A Premium for Mediocrity


COMMITTEES of civic organizations, bar associations, and what not are sitting to consider the abolition or amendment of the Federal antitrust statutes. It is said that the Sherman Act was passed to save the little man from the power of big combinations, and that it has not done so. It seems, therefore, that something must be done. The little man must be saved.

Whatever the purpose of the Sherman Antitrust Act and subsequent legislation enlarging the antitrust laws may have been, the wise effect of these laws is that no one may lawfully fatten behind the protection of price-fixing agreements, boycotts, anti discriminatory practices which coerce the market places, or set an artificial burden upon any trader, or erect an artificial barrier against him. Whereas before the passage of these laws men might stay in business or increase their business by the aid of agreements fixing prices, allotting territory, discriminating against retailers carrying competitive articles, or by the employment of interlocking directorates and the ownership of stock by one corporation in a competing corporation, by underselling and by boycotting raw-material dealers or retail dealers trading with competitors, these practices are now unlawful. The business which would now succeed and grow must prepare to meet competition in a market that is not coerced. Otherwise, the effect of the antitrust laws has been to leave business alone.

Of course, those organizations which, either by the genius of an individual leader or by the merger of several enterprises under the single control of men of superior ability, are able to produce more cheaply than their competitors have taken a large part of, if not the entire market, in their respective lines. It is wholly reasonable that the producer who can prosper on a low price should wax strong at the expense of those who cannot profit so well at so cheap a price. A good profit at a low price means a large turnover, a large enterprise, and bespeaks superior business leadership. This is what the country needs. This is what the laws should encourage.

Yet now it is said that the man who cannot produce so cheaply, but who wants to stay in business for himself, should be allowed to fix prices with others of his kind. The people are asked to pay a premium for the support of the five to ten thousand dollar a year self-employer, in order to help him compete with the fifty to one hundred thousand dollar a year large-scale corporation industrial leader. This is, of course, both bad economics and bad law.


To say, as it has been said, that it is necessary for the photo-engravers’ union to force their employers to charge a fixed price for photo-engraving, because otherwise the competition among them will drive them all out of business, is merely to say that there are too many people and too many dollars trying to make a living out of the photo-engraving business. Why the consumers should go to the rescue by passing a statute which would permit the photo-engravers to fix prices and enforce their agreement is hard to imagine. If the present photo-engravers are so ground down by competition that they cannot make money, it means, of course, that too many of them are bidding for the work. Shall they be artificially protected in the right to earn a definite return upon the labor and capital now employed simply because it is employed, and regardless of whether it is economically employed or not? Shall any photo-engraver in the future offering improvements and leadership to his industry, which would permit him to make a handsome return and yet reduce materially the cost of photo-engraving, find himself entangled in the mesh of a price-fixing agreement based upon existing costs? With such a situation, a man who tried to reduce the costs would be driven out of the business at all hazards, for what impulse could there be to seek or accept improvements when reasonable profit is ensured upon an uneconomic basis?

It is said that something must be done to permit the bituminous-coal people to get together and take measures against the ruinous competition which is destroying all values in the coal industry, and is keeping the unhappy coal miner on starvation wages. The facts, of course, are that nothing in the law prevents mergers of bituminous-coal properties and their management upon a more economic basis than at present. Much saving in the cost of engineering, selling, and management could be effected. Several of the large coal companies are the results of mergers, and from time to time mergers are effected. But most of the mergers which have been discussed have failed, not because of the force of the antitrust statutes, but simply because, after an appraiser had gone over the properties to be merged, the total assets of the properties did not equal the total debts. There was nothing to merge but minus numbers. Yet it is solemnly proposed that bituminous operators be permitted to make, and presumably enforce, an agreement to sell coal only upon a basis which will permit of fair return upon their investment.

Their investment, of course, is based upon the expansion of the business to meet the coal traffic of 1918, some sixty to a hundred million tons over and above the subsequent needs of the country. Their proposal to permit price fixing, if it could be made workable, is nothing more than a proposal that the consumers of coal shall pay a return of seven or eight per cent on the value of millions of dollars once employed to produce a hundred million tons which are not now needed. Certainly the solution of a bad economic problem is not to permit mediocre business leadership to lay a tax upon the American consumers intended to support one hundred dollars in an industry where only seventy-five dollars are needed.

