Finance Capital, Hilferding 1910


Surmounting the obstacles to the equalization of rates of profit

The aim of capitalist production is profit. The achievement of the largest possible profit is the motive of every individual capitalist, and becomes the guiding principle of his economic action as a necessary consequence of the capitalist competitive struggle. For the individual capitalist can only survive if he strives continually not simply to keep pace with his competitors, but to outstrip them; and he can do this only if he succeeds in raising his profit above the average, thus achieving an extra profit.[1]

The subjective desire for maximum profit, which animates all individual capitalists, nevertheless results objectively in the tendency to establish a uniform average rate of profit for all capital.[2]

This result is assured by the competition of capitals for spheres of investment, by the constant influx of capital into those spheres with above average rates of profit, and by its withdrawal from those spheres where the rate of profit is below average. This perpetual ebb and flow of capital, however, encounters obstacles which become more formidable as capitalism continues to develop.

The increasing productivity of labour, the progress of technology, can be seen in the fact that the same amount of living labour sets in motion an ever growing quantity of means of production. This process is reflected, in economic terms, in the higher organic composition of capital, in the increasing proportion of constant capital to variable capital in the total capital.[3] This change in the ratio C:V expresses the changing image of manufacturing industry, from handicraft production and the early capitalist factory, with its cramped working space and the workers crowded around a few small machines, to the modern factory in which the few diminutive human figures, visible here and there behind the gigantic frames of automatic machines, seem to be continually disappearing.

Technological development also brings about a change in the component elements of constant capital. Fixed capital increases more rapidly than does circulating capital. The following account illustrates this point:

Technical advances in the smelting process have led to an increase in the size of firms and to an ever greater concentration of capital. According to Lürmann, Die Fortschritte im Hochofenbetrieb seit 50 Jahren, the cubic capacity of furnaces has increased since 1852 by a ratio of 1:4.8, the productivity per furnace by 1:33.3, and the productivity per ton of output by 1:7.

In 1750, 14 Silesian charcoal fired blast furnaces together produced 25,000 cwts of pig-iron, and in 1799 the two Königshütten coke fired furnaces projected an annual output of 40,000 cwts. Oechelhäuser in 1852 boasted a daily output of 50,000 to 60,000 Prussian pounds.

The most recent records per day and per furnace are: Gewerkschaft Deutscher Kaiser (Thyssen), 518 tons; Ohio Steel Co. No.3, 806 tons. In other words, the American furnace is producing in about 30 hours what a Silesian furnace previously produced in a year, and, in 36 hours, the same amount that 14 Silesian furnaces produced annually 150 years ago.

Accordingly the investment costs of a furnace have risen enormously. The Königshütten furnaces mentioned above were valued at 40,000 thalers, or about 20,000 marks, investment per ton of daily output. In 1887, according to Wedding, this figure was down to between 5,400 to 6,000 marks per ton of daily output, with an investment of almost 1 million marks per furnace. Recently, however, the costs per ton of daily output have risen again to about 10,000 marks as a result of the introduction of many new devices and the almost complete elimination of manual labour. This means that an average 250-ton furnace in the Ruhr today costs 2,500,000 marks, while the giant American furnaces have devoured as much as 6,000,000 marks.

Except in Siegerland [Alsace-Lorraine - Ed.] and Upper Silesia there are scarcely any furnaces in Germany today with a daily output capacity of less than 100 tons. The minimum annual output of a newly constructed furnace must be set at least at 30,000 to 40,000 tons, but there are considerable advantages in operating several furnaces, hence the endeavour to increase the number of furnaces belonging to a single enterprise. In this way, general overhead costs (administration, laboratories, maintenance engineers) as well as expenditure on necessary reserve machines (blast engines, air heaters) can be spread over a larger output. Only by owning several furnaces can an enterprise also use one of them year in, year out, exclusively for the production of one type of pig-iron. By this means the troublesome problem of converting a furnace from the production of one type of pig-iron to another disappears, making it possible to construct furnaces which are specially designed to produce a particular kind of pig-iron. Finally, it becomes economically feasible to utilize modern inventions (controlled feeding of raw materials, casting machines, mixers, furnace generators) when production figures are high and several furnaces are available.[4]

It is interesting to compare, with this branch of industry in which there is an extremely high organic composition of capital, another branch which also makes extensive use of machinery, but in which, owing to different technical conditions, there is a considerably lower organic composition of capital.

