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Front Page Titles (by Subject) LECTURE 15 - The History of the Origins of Representative Government in Europe
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LECTURE 15 - François Guizot, The History of the Origins of Representative Government in Europe [1861]Edition used:The History of the Origins of Representative Government in Europe, trans. Andrew R. Scoble, Introduction and notes by Aurelian Craiutu (Indianapolis: Liberty Fund, 2002).
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LECTURE 15Of benefices conceded by great landowners to men dependent upon them: First, benefices conceded for all kinds of services, and as a mode of paying salary; Secondly, larger proprietors usurp the lands adjoining their own, and bestow them as benefices on their subordinates; Thirdly, the conversion of a great number of allodial lands into benefices, by the practice of recommendation. ~ Origin and meaning of this practice. ~ Permanence of freeholds, especially in certain parts of the Frankish monarchy. ~ Tributary lands. ~ Their origin and nature. ~ Their rapid extension: its causes. ~ General view of the condition of territorial property, from the sixth to the eleventh century: First, different conditions of territorial property; Secondly, the individual dependence of territorial property; Thirdly, the stationary condition of territorial wealth. ~ Why the system of beneficiary property, that is to say, the feudal system, was necessary to the formation of modern society and of powerful states. Kings were not the sole donors of benefices; all the large proprietors gave them. Many leaders of bands of men were originally united under the conduct of the king; these chiefs became subsequently proprietors of large allodial estates. Portions of these were conceded as benefices to their immediate associates. Afterwards, they became large incumbents, and gave also as benefices portions of the benefice which they held from the king. Hence arose the practice of sub-enfeoffment. In the capitularies, we perpetually meet with the words, vassalli vassallorum nostrorum.1 We find, during the whole of this period, even under Charlemagne, numerous examples of benefices held otherwise than from the king. Two letters of Eginhard expressly mention the concession, by way of benefice, of certain portions of royal benefices. It is the opinion of Mably, that other persons than the king began to give benefices only after the reign of Charles Martel. This mistake arises from his not having apprehended that the relation of the chief to his associate, which afterwards grew into that of lord to his vassal, was at first a purely personal relation, entirely independent of and anterior to any concession of benefices. It is impossible to determine at what particular time the conferring of benefices became connected with the relation of the Beneficiary to his patron. This was probably almost immediately after the territorial establishment. The number of benefices was soon very considerable, and became greater every day. I. benefices were given to free men belonging to quite an inferior order, and employed in subordinate services. The majores villae, aud the poledrarii, that is to say, the stewards of the estates, and the keepers of the horses of Charlemagne, had them. It was the policy of this prince to scatter widely his gifts, and to reward zeal and fidelity wherever he found them. II. The larger proprietors continually made themselves masters of the lands adjoining their own, whether these were lands belonging to the royal domain, or such as were neglected, and had no very definite owners. They had them cultivated, and often procured subsequently the privilege of adding them to their benefices. The extent of this abuse becomes manifest under Charles the Bald, by the numerous expedients adopted by this prince to remedy it. III. A large number of allods were converted into benefices by means of a tolerably ancient usage. Marculf has left us the formula by which this conversion was made;—its origin we must seek in the practice of recommendation. Recommendation was not primitively anything else than the choice of a chief, or a patron. A law of the Visigoths, called a lex antiqua, and which must be referred to king Euric, towards the close of the fifth century, says: "If any one have given arms, or any other thing, to a man whom he has taken under his patronage, these gifts shall remain the property of him by whom they have been received. If this latter choose another patron, he shall be free to recommend himself to whomsoever he will: this may not be forbidden to a free man, for he belongeth to himself; but he shall, in this case, return to the patron from whom he separates himself all that he has received from him." These were, then, the ancient Germanic customs. The relation of the individual recommended to his patron was a purely personal one. The presents consisted in arms; his liberty remained unimpaired. The law of the Lombards left to every one the same liberty as the law of the Visigoths. Nevertheless, we see, by the same capitulary, that this liberty began to be restrained. Charlemagne defined the reasons, by which any one might be allowed to quit his lord, when he had received anything from him. We may learn from this; that the ties contracted by recommendation began to be strengthened. This practice became very frequent. By these means order was promoted, so far as the law was concerned, and protection and safety as far as concerned the person recommended. When relations of service and protection bearing a purely personal character were thus established with a patron, other more tangible relations arose in which the property of the parties was considered. The person recommended received benefices from the lord; and became a vassal of his estate; or rather he recommended his lands, as he had previously recommended his person. Recommendation thus became a part of the feudal system and it contributed most importantly to the conversion of allodial estates into benefices. There is, however, no reason to believe that all allods were thus converted into benefices. Originally, such a conversion, or even the mere acceptance of a benefice, was regarded by a free man as, to a certain extent, a surrender of his liberty, being an entrance upon a personal service. The large proprietors, who exercised an almost absolute sovereignty in their own domains, would not readily renounce their proud independence. Etichon, brother to Judith the wife of Louis the Débonnair, was unwilling any longer to receive his son, Henry, who had accepted, without his knowledge, from the king his uncle a benefice of four hundred acres, and thereby entered upon the service of the crown. After the triumph of the feudal system, a considerable number of allods still remained in several provinces, particularly in Languedoc. After speaking of freeholds and benefices, it remains that I should allude to the tributary lands, whose existence is attested by all the memorials of this period. We do not necessarily understand by this term lands on which a public impost was levied, but lands which paid a fee, a rental, to a superior, and which were not the actual and absolute property of those who cultivated them. This kind of property existed in Gaul before the invasion of the Franks. The conquest that resulted from this invasion contributed in various ways to augment their number. First, wherever a Barbarian possessed of some amount of power established himself, he did not take possession of all the lands, but he most probably exacted certain fees, or services equivalent to them, from almost all whose lands bordered on his own. This is certain from a priori considerations, and is proved as a fact by the example of the Lombards, who invariably contended themselves at first with rendering all the lands of the conquered country tributary to themselves. They demanded a third of the revenue, and afterwards took the property itself. This fact shows clearly the mode of procedure that was adopted by the Barbarians. Almost all the lands possessed by Roman or Gallic chiefs, who did not possess sufficient power to rank with the Barbarians, were obliged to submit to a tributary condition. Secondly, conquest was not the work of a single day; it continued to be carried on after the establishment of the invaders. All the documents of the period indicate that the principal officers and large proprietors continually exerted themselves, either to usurp the possessions of their less powerful neighbours, or to impose upon them rentals or other charges. These usurpations are proved by the multitude of laws that were enacted to prevent it. In the unsettled state of society that then existed, the feeble were entirely placed at the disposal of the strong; public authority had become incompetent for their protection; many lands which were at first free, and belonged either to their ancient owners, or to Barbarians of slender resources, fell into a tributary state; many of the smaller proprietors purchased for themselves the protection of the strong, by voluntarily placing their lands in this condition. The most common method of rendering lands tributary, was to give them either to churches or to powerful proprietors, and then to receive them again, on the tenure of usufruct, to be enjoyed during life, on the payment of fixed fees. This kind of contract is to be met with again and again, during this period. The same causes which tended to destroy allods, or to convert them into benefices, acted with even more energy in augmenting the number of tributary lands. Thirdly, many large proprietors, whether of allodial lands or of benefices, were unable themselves to cultivate the whole of their lands, and gave them up by small portions to simple cultivators, on the payment of certain fees and services. This alienation took place under a multitude of forms and a variety of circumstances; it certainly occasioned many lands to become tributary. The large number and endless variety of rentals and rights, known in a later time by the name of feudal, arose probably either from similar contracts, or from usurpations committed by the powerful proprietors. The constant recurrence in writers and laws of the period of the terms census and tributum; the multitude of arrangements which relate to them; the general course of events; lastly, the state in which most landed property was found when order began to reappear—all these circumstances render it probable that at the end of the period we are considering, the greater number of lands had fallen into a tributary condition. Property and liberty were alike devoted to be plundered. Individuals were so isolated, and their forces so unequal, that nothing could prevent the results of such a position. The large number of waste lands, attested by the facility with which any one who was willing to cultivate them might obtain them, bears witness in its turn also to the depopulation of the country, and the deplorable condition in which property existed. The concentration of landed property is a decisive proof of this state of things. When this kind of property is safe and prosperous, it tends to become divided, because every one desires to possess it. When, on the other hand, we see it accumulated more and more in the same