Monopolistic Practices

On the other hand, enterprise would in most cases be impossible if it were not known from the outset that exceptionally favorable situations are likely to arise which if exploited by price, quality and quantity manipulation will produce profits adequate to tide over exceptionally unfavorable situations provided these are similarly managed Again this requires strategy that in the short run is often restrictive. In the majority of successful cases this strategy just manages to serve its purpose.

In some cases, however, it is so successful as to yield profits far above what is necessary in order to induce the corresponding investment. These cases then provide the baits that lure capital on to untried trails. Their presence explains in part how it is possible for so large a section of the capitalist world to work for nothing: in the midst of the prosperous twenties just about half of the business corporations in the United States were run at a loss, at zero profits, or at profits which, if they had been foreseen, would have been inadequate to call forth the effort and expenditure involved.

Our argument however extends beyond the cases of new concerns, methods and industries. Old concerns and established industries, whether or not directly attacked, still live in the perennial gale. Situations emerge in the process of creative destruction in which many firms may have to perish that nevertheless would be able to live on vigorously and usefully if they could weather a particular storm.

Short of such general crises or depressions, sectional situations arise in which the rapid change of data that is characteristic of that process so disorganizes an industry for the time being as to inflict functionless losses and to create avoidable unemployment. Finally, there is certainly no point in trying to conserve obsolescent industries indefinitely; but there is point in trying to avoid their coming down with a crash and in attempting to turn a rout, which may become a center of cumulative depressive effects, into orderly retreat. Correspondingly there is, in the case of industries that have sown their wild oats but are still gaining and not losing ground, such a thing as orderly advance. 5

5 A good example illustrative of this point—in fact of much of our general argument—is the postwar history of the automobile and the rayon industry. The first illustrates very well the nature and value of what we might call “edited” competition. The bonanza time was over by about 1916. A host of firms nevertheless crowded into the industry afterwards, most of which were eliminated by 1925. From a fierce life and death struggle three concerns emerged that by now account for over 80 per cent of total sales. They are under competitive pressure inasmuch as, in spite of the advantages of an established position, an elaborate sales and service organization and so on, any failure to keep up and improve the quality of their products or any attempt at monopolistic combination would call in new competitors. Among themselves, the three concerns behave in a way which should be called corespective rather than competitive: they refrain from certain aggressive devices (which, by the way, would also be absent in perfect competition); they keep up with each other and in doing so play for points at the frontiers. This

All this is of course nothing but the tritest common sense. But it is being overlooked with a persistence so stubborn as sometimes to raise the question of sincerity. And it follows that, within the process of creative destruction, all the realities of which theorists are in the habit of relegating to books and courses on business cycles, there is another side to industrial self- organization than that which these theorists are contemplating. “Restraints of trade” of the cartel type as well as those which merely consist in tacit understandings about price competition may be effective remedies under conditions of depression. As far as they are, they may in the end produce not only steadier but also greater expansion of total output than could be secured by an entirely uncontrolled onward rush that cannot fail to be studded with catastrophes. Nor can it be argued that these catastrophes occur in any case. We know what has happened in each historical case. We have a very imperfect idea of what might have happened, considering the tremendous pace of the process, if such pegs had been entirely absent.

Even as now extended however, our argument does not cover all cases of restrictive or regulating strategy, many of which no doubt have that injurious effect on the long-run development of output which is uncritically attributed to all of them. And even in the cases our argument does cover, the net effect is a question of the circumstances and of the way in which and the degree to which industry regulates itself in each individual case. It is certainly as conceivable that an all-pervading cartel system might sabotage all progress as it is that it might realize, with smaller social and private costs, all that perfect competition is supposed to realize. This is why our argument does not amount to a case against state regulation. It does show that there is no general case for indiscriminate “trust-busting” or for the prosecution of everything that qualifies as a restraint of trade. Rational as distinguished from vindictive regulation by public authority turns out to be an extremely delicate problem which not every government agency, particularly when in full cry has now gone on for upwards of fifteen years and it is not obvious that if conditions of theoretically perfect competition had prevailed during that period, better or cheaper cars would now be offered to the public, or higher wages and more or steadier employment to the workmen. The rayon industry had its bonanza time in the twenties. It presents the features incident to introducing a commodity into fields fully occupied before and the policies that impose themselves in such conditions still more clearly than does the automobile industry. And there are a number of other differences. But fundamentally the case is similar. The expansion in quantity and quality of rayon output is common knowledge. Yet restrictive policy presided over this expansion at each individual point of time.

against big business, can be trusted to solve. 6 But our argument, framed to refute a prevalent theory and the inferences drawn therefrom about the relation between modern capitalism and the development of total output, only yields another theory, i.e., another outlook on facts and another principle by which to interpret them. For our purpose that is enough. For the rest, the facts themselves have the floor.