Thus far in our study, we have assumed that we knew what competition was. Now, however, as we are to study it scientifically, we are in need of an exact definition, that we may know just what the term includes. Prof. Sturtevant, in his "Economics," says: "Competition is that law of human nature by which every man who makes an exchange will seek to obtain as much as he can of the wealth of another for a given amount of his own wealth." Simmer this down to its essence, and we have simply: Competition is selfishness. To the other evident faults of the definition we need not allude. It is a much more satisfactory definition which Webster's Dictionary gives us, for it includes the idea that competition necessitates two or more parties to exercise it: "Competition is the act of seeking the same object that another is seeking." But this is too broad a definition for our purpose. It takes in competitions for fame, social standing, etc., with which we have nothing to do.

Failing to find a satisfactory definition, let us make one, as follows: Competition is that force of rivalry between buyers or between sellers which tends to make the former give a greater price for the commodity they wish to secure, and tends to make the latter offer better commodities for a less price.

That competition is a force, even in the popular estimation, is evidenced by such common expressions as "the pressure of competition," "a strong competition," and indeed, "the force of competition." But these very expressions show us as well, what we have already found to be true in the preceding chapters, that it is not a constant force but a variable one. What, then, are the laws of its variation?

Let us see what we can learn by a study of three typical examples of the force of competition. Let us take first the business of growing corn. There are perhaps three million farmers in the United States engaged in producing corn, and each one of these competes with all the others. Is this doubted? We have defined competition as a rivalry that tends to make the sellers offer better goods for a less price. Now at first sight it may seem that there is no rivalry at all. Neighboring farmers work together in all harmony; and no man thinks that because his neighbors have raised a large crop of corn, he is in any way injured. And yet this tendency to give better goods and lower prices exists and is plainly felt. Suppose a new and superior variety of corn were introduced, which buyers preferred. Some farmers would at once begin to raise it, so that they might be more sure of a market and perhaps of a better price, and other farmers would be obliged to follow suit to meet the competition. Again, consider that the supply and demand adjust themselves to each other through competition. For suppose, at the ruling price, the demand to be less than the supply; then to increase the demand, the price must fall; and the cause of the fall in price is simply that the farmers compete with each other for the market, and lower their prices in order to secure a sale for their crops. Note, however, that the rivalry in this case never becomes a personal one. Each farmer recognizes that an increased supply lessens the price for his goods; but his neighbor's extra acreage is such a drop in the bucket, that he never thinks of it as being really a rival of his own crop.

Take as a second example, the wholesale paper trade. Here are perhaps three hundred men, each knowing personally many of his competitors and probably hating some of them cordially. Each striving to secure for himself all the trade possible, and to gain, if he can, his rivals' customers. He sends out his salesmen with instructions to, "Sell goods! For the best prices you can get, but sell them, anyhow." These "drummers" are sharp, active business men, they might well be employed in directing some productive process; but they go out and spend their time in inducing customers by all the means in their power to buy their goods. They spend money in various "treats" to secure the good-fellowship of the man with whom it is desired to trade, and use his time as well as their own. Another item of expense is for advertising and for keeping the firm name prominently before the purchasing public. All these things cost money, as any wholesale merchant engaged in a business where there is sharp competition can testify. It may be thought that a firm which would have the courage to do away with all these expenses and give the money thus saved to their patrons in reduced prices and better goods, would be able to keep its trade and even gain over its competitors. But it is hardly so; most men are more likely to be wheedled into taking slightly inferior goods at a slightly greater price.

Another matter to be considered in this connection is the variation in price. In the case of the producers of corn, we saw that prices were practically uniform at any given place, being fixed by the ratio of supply and demand in the chief markets of the world. But in making sales of paper, the sharp, close-dealing buyer is generally able to secure a better price than a buyer not posted in regard to the condition of the paper trade.

As competition becomes more intense, its burdens become more heavy to carry. Perhaps two of the largest houses in the trade, who are able to force prices lowest, come to a sort of tacit understanding that their salesmen "will respect each others rights a little and not force prices down beyond all reason." It is plain that here the foundation is laid for the establishment of a monopoly. Yet the agreement certainly seems to be nothing more than these two firms have a right to make. Its result is seen, however, in a slight increase in the price their customers have to pay. Soon the tacit agreement becomes a formal one. Then other firms are taken in. The first seed has borne fruit. The combination grows larger and stronger. The number of producing units is growing less. Finally it includes practically all the paper manufacturers in the country. Whoever wants paper must buy of the combination, there is no other source of supply. Competition is dead.