hands, we may almost certainly conclude that it is in an unsound condition, that the feeble cannot sustain themselves upon it, and that the strong alone can defend it. Landed property, like moveable property, is only to be found where it can continue to exist in safety. There is reason to believe that most tributary lands, even those which were not originally the property of the cultivators who laboured on them, became at length by a right of occupancy in reality their possessions, though burdened by rentals and exactions of service. This is the natural course of things: it is very difficult to remove a cultivator who has with his family for a long time tilled the same soil. Such were the vicissitudes of landed property, from the sixth to the eleventh century. I will now give a summary view of the general characteristics of this state of things, and endeavour to estimate their influence on the progress of general civilization, and more particularly of political institutions. I. There was a great diversity in the conditions of property. In our days, the condition of property is uniform and everywhere the same; whoever the proprietor may be, he possesses his property, whatever may be its character, on the same tenure of right, and subject to the same laws as any other. Between properties which are the most distinct in character, there is thus far an identity. This is one of the most unequivocal symptoms and safest guarantees of the progress of legal equality. During the times of which we have been speaking, the diversified conditions under which property was held would necessarily lead to the formation of several classes in society, between which existed great, factitious, and permanent inequality. Men were not merely proprietors to a greater or less extent; besides the inequality in the amount of wealth, there was also an inequality in the nature of the wealth possessed, than which it is impossible to conceive of a more powerful instrument for oppression. Even this, however, was a step in advance out of the slavery existing among the ancients. The slave could possess nothing—was essentially incapable of owning property. In the times of which I am speaking, the mass of the population had not become full and absolute possessors of property, but was attaining to a possession that was more or less imperfect and precarious, by which it had gained the means of yet loftier ascents. II. Landed property was then submitted to the restraints of dependence on individuals. At present, all property is free, and is at the disposal only of its owner. General society has been formed—the State has been organized—every proprietor is united to his fellow-citizens by a multitude of ties and relations, and to the state by the protection which he receives from it, and the taxes to which he is subject in return: there is, thus, independence without isolation. From the sixth to the eleventh century, independence was necessarily accompanied by isolation: the proprietor of an allod lived upon his lands almost without buying or selling anything. He owed scarcely anything to a State which hardly existed, and which could not assure him of an efficient protection. The condition, therefore, of the allods and their proprietors was at that time a condition that was to a considerable extent anti-social. In more ancient times, in the forests of Germany, men without landed properties lived at least in common. When they became proprietors, if the allodial system had succeeded in becoming prevalent, the chiefs and their associates would have been separated, without ever being summoned to meet and recognize one another as citizens. Society would not have been at all constituted. It exists in those relations which unite men together, and in the ties out of which these relations arise. It necessarily demands a law, a condition of dependence. And when it is not so far advanced as that a sufficient number of these relations and ties have been established between the State and the individual, then individuals become dependent one upon another; and it was to this state of things that the seventh century had arrived. It was the imperfection of society which caused the allo-dial system in regard to landed property to perish, and the Beneficiary or tributary system to prevail. The independence of allods could only exist in connexion with their isolation, and isolation is anti-social. The hierarchical dependence of benefices became the tie to unite properties with one another, and society within itself.2 III. Out of this distribution and this character of landed property, a very important fact has resulted; namely, that during several centuries scarcely any means existed by which either the state or individuals could increase their wealth. Most proprietors of any importance did not cultivate the land at all; it was for them merely a capital, the revenues of which they gathered without troubling themselves to augment it, or to render it more productive. On the other side, most of those who cultivated the land were not proprietors, or were only so in a precarious and imperfect manner; they did not seek from the earth more than means of subsistence, and did not look to it as a means of enriching or elevating them. Agricultural labour was almost unknown to the rich, and to the poor it yielded nothing beyond the bare necessities of existence. Hence, resulted the continual impoverishment of the larger proprietors, which forced them incessantly to have recourse to violence, in order to preserve their fortune and their rank. Hence, resulted also, at the same time, that stationary condition of the population of the country districts which was prolonged for so long a period. Landed property tended always to become concentrated, from the very circumstance that its products did not increase. Accordingly, it is not in the country districts and in agricultural labour, but in the towns, in their commerce and industry, that we shall find the earliest germs of the accumulation of public wealth, and of the progress of civilization. The indolence of the upper classes, and the misery of the lower classes, in the middle ages, proceeded chiefly from the nature and distribution of territorial property. IV. Beneficiary property was one of the most influential principles in the formation of large societies. In the absence of public assemblies and of a central despotism, it nevertheless established a bond, and formed relations between men dispersed over a vast tract of country, and thereby rendered possible a federative hierarchy, which should embrace a still wider circle. Among the nations of antiquity, the extension of the State was incompatible with the progress of civilization; either the State must be dislocated, or despotism would prevail. Modern States have presented a different spectacle, and to this result the character of Beneficiary property has powerfully contributed.3 [1. ]Vassals of our vassals. [2. ]The same idea is discussed in HCE: "Wherever individuality predominates almost exclusively, wherever man consider no one but himself, and his ideas do not extend beyond himself, and he obeys nothing but his own passions, society (I mean a society somewhat extended and permanent) becomes for him almost impossible. Such, however, was the moral condition of the conquerors of Europe, at the time upon which we are now preoccupied. I remarked in my last lecture that we are indebted to the Germans for an energetic sentiment of individual liberty, of human individuality. But in a state of extreme barbarism and ignorance, this sentiment becomes selfishness in all its brutality, in all its unsociability. From the fifth to the eighth century it was at this point among the Germans. They cared only for their own interests, their own passions, their own will: how could they be reconciled to a condition even approximating to the social? . . . Constantly did society attempt to form itself; constantly was it destroyed by the act of man, by the absence of the moral conditions under which alone it can exist" (HCE, p. 56). Also see HORG, p. 133. [3. ]Guizot was certainly one of the first authors to perceive the connection between two aspects of political life that account for the paradoxical evolution of liberal societies. First, Guizot grasped that, contrary to the tenets of classical liberalism, the development of representative government inevitably leads to a considerable extension of the power of the state over civil society. Second, he understood that this extension was furthered by social demand and explained that the two tendencies were not contradictory (as many believed), but represented, in fact, the two sides of the same coin. |


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ATM skimming reports investigated:
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Lake Forest police, in cooperation with Northern Trust Bank, is investigating a fraud involving multiple customer accounts. Police said that from December through this month, a skimming device was attached to the lobby ATM at the Northern Trust Branch at 265 East Deerpath in Lake Forest. The device apparently was used to record the account numbers and/or PIN numbers of customers using this ATM, police said, and the numbers used to make fraudulent withdrawals at numerous ATMs in the Chicago area. Potential victims should contact Detective Kevin Zelk at email@example.com to make a police report. The exact number of customers affected and the potential dollar loss involved is undetermined. Visit http://www.secretservice.gov for information about skimming.


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West Michigan Jewels of Africa is a traditional African dance and drum troop. Members teach authentic African culture through motion, song, dance and spirit. Families can participate in drumming and dancing in this high energy event! There will be a program for kids featuring the Jewels of Africa on Taste of Soul Sunday, February 20 but if you can not make it to that fabulous celebration of African-American culture, there will also be workshops at each of our branches throughout the next two weeks. See the schedule for more details.
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Front Page Titles (by Subject) Section II.: The Concentration of Capital and the Formation of Monopolies as Preliminary Steps to Socialism - Socialism: An Economic and Sociological Analysis
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Section II.: The Concentration of Capital and the Formation of Monopolies as Preliminary Steps to Socialism - Ludwig von Mises, Socialism: An Economic and Sociological Analysis [1922]Edition used:Socialism: An Economic and Sociological Analysis, trans. J. Kahane, Foreword by F.A. Hayek (Indianapolis: Liberty Fund, 1981).
About Liberty Fund:Liberty Fund, Inc. is a private, educational foundation established to encourage the study of the ideal of a society of free and responsible individuals. Copyright information:The copyright to this edition, in both print and electronic forms, is held by Liberty Fund, Inc. Fair use statement:This material is put online to further the educational goals of Liberty Fund, Inc. Unless otherwise stated in the Copyright Information section above, this material may be used freely for educational and academic purposes. It may not be used in any way for profit.
