XV. Combines and Profits

CHAPTER XV COMBINES AND PROFITS No single term in the English language has been responsible for more political folly than the word combine, and very few words are less well under stood. What should be the attitude 6f the Individualist to trusts and combines, and all those reorganisations and amalgamations which are so popular in industry .to-day? That question brings out rather sharply the disadvantages of the word " Individualism" as indicating a philosophy or an economic point of view. The word suggests a single individual, and lays us open to the charge that we stand for the discredited doctrine of every man for himself and the Devil take the hindmost. Individualism does sound as if we mean that every single person should be an independent unit, and that any form of com bination or collective action is to be deprecated. The attitude of the Socialists towards trusts and combines is, as might be expected, illogical and double-faced. They try to get the best of both worlds and make use of combines to support argu ments in favour of two opposite conclusions. On the one hand, they will wax eloquent against com binations of capitalists who through money-power force their will on the community and serve their own sordid ends. On the other hand, they are fre quently found arguing, and this is perhaps at the moment the more popular Socialist line, that as industry is developing into big units the State should proceed to continue that heaven-sent process 172 Combines and Pro fits 173 and put the. whole of industry into big groups con trolled by the State, instead of by financiers.

As so often happens in these big public questions, we are left without any agreed definition of terms, and I have yet to discover what we generally mean when we use the word " combine, " or what is con veyed by the term "trust." In our loose conver sation we use both these words to describe any big concern without· bothering to notice that bigness may serve to mark totally different characteristics. We talk of the tobacco combine, and everyone will admit that the Post Office is a trust, and yet there is practically no shred of similarity in the organisa tjon, the practice, the fabric or the construction of these two great institutions. The Post Office is both a combine and a trust. It contains all the powers and all the evils of a monopoly, and in addition all the powers which are showered upon it by the legislature, and which are not, of course, available for use by the ordinary financial or economic combine. The Post Office gives exactly what service it likes, it dictates its own prices, and, furthermore,it forbids others to offer any competition, and, worst of all, it is com pletely and absolutely independent of the necessity to make a profit. It does happen to make a profit in some of its departments, but there is nothing in its constitution which imposes upon it the necessity to do anything of the kind. There is within it no inherent obligation to give satisfaction to its customers, and with its Parliamentary backing it is 174 The Return to Laisser Faire able to extort revenues in respect of work which it never performs.

The best illustration of this is the number of letters which, for rapid expedition, are sent through the railway companies, and which have by law to bear Post Office stamps, although the Post Office never sees them. We can freely admit, without in any way impairing our argument, that notwithstand ing all these theoretical blemishes the Post Office does work well on the whole. It may be that as there is no alternative we have accustomed our selves to -Post Office methods, just as perforce we have to accustom ourselves to the Engish climate; there is nothing else that we can do, and nobody seriously suggests that the service of the Post Office should be undertaken by private enterprise. In considering the Post Office it should not be overlooked that the work it does is not analogous to the work of an industry. A good many people go off the rails on this simple point. The Post Office is correctly described as a public utility institution.

It produces nothing, it manufactures nothing, it delivers no tangible values in the service which it renders; it is, in fact, a distributing service and not a trade. To understand the difference between a public institution like this and an individualistic trading enterprise, whatever its size and however completely it fills its field, it is only necessary to take a simple example. ' Suppose, for instance, that a great and powerful institution like The Daily Telegraph were put into the position and given the status and the backing Combines and Pro fits 175 of the Post Office, things would be so arranged that nobody would be allowed to know the bank rate or the price of Consols, except through the pages of The Daily Telegraph. It would be ordered that admission to a theatre was only possible on presenta tion of the coupon taken out of the Drama Page in th~ same newspaper. It would be an offence to read the Prime Minister's speech without first pay ing twopence to the proprietors of The Daily Tele graph, whether you read the speech in that paper or not. These far-fetched suggestions, in every way comparable to the conditions under which the Post Office works, demonstrate the stupidity of quoting the latter as an illustration of what industry might be. I cannot conceive of the most bigoted Socialist holding up any newspaper in such conditions as a model of industrial enterprise.

Individualism and Collectivism in industry are not questions of size. The largest undertaking can be individualistic and quite a small undertaking can be Collectivist in character. The difference, in deed, is entirely a question of the principles on which the undertaking is constructed, and those principles are seen most clearly if we study the undertaking in its relation to the customers or the consumers. In the case of the Post Office the con sumer is tied hand and foot. He has no oppor tunity to avail himself of any alternative, no choice, no preference, no option of any sort, kind, or descri ption. Perhaps the most wonderful example of In dividualist effort in the world is an institution quite 176 The Retufn to Laisser Faire as large as our own Post Office-the Meat Trust of Chicago. The Chicago meat packer is not an illus tration of the blessings of Individualism and free dom which will make·any wide appeal to any section of the British public,but for·that reason it is perhaps all the better as an example, because nobody in this country at least can be suspected of any personal bias or prejudice on behalf of this particular foreign institution.

