Problems of Poverty: An Inquiry into the Industrial Condition of the Poor

by J. A. Hobson

It is needless to add that these large works are conducted, not by single owners, but in nearly all cases by the managers of associated capitals. Regarded from the large standpoint of industrial development, all these phenomena denote a change in the sphere of competition. From the competition of private capitals owned by individuals we have passed to the competition of associated capitals. The question now arises, "Will not the same forces, which, in order to avoid the waste and destruction of ever keener competition, compelled the private capitalists to suspension of hostility and to combination, act upon the larger masses of associated capital?" The answer is already working itself clearly out in industrial history. The concentrative adhesive forces are everywhere driving the competing masses of capital to seek safety, and escape waste and destruction, by welding themselves into still larger masses, renouncing the competition with one another in order to compete more successfully with other large bodies. Thus, wherever these forces are in free operation, the number of competing firms is continually growing less; the surviving competitors have crushed or absorbed their weaker rivals, and have grown big by feeding on their carcases.

But the struggle between these few big survivors becomes more fierce than ever. Fitted out with enormous capital, provided with the latest, most complex, and most expensive machinery, producing with a reckless disregard for one another or the wants of the consuming public, advertising on a prodigious scale in order to force new markets, or steal the markets of one another, they are constantly driven to lower their prices in order to effect sales; profits are driven to a minimum; all the business energy at their command is absorbed by the strain of the fight; any unforeseen fluctuations in the market brings on a crisis, ruins the weaker combatants, and causes heavy losses all round. In trades where the concentrative process has proceeded furthest this warfare is naturally fiercest. But as the number of competing units grows smaller, arbitration or union becomes more feasible. Close and successful united action among a large number of scattered competitors of different scales of importance, such as exist during the earlier stage of capitalism, would be impossible. But where the number is small, combination presents itself as possible, and in so much as the competition is fiercer, the direct motive to such combination is stronger. Hence we find that attempts are made to relieve the strain among the largest businesses. The fiercest combatants weary of incessant war and patch up treaties. The weapon of capitalist warfare is the power of under-selling--"cutting prices." The most powerful firms consent to sheathe this weapon, i.e. agree not to undersell one another, but to adopt a common scale of prices. This action, in direct restraint of competition, corresponds to the action of a trades union, and is attained by many trades whose capital is not large or business highly developed. Neither does it imply close union of friendly relations between the combining parties. It is a policy dictated by the barest instinct of self-preservation. We see it regularly applied in certain local trades, especially in the production and distribution of perishable commodities. Our bakers, butchers, dairy-men, are everywhere in a constant state of suspended hostility, each endeavouring indeed to get the largest trade for himself, but abiding generally by a common scale of prices. Wherever the local merchants are not easily able to be interfered with by outsiders, as in the coal-trade, they form a more or less closely compacted ring for the maintenance of common terms, raising and lowering prices by agreement. The possibility of successfully maintaining these compacts depends on the ability to resist outside pressure, the element of monopoly in the trade. When this power is strong, a local ring of competing tradesmen may succeed in maintaining enormous prices. To take a humble example--In many a remote Swiss village, rapidly grown into a fashionable resort, the local washerwomen are able to charge prices twice as high as those paid in London, probably four times as high as the normal price of the neighbourhood.

Grocers or clothiers are not able to combine with the same effect, for the consumer is far less dependent on local distribution for these wares. But wherever such retail combinations are possible they are found. Among large producers and large distributing agencies the same tendency prevails, especially in cases where the market is largely local. Free competition of prices among coal-owners or iron-masters gives way under the pressure of common interests, to a schedule of prices; competing railways come to terms. Even among large businesses which enjoy no local monopoly, there are constant endeavours to maintain a common scale of prices. This condition of loose, irregular, and partial co-operation among competing industrial units is the characteristic condition of trade in such a commercial country as England to-day. Competitors give up the combat à outrance, and fight with blunted lances.

§ 3. Syndicates and Trusts.--But it is of course extremely difficult to maintain these loose agreements among merchants and producers engaged in intricate and far-reaching trades. A big opportunity is constantly tempting one of them to undersell; new firms are constantly springing up with new machinery, willing to trade upon the artificially raised prices, by under-selling so as to secure a business; over-production and a glut of goods tempts weaker firms to "cut rates," and this breaks down the compact. A score of different causes interfere with these delicate combinations, and plunge the different firms into the full heat and waste of the conflict. The renewed "free competition" proves once more fatal to the smaller businesses; the waste inflicted on the "leviathans" who survive forms a fresh motive to a closer combination.

