CHAPTER IV
The Era of Free Competition

BY a concourse of historical accidents, both the origins of the Machine Industry and the principles of Natural Right were first worked out in England.¹ Between them, these two factors of modern civilisation gave rise to that Competitive System that governed the conduct of industry through much of the nineteenth century and that has continued to dominate the speculations of the economists and the make-believe of the statesmen since that time.

In England, and in the other countries into which the mechanistic technology was then finding its way, the half or three-quarters century which saw the introduction of the machine industry was a period of extraordinary activity coupled with profound changes in the economic order.^1a. It comprised the interval during which competition, as near as may be, has run free in recent times ; and it is also the period during which investment for a profit established itself in civilised law and custom as the staple manner of ownership and control in industry. So also the latterday forms and uses of credit took settled shape and entered on their dominion in industrial business during the same period. Before that time indebtedness had been an ominous incumbrance, to be “lifted” as soon as might be. During this period indebtedness came into its own, as a staple means of gain for the debtor and an indispensable recourse in the ordinary conduct of business.

In effect, the Captain of Industry, too, emerged and grew into an institution in that time. In the course of these half-a-dozen decades or so the Captain of Industry —that is to say the absentee owner and controller of industrial equipment and resources—comes gradually into the foreground in the world of affairs and presently becomes the center of attention and deference as well as of policy and intrigue in all that concerns the ordinary conduct of affairs, political, civil, social, ecclesiastical. It is the era of personal business enterprise carried on under the immunities of impersonal investment. The course of things in that time inducted the Captain of Industry, the Substantial Business Man, into the Seats of the Mighty, where he presently took precedence of the Absentee Landlord and the Merchant Prince, who had recently been his betters.

It is not that Commercial Enterprise or the Landed Interest lost ground in any positive sense during that era of new growth ; but only that .investment in the mechanical industries and in the trade which served the needs of those industries then became profitable and consequential beyond the rest; so that the industrial investments, and the captains of industry who were the personal upshot of such investments, presently outgrew those others who had ruled the road and set the pace of law and custom, usage and morals, before that time. During that era of new growth the civilised nations swiftly shifted to the ground of business interest and businesslike incentives in all that was to be done or to be left undone. Those nations that first felt the driving force of the new industry led the others in this new move; but those other nations that made the transition to the mechanical technology at a later date also took to the same business-man’s policy and came in for the same range of businesslike ideals in the conduct of their civil and political affairs at a correspondingly later date. The case of Germany or of Japan shows this concomitance in a particularly suggestive way.

Enhanced income from investments became the paramount incentive of civilised life; and the Captain of Industry—the substantial citizen who controlled much of the nation’s workmanship and so came in for a largely enhanced income—became the paramount exponent of the community’s aims and ideals as well as the standard container of all the civic virtues. Chief among these civic virtues was a steadfast cupidity,—as has already been noted in an earlier passage,—the steadfast spirit of business enterprise, of getting a safe margin of something for nothing at the cost of any whom it may concern. Nassau Senior about the middle of the nineteenth century explained that this is “The Natural State of Man,” ² as being that state of commercial felicity for which by a happy destiny mankind have been brought out upon the surface of this planet and placed under the governance of certain beneficent natural laws leading to this eventual consummation.

The coming of the new industry brought also certain secondary but very substantial consequences. As contrasted with what had gone before, the new industrial system dominated by the mechanistic technology, was highly productive; increasingly so as the mechanistic technology advanced and extended its range. Yet during all that period which can properly be called the era of free competition the industrial system never reached such a pitch of efficiency that it could properly be called inordinately productive; that is to say, production was not at that time continually in danger of outrunning the capacity of the market. In the ordinary lines of industry it was not at that time necessary constantly to restrict the output in order to maintain prices at a reasonably profitable level. Therefore that period—say, loosely, down to the middle of the nineteenth century—was, by and large, a period of free competitive production and increasing output, in England and in the English-speaking countries.

