reduces the purchasing pow er of the classes that are drawn into the service, and so reduces the amount of wasteful consumption which these classes might otherwise accomplish.
So long as industry remains at its present level of efficiency, and especially so long as incomes continue to be distributed somewhat after the present scheme, waste cannot be expected to overtake production, and can therefore not check the untoward tendency to depression. But if the balance cannot be maintained by accelerating wasteful consumption, it may be maintained by curtailing and regulating the output of goods.
"Cutthroat" competition, that is to say, free competitive selling, can be done away by "pooling the interests" of the competitors, so soon as all or an effective majority of the business concerns which are rivals in the market combine and place their business management under one directive head. When this is done, by whatever method, selling of goods or services at competitively varying prices is replaced by collective selling ("collective bargaining") at prices fixed on the basis of "what the traffic will bear." That is to say, prices are fixed by consideration of what scale of prices will bring the largest aggregate net earnings, due regard being had to the effect of a lower price in increasing sales as well as to the reduction of cost through the increase of output. The outcome, as regards the scale of prices, may easily be a reduction of the price to consumers; but it may also, and equally readily, be an increase of the average price. But the prices of the output which is in this way brought to a monopoly basis are nearly certain to run more even than prices of the like output while sold competitively by rival concerns.
What has been said in the last paragraph supposes that the combination of business enterprises is so comprehensive as to place the resulting coalition in a position of practical monopoly. Such a result is not always attained, however, especially not in the earlier attempts at coalition in any particular branch of industry; although the endeavor is commonly related until at last a virtual monopoly is achieved. But even where no effective monopoly is achieved, a coalition of this kind has a salutary effect, at least temporarily. In almost all cases a consolidation of this kind is able to effect considerable economies in the cost of production, as pointed out in an earlier chapter, and such economies bring relief through enabling the combined industrial ventures to earn a reasonable profit at a lower price for their product than before. They are therefore able to go on on a scale of prices which was not remunerative while they stood on their old footing of severalty. But the relief which comes of such measures, so long as competitive selling goes on in rivalry with concerns standing outside the coalition, is only transient. The declining cost of production, and the consequent competitive investment and extension in the industry, presently catches up with the gain in economy; the margin of advantage in the competition is lost, and depression again overtakes the consolidated enterprises on their new footing. The remedy again is a wider coalition, making possible farther economies, and making some approach to a position of secure monopoly.
It is only on a footing of monopoly that this grinding depression can be definitively set aside. But the monopoly need not be absolute in order to afford a somewhat enduring relief. What is necessary is that the monopoly should comprehend all but a negligible fraction of the business concerns and the equipment engaged in the field within which competition has kept profits below a reasonable level. What is a negligible quantity in such a case is not to be determined on general considerations, since it depends in each case on circumstances affecting the particular industry. But, in a general way, the more nearly complete the monopoly, the more effectually is it likely to serve its purpose,
Such business coalitions have the effect of bringing profits to a reasonable level, not only by making it possible to regulate output and prices, but also by the economies which are made practicable on this footing. Coalitions of a less comprehensive character, as spoken of above, also effect economies in the cost of production. But the larger coalitions which bring the business to a monopoly basis have not only the advantage which comes of the large-scale organization of the industrial process, but they also enjoy peculiar advantages in the matter of cost, due to their monopoly position. These added advantages are more particularly advantages in buying or bargaining for all goods, materials, and services required, as well as in selling the output. So long as the coalitions are not comprehensive enough effectually to eliminate competition, they are constrained to both buy and sell in competition with others. But when the coalition comes effectually to cover its special field of operation, it is able, not only to fix the prices which it will accept (on the basis of what the traffic will bear), but also in a considerable measure to fix the prices or rates which it will pay for materials, labor, and other services (such as transportation) on a similar basis, - unless it should necessarily have to do with another coalition that is in a similar position of monopoly.
The rule which governs the fixing of rates on this side of the business dealings of a monopolistic coalition is similar to that which guides its transactions in the matter of sales. Prices and rates, as, e.g., for materials and labor, are not depressed to the lowest possible point, but to the lowest practicable point, - to the point compatible with the largest net profits. This may or may not be a point below the rates necessary under a regime of competitive buying. It may be added that only in rare cases does a coalition attain so strong a position in respect of its purchases (of materials or services) as to lift this side of its business entirely above the reach of competition.
Wherever this expedient of coalition has been found practicable, the chronic depression of recent times and the confusion and uncertainty which goes with a depressed competitive business situation have been obviated. The great coalitions do not suffer acutely from the ills of depression, except in cases where their industrial processes are to a peculiar degree in the position of intermediaries within the range of the competitive industries, as is the case, e.g., with most railroads. But even in such a case the coalition which has a monopoly is more fortunate as regards the stability of its balance sheet than the same traffic would be without the advantage of monopoly.
Barring providential intervention, then, the only refuge from chronic depression, according to the view here set forth, is thoroughgoing coalition in those lines of business in which coalition is practicable. But since this would include the greater part of those lines of industry which are dominated by the machine process, it seems reasonable to expect that the remedy should be efficacious. The higher development of the machine process makes competitive business impracticable, but it carries a remedy for its own evils in that it makes coalition practicable. The ulterior effects of thoroughgoing monopoly, as regards the efficiency of industry, the constancy of employment, the rates of wages, the prices of goods to consumers, and the like, are, of course, largely matter of surmise, and cannot be taken up in this inquiry, the present purpose being merely to give in outline an economic theory of current business enterprise.
A further consideration hearing on the later phases of the business situation may be added. The great coalitions and the business manoeuvres connected with them have the effect of adding to the large fortunes of the greater business men; which adds to the large incomes that cannot be spent in consumptive expenditures; which accelerates the increase of investments; which brings competition if there is a chance for it; which tends to bring on depression, in the manner already indicated. The great coalitions, therefore, seem to carry the seed of this malady of competition, and this evil consequence can accordingly be avoided only on the basis of so comprehensive and rigorous a coalition of business concerns as shall wholly exclude competition, even in the face of any conceivable amount of new capital seeking investment.
What has made chronic depression the normal course of things in modern industrial business is the higher development of the machine process, given, of course, the traits of human nature as it manifests itself in business traffic. The machine process works this effect by virtue, chiefly if not altogether, of these two characteristics: (1) a relatively rapid rate of increasing efficiency; and (2) the close interdependence of the several lines of industrial activity in a comprehensive system, which is growing more comprehensive and closeknit as improvement and specialization of industrial processes go on. The last-named factor counts for more in proportion as the interdependence grows closer and more comprehensive. Disturbances are progressively transmitted with greater