If the combination is strong enough and is managed well enough, it may be permanent; and prices of paper will be regulated by other laws than the law of competition. But suppose that the number of paper makers is so great and that they are so widely scattered that the combination proves difficult to maintain; local jealousies creep in, and charges are made of partiality on the part of the managers. The combination finally breaks up. Can we expect a perfect return to the old system of free competition? When men have once reaped the enormous returns that are yielded by the control of a monopoly, the ordinary profits of business seem tame and dull. There will surely be attempts to form the monopoly anew on a stronger and more permanent basis; and even if these attempts do succeed in producing only short-lived monopolies, the effect will be to keep the whole trade and all dependent upon it in a state of disquiet and uncertainty. Prices will swing up and down very suddenly between wide limits; and it is everywhere recognized that stability in price is a most important element in inducing general prosperity. A perusal of the trade journals for the years 1887 and 1888 will convince one of the truth that when a combination is once formed, its members are loth to try competition again. A considerable number of combinations which were formed in 1887 were soon broken up, often from the strength of old feuds and jealousies. But in almost every case they have been formed anew on a stronger basis after a short experience of competition.

This matter of the variation in price is a very important one, and it has an important influence in checking business prosperity. Men are far less apt to engage in an enterprise, if they cannot calculate closely on prices and profits. But the main point, after all, is the waste which is due to competition. It is for the interest of the public at large that the papermakers should devote all the energies which they give to their business to making the best quality of each grade of paper with the least possible waste of labor and material.

Take for a third example two railway lines doing business between the same points. We have fully pointed out the practical working of this sort of competition in the chapter devoted to railways. It is plain that the general effect is a fluctuation of rates between wide limits, an enormous waste of capital and labor, and ultimately, the permanent death of competition by the consolidation of the two lines.

In comparing now the above three cases, the most noticeable difference in the conditions is in the number of competing units. There were in the first example three million competitors; in the second, three hundred; and in the last, but two.

The first difference in the competition which existed is in intensity. In the case of the producers of corn, competition was so mild that its very existence was doubted. In the case of the papermakers it was vastly more intense, so that it caused those engaged in it to take steps to restrict and finally abolish it. In the case of the railroads it was still more intense, so that it was not able to survive any length of time, but had to suffer either a temporary or permanent death very soon. Let us state, therefore, as the first law of competition, this: In any given industry the intensity of competition tends to vary inversely as the number of competing units.

We also saw that among the producers of corn there was virtually no waste of energy from competition. Among the paper makers there was a large waste. And in the case of the railroads, the whole capital invested in the rival railroad, as well as the expense of operating it, was probably a total waste. Let us state, then, for a second law of competition: In any given industry the waste due to competition tends to vary directly as the intensity. As an additional example to prove the truth of these laws, take the competition which exists between buyers. In the case of ordinary retail trade the number of buyers is very great, and the competition between them is so moderate that we hardly remember that it exists. It is difficult to see how there could be any waste from this competition among buyers, at least of any amount. Expressed in the language of the laws we have found: The number of competing units is so great that competition is neither intense nor wasteful.

From these two laws and a study of the examples we have given, it is easy to deduce a third. We have seen that when competition became very wasteful, monopoly arose; indeed, we have noted the working of this law all through our investigation. The principal cause assigned for the formation of the linseed-oil trust was the waste which intense competition had caused. The third law is, then: In any given industry the tendency toward the death of competition (monopoly) varies directly with the waste due to competition.

We might now combine these three laws to deduce the fourth law, which is: In any given industry the tendency toward the death of competition (monopoly) varies inversely with the number of competing units. But this law is also proved independently. Look back over all the monopolies we have studied, and it will be seen that one of the most important conditions of their success was the small number of competitors. Fifty men could be brought together and organized, and made to bury their feuds and rivalries, when with a thousand the combination would have been impossible. We have seen, in the case of the farmers, how their great number alone has prevented them from forming combinations to restrict the competition among themselves.