An immediate consequence of the increased rate of production was an increasing growth of the underlying population. At the same time the overseas trade was greatly stimulated; partly by the large output of marketable goods; partly by the direct effect which the new technology had on ship-building and navigation ; and partly also by the fact that the new industrial arts made use of a constantly increasing amount and variety of new materials, many of which were brought from overseas. In the nature of things the new industrial system was bound to disregard national frontiers, both for the resources on which it drew and for the markets which it was fit to supply. So that free trade both in industrial materials and in marketable goods became an obvious foregone conclusion so soon as the new industry had got well under way. It is true, then as ever, national jealousies favored restrictions on trade, and business considerations—that is to say considerations of private gain for special interests—then and since then have decided against free trade, here and there from time to time. But it has been obviously and increasingly true that productive industry of the new order is always best served by an unrestricted exchange of goods and resources. Business considerations may call for obstruction of trade ; technological considerations do not.

The growth of population and the growing extension of trade into foreign parts afforded an outlet for an ever increasing production of goods, at reasonably profitable prices, that is to say at increasingly profitable prices. So that business considerations during that time called for no vigilant restriction of output, on the whole; and the sagacity of the captains of industry was therefore habitually directed to a cheap and large output of goods rather than to a vigilant sabotage on production with a view to enhanced prices in a restricted market. The dominant note of ordinary industrial business was not then a carefully balanced sabotage on production, as has since then gradually come to be the case, but rather a rapaciously thrifty cost of production of an increased volume of output to be sold in a virtually unlimited market, at competitive prices, that were made profitable by low cost. It is true that, increasingly toward the close of that period, businesslike sabotage on production also comes to be habitual, so that industrial business enterprise takes on more of its later and maturer character of watchful waiting; but during the era of free competition it is, after all, the habitual drift of sound business practice to find a margin of gain in an increased output at a reduced cost, at the cost of the underlying population, by the help of improved processes and by work on a larger scale.

If the era of free competition be considered to have closed somewhere toward the middle of the nineteenth century, it may be said that during that period of some six or eight decades there was no very substantial addition to the range of materials commonly made use of in industry, and no very appreciable innovations were made in the nature of the processes commonly employed. The advance of the industrial arts in that time, although very substantial, consisted mainly in the further elaboration and refinement of the mechanical processes which were already in use, and the more extensive and diversified use of materials already in familiar use. Electricity, petroleum, and rubber had no share in industry then, and even that extensive use of structural iron and steel that has characterised the later age was still in its beginnings. Industrial chemistry was but a slight and inconspicuous matter, and the industrial uses of the rarer metals were still unknown. It is during the third quarter of the century that these things begin practically to edge their way into the everyday scheme of organised workmanship and become incorporated into the industrial system. The industrial system, the state of the industrial arts, as it stood before that date was complete without these things ; since that time, since their invention has made them necessary, industry can not do without these things; and in that degree a new order has come into effect in industry.

But while little was added to the kind and variety of raw materials employed, the consumption of the staple raw materials already in use increased greatly and continually. This fact, coupled with a continually increasing consumption of goods, led to an enhanced market value of all those natural resources which were commonly drawn on in that time. So that many a fortune, great or small, was amassed during that period by the simple expedient of “sitting tight.” while the market values of agricultural and urban lands, timber lands, and lands underlaid with mineral deposits, were gradually being bidden up by the increasing volume of industrial uses and the increasingly urgent needs of an ever larger underlying population. The new values which so were added to the country’s riches were created by the advancing state of the industrial arts, but the new wealth which so came into being was added to the possessions of those absentee owners who were seized and possessed of these tangible properties.

The same process of creating tangible wealth by an extension of industrial uses has, of course, gone on unremittingly since then, and indeed it has gone forward all the while at an accelerated rate ; and all the while the increase has by settled law and custom continued to be added to the possessions of absentee owners who have had no part in that advance of the industrial arts by which the new wealth has been created. The case of the mineral lands in America and the other Colonies will come to mind ; and the case of urban lands is well shown, e. g., by real-estate values on the island of Manhattan.³

England, and the other civilised nations in a lesser degree, came through this initial phase of the existing industrial situation with a greatly heightened industrial efficiency, a great and steadily growing number of gentlemen-investors, a steadily increasing population, and a large increase of material wealth. On the political side, this era of free competition laid the foundations of the British Empire. National wealth increased greatly, the kept classes made a notable growth in numbers and in the conspicuous consumption of superfluities, while the underlying population steadily fell into arrears, underfed and underbred in an ever more pronounced fashion as this era of free competition ran its course and brought the community nearer to Senior’s “Natural State of Man”.