These new closer combinations are known by the names of Syndicate and Trust. This marks another stage in the evolution of capital. In the United States, where the growth is most clearly marked, the Standard Oil Trust forms the leading example of a successful Trust. In 1881, this Standard Oil Company having maintained for some ten years tolerably close informal relations with its leading competitors in the Eastern States, and having crushed out the smaller companies, entered into a close arrangement with the remaining competitors, with the view of a practical consolidation of the businesses into one, though the formal identity of the several firms was still maintained. The various companies which entered into this union, comprising nearly all the chief oil-mills, submitted their businesses to valuation, and placed themselves in the hands of a board of trustees, with an absolute power to regulate the quantity of production, and if necessary to close mills, to raise and lower prices, and to work the whole number as a joint concern. Each company gave up its shares to the Trust, receiving notes of acknowledgment for the worth of the shares, and the total profits were to be divided as dividend each half-year. This Trust has continued to exist, and has now a practical monopoly of the oil trade in America, controlling, it is reckoned, more than 90 per cent. of the whole market, and regulating production and prices.

Everywhere this process is at work. Competing firms are in every trade, where their small numbers permit, striving to come to closer terms than formerly, and either secretly or openly joining forces so as to get full control over the production or distribution of some product, in order to manipulate prices for their own profit. From railways and corn-stores down to slate-pencils, coffins, and sticking-plaster, everything is tending to fall under the power of a Trust. Many of these Trusts fail to secure the union of a sufficient proportion of the large competitors, or quarrels spring up among the combining firms, or some new firms enter into competition too strong to be fought or bought over. In these ways a large number of the Trusts have hitherto broken down, and will doubtless continue to break down. In England, this step in capitalist evolution is only beginning to be taken. In glass, paper, salt, coal, and a few other commodities, combinations more permanent than the mere Ring or Corner, and closer than the ordinary masters' unions, have been formed. But Free Trade, which leaves us open to the less calculable and controllable element of foreign competition, and the fact that the earlier stages of concentration of capital are not yet completed here in most trades, have hitherto retarded the growth of the successful Trust in England. Even in America there is no case where the monopoly of a Trust reigns absolute through the whole country, though many of them enjoy a local control of production and prices which is practically unrestricted. Excepting in the case of the Standard Oil Trust, and a few less important bodies which enjoy the control of some local monopoly, such as anthracite coal, the supremacy of the leading Trust or Syndicate is brought in certain places into direct conflict with other more or less independent competing bodies. In other words, the evolution of capital, which tends ever to the establishment of competition between a smaller number of larger masses, has nowhere worked out the logical conclusion which means the condensation of the few large competing bodies into a single mass. This final step, which presents a completely organized trade with the element of competition utterly eliminated under the control of a single body of mere joint-owners of the capital engaged, must be regarded as the goal, the ideal culmination of the concentrative movement of modern capital. It is said that more than one-third of the business in the United States is already controlled by Trusts. But most of them have only in part succeeded in their effort to escape from competition by integrating their personal interests into a single homogeneous mass. Even in cases where they do rule the market untrammelled by the direct interference of any competitors, they are still deterred from a free use of their control over prices by the possibility of competition which any full use of this control might give rise to. For it does not follow that even where a Trust holds an absolute monopoly of the market of a locality, that it will be able to maintain that monopoly were it to raise its prices beyond a certain point. In proportion, however, as experience yields a greater skill in the management of Trusts, and their growing strength enables them to more successfully defy outside attempts at competition, their power to raise prices and increase their rates of profit would rise accordingly.

Regarding, then, the development of the capitalist system from the first establishment of the capitalist-employer as a distinct industrial class, we trace the massing of capital in larger and larger competing forms, the number of which represents a pyramid growing narrower as it ascends towards an ideal apex, represented by the absolute unity or identity of interests of the capital in a given trade. In so far as the interests of different trades may clash, we might carry on this movement further, and trace the gradual agreement, integration, and fusion of the capitals represented in various trades. There is, in fact, an ever-growing understanding and union between the various forms of capital in a country. The recognition of this ultimate identity of interest must be regarded as a constant force making for the unification of the whole capital of a country, in the same way as the common interests of directly competing capitals in the same trade leads to a union for mutual support and ultimate identification.

§ 4. Uses and Abuses of the Trust.--This, however, carries us beyond the immediate industrial outlook. The successful formation of the Trust represents the highest reach of capitalistic evolution. Although the subject is too involved for any lengthy discussion here, a few points bearing on the nature of the Trust deserve attention.

The Trust is clearly seen to be a natural step in the evolution of capital. It belongs to the industrial progress of the day, and must not be condemned as if it were a retrograde or evil thing. It is distinctly an attempt to introduce order into chaos, to save the waste of war, to organize an industry. The Trust-makers often claim that their line of action is both necessary and socially beneficial, and urge the following points--

The low rates of profit, owing to the miscalculation of competitors who establish too many factories and glut the market; the waste of energy in the work of competition; the adulteration of goods induced by the desire to undersell; the enormous royalties which must be paid to a competitor who has secured some new invention--these and other causes necessitate some common action. By the united action of the Trust the following economic advantages are gained--