It should be said that these laws, like all other laws of economics, are not to be taken in a narrow mathematical sense. We cannot study causes and effects dependent on the caprice of men's desires and wills with the minute exactness with which we solve numerical problems. Taken in the broad sense, however, the study we have made in the preceding chapters is sufficient proof of their truth.

The common expressions of trade afford still further evidence. We often hear the expression: "A healthy competition." But the very existence of the phrase implies that there may be an unhealthy competition, and if so, what is it? Is it not that competition whose intensity is so great that it causes a large waste of capital and labor in work other than production; whose intensity is so great that, like an animal or a machine working under too great a load, it labors intermittently,—now acting with great intensity and forcing prices far below their normal plane, now pausing in a reaction, when a temporary combination is formed, and allowing prices to spring back as far above the point indicated by the relation of supply and demand; and finally reaching the natural end for unhealthiness—death. In fact, a recent economic writer declares that especially intense competition should be called war, as, indeed, it frequently is called, rather than competition.

Looking about us for other causes of variation in the intensity of competition we discover a fifth law: The intensity of competition tends to vary directly in proportion to the amount of capital required for the operation of each competing unit, especially when the interest on the capital invested forms a large proportion of the cost of production. Take, for example, the case of a railway line. All the capital invested in it is wasted unless the road is in operation. Hence it will be better to operate the road, so long as receipts are any thing more than the expense of operation, than to abandon it. An enterprise in which no capital is invested will cease operations when receipts do not exceed its expenditure and there is no prospect of betterment. But in the total expense of operating a railroad, a large item is the interest on the capital invested, which is as truly a part of the total cost of carrying the traffic as is the daily labor expended in keeping the road in good repair. (In railway bookkeeping only an arbitrary line can ever be drawn between capital account and operating expenses.) Now, in order to pay operating expenses and fixed charges, railways must secure traffic. We suppose that they are doing this by competition, and that they have not yet combined to form a monopoly. Let us suppose that this competition cuts down receipts to a point where they are just sufficient to pay the whole cost of carriage. In an enterprise in which no capital was invested some of the competitors would be sure to fall out when profits disappeared; but here there is no such chance of relief; and though the competition keeps on until the receipts are only enough to pay the operating expenses, still the road is not abandoned because then the capital invested, in it would be a complete loss. Changes in productive processes often lessen the demand for a line of goods; but the owners of the capital invested in factories and machines for making these goods may often cause them to be continued in operation at a loss rather than lose all that they have invested, and because they hope for better days and a renewal of the demand.

For the sixth law of competition we have: In any given industry the tendency toward the death of competition (monopoly) varies directly with the amount of capital required for each competing unit. This law is proven in part by the preceding laws; for when a large capital is required for each competing unit, the number of competitors will be small and the tendency toward monopoly will be strong; but it may also be proven independently. Business men, before they form a combination, are certain to ask whether new competitors are likely to enter the field against the combination. Now, as we have seen in very many cases in the preceding chapters, when there is a great amount of capital required, new competitors will be very unlikely to enter the field. If there is but little capital required, they will be very apt to do so, being tempted by the prospect of large profits at the monopoly's prices. But they know that the combination will concentrate its strength to fight them in every way; and if they must invest a great deal of money in buildings, plant, etc., to start operations, they will be apt to think twice before they take the field against the combination.

The seventh law of competition is: In any given industry in which natural agents are necessary, the tendency toward the inequality of competition (monopoly) tends to vary directly with the scarcity of available like natural agents.

The influence of limited natural agents in promoting the growth of monopolies is a matter of the greatest importance. That the law is true, is evident upon slight investigation. For if some especial gift of Nature is a necessity to any industry, and those who are engaged in that industry can secure all the available gifts of Nature of that sort, there is no opportunity for new competitors to enter the field.

