MONOPOLY AND COMPETITION MACMILLAN AND CO., LIMITED LONDON BOMBAY CALCUTTA MELBOURNE THE MACMILLAN COMPANY NEW YORK BOSTON CHICAGO ATLANTA SAN FRANCISCO THE MACMILLAN CO. OF CANADA, LTD. TORONTO MONOPOLY AND COMPETITION A STUDY IN ENGLISH INDUSTRIAL ORGANISATION BY HERMANN LEVY, PH.D. PROFESSOR IN THE UNIVERSITY OF HEIDELBERG MACMILLAN AND CO., LIMITED ST. MARTIN'S STREET, LONDON 1911 0/ was first published under the title " Monopole, Kartelle und Trusts" by Gustav Fischer ; Jena, in 1909. I owe my thanks to Messrs. Fischer for giving their consent to its translation. TO MY FRIEND SIR HUGH BELL, BART, IN GRATITUDE AND RESPECT 256839 PREFACE TO THE ENGLISH EDITION THIS book was written and more especially translated in the hope of offering to Englishmen interested in the economic problems of their country, some account of its present industrial organisation. That organisation is characterised by monopolist tendencies which run counter to the hitherto prevailing regime of free competition. In England, the pioneer in economic history of competition, this development should excite the greatest interest ; yet it is in England of all countries that the least recognition has been given to the economic importance of this new form of industry. The present work attempts to explain the existing organisation of English industry by a study of the history of monopoly and competition, and at the same time to give an analysis of English cartels and trusts as they now are. I have tried to approach my subject without parti pris, and solely to describe and analyse. As I regard the historical alternation of monopoly and competition as an economic necessity which dogmas and evaluations un- avoidably coloured by contemporary prejudice cannot affect, I have no personal bias to discount. It is, however, the duty of science to show what facts give or have given rise to these two systems of industrial economy respectively, and though itself without ulterior motive to assist those who wish to be guided by knowledge in the attainment of their objects. I should be grateful for any corrections on points which viii PREFACE TO THE ENGLISH EDITION I have misunderstood or treated insufficiently ; and I must in conclusion express my warmest thanks to my translator. To his energetic and intelligent assistance the appearance of this book in English is primarily due. HERMANN LEVY. HEIDELBERG, April 1911. PREFACE I HAVE no intention of writing a preface summarising the main ideas of the following enquiry. I should like, how- ever, to explain shortly how the material was collected, on which my account of former and existing monopolies and my theoretical conclusions are based. I owe very much to the excellent work of various English economic historians, and most of the facts used in treating of existing monopolist associations to Mr. Macrosty's very instructive book. For Parts I. and III. of my essay there were many previous books, both general works and monographs, from which I could gather useful facts and hints and which suggested promising lines of enquiry ; but for Part II. I found practically no precursor. The laborious pioneer work of extracting details of former English monopolist associations out of long-forgotten Parliamentary Reports was, however, lightened by the delight of being one of the first in the field. It was, of course, necessary to spend a considerable time in England. For some years the British Museum and the Patent Office were my headquarters during my holidays. The library of the former provided me with the historical information I needed, and the trade papers preserved in the latter explained to me the present day. For investi- gation into English industrial conditions the examination of these papers is especially necessary. We in Germany, if only by reason of the number of theses produced, possess a large collection of more or less useful studies of particular industries, but in England such things only exist, if at all, in the case of x PREFACE the main industries. It is extraordinary that there are no monographs on the economic position of such things as iron and salt mining, the cement trade, industrial spirit and whisky distilling, the tobacco trade or engine making. The enquirer must turn to trade papers for information on their economic or technical position, their geographical connections or their finances. To these I added prospec- tuses of large undertakings often very instructive material for my purposes and reports of important events in the Commercial and Financial Supplement of the Times, the Financial Times, the Manchester Guardian, and that admirable paper, the Economist. But such a collection, taken mostly from newspapers and interested parties, could