The amount of capital required for the manufacture of shoes can be illustrated by taking the example of a factory which has a daily output of 600-800 pairs of shoes, half of which are sewn and half nailed:



100,000 marks



Steam engine (50 h.p.)


Electrical installations


Manufacturing machinery and other equipment




Fixed capital



If we assume that the circulating (working) capital is turned over twice a year we get the following:


Raw materials for 6 months


Wages for 6 months


Other costs for 6 months


Circulating capital

540,000 marks


We may say, therefore, that in addition to a fixed capital of about 300,000 marks, a circulating capital of about 500,000 marks is required; and this factory employing 180 to 200 workers will need a total capital of 800,000 marks.[5]

In sharp contrast to this:

The total cost of building a new large combined Thomas plant with a capacity of 300,000/400,000 tons, in western Germany today, and purchasing its mineral fields site, would be at least :


1,000 hectares of iron ore fields

10,000,000 marks

6 coal fields in the Ruhr


Colliery with 1 million tons capacity, including coke installations


Blast furnace installations


Steel and rolling mills


Site, branch railway, workers' dwellings etc.



55,000,000 marks


Such an enterprise would need 10,000 workers. In America an investment of 20 to 30 million dollars is indicated as necessary for a steel works with double this capacity (2,500 tons per day). By contrast, the capital invested in the whole Nassau iron industry in 1852 was 1,235,000 florins.[6]

This enormous inflation of fixed capital means, however, that once capital has been invested, its transfer from one sphere to another becomes increasingly difficult. Circulating capital is reconverted into money at the expiration of each turnover period, and can then be invested in any other branch of production ; but fixed capital is tied up in the production process through a whole series of turnover periods. Its value is only gradually transferred to the product, and hence only gradually reconverted into money. The turnover time of the total capital is therefore prolonged. The larger the fixed capital, the greater its weight in the balance of investments, and the larger its proportion in relation to the total capital, the more difficult it becomes to realize the value embodied in it without very considerable losses, and to transfer it to a more advantageous sphere. This circumstance modifies the competition between capitals for investment outlets. In place of the old legal restrictions imposed by medieval tutelage, new economic restrictions have emerged which limit the mobility of capital, although admittedly they only affect the capital which has already been transformed into means of production, not the capital which still awaits investment. A second limitation consists in the fact that technical progress expands the scale of production, and that the increasing volume of constant capital, especially fixed capital, requires an ever greater absolute sum of capital in order to expand production itself on a corresponding scale or to establish new enterprises. The sums which are gradually accumulated from surplus value are far from adequate to be transformed into independent capitals. It is conceivable, therefore, that the influx of new capital is insufficient or arrives too late. The free movement of capital, however, is a necessary condition for the establishment of an equal rate of profit. This equality is violated whenever the ebb and flow of capital is impeded in any way. Since the tendency towards equality of profit is identical with the striving of the individual capitalist to maximize his profit, the removal of this limitation must also begin with the individual. This occurs through the mobilization of capital.

In order to centralize capital it suffices to create a capital association. But the mobilization of capital simultaneously broadens the extent of the capital which can be associated, for it makes the continuous reconversion of industrial capital (including fixed capital) into money capital as independent as possible from the actual reflux of capital at the end of the turnover period during which the fixed capital has to function. This reconversion is not possible, of course, on a society-wide scale, but is only available to a certain number of continually changing individual capitalists. Nevertheless, this constant reconvertibility into money endows capital with the fluidity of loan capital, that is, of money capital which is advanced for a certain period and then returns as a sum of money enhanced by interest. Thus it makes sums of money suitable for industrial investment which would otherwise not have functioned as industrial capital.