It is to be noted that in this seventh law we have used in apposition with the term monopoly, the term "inequality of competition" instead of "death of competition," as in the preceding laws. We are now in need of a definition of the term monopoly. Webster defines it as "the sole control over the sale of any line of goods"; Prof. Newcomb says "a monopoly is the ownership or command by one or a limited number of persons of some requisite of production which is not solely a product of human labor"; Sturtevant says "a monopoly is such a control of the supply of any desirable object as will enable the holder to determine its price without appeal to competition." To the first definition we object that it is both narrow and indefinite. The second seems to omit such important classes of monopolies as the combinations to limit competition; and Sturtevant's definition is unscientific in this: Hardly any monopoly exists whose holders can without limit determine the price of its product. If the price continues to rise, competition in some form will appear. Take, for example, the business of transporting goods from New York to San Francisco; if all the railway lines combine to form a monopoly, the competition of ocean steamers via Panama would eventually stop the rise in rates, if no other outside competition stopped it before. The owners of a rich mine have a real monopoly, though they cannot raise the price above a certain point without being undersold by the owners of poorer mines or those more remote from market. Consideration of these facts lead us to construct the following definition: A monopoly in any industry consists in the control of some advantage over existing or possible competitors by which greater profits can be secured than these competitors can make. For the law of monopolies we have: The degree of a monopoly depends upon the amount of advantage which is held over existing or possible competitors. When the advantage of the monopoly is so great that no other competitor will try to do business in competition with it, we may rightly say that competition is dead. The great share of the monopolies which are based on this seventh law of competition, those due to the control of natural agents, only restrict competition by the attainment of an advantage over their competitors, and do not destroy it.

The principal natural agents which are necessary to production, and whose supply may be so limited to cause an appreciable monopoly, are: (1) Land for agricultural purposes; (2) land for purposes of manufacture or commerce; (3) transportation routes, such as mountain passes, room for railway tracks in a city street, or for gas-and water-pipes beneath its surface; (4) natural deposits of minerals and metals; (5) sources of water supply or water power. (The latter is unimportant now compared with a score of years ago, because of the lessened cost of its competitor, steam.)

Let us be especially careful not to confound this seventh law of competition with a certain doctrine which is now receiving more and more credence, which is, in brief, that the private ownership of the gifts of Nature used in production should be abolished. The grounds in opposition to this doctrine we will discuss in a later chapter. The law we have stated says nothing of the right or wrong of the private ownership of the gifts of Nature. What it does say is, that when any of these are limited in amount, those who control them are given an advantage over other would-be competitors, which constitutes a monopoly.

In considering the natural agents enumerated above, we can easily see the truth of the law. Agricultural lands, the most important of natural agents, are in this country so abundant that their rental is entirely fixed by competition. In England, where they are so much more limited in area, rent is fixed by custom. As regards land for purposes of manufacture or commerce, we have already pointed out the cases in which monopolies are prominent, as also for transportation routes. As regards mineral wealth, deposits of iron are so numerous and widespread that no monopoly has ever yet succeeded in controlling competition in the manufacture of pig-iron to any great extent. But the rarer metals, like copper, tin, nickel, and others, are largely controlled by monopolies.

Now, while this seventh law says nothing as to the right or wrong, the expediency or inexpediency of the private ownership of natural wealth, it does follow from it that this private ownership generally constitutes a monopoly, as we have defined it. For of no class of natural agents is it true that their richness and availability are absolutely equal. Those competitors who have the richest and best natural resources to work with have an advantage over their competitors which is essentially a monopoly. Thus the owners of fertile lands near a large city have an advantage over the owners of less fertile lands far removed from markets, which is of a monopolistic nature. If any one doubts this, let him say how this case is logically different from that of the ownership of a mine of native copper so near to New York City that the cost of laying it down in the market there will be half what it is from any existing mine; or, for a second case, take the New York Central railway, which has the control of such a valuable pathway between the Mississippi Valley and the Atlantic seaboard that it has an advantage over all competitors in the business of transportation between those points.

We have now to turn our attention to other variations in competition besides the variation in intensity. We need to distinguish the different species of competition. That competition which is in daily operation in most branches of industry we may call actual competition. That competition which would spring up in any industry in case an increase in profits called it out, we may call potential competition. The third class is instanced in the letting to the highest bidder a franchise for city water or gas-works, or street-car lines. Here competition acts at a single time to fix the price for perhaps twenty years. We may call this, for want of a better name, franchise competition. It possesses the evident advantage that it avoids both the waste of competition and the fluctuation of prices. It has the disadvantage that, unless the owners of the franchise are held strictly to their contract, quality is apt to be sacrificed; also that if the purchase is for a term of years, cheapening in processes may result in undue profits to the franchise holders. The discussion of this matter, however, does not properly belong to this chapter.