not, of course, be used without considerable scientific caution, and required to be interpreted in the light of personal statements, of criticism from the opposing inter- ests and of explanations from the leaders of the industries in question. I cannot sufficiently acknowledge the assistance I have received from all kinds of persons, many of them friends gained at the time of my studies in rural economy who were also connected with urban industries. For valuable information as to the steel and iron trade, I have particu- larly to thank Sir Hugh Bell and the editor of the Iron and Coal Trades' Review, Mr. Jeans ; for the paper trade, Mr. Dykes Spicer, Sir Albert Spicer, and Lord Northcliffe; for tobacco, Mr. A. C. Churchman ; for the salt and soda industries, Sir A. Mond, M.P. ; for the tinplate trade, Lord Glantawe ; for coal mining, Mr. D. A. Thomas, M.P. My attempts to gain information even of the most elemen- tary kind from the directors of large textile undertakings generally failed, and I cannot help feeling that the leaders of these monopolist associations desire to avoid discussion. I am the more grateful to Mr. W. B. Morison, of the London Stock Exchange, for placing his great experience of the textile industry and its combinations at my disposal. My investigations led almost continually to comparisons between English conditions and tendencies with those ot PREFACE xi German and American monopolies, and I derived much help from the results of my former visits to America. In conclusion I would draw attention to the Appendices, in which I have included certain documents which I could not quote in sufficient detail in the text and to which I would particularly direct the reader. More especially would I recommend even those who are otherwise un- willing to spend time in studying appendices to read Lord Furness's speech. It is a most excellent illustration of that movement towards the concentration and combination of large industrial undertakings which has led many English industries towards new organisation on a mono- polist basis, and which will continue to do so in the future. HERMANN LEVY. HEIDELBERG, October 1909. CONTENTS PART L MONOPOLY IN THE DAYS OF EARLY INDUSTRIAL CAPITALISM CHAPTER I THE HISTORY OF EARLY CAPITALISM *AGE (a) The new trades of the sixteenth and seventeenth centuries (alum salt glass soap wire) 3 (b] Mining (tin in Cornwall coal in the north) ... 7 ( seq.; Lewis, 'Stannaries,' p. 76. ROYAL MINING RIGHTS 21 monopolies of that time. 1 No radical alteration in the law was made till the time of William III., in 1689, when the expression " mines royal " was unambiguously defined by a new law. " No mines of Copper, Tin, Iron or Lead shall hereafter be adjudged, reputed or taken to be a mine royal, although Gold and Silver may be extracted out of the same." 2 Thus the mining rights in these metals were finally taken away from the Crown and assured to the land- owner, and in consequence the raison d'etre of the notorious mining monopolies, the Mines Royal, Mineral and Battery Works, and the later combination of these two, the Society of the Mines Royal, 3 was removed. 4 The right of pre-emption of the Crown in the case of the tin mines in Cornwall and Devonshire remained. But the abolition in principle of the mining monopoly was doubt- less the reason why the Crown made no further use of this method of creating a monopoly. It was used once more in the reign of Queen Anne ; but after 1717 vanished wholly from the history of English mining. 5 The legal position reached at the end of the seven- teenth century, therefore, no longer put any obstacle in the way of free competition in the extraction of minerals. In coal the ownership of the landowner had been the rule in most cases from time immemorial. The law of 1689 put copper, tin, iron and lead in a similar position. An exception remained in the so-called " free mining districts," which were subject to the royal rights of the Crown. Free mining existed, for the Crown merely re- ceived dues and supervised the mine courts ; but the mining villages had built up a complicated system of principles and regulations which influenced in various 1 Price, ' Patents of Monopoly,' p. 50. 2 i William and Mary, cap. 30 ; also Palgrave, ii. p. 765. 3 For details see Price, ' Patents,' p. 49 and seq. and p. 55 and seq. ; also Cunningham, * English Industries,' p. 59. 4 Lewis, 'Stannaries,' p. 42. * Ibid. pp. 48-9, 220-221. 22 FREE MINING DISTRICTS directions the organisation of each district. Generally speaking, no village in these districts set up a monopolist system of mining. Of the five free mining districts known to us, the Mendip Hills, Alston Moor, the tin districts in Devonshire and Cornwall, some parts of Derbyshire and the Forest of Dean, only the last was organised on the monopolist lines of a gild, while in all the others no special limitations seem to have been set by the local mining authorities on the grant of mining rights. 