Example Of Complete Natural Monopolies. Monopolies Which Run Risks

As regards the first question, we may take English china clay and English steam coal as examples of natural monopolies in their way complete, both from their positive merits and their freedom from foreign competition. Were they in the hands, therefore, of some great Trust, they could take toll from all the world by the prices they could command; but at present they are broken up and divided among a number of separate owners, whose competition among themselves for sales gives away to the buyers a large part of the monopoly selling price which they could so easily command. As for the risks that attend them - there are practically none, either in the mining of the coal or the extraction of the clay, to interfere with the steady amount and regularity of their yield. But not all monopolies are so free from risks as these; and even were they concentrated in single hands, or free from competition among themselves, they are nearly all rendered unstable by unforeseeable risks, which, as we saw with diamonds, must be the case with all high-priced monopoly articles which are not necessaries of life. Special brands of tobacco, wine, or cigars, again, vary in degrees of risk, owing to vicissitudes of climate, weather, atmosphere, soil, insect-pests, and the like; while other monopolies, especially in the case of luxuries, may be made unstable to a disastrous extent by changes in fashion or taste, especially when dealing in commodities where there are possible substitutes; as, for example, in a change from silks to woollens or cottons, from diamonds to emeralds or rubies, from port to sherry or claret or spirits, from Irish whisky to Scotch, from gas to electricity, from horse to motor cabs, electric trams, or omnibuses, and so on.

The Value Of Immense Capital

On the other hand, there are conditions attached to certain Incomplete Monopolies which render them less liable to competition than others. The main condition, perhaps, is the existence of a vast amount of capital at the free disposal of a monopoly in its fight with a rival, especially in those cases where neither can altogether crush out the other by underselling, and yet where to divide the spoil would be to ruin both; as, for example, in the running of two rival railway lines through the same tract of country when there is only business enough for one; or in the sale of commodities the demand for which is limited, and is necessarily confined to a particular area, as in the Professions to a certain extent, and in the great Retail Houses enjoying partial monopolies in separate towns.

Natural Rank Of Incomplete Monopolies

Now, in the above and other instances of Incomplete Monopolies, it is evident that even when they are fairly secure on their positive side, the degree of risk varies so much in each case that no definite natural rank can be assigned to them as a class, but only in individual instances after careful investigation of the merits and risks peculiar to each. The most that can be said of them as a class is that they stand in the scale at a point below the rank of stocks founded on Money and on the operation of the Law of Probabilities, like Banks and Insurance Companies, but higher than all other shares in Industrial Businesses making no pretence to monopoly, and, in consequence, controlling neither the buying nor the selling end of their transactions, but subject in both to all the mutations of business and trade.

Position Of Government Stocks In The Scale Of Natural Value

In the next chapter I (On The Natural Value Of Different Stocks: Banks And Insurance Companies) propose to deal with those partial monopolies which rest exclusively neither on Money nor on an Industrial basis, but on a combination of both, and are liable to the intrusion of Politics and other extraneous influences as well; and so depend for their natural status on other kinds of security, and are subject to other kinds of risk. But before doing so, we may sum up as far as we have gone by saying that at the summit of the pyramid stand Government stocks as the highest in natural rank, inasmuch as they rest on the broad basis of the entire wealth of the nation itself; and so have an ultimate security above that of all other stocks in the event of a threatening disaster to the State. But it so happens that one of the characteristics of these gilt-edged Government stocks is that they are more sensitive to the intrusion of Political and International Complications than all others; and are apt, in consequence, to have not only their immediate value, but the supposed stability of their yield, more disturbed than stocks which lie naturally below them in rank; and that, too, over considerable stretches of time, and without any compensation to the investor in a higher yield of interest. In other words, other stocks have often over long periods a degree of practical security as great as that of Government stocks, but with less variation and a greater yield of income. And it is precisely these unnatural inversions of the best Government stocks, often covering considerable periods, through Political or Money Market influences, that give the Geographical Distribution of Capital, as we shall see presently, its golden opportunity. This we shall explain in detail in due course; but in the meantime, returning to our scale of natural values, we may say that immediately below the best Government stocks in natural rank are those stocks which rest primarily on Money and the Law of Probabilities, and are best represented on the large scale by Banks and Insurance Companies. For stability and security they stand as a class as much above any Industrial concerns as in feudal times landed and entailed estates did, with the one exception which we have just seen of Complete Industrial Monopolies which, like the great American Trusts, have secured a control over both the buying and selling ends of the great staple necessaries of life, and which, while as steady and secure as Banks and Insurance Companies, have, by the universal demand for their commodities, a greater yield than they, when confined to a particular country - and a fortiori a still greater yield and a still higher status when internationalised.

Government Stocks Susceptible To International Disturbances. Position Of Stocks Which Rest On Money In The Scale Of Natural Value. Relative Rank Of Complete And Incomplete Monopolies

Below these great Trusts again, as well as below Banks and Insurances, stand the Incomplete Industrial Monopolies which, as we have seen, have control over only one end or limb of their business, but to which as a class no very definite rank can be assigned, inasmuch as each differs from the rest in the extent to which it can defend itself from competition, or can turn itself into a combine, as well as in the special kind and degree of risks to which it is exposed risks, all of them, which render its yield unstable, and its markets capricious and uncertain. And finally, at the bottom of all securities for stability and safety stand the Ordinary shares of ordinary Joint Stock Companies which enjoy no monopoly either in their power of buying or of selling, but are subject to all the accidents and the ups and downs of trade, both in their costs and their yield, and so are beyond the reach of any scientific generalisation. They are the subject-matter, in a word, of speculation and guess-work, so far as the public are concerned; and it is only to those with inside knowledge, as I have already said, that the actual status of any particular one of them can be known. They need not, therefore, concern us here, for my generalisations, rough as they are, must, I repeat, be confined to the different classes of securities, and not to the stock of any particular concern.