Again it is said that it is a queer world and an unjust one in which Cadillac, Buick, Pontiac, Chevrolet, and Oldsmobile may combine under the broad shelter of General Motors and fix the prices at which they shall sell, whereas Nash, Chrysler, Dodge, Willys-Knight, and Hupmobile, standing outside of the combination, may not fix prices and must compete, not only with General Motors, but with one another.

This may be queer, but wherein is it unjust? It does not presently appear that any of these independent motors are not doing well, but even if they could fix prices among themselves, how would that reduce the competition which they must meet with General Motors and Ford? And if, with or without price fixing, they cannot meet the competition of General Motors and Ford, what will happen under legalized price fixing if Ford and General Motors decide to agree upon prices? If the element of price is to be taken out of competition in the automobile trade, and agreed price charges are to be legalized, based on existing costs or any other criterion which may be good today, of what value in the future is business leadership in the automobile industry?

The second-grade manager protected in his share of the trade by a price agreement is just as valuable to the investors and the employees in his industry as a first-class manager who might double the business for his investors and employees in an unprotected market. Such a stroke might go hard with his competitors, but surely in the long run the country is better off with more and cheaper cars than with fewer expensive cars.


There are, of course, those who contend that a situation in which only a very small number of large corporations are earning profit, and thousands of little ones are earning no money or losing it, must be bad for the country. It is not clear, however, that because a small corporation is not showing profits it is not a profitable business. There are thousands of small corporations which are owned by the officers. They are careful to see that the profits are entirely absorbed by the salaries paid. No one would be more surprised to find them earning profits than the revenue officers.

The statement so frequently made, that it is bad or unfortunate that the law should permit large corporations to absorb an increasing share of the business of the country at the expense of small corporations, is not demonstrable. It is purely a question of opinion, upon which at present there are not sufficient data to form an intelligent opinion. Business enterprise is in a state of tremendously rapid evolution. It. is to be remembered that the discovery of how to utilize steam and electricity has changed the environment of man in the past one hundred years more radically than it was changed in any thousand years of history before the commencement of the nineteenth century. The changes of the last twenty-five years are most astounding of all. We do not know, and we have not yet the data to form an intelligent opinion as to what business should be large and what should be small for their most efficient management.

But we do know that it is unwise to protect the control of existing management if more efficient management is to be had. To allow somebody who finds himself in straits to impose a price or any other condition upon the industry, on the ground that the price or condition is ‘reasonable,’ is merely to block the course of business evolution by an opinion which is probably out of date by the time it is uttered. The law cannot justify the erection of any such barrier against change. The alleged business man’s right to ‘selfprotection ’ should not be converted by law into a right to charge the public for his mistakes, or to deny the public the advantages of business evolution which develops most rapidly in a competitive market.

Through trade associations, business men are free to collect that information which will permit them to make their plans with a knowledge of the conditions which they must or are likely to meet in the immediate future. Through trade associations and the Federal Trade Commission, the honest man may protect himself against fraudulent practices to a greater degree than heretofore. Now, because the market is not as good as it was, or as it might be, he should not ask the Government to allow him to shift the burden by assuring him a definite return on the necessary minimum of business. We have enough tax collectors.

Society does not owe every man a wage every day, no matter at what he works. It does not owe every dollar interest no matter how it is employed, and regardless of the current demand for its services. Yet the plea for legalized price fixing proceeds upon the notion that capital should be allowed to do anything it can which may tend to ensure that it will at least make its expenses, including, of course, interest on bonded debt, taxes, depreciation, salaries fixed by the receivers thereof, and what not. But why should the consumers allow business to be rigged to impose this burden on the minimum demands of the consumers when, as a matter of fact, the business may be grossly overmanned, overcapitalized, and managed without vision and courage ?

Either way the question is examined, the solution of a bad economic condition is not to give it protection. The solution of a bad economic condition is to open it to the severities of competition in which wise and courageous leadership will be free to function.

The necessity for great mechanical power and a high degree of mechanization in industry makes large-scale operation in an ever-widening field of industry imperative. The savings of many thousands of people must be pooled, and the labor of many thousands of people must be brought under one direction, in order to advance enterprise upon an economic basis. For the great tasks implicit in this situation, the country is in need of business genius. The law should encourage it by offering a reward for able leadership. The most dangerous thing that could be done is to discourage forethought, courage, and intelligence by offering a premium to mediocrity. Every suggested amendment to our antitrust laws would lay freedom of enterprise open to attack, or grant a protective tariff to second-class management.