1 In the Forest of Dean, however, the Mine Law Court started after about 1660 to attempt monopolist control over production and markets in all kinds of ways by attaching various conditions to the permission to mine as a " free miner," by fixing the prices, even by assigning definite prices to particular markets, and trying to limit the production of individual miners. 2 In 1675, however, this organisation seems to have been broken up by outsiders, who, in defiance of the Court, but also without interference from it, began to mine " with the ex- press purpose of working against a coal monopoly." These " foreigners," as they were called, in contradistinction to the " free miners," became more and more numerous, especially when the Mine Court came to an end in 1777, and the " free miners " relinquished their property more and more to strangers. 3 Still the possibility of monopoly lasted longer here than elsewhere in English mining. The exception is, however, an inconsiderable one. In the other free mining districts, especially in the tin mines of Cornwall and Devon, there was no difficulty in acquiring mine concessions. 4 Mining rights went 1 Lewis, for coal, p. 78 ; for free mining, p. 76; for single districts, pp. 78-81 ; for the organisation in the Forest of Dean, pp. 79 and 173 seq. 2 Thomas Sopwith, 'The Award of the Dean Forest Commissioners,' London 1841, pp. 12-20; Nicholls, 'Forest of Dean,' London 1858, p. 45 and seq. 3 Fourth and Fifth Reports of Dean Forest Commissioners, London 1835, pp. 44 and 7-10 ; also Nicholls, p. 116. 4 v. Lewis, op. cit. p. 161 for details. THE CROWN'S PREROGATIVE. ITS ABOLITION 23 with the ownership of the land, after the law of 1689 had finally settled and brought into general use this legal principle. In the same year took place the final repeal of another legal enactment of the highest importance for the creation of monopolies. The claims of the Royal Prerogative to dispense with the law, by which Prerogative the Crown had granted monopolies over the head of Parliament by hair-splitting interpretations or even open evasion of the existing law, was abolished in the Bill of Rights. Even though the number of existing monopolies had in all probability greatly decreased since about 1650 or 1660 unfortunately we have no detailed record the extinction of that right showed that Parliament had henceforth the power to prevent all private trade monopolies by means which could not legally be evaded. Only local monopolies based on gild and corporation rights and having nothing in common with the great national monopolies of the Tudor and early Stuarts could now exist, except where Parlia- ment by its own act otherwise ordained. Great capitalist monopolies such as we have in view, controlling by legal privilege the entire national production of a given branch of industry, were once and for all impossible. The Long Parliament in 164.0 had declared most of the monopolies void, and thereby taken upon itself functions in relation to the Crown for which it had no constitutional justification. After the Restoration the Crown found itself similarly hindered 1 by the increasing power of Parliament 2 in the exercise of its former custom of settling industrial questions on its own initiative. This state of affairs \ received recognition in theory by the abolition in 1689 of \ the Royal Prerogative, and the always latent 3 conflict between a Crown inclined to befriend monopolists and a Parliament that was bitterly hostile to them was thus finally decided in favour of the latter. 1 Macaulay, p. 209. 2 Cunningham, vol. i. pp. 201 and 205. 3 Unwin, 'Industrial Organisation,' p. 169. Interesting account of such a conflict in 1664. 24 ECONOMIC ORGANISATION OF MONOPOLY The legal conditions which were thus altered at the end of the seventeenth century had for about a century largely determined the creation of monopolies in its general aspect. But a number of other circumstances, such as the economic characteristics of the industries con- cerned, the various trade regulations, and the manner in which the laws relating to the trade were administered had no less influence on the actual development of the monopoly in individual cases. The forms of such monopolies were very various. They differed from one another, owing to the differences and permutations of the above and other circumstances, in structure, in the size of their sphere of action, and in economic potency. No correct estimate of the actual