Such sums of money must either lie idle for a longer or shorter time in the hands of their owners, or be invested temporarily as pure loan capital. These sums change constantly in their composition, contract and expand, but a certain amount of such idle money is always available to be converted into industrial capital, and thus tied up. The continual changes in this sum of money are expressed in the continual changes in the ownership of shares. Its conversion into industrial capital, of course, occurs only once, and once for all. Idle capital is converted definitively into money capital, and this, in turn, into productive capital. The fresh sums of money which flow out of this fund of idle capital function as means for purchasing shares, and then as means of circulation for the turnover of shares. For the owners of the money which was initially converted into industrial capital they make possible the return of their money, which can now be applied to other purposes, after having served them in the meantime as capital. It should be noted, by the way, that when share prices rise, more money will be required, ceteris paribus, for the turnover of shares, and more money can then enter into circulation than was originally converted into industrial capital. Here we should observe that, as a rule, the share prices are higher than the value of the industrial capital into which the money was converted. The mobilization of capital, of course, has no effect upon the process of production. It affects only property, only creates the form for the transfer of property which functions in a capitalist way, the transfer of capital as capital, as a sum of money which breeds profit. Since it leaves production unaffected this transfer is in effect a transfer of property titles to profit. The capitalist is concerned only with profit, and is quite indifferent to its source.

He does not make a commodity, but what is in a commodity, namely profit.

One share is, therefore, just as good as another if, other things being equal, it brings the same profit. Every share is thus valued according to the profit it brings. The capitalist who buys shares, buys just the same stake in the profit as does any other capitalist who pays the same amount of money. Hence, at the individual level, the mobilization of capital ensures that the equalization of the rate of profit is realized for every capitalist. But this happens only in the case of the individual, since for him the inequalities which really exist are effaced when he buys shares. In reality, these inequalities persist, as does the tendency to balance them out.

The mobilization of capital does not affect the real tendency of capital to equalize the rate of profit. The constant effort of individual capitalists to maximize their profits remains, and now shows itself in the form of larger dividends and higher share prices, which indicate the proper direction for new capital investment. The level of profit achieved, once the business secret of the individual enterprise, is now more or less adequately expressed in the level of dividends, and facilitates the decision as to where to invest new capital. For example, if a capital of 1,000 million marks in the iron industry makes a profit of 200 million marks, whereas the same capital in another industry makes only 100 million marks, then assuming a capitalization of 5 per cent, the market price of the iron shares will be 4,000 million marks, and that of the other shares 2,000 million marks. In this way, the difference is obliterated for the individual owners. But this will not deter new capital from seeking investment in the iron industry, where it can make above-average profits. It is the share system, in fact, which facilitates the flow of capital into such areas, not only because, as has already been pointed out, it removes the difficulty presented by the large amounts of capital required, but also because the capitalization of the extra profit in this sphere holds out the promise of large promoter's profits, and encourages the banks to participate in this branch of production. The disparities in the rates of profit take the form, in this case, of differences in the amount of promoter's profit, but they are then evened out by the flow of newly accumulated quantities of surplus value into those spheres which have the highest promoter's profit.

Similarly the mobilization of capital does not affect the difficulties which obstruct the equalization of the rate of profit. On the other hand, however, the combination of capitals which always accompanies their mobilization removes the limitations which arise from the magnitude of the capitals required for new investment. With the increasing wealth of capitalist society, and the ability to combine many individual sums of money, the size of an enterprise is no longer an obstacle to its establishment. The result is that the equalization of the rate of profit is possible, increasingly, only through the influx of new capital into those spheres in which the rate of profit is above the average, whereas the withdrawal of capital from those branches of production which have a large amount of fixed capital is extremely difficult. In the latter case the capital can only be reduced by a process of gradual obsolescence of old installations, or by the destruction of the capital in the event of bankruptcy.

At the same time the extension of the scale of production gives rise to a further difficulty. A new business in a highly developed sphere of capitalist production must be established from the outset on a very large scale, and its establishment will at once increase enormously the output of that branch of industry. Technological imperatives do not allow the careful and discriminating increase of production which might be indicated by the capacity of the market. The rapid spurt in production may have an overcompensating effect on the rate of profit, which from having been above the average, may now fall below the average.