Opinions will differ as regards the date at which the era of free competition closed, and there also are those who will say that it has not closed yet, that competitive production still dominates the market and still gives its character to the industrial system as it runs today. There is, in fact, much to be said for this latter view, and indeed much is said for it by those who wish to believe. Free competition still stands over as the popular ideal to which trade and production ought to conform; and in the nature of things it is distasteful to believe that the ideal state of things is already an irretrievably past phase of the state of things. And there is much to be said by those who believe that the competitive system still stands over in the main, and that it can be reinstated in full and intact by taking reasonable measures to that end.

But the question here is not what evidence and arguments might without violence to the facts in the case be written into a brief in advocacy of the competitive system, as being the only good and natural plan. The question here is wholly as to the run of the facts, for better or worse; and this reduces itself to a question as to the approximate date beyond which it seems reasonable to say that, on the whole, the rule of free competition ceased to govern productive industry and the market for the product of such industry. And this is in some degree a matter of opinion; although it seems reasonable, on the whole, to say that such a change in the industrial situation becomes effective sometime around the middle of the nineteenth century.

It is not that competition ceased abruptly at that date, whether in trade or in industry, or even that it ceased at all. It is only that in so far as touches the industrial situation as a whole the incidence of this competition has changed in such a way that the resulting situation can no longer be spoken of as a competitive system in anything like the sense in which that term has commonly been employed. But even so, there still are large and highly important divisions of productive industry within which competitive production still runs on according to the ancient plan. Such are, e. g., agriculture, as well as many of the minor lines of production which have not been made over on the pattern of the machine industry.

The competitive system has been dying at the top. Free competitive production has ceased to be the rule in what are sometimes called the “key industries”; those lines of production on whose output of goods or services the continued working of the industrial system as a whole depends from day to day. These are at the same time the lines of work in which the machine technology has been chiefly brought into effectual use, as well as the lines of production on which all the industrial arts chiefly draw for power, materials and equipment ; as, e. g., coal, steel, oil, transportation, and structural work.

The competitive system has been dying at the top, and the decay has been spreading outwards and downwards as fast and as far as the other and lower branches of the industry have been sufficiently brought into line with the mechanical technology and so have become fit material for absentee ownership and control; that is to say, fit to be profitably managed on business principles. In great part this decay of the old-fashioned competitive system has consisted in a substitution of competitive selling in the place of that competitive production of goods that is always presumed to be the chief and most serviceable feature of the competitive system. That is to say, it has been a substitution of salesmanship in the place of workmanship ; as would be due to happen so soon as business came to take precedence of industry, salesmanship being a matter of business, not of industry ; and business being a matter of salesmanship, not of workmanship. That is to say in other words, competition as it runs under the rule of this decayed competitive system is chiefly competition between the business concerns that control production, on the one side, and the consuming public on the other side; the chief expedients in this businesslike competition being salesmanship and sabotage. Salesmanship in this connection means little else than prevarication, and sabotage means a businesslike curtailment of output.

Of course, neither salesmanlike prevarication nor businesslike curtailment of output are new inventions of the Victorian age. Both are as old as commercial enterprise. But during Victorian times things took such a turn as to throw these expedients of commercial business into the foremost place among the principles which -have guided business men in their control of industry. What has been taking place is after all only a change in degree, but it is a change in degree of such magnitude as to create a change in kind.

