crock between iron vessels. It is as absurd
to think that we can grapple with the scientific
national trade policy of such a State as Germany,
for instance, on the old lines of haphazard, untrained,
individual enterprise, as it would be to defend our-
selves against a German military attack by a general
uprising offrancs-tireurs.

Quite apart from attack or defence, there is still
much to be said for the big organisations. They
permit of the fullest use of standardisation, with
all its outstanding economies and conveniences.
Again, the useless duplication of the more ordinary

1 Reprinted in the Appendix to this volume.


products, which necessarily arises where the pro-
ducing firms are small and numerous, is avoided,
and it becomes possible to turn out a wide range
of grades and varieties. Where a small boot factory
can only supply half sizes, a large one can as easily
supply quarter sizes. 1 Large organisations, too,
tend to attract and consolidate the inventions and
advances in the industrial arts. They will probably
be long-lived, and thus they insure a sort of perpetual
succession and unbroken tradition to the mysteries
and secrets of a craft. They have obvious advan-
tages in buying and selling ; not the least of which
is that they can reduce advertisement to a minimum.
Their output is so large that it advertises itself. In
these and other ways, too numerous even to note here,
they can operate with a maximum economy other-
wise unapproachable. Above all, they will be more
likely to appreciate the value of scientific research
and scientific direction. It will be well worth their
while to secure the very highest ability in their
managing staff. If they succeed in this, they will
probably escape what seems their greatest danger,
a certain tendency to routine and stagnation.

Again, high standards of business can only be main-
tained at home, or imposed on foreign rivals, by
powerful agencies of this kind. We look to them

1 Mr. Milton C. Sharp, in his able address to the Bradford Dyers'
Association, February 28th, 1917, pointed out that so far as dyes
are concerned, the supply of a very large range of shades is essential,
if we are to secure our command of the market.


to do for business to-day what the guilds did for it
in the Middle Age. Mr. Chamberlain tried to revive
and modernise the guild. Something may be done
in this way, especially where the industrial conditions
indicate production on a small scale ; and I should
be the last to underrate the value of the services
rendered by Chambers of Commerce, by the trade Press,
and by the numerous ably-conducted trade journals.
But on the whole I expect more from a general increase
in the scale and organisation of business operations.
It does not seem to me that the value, nay, the
urgent necessity, of developments in this direction
is open to dispute.

No doubt the thing can be carried too far. When
nations enter the competitive arena in their collec-
tive capacity, and these huge combinations are
manipulated, with all the resources of a great State,
for the purposes of predatory competition, a situation
is created which requires to be very seriously studied.
These immense resources are now directed, not so
much to the increase of efficiency at home as to the
capture of markets and the crippling of foreign

Developed on a scale of this magnitude, predatory
competition is hard to distinguish, either in aims,
methods, or results, from war of a military form.
Indeed, the capture of markets has been the chief
motive of modern wars. It was the avowed motive
of the wars of the eighteenth century. The attempt


to inflict direct injury on the productive power
of a rival country is certainly not less hostile in
character than the conquest of its markets. " In
Germany," says Henri Hauser, " the economic struggle
is a war, like other wars, subjected also to the rulea
of Clause witz." He gives ample grounds for his
statement. 1

Let us glance at some of the methods of this trade
war, as waged by Germany. The cartel, or selling
combine, has been one of its most effective instru-
ments. [It is not altogether unknown in countries
which profess free-trade principles.] A German writer,
just before the war, said that " it is evident Germany
owes the conquest of foreign markets in large mea-
sure to her cartels." They have great advantages
in buying and selling, in regulating production, and
maintaining output on a large and therefore economic
scale ; by the well-known weapon of dumping they
can often strike a heavy blow at less powerful rivals.
The State itself may take a hand in these cartels.
Both together may embark on campaigns of whole-
sale corruption, of espionage in all its forms, of what
is euphemistically called pacific penetration or per-
meation. The capture of key industries is an effec-
tive weapon. It gives power to inflict vital damage
on a foreign country in critical times. Similarly,

1 " Germany appears to regard trade and commerce as acts of war,
and shapes its policy not for competition, but for conquest." The late
Mr. G. H. Pownall, Presidential Address, Institute of Bankers,
November 8th, 1916.


measures are taken to secure control of necessary raw
material : this has been a great motive of colonial
enterprises. Great transport agencies are able to
assist by establishing preferential rates and influenc-
ing emigration.