Section II.The Concentration of Capital and the Formation of Monopolies as Preliminary Steps to SocialismCHAPTER 22The Problem1The Marxian Theory of ConcentrationMarx seeks to establish an economic foundation for the thesis that the evolution towards Socialism is inevitable, by demonstrating the progressive concentration of capital. Capitalism has succeeded in depriving the worker of private ownership in the means of production; it has consummated the "expropriation of the direct producers." As soon as this process is completed "the further socialization of labour and the further transformation of land and other agents into socially exploited and therefore collective means of production, together with the ensuing expropriation of private owners, assume a new form. That which is now to be expropriated is no longer the worker labouring independently but the capitalist exploiting the worker. This expropriation is carried out by the play of the inherent forces of capitalist production itself; by the centralization of capital, each individual capitalist deals the death-blow to a number of others." Hand in hand with this goes the socialization of production. The number of the "capitalist magnates" is continually decreasing. "The centralization of the means of production and the socialization of labour reach a point where they become incompatible with their capitalist framework. They burst it. The last hour of capitalist private property has arrived. The expropriators are expropriated." This is the "expropriation of the few usurpers by the mass of the people," through the "transformation of capitalist ownership, which actually rests already on social production, into social ownership," a process much less "lengthy, hard, and difficult" than was, in its own time, the process that transformed the private ownership of individuals doing their own work into capitalist ownership.1 Marx gives a dialectical turn to his contentions. "Capitalist private ownership is the first negation of the individual private ownership created by the workers' toil. But, with the inevitability of a natural process, capitalist production brings forth its own negation. It is the negation of the negation. This does not re-establish private ownership, by only individual ownership based on the achievements of the capitalist era: co-operation and the collective ownership of land and of the means or production produced by labour."2 Strip these statements of the dialectic accessories and there remains the fact that the concentration of establishments, enterprises, and fortunes is inevitable. (Marx does not distinguish between these three and obviously regards them as identical.) This concentration would eventually lead to Socialism, as the world, once it was transformed into one single gigantic enterprise, could be taken over by society with perfect ease; but before that stage has been reached, the result will have been achieved by "the revolt of the ever-expanding working class which has been schooled, united, and organized by the very mechanism of the capitalist production."3 To Kautsky it is clear that "capitalist production tends to unite the means of production, which have become the monopoly of the capitalist class, into fewer and fewer hands. This evolution finally makes all the means of production of a nation, indeed of the whole world economy, the private property of a single individual or company, which disposes of them arbitrarily. The whole economy will be drawn together into one colossal undertaking, in which everything has to serve one master. In capitalist society private ownership in the means of production ends with all except one person being propertyless. It thus leads to its own abolition, to the lack of property by all and to the enslavement of all." This is a condition towards which we are rapidly advancing "more rapidly than most people believe." Of course, we are told, the matter will not go so far. "For the mere approach to this condition must increase the sufferings, conflicts, and contradictions in society to such an extent, that they become intolerable and society bursts its bounds and falls to pieces" unless evolution has previously been given a different direction.4 It should be observed that, according to this view, the transition from "High" Capitalism to Socialism is to be effected only by the deliberate action of the Masses. The Masses believe that certain evils are to be ascribed to private ownership in the means of production. They believe that socialist production is likely to improve their condition. It is therefore a theoretical insight which guides them. According to the materialist conception of history, however, this theory must itself be the inevitable result of a certain organization of production. Here we observe once more how Marxism moves in a circle when it tries to demonstrate its propositions. A certain condition must arise because evolution leads to it; evolution leads there because thought demands it; but thought is determined by being. This being, however, can be nothing more than that of the existing social condition. From the thinking determined by the existing condition the necessity of another condition follows. There are two objections against which this whole chain of reasoning has no defence. It is unable to refute the contention of anyone who, though arguing on the same lines, regards thought as the cause, and society as that which is caused. And it has similarly no reply to the objection that future conditions may very well be misconceived, and that that which now seems so desirable may prove to be less tolerable than existing conditions. This, however, re-opens discussion on the advantages and disadvantages of types of societies, those existing and those sketched out by would-be reformers. But this is the very discussion which Marxism desired to suppress. Let no one suppose that the Marxian doctrine of the concentration of capital can be verified by the simple method of consulting the statistics of establishments, incomes, and fortunes. The statistics of incomes and fortunes utterly contradict it. This can be definitely asserted in spite of all the imperfections of present statistical methods and all the difficulties which fluctuations in the value of money place in the way of using the material. With equal confidence one can say that the counterpart of the theory of concentration, the much discussed theory of increasing poverty—in which even orthodox Marxists can hardly continue to believe—is incompatible with the results of statistical investigation.5 The statistics of agricultural holdings also contradict the Marxian assumptions. Those giving the number of the establishments in industry, mining and transport appear to confirm it. But figures that indicate a particular evolution during a limited period cannot be conclusive. The development in this brief span might run contrary to the long term trend. We shall do better, therefore, to leave statistics on both sides, both for and against. For it must not be forgotten that there is a theory underlying every statistical demonstration. Figures alone prove or disprove nothing. Only the conclusions drawn from the collected material can do this. And these are theoretical. 2The Theory of Anti-Monopolistic PolicyThe theory of monopoly goes deeper than the Marxian theory of concentration. According to it, free competition, the life blood of a society based on private ownership in the means of production, is weakened by the steady growth of monopoly. The disadvantages bred within the economy by the unlimited rule of private monopolies are, however, so great that society has no choice but to transform private monopoly by socialization into state ownership. However great an evil Socialism might be, it would be less harmful than private monopoly. Should it prove impossible to counteract the tendency towards monopoly in ever widening fields of production, then private ownership in the means of production is already doomed.6 It is clear that this doctrine calls for a searching investigation: first, as to whether evolution is really in the direction of monopoly control, and secondly as to what are the economic effects of such monopoly. Here one has to proceed with special care. The time at which this doctrine was first expounded was generally not favourable to the theoretical study of such problems. The emotional judgment of appearances rather than the cool examination of the essence of things was the order of the day. Even the arguments of such an outstanding economist as J. B. Clark are imbued with the popular hatred of the trusts. Utterances typical of contemporary politicians are to be found in the report of the German Socialization Commission of February 15th, 1919, where it was affirmed as "indisputable" that the monopolistic position of the German coal industry "constitutes an independent power which is incompatible with the nature of the modern state, and not merely the socialist one." It was, in the opinion of the Commission, "unnecessary to discuss anew the question whether and to what degree this power is misused to the detriment of the remaining members of society, those to whom it is raw material, the consumers, and the workers; its existence suffices to make evident the necessity for completely abolishing it."7 CHAPTER 23The Concentration of Establishments1The Concentration of Establishments as the Complement of the Division of LabourThe concentration of establishments comes automatically with the division of labour. In the shoemaker's workshop the production of footwear, formerly carried on in each individual household, is united in one single establishment. The shoemaking village, the shoe-manufactory, becomes the manufacturing centre for a large area. The shoe factory that is organized for the mass-production of footwear represents a still wider union of establishments, and the basic principle of its internal organization is on the one side, division of labour, and, on the other side, concentration of similar work in special departments. In short, the more the work is split up, the more must similar labour processes be concentrated. Neither from the results of the census undertaken in various countries to verify the doctrine of the concentration of productive units, nor from other statistical evidence of changes in the number of establishments, can we learn all there is to be known about them. For what appears in these enumerations as a unit is always, in a certain sense, a unit of business, not a unit of production. Only in certain cases do these investigations count separately works which, whilst united in locality, are conducted separately inside a single enterprise. The conception of the establishment and its evolution has to be elaborated from a point of view other than that which lies at the basis of trade statistics. The higher productivity of the division of labour results, above all, from the specialization of processes which it makes possible. The more often a process has to be repeated the more does it pay to install a specially adapted tool. The splitting up of labour goes farther than the specialization of occupations, or at least than the specialization of enterprises. In the shoe factory shoes are produced by various part processes. It is quite conceivable that each part process might take place in a special establishment and in a special enterprise. In fact, there are factories which make only parts of shoes and supply them to the shoe factories. Nevertheless, we usually consider as one productive unit the sum of part processes combined in a single shoe factory which itself produces all the component parts of shoes. If to the shoe factory is joined also a leather factory or a department for producing the boxes in which the shoes are packed, we speak of the union of several productive units for a common enterprise. This is a purely historical distinction which neither the technical circumstances of production nor the peculiarities of business enterprise suffice by themselves to explain. When we regard as an establishment that totality of process involved in economic activity which businessmen regard as a unity, we must remember that this unit is by no means an indivisible thing. Each productive unit is itself composed of technical processes already horizontally and vertically combined. The concept of an establishment, therefore, is economic, not technical. Its delimitation in individual cases is determined by economic, not by technical, considerations. The size of the productive unit is determined by the complementary quality of the factors of production. The aim is the optimal combination of these factors, i.e. that combination by which the greatest return can be produced economically. Economic development drives industry to ever greater division of labour, involving at once an increase in the size and a limiting of the scope of the unit of production. The actual size of the unit is the result of the interaction of these two forces. 