The Meat Trust of Chicago shows how organisa tion and amalgamation and big finance can be made to work to the benefit of the whole human race. It is to the operations of these people that we owe our habits as a meat-eating people. There was a time, even in England with all its luxuriant pasture and with a very small population, when the bulk of us only had a mouthful of meat to celebrate a birthday, or at best on Sundays. The labouring classes of three generations ago had to perform their strenuous duty without the assistance of the nourishment which they now derive from plentiful supplies of meat. But the Meat Trust is no monopoly, and can never be anything in the nature of a monopoly. The marvellous achievements of the Chicago pork packer have been made in competition with· every cottager and every farmer in the whole world. Any reader who has experience of pig-keeping .will con firm this fact. When we consider that the pig in Kent or Essex may be fed for almost nothing on the refuse of the house or garden, and that even so bacon from that pig cannot be marketed in the Combines and Pro fits 177 village where it lived at as low a price as prime bacon which has travelled all the way from Chicago, the marvels of the Meat Trust cannot fail to win our admiration and, indeed, our thanks.

The truth is, of course, that the meat people, in competition with the whole world, actually sell meat at less than the cost of production, and by the appli cation of science and machinery and organisation to the business on a big scale are able to turn their losses into huge profits by the skilful marketing of by-products, which can only be retrieved owing to their large-scale operations. It used to be said that the stock yards of Chicago used up everything about a pig except its squeak, but it is doubtful whether that is not now an under-statement. I under stand that the intestines of even the pig have been brought to the service of the musical-instrument trade, and it helps me to understand the technicali ties of the popular jazz when I consider that its economic basis may be the squeak which had hitherto escaped the capabilities of the pork packers! Some people get· on their hind legs and talk wildly about combines as soon as they see a profit which runs into any figures worth mentioning.

These' are the people who accept the Marxian false hood, and believe that the price of an article is the "cost plus the profit," a folly all too prevalent amongst us. Most of the big profits which form the subject of speeches on the iniquity of trusts and combines are quite definitely profits made out of economy, as shown in the case of the meat trade. Indeed, the best definition of profit that I know, and 12 178 The Return to Laisser Faire the one ~hat most correctly describes those big pro fits which are the subject of so much criticism, is " commission on economy. " The ignorance of the general public on this ques~ tion of profit is one of those fundamental troubles which make it so hard to get sane economic arrange ments into public affairs. An indolent industry full of old-fashioned, lazy, out of date peo'ple may make a 20 per cent. profit onits turnover, using its capital only once in two years, and thus disclose a profit or dividend of 10 per cent. upon its shares.. Such an industry, although it may be robbing the publi.c, will pass without comment or criticism and will never be the subject of any abuse. Alongside there may be an enterprising industry which with push and go is content to take a 5 per cent. profit on its turnover, but uses its capital five times in the course of the year, and thus discloses a 25 percent. dividend on the capital invested. The consumer is, of course, infinitely better off in the latter case than in the former, and yet the 25 per cent. will be sure to bring howls of indignation and long stories about trusts and combines.

No question is more in need of study and debate than this one of profits. The word itself has come to be regarded as having an immoral meaning, the profiteer is quite definitely a criminal, and the maker of any sort of profit is looked upon as a doubtful character. It is important to notice that this state of mind is peculiarly English. Dislike of profits and limitation of output, "ca' canny," are two of our own economic specialities neither of which is to Combines and Pro fits 179 be found to so serious an extent elsewhere. There is something about a profit which seems to cause us a peculiar mental irritation. If we talk of beef, we seldom mention quantity or quality, we are not in terested in its uses or its influence on human life and health, we know little about it and care less. But the mere mention of beef to any dozen English men or women will be certain to lead straight to a violent railing against the beef packers' profits. If soap is talked about at all, nobody bothers to dis cuss the advantage which this generation enjoys in having twice as much soap as its fathers had, but the conversation is sure to produce an expression of dissatisfaction at Lever's millions. This ingrained antipathy to profits goes right through society and is perhaps most noticeable where it should least be expected.

Of what is profit composed? How does it arise? Where does it come from? If analyzed, it will be seen to consist of three ingredients: (I) the earnings of management, (2) interest on capital, (3) an in surance premium for the risk undertaken. Now each of these ingredients is accepted without ques tion in every walk of life: nobody suggests that any one of them is immoral, yet when they are lumped together and called profit, we are asked to believe that they constitute an evil which is responsible for the ills with which Society is afflicted, and that in the new world which the doctrinaires will create, profit will find no place. We human beings are funny creatures; we are liable to feel a certain irritation at the thought of 180 The Return to Laisser Faire another making a profit out of us. We must have our little grumble or else we do not really enjoy ourselves; but to turn that feeling into a great political movement may be, and is, a very danger ous thing to do.