Thus obstacles to the tendency to equalize rates of profit emerge, and they increase as capitalism develops. The strength of these obstacles varies, of course, in different spheres in accordance with the composition of capital, and in particular with the relative proportion of fixed to total capital. The difficulties are greatest in the most advanced branches of capitalist production, in the heavy industries, where fixed capital is by far the most important factor, and where it is most difficult to withdraw capital once it has been invested.

What effect does this have on the rate of profit in these spheres? One might conceivably argue that since these industries require a very large initial capital, such as few people possess, there will be less competition and a higher profit. This argument, however, is only valid for the period when capital still 'functioned in an individual capacity. The possibility of combining capitals easily overcomes this limitation. The fact that a very large amount of capital is required presents no impediment to obtaining it. On the other hand, in such branches of industry, it is well nigh impossible to equalize the rate of profit by withdrawing capital, and extremely difficult to write off the capital. These highly developed industries are precisely the ones in which competition eliminated the small firms most rapidly, or in which there were no small firms to begin with (as in many branches of the electrical industry). Not only does the large firm predominate, but these large, capital-intensive concerns tend to become more equally matched, as the technical and economic differences which would give some of them a competitive advantage are steadily reduced. The competitive struggle is not one between the strong and the weak, in which the latter are destroyed and the excess capital in that sphere is eliminated, but a struggle between equals, which can remain indecisive for a long time, imposing equal sacrifices on all the contending parties. The enterprises involved must all find ways of continuing the struggle, if the whole immense capital invested in each of them is not to depreciate in value. Consequently, it has become extremely difficult, in this sphere, to ease the situation by writing off capital; and at the same time the establishment of any new enterprise, because of the high production capacity which it must possess from the outset, has a powerful influence upon supply. A situation may easily develop, in these areas, in which the rate of profit remains below the average over a long period, and this situation is all the more dangerous, the lower the average rate of profit. The decline in the rate of profit which is associated with the development of capitalist production continually narrows the range within which production is still profitable. If the rate of profit is only 20 per cent, as compared with a previous rate of 40 per cent, a much smaller decline in price is enough to eliminate the profit entirely and defeat the very purpose of capitalist production. It is just these industries, with their large amounts of fixed capital, which are particularly vulnerable to competition and to the resulting decline in the rate of profit, while at the same time they find it increasingly difficult to change the established distribution of capital resources. Assuming free competition, the rate of profit which emerges in such industries may well be below the average, and it can be equalized only very gradually, if the influx of new capital comes to an end and consumption slowly increases as a result of the growth of population. The tendency toward a lower rate of profit may be reinforced by the fact that new capital (share capital) can only expect to receive, from the outset, a rate of profit below the average.

On the other side, a lower-than-average rate of profit will be the rule in those spheres in which individual capital is still dominant and the capital required is relatively small. These spheres attract capital sums which cannot compete in the advanced sectors of industry, and which are too small to allow their owners to invest them as interest or dividend-bearing capital. They are the spheres of retail trade and petty capitalist production, characterized by a bitter competitive struggle and the continual destruction of old capital which is at once replaced by new capital; spheres populated by those elements in society who always have one foot in the proletariat, are always threatened by bankruptcy, and of whom only a few gradually develop into big capitalists. These are the sectors of production which, in very diverse ways, are increasingly forced into a position of indirect dependence upon big business.

Aside from the fact that these sectors of production are overcrowded, there is another reason for the reduction of their rate of profit. There is savage competition for trade, which involves large expenditures to accelerate the turnover of goods and increase sales. Large advertising campaigns are undertaken and hordes of salesman are sent out. Ten salesmen battle for every customer. All this requires money, which swells the capital in these sectors, but since it is not used productively and does not increase profit, the rate of profit, which must now be calculated on this larger capital, declines.