2The Optimal Size of Establishments in Primary Production and in TransportThe Law of Proportionality in combining the factors of production was first formulated in connection with agricultural production, as the Law of Diminishing Returns. For a long time its general character was misunderstood, and it was regarded as a law of agricultural technique. It was contrasted with a Law of Increasing Returns, which was thought to be valid for industrial production. These errors have since been corrected.8 The Law of the Optimal Combination of the factors of production indicates the most profitable size of the establishment. Net profit is greater according to the degree to which its size permits all factors of production to be employed without residue. In this way alone is to be estimated the superiority which the size of one particular establishment gives it over another establishment—at the given level of productive technique. It was a mistake to think that enlargement of the industrial establishment must always lead to an economy of costs, a mistake of which Marx and his school have been guilty, although occasional remarks betray the fact that he recognized the true state of affairs. For here, too, there is a limit beyond which enlargement of the establishment does not result in a more economical application of the factors of production. In principle, the same may be said of agriculture and mining; the concrete data only differ. It is merely certain peculiarities of the conditions of agricultural production which cause us to regard the Law of Diminishing Returns as primarily affecting land. The concentration of establishments is primarily concentration in space. As the land suitable to agriculture and forestry extends in space, every effort to enlarge the establishment increases the difficulties that spring from distance. Thus an upper limit is set for the size of the agricultural unit of exploitation. Because agriculture and forestry extend in space it is possible to concentrate the establishment only up to a definite point. It is superfluous to enter into the question—often raised in discussion of this problem—whether large or small scale production is the more economical in agriculture. This has nothing to do with the Law of the Concentration of Establishments. Even supposing large scale production to be superior, one cannot deny that there could be no question of a Law of the Concentration of Establishments in agriculture or forestry. The fact that land is owned on a large scale does not mean that it is worked on a large scale. The great estates are always composed of numerous farms. This appears even more clearly in a different branch of primary production, mining. Mining enterprise is tied to the place where the ore is found. The establishments are as large as these separate places permit. They can be concentrated only to the degree in which the geographical position of the separate beds of ore make concentration seem profitable. In short, one can see nowhere in primary production any tendency to concentrate productive units. This is equally true of transport. 3The Optimal Size of Establishments in ManufacturingThe process of manufacture out of raw materials is to a certain extent free from the limitations of space. The working of cotton plantations cannot be concentrated, but the spinning and weaving works may be united. But, here too, it would be rash to derive without further consideration a Law of the Concentration of Establishments from the fact that the larger plant generally proves superior to the smaller. For in industry too localization is of importance, quite apart from the fact that (other things being equal, i.e. at a given level of the division of labour) the economic superiority of the larger productive unit exists only in so far as the Law of the Optimal Combination of Factors of Production demands it and that consequently no advantage is to be gained by enlarging the establishment beyond the point where the instruments are most efficiently utilized. Each type of production has a natural location, which depends ultimately on the geographical distribution of primary production. The fact that primary production cannot be concentrated must influence the subsequent process of manufacture. The power of this influence varies with the importance attaching to the transport of raw materials and finished products in the separate branches of production. A Law of the Concentration of Establishments operates therefore only in so far as the division of labour leads to progressive division of production into new branches. This concentration is really nothing more than the reverse side of the division of labour. As a result of the division of labour numerous dissimilar establishments, within which uniformity is the rule, replace numerous similar establishments within which various different processes of production are carried out. It causes the number of similar plants to decrease, whilst the circle of persons, for whose needs they work directly or indirectly, grows. If the production of raw materials was not geographically fixed, a circumstance which acts counter to the process initiated by the division of labour, one single plant only would exist for every branch of production.9 CHAPTER 24The Concentration of Enterprises1The Horizontal Concentration of EnterprisesThe merger of several similar independent establishments into one enterprise may be called horizontal concentration of production. Here we follow broadly the usage of writers on cartels, though their definition is not in complete accord with ours. If the separate establishments do not remain completely independent, if, for example the management or some departments are amalgamated, there is concentration of establishments. A mere concentration of enterprises occurs only when the individual units remain independent in everything except the taking of decisive economic decisions. The typical example of this is a cartel or a syndicate. Everything stays as it was, but, according to whether it is a buying cartel or a selling cartel or both, decisions about purchases and sales are taken unitarily. When it is not merely the preliminary step to an amalgamation of establishments, the purpose of these unions is monopolistic domination of the market. Horizontal concentration originates only in the efforts of separate entrepreneurs to derive those advantages enjoyed under certain circumstances by the monopolist. 2The Vertical Concentration of EnterprisesVertical concentration is the union into one unitary enterprise of independent enterprises, some of which use the products of the others. This terminology follows the usage of modern economic literature. Examples of vertical concentration are the union of weaving, spinning, bleaching and dyeing works; a printing works to which a paper factory and a newspaper enterprise are joined; the mixed works of the iron industry and of coal mining, etc. Each productive unit is a vertical concentration of part processes and of apparatus. Unity of production is created by the fact that part of the means of production—certain machines, buildings, the direction of the works—is jointly held. Such joint holding is lacking in the vertical union of enterprises. Here the essence of the union lies in the will of the entrepreneur to make one enterprise serve another. The mere fact that one man owns two enterprises is not in itself sufficient if this will does not exist. Where a chocolate manufacturer owns also an iron works there is no vertical concentration. Vertical concentration is usually considered to aim at ensuring an outlet for the product or safeguarding the source of raw materials and half finished goods. This is what entrepreneurs reply when questioned as to the advantages of such combinations. Many economists accept it without question, for apparently they do not think it is their job to scrutinize what is said by "practical men"; and after accepting the statement as final they proceed to examine it from the ethical point of view. Still, even if they avoid thinking about it, closer research into facts should show them the truth. There is the fact that managers of plants attached to a vertical combination often have to make complaints. The manager of the paper-mill says: "I could get much better value for my paper if I did not have to supply it to 'our' printing works." The manager of the weaving-mill: "If I didn't have to get the yarn from 'our' spinning works I could get it cheaper." Such complaints are the order of the day, and it is not difficult to understand why they must accompany every vertical concentration. If the amalgamated establishments were individually so efficient that they did not have to shun competition, vertical combination would serve no special purpose. A paper factory of the best type never needs to ensure its market. A printing works which is on a level with its competitors does not need to ensure its paper supply. The efficient enterprise sells where it gets the best prices, buys where it can do so most economically. Hence, it does not follow that two enterprises, working at different stages of the same branch of production and held by one owner, must necessarily unite in vertical combination. Only when one or other of them shows itself less able to sustain competition does the entrepreneur conceive the idea of supporting it by tying it to the strong one. He looks to the profits of the prosperous business for a fund to cover the deficits of the non-prosperous. Apart from tax remissions and other special advantages, such as those which the mixed works in the German iron industry were able to derive from cartel agreements, union achieves nothing but an apparent profit in one enterprise and an apparent loss in the other. The number and importance of vertical concentrations is extraordinarily overestimated. In modern capitalist economic life on the contrary, new branches of enterprise are constantly forming and parts of those existing are constantly breaking away to become independent. The progressive tendency to specialization in modern industry shows that development is moving away from vertical concentration, which, except where it is demanded by considerations of productive technique, is always art exceptional phenomenon, generally to be explained by regard for the legal and other political conditions of production. But even here the break-up of such unions and the re-establishment of individual enterprise is to be witnessed over and over again. CHAPTER 25The Concentration of Fortunes1The ProblemA tendency to the concentration of establishments or to the concentration of enterprises is not by any means equivalent to a tendency to the concentration of fortunes. In the same degree in which establishments and enterprises became bigger and bigger modern capitalism has developed forms of enterprise which enable people with small fortunes to undertake big businesses. The proof that there is no tendency to concentrate fortunes lies in the number of these types of enterprises that have come up and are growing daily in importance, while the individual merchant has almost disappeared from large scale industry, mining, and transport. The history of forms of enterprise, from the societas unius acti to the modern joint stock company, is a wholesale contradiction of the doctrine of the concentration of capital so arbitrarily set up by Marx. If we wish to prove that the poor are becoming ever more numerous and poorer, and the rich ever less numerous and richer, it is useless to point out that in a period of remote antiquity, as elusive to us as the Golden Age to Ovid and Virgil, the differences of wealth were less than they are today. We must prove that there is an economic cause which leads imperatively to the concentration of fortunes. The Marxians have not even attempted this. Their theory which ascribes to the capitalist age a special tendency towards the concentration of fortunes, is pure invention. The attempt to give it some sort of historical foundation is hopeless and adduces just the contrary of that which Marx asserts to be demonstrable. 