The State has its own special machinery. It
often controls important forms of transport. In that
case it can manipulate rates so as to serve the in-
terests of its nationals as opposed to foreigners, and
generally to subserve the national trade policy.
Many authorities regard the railway system as the
most powerful instrument of the political economy
of the German Empire. I need only mention the
Tariff : the importance of this weapon, one way or
the other, is perhaps unduly stressed by most people.
The State can exert immense power by its educational
provisions. Every form of necessary trade technique
is taught in German State institutions, notably in
the commercial high schools. I may remark especi-
ally the elaborate instruction in the technique of
exportation, and the various export bureaux, which
latter seem to be used indifferently to obtain infor-
mation and as channels for corruption. It is well
known how all these activities are aided and guided
by the Foreign Office and the Consular Service. I
do not now refer to the question of finance, because
I shall deal with this in my second lecture.

All these and many other formidable trade activi-
ties are centred in the German State. The American


economist Cooper used to insist, as our free traders
so generally imply, that a nation is only a grammatical
expression, something that has no real existence.
You will admit that for a nonentity the German
State has done pretty well. Hauser's estimate is
more rational. " By means of the concentration of
all its energies under the State, by this unity of control,
economic Germany has become a power nearly as
formidable as military Germany, and of the same
species : a power of domination and of conquest/'
Naumann, who ought to know, says " the war was
only a continuation of our previous life with other
tools, but based on the same method." According
to Hauser, " the Imperial German Government con-
sidered that it would be quicker and cheaper to attempt
to gain its economic ends by victory on the field of
battle." If so, they perhaps realise now that they
made a profound blunder. There was more wisdom
in the advice given by the Sieur de Bouciquault to
Louis XIV. He told his sovereign that by a judicious
trade policy it was possible to " make conquests in
time of peace." I agree with M. BougarePs dictum :
" Had the Germans only known how to keep the
peace, they might easily by their backstairs, under-
ground methods have conquered the world, the East
thrown in. Luckily for the world they overrated
their military power."

The contrast between War and Peace is greatly
exaggerated. What is vaguely called competition


turns out on closer examination to be largely a
struggle of force. True, the forces engaged are
styled economic, not military ; but the ends are
often not very different, and the effect the same. In
both the weaker go to the wall ; the wreckage is
sometimes worse in the industrial conflict than in
war, as General Leonard Wood has shown in his
Princeton lectures. It depends on the rules of each
game. Before the Germans debased all the stan-
dards of military and naval warfare, it had become
in many respects more honourable, less brutal, than
some forms of business conflict. It must be the
mission of the Allies to raise the standards both of Peace
and War.

Meanwhile we must be ready for all emergencies.
Lord Curzon in his Appeal for the School of Oriental
Studies, published last October, tells us that "it is
clear that a long and fiercely waged commercial war
will follow immediately upon the cessation of hosti-
lities." " Will be resumed," he might have said :
indeed, there has hardly been any break of con-
tinuity, for preparations have continued even during
the war.

What should our attitude be in face of this pros-
pect ? We do not want to form our ideals or our
policy on German lines. I should like to see the pre-
datory element in competition reduced to a minimum,
just as I should like to do away with war. But both
aspirations seem Utopian for the present. So long


as we are exposed to attack we must prepare the
necessary means of defence. We must have more
organisation, on a national scale, supported by a
national economic policy. But we need not adopt
economic Prussianism. We need not emphasise the
predatory aspect of business, or make a Moloch of
the State. The two vices are closely connected. In
Germany, at any rate, the morbidly predatory spirit
is largely due to an excessive exaltation and worship
of the State. We can avoid their blunder. Let
our organisation be in the main voluntary, not
bureaucratic ; controlled by the State, where this
is necessary, but not administered or managed by
the State. The caution is required, for the experi-
ences of the war period, during which the functions
of the State have necessarily assumed quite abnormal
proportions, seem to have led many simple and un-
critical folk to place an almost German trust in the
State. To the business expert this will appear
ridiculous. But it can hardly be doubted that when
the war is over, and the period of reconstruction
begins, there will be a popular movement for nationali-
sation of industry on a wide scale. It is impossible
to discuss the question here. I only mention it to
say that when I urge the importance of organisation
it is not the bureaucratisation of business I have in
view. If the verdict of history counts, this policy
would lead to disaster. That way lie stagnation
and decline.

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