importance of the early /^monopolies in the economic life of the day can therefore be gained without an examination of individual mono- ^ polies and their special peculiarities. Some of the most important, curiously overlooked by recent investigators, 1 are to be found in mining, and especially in coal mining. Even without the aid of the law the large consuming centres were limited for their supplies of mining products to particular producing areas, which either because of the primitive means of transport or from lack of any competing source of supply soon acquired a monopoly. London, for instance, could only get coal or tin from Newcastle and Cornwall even when the prices of those commodities rose very high. Clearly, if the exploitation of these natural monopolies was further delivered over by legal concession to a few individuals, or often to a single individual, a monopoly of unusual strength was possible. We first hear of monopolies in the coal mines of the north in 1590. Their history is connected with the group of mines which, as has already been mentioned, belonged originally to Queen Elizabeth, and was then transferred to the town of Newcastle. The town made over its property to a company of free citizens called 1 Neither Unwin nor Price mention the coal monopoly. THE NEWCASTLE COAL GILD 25 hostmen, and this company gave its rights to eighteen or twenty of its members, who became coal miners and coal merchants in combination. 1 This concentration of the coal trade in a few hands much disturbed the London buyers, the more so as the price of coal rose greatly between 1582 and I59O. 2 Rumours of a monopolist ring among northern coal miners were in the air, and in 1590 the Lord Mayor of London made complaint to the Treasurer Burleigh that the hostmen had " engrossed " the mines, and petitioned that " all mines should be worked and a maximum price of seven shillings a chaldron fixed." 3 No special privilege from the Crown had so far been necessary for the growth of a monopolist organisation of production. But it by no means followed that there was no desire for additional State protection. On the contrary, the stronger the agitation of the consuming interests became, the more anxious the monopolists were to see their organisation sanctioned by the Crown. After further complaints in 1597 against the excessive coal prices, 4 hostmen seized a chance opportunity 5 to attempt to obtain incorporation as a gild. The town of Newcastle had for a long while neglected an obligation existing since the days of Henry V. to pay a tax of 2d. a chaldron to the Crown. Queen Elizabeth claimed the debt, and the town made her the following proposal : the arrears to be struck off their debit account, and the queen further to grant a gild patent to a " brotherhood, called the free hostmen, for the sale of every kind of coal to the ships," in return for which she should receive I2d. for every chaldron of coal carried by sea. The queen accepted this 1 Brand, ' History of Newcastle,' p. 269. 2 According to Dunn, 'View of the Coal Trade,' p. 21, coal on ship at Newcastle cost 6s. in 1582; 8s. in 1585, and gs. in 1590. 3 Brand, also Dunn, p. 13. 4 J. D. Rogers in Palgrave, London 1899, vol. iii. p. 615 A. 5 For authorities see my article on "English Cartels of the Past" in Schmoller's ' Jahrbucher,' 1907, p. 158. 26 THE NEWCASTLE COAL GILD proposal, and on 22nd March, 1600, the aforesaid brotherhood became an incorporated gild. It was pro- tected by the gild statutes and its exclusive rights from any external competition. On the one hand it had the monopoly of the most important mines ; on the other it possessed the sole right to sell coal to the ships which entered the River Tyne, and held in its hands the entire export trade, 1 so that it could prevent the independent sale by possible outsiders of any coal they might produce. It held, in fact, a right of pre-emption sufficient to frighten off any competitor at the outset The actual exercise of its rights was assured by the fact that most of the members of the gild held public offices, were free burgesses, and so on, and their influence served to main- tain the gild's rights and privileges, and often to assert them by force. Accordingly we find the chief opponents of the gild identifying the hostmen with the corporation of Newcastle, and attacking the privileges of the town magistrates when their real objective is the gild patent and its exclusive rights. 