2The Foundation of Fortunes Outside the Market EconomyThe desire for an increase of wealth can be satisfied through exchange, which is the only method possible in a capitalist economy, or by violence and petition as in a militarist society, where the strong acquire by force, the weak by petitioning. In the feudal society ownership of the strong endures only so long as they have the power to hold it; that of the weak is always precarious, for having been acquired by grace of the strong it is always dependent on them. The weak hold their property without legal protection. In a militarist society, therefore, there is nothing but power to hinder the strong from extending their wealth. They can go on enriching themselves as long as no stronger men oppose them. Nowhere and at no time has the large scale ownership of land come into being through the working of economic forces in the market. It is the result of military and political effort. Founded by violence, it has been upheld by violence and by that alone. As soon as the latifundia are drawn into the sphere of market transactions they begin to crumble, until at last they disappear completely. Neither at their formation nor in their maintenance have economic causes operated. The great landed fortunes did not arise through the economic superiority of large scale ownership, but through violent annexation outside the area of trade. "And they covet fields" complains the prophet Micah,10 "and take them by violence; and houses, and take them away." Thus comes into existence the property of those who, in the words of Isaiah, "join house to house ... lay field to field, till there be no place, that they may be placed alone in the midst of the earth."11 The non-economic origin of landed fortunes is clearly revealed by the fact that, as a rule, the expropriation by which they have been created in no way alters the manner of production. The old owner remains on the soil under a different legal title and continues to carry on production. Land ownership may be founded also on gifts. It was in this way that the Church acquired its great possessions in the Frankish kingdom. Not later than the eighth century, these latifundia fell into the hands of the nobility; according to the older theory this was the result of secularizations by Charles Martel and his successors, but recent research is inclined to make "an offensive of the lay aristocrats" responsible.12 That in a market economy it is difficult even now to uphold the latifundia, is shown by the endeavours to create legislation institutions like the "Fideikommiss" (feoffment in trust) and related legal institutions such as the English "entail." The purpose of the "Fideikommiss" was to maintain large-scale landed proprietorship, because it could not be kept together otherwise. The Law of Inheritance is changed, mortgaging and alienation are made impossible, and the State is appointed guardian of the indivisibility and inalienability of the property, so that the prestige of family tradition shall not be impaired. If economic circumstances had tended towards the continuous concentration of land ownership such laws would have been superfluous. Legislation would have been enacted against the formation of estates rather than for their protection. But of such laws legal history knows nothing. The regulations against "Bauernlegen," against enclosing arable land, etc., are directed against movements outside the area of trade, that is, against force. The legal restrictions of mortmain are similar. The lands of the mortmain, which, incidentally, are legally protected in much the same way as the "Fideikommiss," do not increase by force of economic development but through pious donations. Now the highest concentration of fortunes is to be found just in agriculture, where concentration of establishments is impossible and the concentration of enterprises economically purposeless, where the large property appears to be economically inferior to the small and unable to withstand it in free competition. Never was the ownership of the means of production more closely concentrated than at the time of Pliny, when half the province of Africa was owned by six people, or in the days of the Merovingians, when the Church possessed the greater part of all French soil. And in no part of the world is there less large-scale land ownership than in capitalist North America. 3The Formation of Fortunes Within the Market EconomyThe assertion that wealth on the one hand and poverty on the other are ever increasing was maintained at first without any conscious connection with an economic theory. Its supporters think they have derived it from an observation of social relations. But the observer's judgment is influenced by the idea that the sum of wealth in any society is a given quantity, so that if some possess more others must possess less.13 As, however, in every society the growth of new riches and the coming into existence of new poverty are always to be found in a conspicuous manner whilst the slow decline of ancient fortunes and the slow enrichment of less propertied classes easily escape the eye of the inattentive student, it is easy to arrive at the premature conclusion summed up in the socialist catchword "the rich richer, the poor poorer." No protracted argument is required to prove that the evidence completely fails to substantiate this assertion. It is quite an unfounded hypothesis that in a society based on the division of labour the wealth of some implies the poverty of others. Under certain assumptions it is true of militarist societies, where there is no division of labour. But of a capitalist society it is untrue. Moreover an opinion formed on the basis of casual observations of that narrow section with which the individual is personally acquainted is quite insufficient proof of the theory of concentration. The foreigner who visits England equipped with good recommendations has opportunities for learning something of the noble and wealthy families, and their manner of living. If he wants to know more or feels it his duty to make his visit more than a mere pleasure trip, he is allowed to make a flying tour of the works of great enterprises. For the layman, there is nothing particularly attractive about this. At first the noise, the bustle, the activity astonish the visitor, but after inspecting two or three factories the spectacle grows monotonous. Such a study of social relations, on the other hand, as can be undertaken during a short visit to England, is more stimulating. A walk through the slums of London or any other large city produces more vivid impressions, and the effect on the traveller who, when not occupied in this study, will be hurrying from one entertainment to another, is twice as powerful. Thus visits to the slums have become a popular item in the itinerary of the Continental's obligatory tour of England. In this way the future statesman and economist gathered an impression of the effects of industry on the masses, which became a basis for the social views of a lifetime. He went home firm in the opinion that industry makes few rich and many poor. When later he wrote or spoke about industrial conditions he never forgot to describe the misery he had found in the slums, elaborating the most painful details, often with more or less conscious exaggeration. All the same his picture tells us nothing more than that some people are rich and some poor. But to know this, we do not need the report of people who have seen the suffering with their own eyes. Before they wrote we knew that Capitalism has not yet abolished all misery in the world. What they have to set about proving is that the number of wealthy people is decreasing, while the wealthy individual grows richer, and that the number and the poverty of the poor is steadily on the increase. It would, however, take a theory of economic evolution to prove this. Attempts to demonstrate by statistical research the progressive increase of the misery of the masses and the growth of wealth among a numerically diminishing rich class are no better than these mere appeals to emotion. The estimates of money incomes at the disposal of statistical inquiry are unusable because the purchasing power of money alters. This fact alone is enough to show that we lack any basis for comparing arithmetically the distribution of income over a number of years. For where it is not possible to reduce to a common denominator the various goods and services of which incomes are composed, one cannot form any series for historical comparison from known statistics of income and capital. The attention of sociologists is often drawn to the fact that mercantile and industrial wealth, that is, wealth not invested in land and mining property, seldom maintains itself in one family for a long period. The bourgeois families rise steadily from poverty to wealth, sometimes so quickly that a man who has been in want a few years previously becomes one of the richest of his time. The history of modern fortunes is full of stories of beggar boys who have made themselves millionaires. Little is said of the decay of fortunes among the well-to-do. This does not usually take place so quickly as to strike the casual observer; closer examination, however, will reveal how unceasing the process is. Seldom does mercantile and industrial wealth maintain itself in one family for more than two or three generations, unless, by investment in land, it has ceased to be wealth of this nature.14 It becomes property in land, no longer used in the business of active acquisition. Fortunes invested in capital do not, as the naive economic philosophy of the common man imagines, represent eternal sources of income. That capital yields a profit, that it even maintains itself at all, is by no means a self-evident fact following a priori from the fact of its existence. The capital goods, of which capital is concretely composed, appear and disappear in production; in their place come other goods, ultimately consumption goods, out of the value