As has already been indicated in earlier passages, this turn of things that so brought on a new order of competition and put the old-fashioned competitive system in abeyance, turns in the main on three peculiar features of the situation as it developed during the early half of the nineteenth century: (a) by a fuller development of the mechanistic technology industry was becoming excessively productive—beyond the current needs of business; (b) because of this fact and because the territorial expansion of the available market had then virtually reached its limits, the supply of industrial products had overtaken the demand; (c) there was a large and increasing use of credit, which in great part took the form of investment in corporation securities. Each of these causes worked toward the same outcome, and it would be difficult to say which of them is to be credited with the greater share in the outcome. They have all persisted in later times, and they still go to make up the situation in which the industrial system is placed. It might readily be made to appear that the use of credit has proved the more consequential of these causes that have converged to create the existing situation in industry, but it would likewise appear that this use of credit would presumably have had no such effect in the absence of an inordinately productive state of the industrial arts. Before this turn in human affairs thoughtful men were asking if business is good for industry, since then the engrossing question is whether industry is good for business.⁴

Seen in the historical perspective of today the era of free competition that so drew to a lingering close in early or middle Victorian times has the appearance of a period of transition, or in some respects even a period of beginnings and pioneering, especially as regards the conduct of business and the businesslike control of industry; although, of course, it had no such appearance in the eyes of those who saw it all at the time.⁵ As has already been remarked in an earlier passage, during the earlier decades that followed the Industrial Revolution the new mechanical industries were habitually conducted on a relatively small scale on a basis of self-ownership, with credit relations playing a subsidiary and essentially transient part, and by owners who exercised a personal supervision of the works from day to day and dealt with their hired workmen on something of a personal footing. In the typical case, the organisation and management had, on the whole, a good deal of an air of personal contact and personal understandings, both in its business transactions and in its direction of the work in hand. The business concern, which in the typical case was the same as the industrial manager, would commonly consist of a single man, with more or less workmanlike knowledge and experience, such as would make him a reasonably competent foreman of the works; or it was a private firm, in the nature of a partnership which included such a person. From this type-form there were many departures in practice, transiently or permanently. But through it all ran a visible presumption of self-help, personal initiative, and avoidance of debt. Aside from book accounts, the credit relations of this typical industrial concern would be slight and presumptively ephemeral.

In the course of the period in question, and as a major factor in bringing it to a close, business practice so far departed from this early footing of individual self-help that the prevalent form of industrial business concern presently came to be a more or less unwieldy partnership, commonly including silent or “sleeping” partners, rather than an individual employer-owner. And while the partnerships increased in size and number an increasing proportion of them also took on the corporate form of joint-stock companies or were replaced by chartered companies, impersonal corporations with limited liability.⁶

1: This does not overlook or question that tortuous documentary pedigree which legal learning has been at pains to find for the system of Natural Rights. It is not intended to cloud the priorities of the jus naturale or the jus gentium or Time Immemorial. It applies only de facto, not de jure. It is intended to speak only of the effectual emergence and diffusion of those habits of thought that have made the principles of Natural Liberty an effectual factor in the shaping of law and custom in recent times. And in this matter it was the fortune of the English-speaking people to take the lead; not by virtue of any peculiar gifts of character or insight, but only because of the accidental fact that the Industrial Revolution first took effect in that country; which, in its turn, was due to the partial isolation of the Island from the rest of Europe.

1a: Cf., e.g., L. C. A. Knowles, The Industrial and Commercial Revolutions in Great Britain during the Nineteenth Century.

2: Senior, Political Economy, 5th ed. p. 85.

3: The holdings of Trinity Church may serve as an instance of unobstructed and unabashed absentee ownership at the cost of the community.

4: The answer to both questions appears to be that business may be good for industry and industry may be good for business if not used to excess and not allowed to form a habit.

5: So, e. g., to Nassau Senior that phase of commercialised industrial enterprise was the terminus ad quern, the “Natural State of Man”; and Senior is an eminently competent spokesman of his time.

6: This rapidly growing resort to incorporation presently led, in the English case, to the Companies Acts, in the fifties; and this may be taken as a convenient date to mark the transition from the earlier to a later phase of modern business organisation. By chance, perhaps, this coming of new things in business methods coincides somewhat closely in point of dates with the beginnings of certain new things in technology which have had far-reaching consequences for the later industrial system, very much as these new things in business which came on during the middle half of the nineteenth century have proved to be the beginnings of greater things in business.