annual capacity of 12,500,000 kegs, and half of the increase was in the western district.1 In 1884 a new effort was made to restrict competition; but almost before it took shape the manufacture of nails from steel began, and within a year the steel nail mills that sprang up in the Wheeling district, not to mention others, had a capacity of 2,600,000 kegs per annum.2 Combinations that might be expected to be strong and efficient, because of their enjoyment of franchises and natural monopolies, are all the while breaking because of internal disagreements. No longer ago than the autumn of 1885 trunk line. railroad business was completely disorganized because the roads could not agree on their respective allotments. The anthracite coal combination, formed in 1873, succeeded in controlling the output for three years. Prices were gradually forced to a height that the market would not bear, and stocks accumulated, in spite of the restriction of production, until the combination broke, in August, 1876, and 500,000 tons of coal were sold at auction. Another attempt, made in 1878, was broken by ratecutting by the Lehigh Valley company and the contention of the Reading company for a larger allotment. A third combination lasted from 1879 to 1884, when its efficiency was destroyed by the commercial depression and the increasing resort to bituminous coal.3 A fourth arrangement, made in 1885, has been imperfectly successful. Of all the industrial combinations that have been described in alarming terms in the popular reviews and anti-monopoly organs, probably not one-tenth have continuously and effectively limited competition. One of the most perfectly organized and most talked about of these has been the wall-paper combination, and its fortunes have been peculiarly instructive. It was formed in 1880, and made a great deal of money. One party was paid $20,000 a year to cease production. A scale of prices was established, and every member was assigned his proportion of the total production. The penalty for underselling was a forfeit of $1000, one-half to go to the informer. Monthly meetings were held, at which every manufacturer presented a detailed statement of his sales, Bradstreet's, May 10, 1884. 2 Ibid., July 18, 1885. 8 Ibid., January 17, 1885.

specifying the quality and price of every roll sold, and naming the purchaser. Then the executive committee equalized the proceeds, taking from those that had oversold, and distributing among those that had not sold up to their quota. Yet, notwithstanding these elaborate precautions, competition was not prevented, either within the combination or from without. One member has chosen to pay $10,000 a year in forfeits rather than desist from underselling. By paying factories for keeping idle, the combination has tempted so much new capital into the business that it is now impossible to control production or prices.

The conditions determining the area within which combinations can govern market competition, divert it into new channels, and convert it into new forms, are to be found in certain natural demarcations in the industrial structure of society. This structure, resting on the basis of crude materials, which it transforms, adapts, and consumes, is constituted by the segregation of men into functional groups, corresponding to the subdivisions of industrial operations and the broader differences of personal qualification. A rude attempt to indicate this structure is made in the diagram upon the following page. The subdivision of operations corresponds to the evolution of general utilities into utilities that are more and more highly specialized, and to the division and redivision of materials into successive sub-products,1 or, more strictly, into successive series of sub-products, as the diagram indicates. Professor Clark has shown that the gradation of sub-products marks off the producers into non-competing groups of an entirely different kind from those described by Professor Cairnes, and that the latter, constituted by such differences of personal acquirement as those that separate artisans from unskilled laborers, have been much broken down by industrial progress. Yet there remains a grouping by differences of personal qualification, which Professor Cairnes failed to state in sifficiently general terms. There is one class of workers fit only for automatic manual labor; namely, common laborers and machine tenders. Above these is a class fit to be 1 John B. Clark, The Philosophy of Wealth, p. 112.

intrusted with some responsibility and liberty of self-direction. It is impossible for those in the first class to compete for places with those in the second, though those in the second may become competitors with those in the first in times of industrial depression. A third class is composed of the automatic brain-workers, such as book-keepers; and a fourth class, of the responsible brain-workers, including the superintendents and directors. The basis of these distinctions, it will be seen, is a much broader one than Professor Cairnes had in mind as the ground of his grouping. It is also broader than the differences of moral quality that the adjective responsible, used for the lack of a more exact word, suggests. It is that broadest psychological gradation, which Mr. Herbert Spencer has described as consisting of differences of mental mass and complexity.1 These divisions cut transversely across those described by Professor Clark, and constitute sub-groups within his groups. It is, further, within the non-competing groups so constituted that combinations are formed; and, for reasons fully set forth by Professor Clark, any one combination is usually confined within the limits of a single group. This introduces a new complication, for the combination is a radically distinct aggregate from the non-competing group within which it exists. While the non-competing group consists of those that are supposed not to compete with the members of any other group, but to compete freely with each other, the combination consists of those that are supposed not to compete at all with each other, but to compete freely with those outside of its limits. The employer groups and combinations are further complicated by the centralization there of capital.

It is plain that these demarcations describe groups that are very unlike in composition and very unequal in economic condition. Heterogeneity of composition increases as we go backward in the scale of sub-products toward crude materials, because the dimensions of the group enlarge, both geographically and in respect of numbers. The group producing a final subproduct is necessarily limited in size, not only because it repre

1 See the article on The Comparative Psychology of Man, Mind, January, 1876.

sents a minute sub-division of a more general product, but because the quantity of a highly specialized product that society can consume is itself limited quite narrowly. The market is easily oversupplied and demands but a relatively small number of producers. It follows that the possibilities of combination are slight in the large and loose groups that produce the primary sub-products, unless their operations are protected by natural, or legal, especially patent-right, monopolies. In the small and compact groups producing final and highly specialized subproducts, the possibilities of effective combination are much greater. Anthracite coal mining is a primary process, but it yields to combination because it is a natural monopoly and easily forms illicit alliances with the railroads. Steel making is a secondary process, amenable to combination because protected by patents; but in iron making, also a secondary process, combination is maintained very imperfectly and with great difficulty. Besides being at this disadvantage in the matter of combination, the primary and secondary sub-product groups are subjected to the further strain that disturbances of the economic equilibrium, anywhere in the industrial structure, distribute themselves backward toward the primary groups. Within each group the distribution is downward, through the sub-groups toward the lowest - the automatic laborers. A strike that stops the production of a sub-product may cause the suspension of operations and the bankruptcy of producers in the sub-product group beyond it, by cutting off supplies; but the liabilities of the advanced group will be due chiefly to the preceding groups, and the bankrupted employers and discharged workmen will force their way downward as competitors for employment; some of the bankrupted employers obtaining places as clerks, and some of the clerks and foremen taking work as machine tenders and laborers. Furthermore, as Professor Clark has shown,1 the primary and secondary groups dispose of their products to society and receive their recompense only through the tertiary, and are therefore much at the mercy of any conditions that the latter may impose.

1 Philosophy of Wealth, p. 114.