of which the value of the capital mass must be reconstituted. This is possible only when the production has been successful, that is when it has produced more value than it absorbed. Not only profits of capital, but the reproduction of capital presupposes a successful process of production. The profits of capital and maintenance of capital are always the result of successful enterprise. If this enterprise falls, the investor loses not only the yield on the capital, but his original capital fund as well. One ought carefully to distinguish between produced means of production and the primary factors of production. In agriculture and forestry the original and indestructible forces of the soil are maintained even though production fails, for faulty management cannot dissipate them. They may become valueless through changes in demand, but they cannot lose their inherent capacity to yield produce. This is not so in manufacturing production. There everything can be lost, root and branch. Production must continually replenish capital. The individual capital goods which compose it have a limited life; the existence of capital is prolonged only by the manner in which the owner deliberately reinvests it in production. To own capital one must earn it afresh day by day. In the long run a capital fortune is not a source of income which can be enjoyed in idleness. To combat these arguments by pointing to the steady yield from "good" capital investments would be wrong. The point is that the investments must be "good," and to be that, they must be the result of successful speculation. Arithmetical jugglers have calculated the amount to which a penny, invested at compound interest at the time of Christ, would have grown by now. The result is so striking that one might very well ask why nobody was clever enough to reap a fortune this way. But quite apart from all the other obstacles to such a course of action, there is the crowning disability that to every capital investment is attached the risk of a total or partial loss of the original capital sum. This is true not only of the entrepreneur's investment, but also of the investment the capitalist makes in lending to the entrepreneur, for his investment naturally depends completely on the entrepreneur's. His risk is smaller, because the entrepreneur offers him as security that part of his own wealth which is outside the immediate undertaking, but qualitatively the two risks are the same. The moneylender too can, and often does, lose his wealth.15 An eternal capital investment is as non-existent as a secure one. Every capital investment is speculative; its success cannot be foreseen with absolute assurance. Not even the idea of an "eternal and secure" capital yield could have arisen if the concepts of capital investment had been taken from the sphere of business and capital enterprise. The ideas of eternity and security come from rents secured on landed property and from the related government securities. It corresponds to actual conditions when the law recognizes as trustee investments only those which are in land or in incomes secured on land or afforded by the State or by other public corporations. In capitalist enterprise there is no secure income and no security of wealth. It is obvious that an entail invested in enterprises outside agriculture, forestry, and mining would be senseless. If, then, capital sums do not grow of themselves, if for their maintenance alone, quite apart from their fructification and increase, successful speculation is constantly required, there can be no question whatever of a tendency for fortunes to grow bigger and bigger. Fortunes cannot grow; someone has to increase them.16 For this the successful activity of an entrepreneur is needed. The capital reproduces itself, bears fruit and increases only so long as a successful and lucky investment endures. The more rapid the change in economic environment the shorter the time in which an investment is to be considered as good. For the making of new investments, for reorganization of production, for innovations in technique, abilities are needed which only a few possess. If under exceptional circumstances these are inherited from generation to generation, the successors are able to maintain the wealth left by their ancestors, even perhaps to increase it, despite the fact that it may have been split up on inheritance. But if, as is generally the case, the heirs are not equal to the demands which life makes on an entrepreneur, the inherited wealth rapidly vanishes. When rich entrepreneurs wish to perpetuate their wealth in the family they take refuge in land. The descendants of the Fuggers and the Welsers17 live even today in considerable affluence, if not luxury, but they have long since ceased to be merchants and have transformed their wealth into landed property. They became members of the German nobility, differing in no way from other South German noble families. Numerous merchant families in other countries have undergone the same development; having become rich in trade and industry they have ceased to be merchants and entrepreneurs and have become landowners, not to increase their fortunes but to maintain them and transmit them to their children and their children's children. The families which did otherwise soon disappeared in obscure poverty. There are few banking families whose business has existed for a hundred years or more, and a closer glance at the affairs of these few will show that they are generally commercially active only in administering fortunes really invested in land and mines. There are no ancient fortunes which thrive in the sense that they continually increase. 4The Theory of Increasing PovertyThe theory of increasing poverty among the masses stands at the centre of Marxist thought as well as of older socialist doctrines. The accumulation of poverty parallels the accumulation of capital. It is the "antagonistic character of capitalist production" that "the accumulation of wealth at one pole" is simultaneously "accumulation of misery, work torture, slavery, ignorance, brutalization, and moral degeneracy at the other."18 This is the theory of the progressive increase in the absolute poverty of the masses. Based on nothing but the tortuous processes of an abstruse system of thought, it need occupy us all the less in that it is gradually receding into the background, even in the writings of orthodox Marxian disciples and the official programmes of the Social-Democratic parties. Even Kautsky, during the revisionism quarrel, was reduced to conceding that, according to all the facts, it was precisely in the most advanced capitalist countries that physical misery was on the decline, and that the working classes had a higher standard of life than fifty years ago.19 The Marxians still cling to the theory of increasing poverty purely on account of its propaganda value, and exploit it today just as much as during the youth of the now aged Party. But intellectually the theory of the relative growth of poverty, developed by Rodbertus, has replaced the theory of absolute growth. "Poverty," says Rodbertus, "is a social, that is, a relative, concept. Now, I maintain that the justifiable needs of the working classes, since these have attained a higher social position, have become considerably more numerous. It would be as wrong, now that they have attained this position, not to speak, even with unchanged wages, of a deterioration in their material condition as it would have been at an earlier stage when their wages fell, and they had not yet attained this position."20 This thought is derived entirely from the point of view of the State Socialist, which considers a raising of the workers' claims to be "justified" and assigns them a "higher position" in the social order. Against arbitrary judgments of this kind, no argument is possible. The Marxians have taken over the doctrine of the relative growth of poverty. "If in the course of evolution the grandson of a small master weaver, who had lived with his own journeymen, comes to inhabit a palatial, magnificently furnished villa, while the journeyman's grandson lives in lodgings, which though more comfortable, no doubt, than his grandfather's garret in the master weaver's house, yet serves to widen the social gulf between the two, then the journeyman's grandson will feel his poverty all the more for seeing the comforts that are within his employer's reach. His own position is better than his ancestor's, his standard of living has risen, but relatively his situation has become worse. Social misery becomes greater ... the workers relatively more wretched."21 Assuming that this were true, it would be no indictment against the capitalist system. If Capitalism improves the economic position all round, it is of secondary importance that it does not raise all to the same level. A social order is not bad simply because it helps one more than another. If I am doing better, what can it harm me that others are doing better still? Must one destroy Capitalism which better satisfies from day to day the wants of all people, merely because some individuals become rich and a few of them very rich? How, then, can it be asserted as "logically unassailable" that "a growth in the relative poverty of the masses ... must finally end in catastrophe."22 Kautsky tries to make his conception of the Marxian theory of increasing poverty different from that which emerges from an unprejudiced reading of Das Kapital. "The word poverty," he says, "may mean physical poverty, but it may also mean social poverty. In the first sense it is measured by man's physiological needs. These are indeed not everywhere and at all times the same, still they do not show differences nearly so great as the social needs, non-satisfaction of which produces social poverty."23 It is social poverty, says Kautsky, that Marx had in mind. Considering the clarity and precision of Marx's style this interpretation is a masterpiece of sophistry, and it was accordingly rejected by the revisionists. To the person who does not take Marx's words as revelation it may, indeed, be a matter of indifference whether the theory of increasing social poverty is contained in the first volume of Das Kapital or is taken from Engels or was first put forward by the neo-Marxists. The important questions are whether it is tenable and what conclusions follow from it. Kautsky holds that the growth of poverty in the social sense is "attested by the bourgeoisie themselves, only they have given the matter a different name; they call it covetousness ... The decisive fact is that the contrast between the wage-earners' needs and the possibility of satisfying them out of wages, the contrast therefore between wage-earning and capital, is becoming greater and greater."24 Covetousness has always existed, however; it is no new phenomenon. We may even admit that it is more prevalent now than formerly; the general striving after improvement of economic position is a peculiarly characteristic mark of capitalist society. But how one can conclude from this that the capitalist order of society must necessarily change into the socialist, is inexplicable. The fact is, that the doctrine of increasing relative social poverty is nothing more than an attempt to give an economic justification to policies based on the resentment of the masses. Growing social poverty means merely growing envy.25 Mandeville and Hume, two of the greatest observers of human nature, have remarked that the intensity of envy depends on the distance between the envier and the envied. If the distance is great one does not compare oneself with the envied, and, in fact, no envy is felt. The smaller the distance, however, the greater