Arranging in their logical order the laws of competition which we have found, we have the following diagram:

In any given industry the tendency toward monopoly increases:

(1.) As the waste due to competition increases.

The waste of competition increases in proportion to its intensity.

(1.) The intensity of competition increases as the number of competing units decreases.

(2.) The intensity of competition increases with the amount of capital required for each competing unit.

(2.) As the number of competing units decreases.

(3.) As the amount of capital required for each competing unit increases.

(4.) As the number of available natural agents decreases.

The preceding diagram sets plainly before us the three great salient causes from which have grown the long list of monopolies under which our civilization labors. First, the supply of natural agents of which new competitors in any industry may avail themselves has been largely exhausted, or has been gathered up by existing monopolies to render their position more secure; the world has not the natural resources to develop that she had a century ago. Second, the concentration of all the productive industries, except agriculture, into great establishments, while it has enormously lessened the cost of production, has so reduced the number of competing units that a monopoly is the inevitable final result. Last, the enormous capital required for the establishment and maintenance of new competing units tends to fortify the monopoly in its position and render the escape of the public from its grasp practically impossible. These terse statements contain exactly the kernel of potent truth for which we are seeking; MONOPOLIES OF EVERY SORT ARE AN INEVITABLE RESULT FROM CERTAIN CONDITIONS OF MODERN CIVILIZATION.

The vital importance of this truth cannot be over-estimated. For so long as we refuse to recognize it, so long as we attempt to stop the present evils of monopoly by trying to add a feeble one to the number of competing units, or by trying to legislate against special monopolies, we are only building a temporary dam to shut out a flood which can only be controlled at the fountain head.

The facts of history testify to the truth of this law. Monopolies were never so abundant as to-day, never so powerful, never so threatening; and with unimportant exceptions they have all sprung up with our modern industrial development. The last fifteen years have seen a greater industrial advancement than did the thirty preceding, but they have also witnessed a more than proportionate growth of monopolies. How worse than foolish, then, is the short-sightedness that ascribes monopolies to the personal wickedness of the men who form them. It is as foolish to decry the wickedness of trust makers as it is to curse the schemes of labor monopolists. Each is working unconsciously in obedience to a natural law; and the only reason that almost every man is not engaged in forming or maintaining a similar monopoly is that he is not placed in similar circumstances. Away, then, with the pessimism which declares that the prevalence of monopolies evidences the decay of the nobler aspirations of humanity. The monopolies of to-day are a natural outgrowth of the laws of modern competition, and they are as actually a result of the application of steam, electricity, and machinery to the service of man, as are our factories and railways. Great evils though they may have become, there is naught of evil omen in them to make us fear for the ultimate welfare of our liberties.

To the practical mind, however, the question at once occurs, what light have we gained toward the proper method of counteracting this evil? Can it be true that the conditions of modern civilization necessitates our subjection to monopolies, and that all our vaunted progress in the arts of peace only brings us nearer to an inevitable and deplorable end, in which a few holders of the strongest monopolies shall ride rough shod over the industrial liberties of the vast mass of humanity? Were this true, perhaps we had better take a step backward; relinquish the factory for the workshop, the railway for the stage-coach. "Better it is to be of an humble spirit with the lowly, than to divide spoil with the proud." But the law we have found commits us to no such fate. We cannot, indeed, abolish the causes of monopolies. We cannot create new gifts of Nature, and it would be nonsense to attempt to bring about an increase in the number of competing units and a decrease in the capitalization of each by exchanging our factories and works of to-day for the workshops of our grandfathers. But while monopolies are inevitable, our subjection to them is not inevitable; and when the public once comes to fully understand that the remedy for the evils of monopoly is not abolition, but control, we shall have taken a great step toward the settlement of our existing social evils. To discuss the details of the remedy, so far as it can be done in a volume of this sort, belongs properly to a later chapter. Before undertaking it, however, it seems well to devote some further attention to the evils which the attempt to abolish monopolies and adhere to the ideal system of universal competition has brought upon us, and to make, also, some further study of the general evils due to monopoly.