2 But external protection by no means secured the internal harmony of the gild. That had to be assured by ordinances limiting competition among the hostmen themselves. That this step was taken immediately after the incorporation of the gild is proved by the Gild Book of the coalowners in 1602. This book contains "Ah Ordinance and Common Agreement for the Sale of Coal " among twenty-nine, or, counting partners, twenty-four hostmen. These twenty-four, who were all coalowners, 3 were only a small committee of the gild which had in 1600 forty-four members, but their decisions were regarded as binding. Within this committee of the four 1 The Act of 1624 says they had privileges "concerning the selling, carrying, loading, disposing, shipping, venting, or trading of or for any sea coals, stone coals, or pit coals forth or out of the haven and river of Tyne." 2 Levy, op. cit. p. 186; also Gardiner, 'England's Grievances,' 3rd ed. p. 85, note i. 3 Palgrave, ' Dictionary,' iii. p. 615. THE NEWCASTLE COAL GILD 27 and twenty there were again four groups, each member of which might only sell a given amount of coal, no member being allowed more than nine times the amount assigned to any other member. In other words, within each group the sale of coal was so regulated that the smallest sale must be to the largest as I to p. 1 This organisation was clearly an early attempt to create a division of production, based on figures of participation. This system continued unchanged under James I., though the complaints against its control of the market had by no means ceased. We find in Gardiner 2 that about 1620 the Attorney-General filed a complaint in London against the town authorities of Newcastle con- cerning the free hostmen, that, having all the selling of coal in their hands, they compelled ships to take bad coal, and even delivered coal unfit for sale, to the great harm of the people. In spite of this, the Coal Gild received further express recognition of its privileges by the Anti-Monopoly Act of 162 4. 3 In 1638 Charles I. again renewed its patent, and decreed that it should be entitled to attach all coal exported by ship except through it. Gardiner's pamphlet, the origin of which we shall see later, proves that it continued to exist in 1650. The limitation of competition by the organisation of producers is again and again the subject of comment. For instance, 4 "Gentlemen and others in the counties of Northumberland and Durham are prohibited to sell their coals to ships to be transported to London, and all owners of collieries are compelled to sell their coals to them [the magistrates who were identical with the hostmen]. If any shall presume to sell their coals immediately to the ships, they seize upon such coals upon pretence that the owners of the coals are not free of their corporation. . . . Whereas if the owners of every 1 Rogers, p. 615 A ; Brand, * History of Newcastle,' p. 273 and seq. 2 Gardiner, p. 49. 3 v. 21 Jacob. I. cap. 3, xii. 4 Gardiner, pp, 204, 205. 28 THE NEWCASTLE COAL GILD colliery had free liberty to sell his coals to ships im- mediately Tinmouth haven would afford two hundred thousand chaldrons of coal in a year more than now are vented, which would reduce the late exorbitant rates of coal in the city of London." This apparently refers to the outsiders put down by the Coal Gild, and in whose interests Gardiner spoke. In the great petition laid before a Parliamentary Committee in 1653 ne again advocates the liberty of persons hindered by the gild. 1 The Bill presented to Parliament by the com- mittee in November in 1653 states : 2 " To the end so useful a commodity as that of sea coal, wherein the poor of this commonwealth are so principally concerned, may come cheaper to the market and the coalowners may not be in a worse condition than the rest of the free people of this realm, be it enacted and ordained that the said coal- owners in the respective counties may and have hereby liberty to let or lease of their coal pits and to sell their coals to whom they please, as well to ships as elsewhere, for the benefit of the public." This Bill, drawn up after hearing evidence, and at the vigorous instigation of the chief witness, Gardiner, never became law. Together with many other projects, it disappeared from the scene on the dissolution of Parliament by Cromwell in i653. 3 The scanty documents which survive prove that in 1665 a coal gild no longer existed officially, 4 therefore between that date and the time of the above Bill the abolition of the Coal Gild's monopoly must have taken place. The monopolies in the tin mines in the south-west of England were very different from those of the coal trade. In this case, as has been already remarked, monopoly arose from the Crown's right of pre-emption. At the end of Queen Elizabeth's reign this right was granted to private persons, and it remained the basis of the monopoly almost without intermission down to the outbreak of the x Levy in Schmoller's ' Jahrbuch,' p. 188; Gardiner, p. 9. 