the envy.26 Thus one can deduce from the growth of resentment in the masses that inequalities of income are diminishing. The increasing "covetousness" is not, as Kautsky thinks, a proof of the relative growth of poverty; on the contrary, it shows that the economic distance between the classes is becoming less and less. CHAPTER 26Monopoly and Its Effects1The Nature of Monopoly and its Significance for the Formation of PricesNo other part of economic theory has been so much misunderstood as the theory of monopoly. The mere mention of the word monopoly usually stirs up emotions which make clear judgment impossible and provokes, instead of economic arguments, the usual moral indignation evinced in etatistic and other anti-capitalist literature. Even in the United States the controversy raging over the trust problem has supplanted all impartial discussion of the problem of monopoly. The widespread view that the monopolist can fix prices at will, that—in common phrase—he can dictate prices, is as erroneous as the conclusion, derived from this view, that he has in his hands the power to do whatever he likes. This could only be the case if the commodity monopolized were, by its very essence, completely outside the range of other goods. A man who could monopolize the atmosphere or drinking water could undoubtedly force all other human beings to obey him blindly. Such a monopoly would be unhampered by any competing economic agency. The monopolist would be able to dispose freely of the lives and property of his fellowmen. Such monopolies, however, do not come under our theory of monopoly. Water and air are free goods, and where they are not free—as in the case of water on a mountain top—one can evade the effect of monopoly by moving to a different place. Perhaps the nearest approach to such a monopoly was the power to administer grace to believers, exercised by the medieval Church. Excommunication and interdict were no less terrible than death from thirst or suffocation. In a socialist community the State as organized society would form such a monopoly. All economic goods would be united in its hands and it would therefore be in a position to force the citizen to fulfil its commands, would in fact confront the individual with a choice between obedience and starvation. The only monopolies which concern us here are trade monopolies. They affect only economic goods which, however important and indispensable they may seem, do not of themselves exert any decisive power over human life. When a commodity of which a definite minimum is essential to everyone who wishes to go on living, falls under a monopoly, then indeed do all those consequences popularly assigned to monopolies inevitably follow. But we need not discuss this hypothesis. It is of no practical importance as it lies outside the range of economics, and therefore of price theory—except in the case of strikes in certain enterprises.27 A distinction between goods which are essential to life and those which are not, is sometimes made when the effects of monopoly are being considered. But these supposedly indispensable commodities are, strictly speaking, not what they seem. As the whole argument is based on the strict concept of indispensability, we have first of all to consider whether we have to deal with indispensability in the exact and full meaning of the word. Actually we can dispense with the commodities in question, either by renouncing the services we obtain from them or by procuring those services from some alternative commodity. Bread is certainly an important commodity. Yet one can live without it, by living on potatoes, cakes made from maize, and so on. Coal, so important today that it might be called the bread of industry, is not, in the strict sense of the word, indispensable, for power and heat can be produced without coal too. And this is all that matters. The concept "monopoly" which alone concerns us here is that contained in the theory of price monopoly and is the only one which contributes materially to an understanding of economic conditions; it does not demand that a monopolized commodity shall be indispensable, unique, and without substitute. It assumes only the absence of perfect competition on the side of supply.28 Such loose concepts of monopoly are, moreover, not merely inappropriate; they are also theoretically misleading. They lead to the supposition that price phenomena can be explained without further investigation by demonstrating a monopolistic condition. Having once laid it down that the monopolist "dictates" prices, that his attempt to raise prices as high as possible could only be restrained by a "power" influencing the market from outside, such theorists proceed to render the concept of monopoly so elastic as to include all commodities not increasable or only increasable with increasing costs. As this already comprises most price phenomena, they are able to avoid the necessity of working out a theory of prices themselves. As a result many come to speak of the monopoly ownership of land and believe that they have solved the problem of rent by pointing out that this monopolistic relation exists. Others go further and seek to explain interest, profit, and even wages as monopoly prices and monopoly profits. Quite apart from other defects in these "explanations," their authors fail to perceive that, while alleging that a monopoly exists, they say nothing at all about the nature of price formation and that therefore the catchword monopoly is no substitute for a properly developed theory of prices.29 The laws determining monopoly prices are the same as those which determine other prices. The monopolist cannot ask any price he fancies. The price offers with which he enters the market influence the attitude of the buyers. Demand expands or contracts according to the price he demands, and he has to reckon with this like any other seller. The one and only peculiarity of monopoly is that, assuming a certain shape for the demand curve, the maximum net profit lies at a higher price than would have been the case in competition between sellers.30 If we assume these conditions and if the monopolist cannot so discriminate as to exploit the purchasing power of each class of buyers, it pays him better to sell at the higher monopoly price than at the lower competitive price, even though sales are thereby diminished. Therefore, monopoly under such conditions has three results: the market price is higher, the profit is greater, both the quantity sold and the consumption are smaller than they would have been under free competition. The last of these results must be examined more closely. If there is more of the monopolized commodity than can be placed at the monopoly price the monopolist must lock up or destroy so many surplus units that the remainder may attain the price needed. Thus the Dutch East India Company, which monopolized the European coffee market in the seventeenth century, destroyed some of its stocks. Other monopolists have done likewise: the Greek Government, for instance, destroyed currants in order to raise the price. Economically only one verdict on these proceedings is possible: they diminish the stock of wealth which serves to satisfy needs, they reduce welfare, they diminish riches. That goods which could have satisfied wants, and foodstuffs which could have stilled the hunger of the many, should be destroyed is a state of things which the outraged populace and the discerning economist unite, for once, in condemning. Even in monopolistic undertakings, however, destruction of economic goods is rare. The far-sighted monopolist does not produce goods for the incinerator. If he wishes to place fewer goods on the market he takes steps to reduce his output. The problem of monopoly must be considered, not from the point of view of goods destroyed, but from that of production restricted. 2The Economic Effects of Isolated MonopoliesWhether the monopolist can exploit his position at all depends on the shape of the demand curve of the monopolized commodity and on the costs of producing the marginal unit of the commodity at the existing scale of production. Only when the conditions are such that the sale of a smaller quantity at higher prices yields a greater net profit than the sale of a larger quantity at lower prices, is it possible to apply the specific principle of monopolistic policy.31 But even then it is applied only if the monopolist fails to find a method of securing still higher profits. The monopolist serves his interests best if he can separate buyers into classes according to their purchasing power, for he can then exploit the purchasing power of each class separately and exact the highest prices from its members. Railways and other transport undertakings, which grade their tariffs according to what the traffic will bear are in this class. If, following the general method of monopolists, they treated all users of transport uniformly, those less able to pay would be excluded from transport and for those able to stand higher charges transport would be cheapened. The effect of this on the local distribution of industry is clear; amongst the factors determining the localization of individual industries the transport factor would make itself felt in a different way. In examining the economic effect of monopoly, we must limit investigation to the type which restricts the production of its commodity. Now the result of this restriction is not that less is produced quantitatively. Capital and labour, set free by the restriction of production, must find employment in other production. For in the long run in the free economy there is neither unemployed capital nor unemployed labour. Thus against the smaller production of the monopolized goods one must set the increased production of other goods. But these, of course, are less important goods, which would not have been produced and consumed if the more pressing demands for a larger quantity of the monopolized commodity could have been satisfied. The difference between the value of these goods and the higher value of the quantity of the monopolized commodity not produced represents the loss of welfare which the monopoly has inflicted on the national economy. Here private profit and social productivity are at variance. A social society under such circumstances would act differently from a capitalist society. It has sometimes been pointed out that although the monopoly can prove harmful to the consumer it might, on the other hand, be turned to his advantage. Monopoly could produce more cheaply because it eliminates all the expenses of competition and because, being adapted to large scale operations it enjoys all advantages of the division of labour. But this in no wise alters the fact that monopoly deflects production from more important products to less important ones. It may be as the defender of trusts is fond of repeating, that the monopolist, unable to increase his profit otherwise, endeavours to improve productive technique, but it is difficult to understand why the urge to this should be greater in him than in the competitive producer. Even if this be admitted, however, it does not alter what we have said about the social effects of monopoly. 