Profits can be made in two ways, either by adding to the selling price or by reducing the costs of pro duction. Additions to the selling price can only be made when there is scarcity, and the present habit of the world in the direction of developing scarcity, limiting production and restricting exchange is creating innumerable opportunities for profiteers to add to prices. Every act which tends to discourage production by anybody swells profits. It is pathetic to the student of these matters to see the labouring classes deceived, by people who ought to know better, into believing that they can improve wages by limiting production. Exactly the reverse is the case; but it is the fact that every such limi~a tion adds to the chances of profit. Profits in the bulk-the best profits, normal profits, and the profits Qf times of prosperity-are made by reducing costs, a process which, once begun, generally im proves money wages and always improves "real "

wages. The whole tribe of economists, from the earliest times, have never been able to suggest an alternative to profits as a cost reducer. Profit is really the cheapest thing we have; it is the most powerful agent for economy that we yet know. Industry exists to supply the goods; there is no other reason or excuse for it. The test of a good Combines and Profits 181 industry is a very simple one. simple things: Does it do four I. Pay adequate wages. 2. Produce maximum quantities of appropriate quality. 3. Charge minimum prices. 4-Produce enough profit to tempt more capital into the business. An individualistic industry established on an independent, free, and competitive basis, if success ful, always stands this test, and it does not matter whether it is a combine or a trust, or even a monopoly, if those four conditions are respected. There is no advantage to the public in having a lot of little people making a given article if one big concern can make that article more economically; but we can never know, never be sure, that that condition is fulfilled unless there is all the time com plete and absolute liberty for the little man to start up on his own in competition.

An individualistic enterprise, as distinguished from a socialist institution like the Post Office, is subject to two oppressive and exacting conditions which, if allowed to remain, must keep the enter prise healthy and useful. The first condition is that every penny which goes into its coffers is freely provided by consumers who have no compulsion upon them to use the commodity or product, and the other and complementary condition is that the con. sumers are free to go elsewhere, and other producers are free to enter the market. None of these con ditions applies to the Post Office; none of them would be applied to a nationalised mining industry, 182 The Return to Laisser Faire and not one of them is compatible with the theory of Socialism. A good deal of misapprehension exists on the' question of size. It is far too commonly assumed that if only an institution can be big it must be good, and thus there are a number of words freely used to-day which are regarded by some people as almost sacred and always helpful. Such words are" orga nise," "co-ordinate," "amalgamate" and "co operate." It does become necessary, therefore, to enter a caveat against this loose assumption to which so many people jump so readily.

There is a very definite limit in every· industry to the advantages secured from size. That limit varies from industry to industry. I can well believe that with simple commodities like soap or cotton it is possible to go on adding to the size of a business without impairing its efficiency, and without adding to its cost. But that is not true when more compli cated trades are considered, such, for instance, as engineering, or printing, or ship-building. In each of these cases the product is so varied, the condi tions are so complicated, the application of personal skill to detail is so essential, that there is a very definite limit beyond which size becomes an extrava gance and not an economy. Size, in the hands of the professional bureaucrat, is, as we have seen in some previous chapters, a definite danger and a heavy expense. Big busi ness is bad enough in its tendency to develop red tape, but to the bureaucratic method red tape is essential. In big business it is possible to allow to Combines and Profits individuals the liberty to act upon their own, to make mistakes and occasionally to act in defiance of the principles which govern the concern as a whole, but such liberty can never be given to bureaucrats or to Government institutions. Public money and public affairs must always be conducted with such strict regard for rule and regulation, principle and order as to incur inevitably enormous expense and inordinate delay.

If our needs were supplied by a number of in dividualistic combinations it would at least be pos sible for the boot trade to work with a single eye to the efficient production of boots, and the coal trade to work with the sole aim of producing coal in the most convenient manner, but the moment that these institutions are brought under public or Government control then they must perforce work to the rules and regulations and observe the obliga tions which are common to public affairs. In this way alone vast additions are made to the cost of anything which comes under the hand of the bureau crat, and in this way alone it can be shown that the Government could never provide, at any cost which any people could pay, sufficient quantities of com modities to keep us in a state of civilisation. The real test, therefore, of an industry or service, the real difference between a Collectivist institution and the Individualist method, is to be found by applying the twin tests of service and freedom. If the industry is dependent for its well-being, and the well-being and comfort of all who work in it, upon the good opinion of the consumers, then it is a sound 184 The Return to Laisser Faire Individualist industry. If there is complete free dom for anybody to enter the market on the one hand, or for any consumer to leave it on the other, then it does not matter how big is the combine which is operating in the market, or how small is the unit of production. If the producer is under an obliga tion to serve and the market is free, there is no ques tion at all of combines or trusts, as those words are commonly used.