2 Gardiner, p. 124. 3 'Newcastle Weekly Chronicle,' 2ist July, 1894. 4 Palgrave's * Dictionary,' vol. iii. p. 6156. THE TIN MONOPOLY 29 Civil War. The monopoly was owned by capitalists. The capitalist form of the tin industry, as it appears at the end of the sixteenth century, has already been described. The lack of necessary capital had led to the dependence on the capitalist traders of the working mine owners and smelters, who in their turn employed a number of dependent miners. This process might have come about naturally, without the existence of a monopoly, but the special effect of the latter was to concentrate in the hands of one or more associated capitalists * the entire control of the trade capital, instead of leaving it as at the end of the sixteenth century 2 in those of several capitalists. 3 For some years the tin monopoly was owned by the London Pewterers. They had "general supervision over the manufacture [of pewter] elsewhere in England," 4 and it seems quite intelligible therefore that they desired to be independent of the monopolists for their supplies of the raw metal. The simplest way was to take over the monopoly themselves. For that purpose it was necessary to have money, first to acquire the privilege from the Crown, and secondly, because the existing monopolists had made advances to the producers of tin and supplied all their needs, a practice which the Pewterers would have to imitate if they intended to gain control over the raw tin trade. The raising of this capital could not be shifted on to the Pewterers' Company as a whole, because by no means all the members were rich enough to contribute considerable sums. The only remaining alternative was for the rich members to find the necessary funds. In 1615 twelve members of the company subscribed ^7000, to be used, together with ^800 contributed by the company as a body, to take over the monopoly for five years. Part of the tin thus acquired was divided (at cost price, plus a certain surcharge) among the working mem- bers ; the remainder was used for the trade purposes of the 1 Lewis, 'Stannaries,' p. 147. 2c Tinners' Grievances,' pp. 5 and 6. 3 Cf. infra. 4 Lewis, 'Stannaries,' p. 45. 30 MONOPOLIES IN THE FOREST OF DEAN richer members. 1 Thus the finishers belonged at that time for the moment to those whom the monopoly profited instead of to its victims. Their power was shown in the fixing of prices. It seems to have been the policy of the monopolists to offer the tinners economically dependent on them a fixed price, and to screw up the market price on the contrary as high as possible. 2 The hold which they, as the financiers of the trade, had over the actual working masters enabled them to limit the profits of the latter to the minimum. The effect of this policy on the mining industry itself we shall have to describe later. While the Crown was able to create a monopoly in tin mining by its right of pre-emption, in the mines of the famous Forest of Dean where no such right existed it adopted another course. The district, like the stannaries of Devonshire and Cornwall, was one of the few so-called " free mining " regions, in which by virtue of the royal rights of the Crown freedom of mining was the settled tradition. Every " free miner," that is to say every member of the mining community, was allowed to pursue the occupation of mining, so long as he complied with the conditions fixed by the community. Under James I. this state of affairs was replaced by a special grant of the Crown rights. The Earl of Pembroke obtained in 1612 the exclusive right to extract iron ore and coal in the Forest of Dean. The free miners would not recognise this grant, and were allowed by the Attorney- General to continue their occupa- tion " as an act of grace and clemency, and not of legal right " ; the monopolist receiving a right of pre-emption over their output, and no further increase in the number of free miners being allowed. This monopoly was several times renewed. Under Charles I. it was held by Sir John Winter, whose privileges were later confirmed by J Unwin, 'Industrial Organisation,' pp. 152-156. 2 Lewis, p. 146 and seq. pp. 218-19. "General prices continued to rise while that given them for their tin by the monopolists was kept stationary." THE SALT MONOPOLY 31 Charles II. Between 1660 and 1 670 the earlier rights of the free miners seem to have once more flourished. 1 Other minerals, the production of which was organised in a monopolist fashion, were alum and salt. In contra- distinction to coal and tin, these commodities were not yet generally used in England, and required protection from foreign competition. The output of salt in England was limited until i67