3The Limits of Monopoly FormationThe possibility of monopolizing the market varies radically with different goods. Even the producer who is protected from competition need not necessarily be in a position to sell at monopoly prices and obtain monopoly profits. If the quantity sold falls so steeply with the rise of prices that the extra sum obtained does not cover the deficiency in the number sold, then the monopolist is forced to content himself with the price which would have emerged under competitive selling.32 Apart from the enjoyment of artificial support—the grant of special legal privileges, for example—we shall find that a monopoly can, as a rule, maintain itself only by the exclusive power to dispose of certain natural factors of production. Similar power over reproducible means of production does not as a rule allow permanent monopolization. New enterprises may always spring up. As already pointed out, the progressive division of labour tends towards a condition in which, at the highest specialization of production, everyone will be the sole producer of one or several articles. But this would by no means necessarily involve a monopolized market for all these articles. The attempts of manufacturers to extract monopoly prices would, apart from other circumstances, be checked by the appearance of new competitors. Experience of cartels and trusts during the last generation completely confirms this. All enduring monopolistic organizations are built up on the power of the monopoly to dispose of natural resources or of particular land sites. A man who tried to become a monopolist without the control of such resources—and without special legal aids such as tariffs, patents, etc.—had to resort to all sorts of tricks and artifices to secure even a temporary success. The complaints raised against cartels and trusts and investigated by the commissions of inquiry whose published records are so voluminous, deal almost exclusively with these tricks and practices, which aim at creating monopolies artificially where the conditions for them do not exist. Most cartels and trusts would never have been set up had not the governments created the necessary conditions by protectionist measures. Manufacturing and commercial monopolies owe their origin not to a tendency immanent in capitalist economy but to governmental interventionist policy directed against free trade and laisser-faire. Without the special power to dispose of natural resources, or of advantageously situated land, monopolies could arise only where the capital required to erect a competing enterprise was not able to count on an adequate return. A railway company can achieve a monopoly where it would not pay to build a competing line, the traffic being too small for two lines to be profitable. The same may be true in other cases. But while this shows that a few monopolies of this kind are possible it does not reveal a general tendency to their formation. The effect of such monopolies, e.g. the railway company or the electric power plant, is that the monopolist may be able, according to the circumstances of the case, to absorb a greater or smaller quantity of the ground rents of adjoining properties. The result of this may be a change in the distribution of income and property which is felt to be disagreeable—at least, by those directly affected. 4The Significance of Monopoly in Primary ProductionIn an economy based on private ownership in the means of production, specific primary production is the only field liable to monopolization without special protection from the State. Monopolies in certain branches of primary production are possible. Mining, in the widest sense of the word, is their true domain. Where today we have monopolistic structures which do not spring from government intervention, they are—a part from such instances as the railway company and the power works—almost exclusively organizations built up on a power to dispose of certain kinds of natural resources. These natural resources must be such as are found in relatively few places, for this alone makes the monopoly possible. A world monopoly of potato farmers or milk producers is unthinkable.33 Potatoes and milk, or at least substitutes for them, can be produced over the greater part of the earth's surface. World monopolies of oil, mercury, zinc, nickel, and other materials can occasionally be formed if the owners of the rare places where they exist can combine; examples of this are found in the history of recent years. When such a monopoly is formed the higher monopoly price replaces the competitive price. The income of mine owners rises, production and consumption of their product fall. A quantity of capital and labour which would otherwise have been active in this branch of production is diverted to other fields. If we consider the effects of monopoly from the standpoint of the separate branches of world economy we see only the rise in the monopolists' income and the corresponding decline in the income of all other branches. Considered, however, from the standpoint of world economy and subspecie aeternitatis (from the point of view of eternity), monopolies would appear to economize consumption of irreplaceable natural resources. People come to deal more thriftily with these precious resources when as in mining, the monopoly price occasionally replaces the competitive price and they are driven to do less digging and more working up. Since in every mine in operation nature's irreplaceable gift to man is being used up, the less we touch this stock the better we provide for the supply of coming generations. We see now what it means when people detect in monopoly a conflict between social productivity and private profit. True, a socialist community would have no occasion to restrict production as Capitalism does under monopolies, but this would only mean that Socialism would deal less thriftily with irreplaceable natural treasures, that it would sacrifice the future to the present. When we find that monopoly causes a conflict between profit and productivity which is not to be found anywhere else, we do not necessarily say that the effects of monopoly are pernicious. The naive assumption that the behavior of the socialist community—as typifying the idea of productivity—constitutes the Absolute Good is quite arbitrary. We have no standard on which to base a valid decision between what is good and what is evil in this context. If, then, we consider the effects of monopoly without being biased by popular writers on cartels and trusts, we can discover nothing which could justify the assertion that growing monopolization makes the capitalist system intolerable. The monopolist's scope in a capitalist economy free from state interference is much smaller than this type of writer commonly assumes; and the consequences of monopoly must be judged by other standards than the mere catchwords Price Dictation and the Rule of the Trust Magnates. PART IVSOCIALISM AS A MORAL IMPERATIVE[1. ]Marx, Das Kapital, Vol. I, pp. 726 ff. Publisher's Note: p. 837 in the English translation. [2. ]Marx, Das Kapital, Vol. I, pp. 728 ff. Publisher's Note: pp. 837 ff. in the English translation. [3. ]Ibid., p. 728. Publisher's Note: pp. 836-837 in the English translation. [4. ]Kautsky, Das Erfurter Programm, pp. 83 ff. [5. ]Wolf, Sozialismus und kapitalistische Gesellschaftsordnung (Stuttgart, 1892), pp. 149 ff. [6. ]Clark, Essentials of Economic Theory, pp. 374 ff., 397. [7. ]Report of the Sozialisierungskommission über die Frage der Sozialisierung des Kohlenbergbaus vom 31 Juli 1920 (Appendix: Vorläufiger Bericht vom 15 Februar 1919), op. cit., p. 32. [8. ]Vogelstein, "Die finanzielle Organisation der kapitalistischen Industrie und die Monopolbildungen," Grundriss der Sozialökonomik, Pt. VI (Tübingen, 1914), pp. 203 ff. Weiss, "Abnehmender Ertrag," Handwörterbuch der Staatswissenschaften, 4th ed., Vol. I, pp. 11 ff. [9. ]See Alfred Weber, "Industrielle Standortslehre," Grundriss der Sozialiökonomik, Pt. VI (Tübingen, 1914), pp. 54 ff. The remaining factors of localization can be passed over, as the present, or the historically transmitted, distribution of primary production ultimately determines them. [10. ]Micah, II, 2. [11. ]Isaiah, V, 8. [12. ]Schröder, Lehrbuch der deutschen Rechtsgeschichte, pp. 159 ff.; Dopsch, Wirtschaftliche und soziale Grundlagen der europäischen Kulturentwicklung, Part 2 (Vienna, 1920), pp. 289, 309 ff. [13. ]Michels, Die Verelendungstheorie (Leipzig, 1928), pp. 19 ff. [14. ]Hansen, Die drei Bevölkerungsstufen (Munich, 1889), pp. 181 ff. [15. ]This is quite apart from the effects of currency depreciation. [16. ]Considerant tries to prove the theory of concentration with a metaphor borrowed from mechanics: "Les capitaux suivent aujourd'hui sans contrepoids la loi de leur propre gravitation; c'est que, s'attirant en raison de leurs masses, les richesses sociales se concentrent de plus en plus entre ks mains des grands possesseurs." ("Capital today follows, without any opposing force, the law of its own magnetism. Capital attracts capital to itself, by mason of its very size. Social wealth is concentrated more and more in the hands of the largest owners.") Quoted by Tugan-Baranowsky, Der moderne Sozialismus in seiner geschichtlichen Entwicklung, p. 62. That is word play, nothing more. [17. ]The Fuggers and the Welsers were prominent, wealthy German families, descended respectively from Johannes Fugger, a successful weaver of the first half of the 19th century, and Bartholomeus Welser (d.1559), the head of a large banking and commercial firm (Pub.). [18. ]Marx, Das Kapital, Vol. I, p. 611. Publisher's Note: In the English Capital, Vol. I, pp. 736-737. [19. ]Kautsky, Bernstein und das Sozialdemokratische Programm (Stuttgart, 1899), p. 116. [20. ]Rodbertus, "Erster sozialer Brief an v. Kirchmann" (Ausgabe von Zeller, Zur Erkenntnis unserer staatwirtschaftlichen Zustände, 2nd ed. (Berlin, 1885), p. 273 n. [21. ]Herman Müller, Karl Marx und die Gewerkschaften (Berlin, 1918) pp. 82 ff. [22. ]As is done by Ballod, Der Zukunftsstaat, 2nd ed. (Stuttgart, 1919), p. 12. [23. ]Kautsky, Bernstein und das Sozialdemokratische Programm, p. ll6. [24. ]Ibid., p. 120. [25. ]Compare the remarks of Weitling, quoted in Sombart, Der proletarische Sozialismus (Jena, 1924), Vol. I, p. 106. [26. ]Hume, A Treatise of Human Nature, Philosophical Works, ed. Green and Grose (London, 1874), Vol. II, pp. 162 ff.; Mandeville, Bienenfabel, ed. Bobertag (Munich, 1914), p. 123. Publisher's Note: In English, Mandeville, The Fable of the Bees, ed. F. B. Kaye (Oxford University Press, 1924), pp. 135-136; Schatz, L'Individualisme économique et social (Paris, 1907), p. 73 n2, calls this an "idée fondamentale pour bien comprendre la cause profonde des antagonismes sociaux." ("Fundamental idea for a good understanding of the profound cause of social animosities.") [27. ]See p. 437. [28. ]As there cannot be any question here of giving a theory of monopoly price, the monopoly of supply alone is examined. [29. ]Ely, Monopolies and Trusts (New York, 1900), pp. 11 ff.; Vogelstein, "Die finanzielle Organisation der kapitalistischen Industrie und die Monopolbildungen" (op. cit., p. 231) too, and following him the German Socialization Commission (op. cit., pp. 31 ff.), start from a concept of monopoly which comes very close to the views criticized by Ely and generally abandoned by the price theory of modern science. [30. ]Carl Menger, Grundsätze der Volkswirtschaftslehre (Vienna, 1871), p. 195; further Forchheimer, "Theoretisches zum unvollständigen Monopole" (Schmoller's Jahrbuch XXXII), pp. 3 ff. Publisher's Note: In English, Menger, Principles of Economics, trans. and ed. James Dingwall and Bert F. Hoselitz (Glencoe, Illinois: The Free Press, 1950), pp. 211 ff. [31. ]Compare on this important principle the large literature on the monopoly price. For example, Wieser, "Theorie der gesellschaftlichen Wirtschaft," in Grundriss für Sozialökonomik, Part I (Tübingen, 1914), p. 276. [32. ]According to Wieser, ibid., this is "perhaps even the rule." [33. ]It is different, perhaps, with agricultural productions which flourish only on relatively restricted soils; for example, coffee growing. |