This section is from the "Elementary Principles of Economics" book, by Richard T. Ely and George Ray Wicker. Also available from Amazon: Elementary Principles Of Economics: Together With A Short Sketch Of Economic History
We have already noted and explained the fact that the misery and degradation of the wage-earning classes, which in England led to a reaction in favor of an active policy of government, were not felt so quickly nor so keenly in the United States. With us, therefore, there was in earlier days no urgent demand for legislation in behalf of the laborers. Similar conditions, however, led in the end to like results, and in most of the commonwealths of the American Union we have a considerable body of factory legislation for the protection of the wage-earners and for the promotion of their welfare. Massachusetts, among the foremost in the extent of her manufacturing interests, is naturally among the foremost also in the matter of labor laws, her factory legislation being surpassed only by that of England. The growth of such legislation in our country illustrates the principles which we have already explained, for it has followed the line of industrial development as it spread from New England to the West and South. Indeed, there is special illustration of what we have been explaining in the recent labor experience of certain Southern states which have only recently entered extensively into manufacture. It is found that those states, which have recently begun to compete with Massachusetts, all repeat many of the darkest pages of early English experience, and that while they are possibly gaining a temporary industrial advantage over the older state, public opinion is rapidly organizing to protest against a temporary industrial advantage being gained at the cost of the permanent welfare of the workmen of the South as well as in Massachusetts. True, some of the advantages possessed by the Southern states are derived from climate, proximity to raw material, the absence of antiquated machinery, etc., and if these advantages are not offset by the better labor market of Massachusetts, her greater accumulation of capital, with lower interest charges, her lower freight charges, her nearness to the consumers' markets, her helpful traditions of production, etc., the new states will confer a benefit upon society by producing the goods, even though it be at a serious temporary cost to the old New England state. In any event, the South must in time follow England and Massachusetts in regarding higher and more permanent interests than the mere increase of output.
Legislation against Adulteration. America and Eng--land have also differed in their readiness to give heed to the adulteration of goods and the falsification of wares. And yet we have certainly had need of some action in these matters. Not only have we become painfully familiar with the style of goods which unrestrained competition always produces, and which are known in England by the expressive term "cheap and nasty," but we have also with us, as commonly as anywhere in the world, adulterations that menace life and health. The fact that the theory of non-interference has never been so completely shattered as in England by the pressure of labor interests, coupled with the fact of the delicate balance of authority between state and Nation, probably accounts in considerable measure for our general reluctance to intrust to government the duty of inspecting wares. Within the last few years more serious attention has been given to the matter, the Federal government and many states have moved rapidly and vigorously in the prevention of adulteration, and the growing interest in economic questions is likely to result in a better realization of our cooperative power and duty.
The State and Monopolies. The question of the right relation of the State to industry has nowhere proved more embarrassing and difficult than in the case of monopolies, and especially of the great class of monopolies which we have called natural. Here, even more than elsewhere, it has been brought home to men that the principle of State passivity cannot safely be accepted. The history of attempts to control these monopolies is long and confusing, but we may distinguish three fairly distinct methods: attempts to enforce competition, public control,1 and public ownership.
1. Attempts to enforce Competition. When the monopoly problem on a vast scale first presented itself, society was still possessed by the idea of the beneficence of the universal rule of self-interest. It was natural, therefore, to attempt to enforce competition in the new field of industry. Railway charters and charters for municipal service corporations were granted freely, even recklessly, in the belief that competition would thus be secured. But competition cannot exist where monopoly is natural. The whole history of attempts to secure such competition is a history of failure. A single illustration may serve
1 Frequently the expressions State control and State ownership are employed, this word " State" then being used in its generic sense, and meaning the local unit and nation, as well as the separate state. The ambiguity in the word "State" is avoided by employing the term " public." our purpose. The state of New York gave a railway charter to the West Shore Company, which constructed a line parallel to that of the New York Central. In granting the charter, the state attempted to enforce real and permanent competition by the stipulation that the railway should never be sold to its rival. Yet after a few years of disastrous rate " wars" the new road was leased to the Central in 1885 for 475 years. The same experience has been repeated, again and again, as often as the experiment has been tried.
2. Public Control. The second method of solving the social problem involved in natural monopolies is that of public control or regulation. This method began to be tried about forty years ago with the rise of the " granger " movement, which was at first a mere unorganized uprising of farmers against railway abuses, but which later developed into an organized movement, having as its centre the " Order of the Patrons of Husbandry," founded in 1867. The result was that many states passed laws regulating railway rates and binding the roads by other rules of action. Much of this legislation was so ill considered that it was soon repealed, and the movement itself was thereby for a time discredited. But a renewal of the effort has resulted in the creation of state and Federal railway commissions, with certain powers of supervision, adjudication, and control.
The policy of public control has hitherto proved difficult of application, not only in the case of railways, but also in the case of the large class of municipal natural monopolies. Wealthy corporations, retaining the best legal talent, have shown endless ingenuity in evasion, and great power in retaliation, as is abundantly shown in the annual reports of the United States Interstate Commerce Commission. Yet distinct gains have been made, largely through the influence of educated public opinion, in removing abuses from the railway service, and in safeguarding the interests of cities in their granting of municipal franchises.
3. Public Ownership. The great difficulties in the way of successfully applying the first two methods have led a growing number of people to look with favor upon the method of public ownership of natural monopolies, with or without government management of the business. In the case of municipal waterworks, the practice already obtains very generally. An increasing number of cities have taken in their own hands other forms of municipal service. Technical and political considerations make it quite possible that a given city may wisely own one form of municipal monopoly and at the same time refrain, with equal wisdom, from taking over others. We cannot here discuss these many considerations, but in closing we may express the opinion that the tendency seems increasingly toward this third policy of dealing with monopolies. Certainly, the solution of the monopoly problem lies to-day between the methods of public regulation and public ownership. Which one, if either, will in the end prove the sole reliance of society, it would be rash to attempt to predict.
1.In the United States, owing to free land and the lack of manu-
facturing, the transition to the industrial stage was not marked by
violence or suffering.
2.The intensity of competition in the United States has been felt more keenly by the manufacturers, and concentration of industry has thus been hastened.
3.The tendency to complete centralization of industry, or monopoly, gives rise to grave social problems.
4.Three methods of solving the monopoly problem have been tried : artificial competition, public control, and public ownership.
5.American experience confirms that of England in condemning unrestrained competition.
1.Contrast the Industrial Revolution in the United States with the
same change in England.
2.What has been the effect of the mobility of population in the United States?
3.What is integration of industry? Complete centralization? Natural monopoly?
4.Discuss the different experiments in attempting to solve the monopoly problem.
5.Mention some of the ways in which the government in the United States regulates competition.
Coman, Katherine: The Industrial History of the United States.
Ely, R. T.: Monopolies and Trusts, Ch. V, and The Evolution of Industrial Society, pp. 58-66.
Hadley, A. T.: Railroad Transportation, Ch. II.
Jenks, J. W.: The Trust Problem.
Spahr, C. B. : Present Distribution of Wealth in the United States, Ch. II, pp. 24-49.
Wells, D. A.: Recent Economic Changes, Ch. I, pp. 1-10.
Wright, C. D.: The Industrial Evolution of the United States, Part II, Ch. XIV, pp. 174-189.