Thus we see how, for entirely different reasons, the rate of profit tends to be depressed below the average at both poles of capitalist development. Where capital is sufficiently powerful a counter tendency emerges in order to overcome this trend. The final outcome is the abolition of free competition, and a trend towards the maintenance of a lasting inequality of rates of profit, until eventually this inequality itself is eliminated by the removal of the division between different sectors of production.[7]

The tendency which thus arises within industrial capital, and more particularly in its most developed sectors, is given a further impetus by the interests of bank capital. We have seen that concentration in industry also promotes a concentration of the banks, which is reinforced by the specific conditions of development of the banking business. We have also noted how bank capital can expand industrial credit by the issue of shares, and encouraged by the prospect of promoter's profit acquires an ever increasing interest in the financing of enterprises. Other things being equal, promoter's profit depends upon the overall level of profit. Hence bank capital becomes directly interested in industrial profits. As concentration proceeds in banking, so the range of industrial enterprises in which the bank participates as a supplier of credit, and as a financing agency, grows.

An industrial enterprise which enjoys technical and economic superiority can count upon dominating the market after a successful competitive struggle, can increase its sales, and after eliminating its competitors, rake in extra profits over a long period, which more than compensate it for the losses sustained in the competitive struggle; but the bank has other considerations in mind. The triumph of one enterprise means defeat for the others, in which the bank is equally interested. These enterprises had drawn heavily upon bank credit and the borrowed capital is now endangered. The competitive struggle itself involved all the enterprises in losses. The bank had to curtail its credit and forego profitable financial transactions, for which the victory of one of the enterprises provides no compensation. A powerful enterprise of this kind is an adversary from which the bank cannot earn very much. In general, it can only stand to lose from competition among enterprises which are its customers. Hence the bank has an overriding interest in eliminating competition among the firms in which it participates. Furthermore, every bank is interested in maximum profit, and other things being equal, this will be achieved by the complete elimination of competition in a particular branch of industry. That is why the banks strive to establish monopolies. In this way the tendency of both bank capital and industrial capital to eliminate competition coincides. At the same time, the increasing power of bank capital enables it to attain this goal even if it is opposed by some enterprises which, on the basis of particularly favourable technical conditions, would perhaps still prefer competition. Industrial capital has bank capital to thank for eliminating competition at a stage of economic development in which, without intervention, free competition would still prevail.[8]

These general tendencies to restrict competition are supplemented by other tendencies which arise from certain phases of the industrial cycle. It should be noted, first, that during a period of depression the drive to increase profits asserts itself with particular strength. In times of prosperity demand exceeds supply, as is shown by the fact that output is sold long before it has been produced.[9] But it should also be noted that during such a period demand frequently has a speculative character. People buy in the expectation that prices will continue to rise, and while the rise in prices restricts consumer demand it stimulates that of speculators. If demand exceeds supply the market price is determined by the least efficient enterprises, and those which have more favourable conditions of production realize an extra profit. Entrepreneurs are a tightly knit group, even without any formal agreement.

The contrary is true in a depression, when there is a scramble to save whatever can be saved, and everyone acts without regard to others.

That side of competition which is momentarily the weaker is also that in which the individual acts independently of the mass of his competitors and often works against them, whereby the dependence of one upon the other is impressed upon them, while the stronger side always acts more or less unitedly against its antagonist. If the demand for this particular commodity is larger than the supply, then one buyer outbids another within certain limits, and thereby raises the price of the commodity for all of them above the market price, while on the other hand the sellers unite in trying to sell at a high price. If, vice versa, the supply exceeds the demand, someone begins to dispose of his goods at a cheaper rate and the others must follow, while the buyers unite in their efforts to depress the market price as much as possible below the market value. The common interest is appreciated only so long as each gains more by it than without it. And common action ceases as soon as this or that side becomes the weaker, when each one tries to get out of it by his own devices with as little loss as possible. Again, if someone produces more cheaply and can sell more goods, thus assuming more room on the market by selling below the current market price, or market value, he does it, and thereby he begins an action which gradually compels the others to introduce the cheaper mode of production and reduces the socially necessary labour to a new and lower level. If one side has the advantage, everyone belonging to it gains. It is as though they had exerted their common monopoly. If one side is the weaker, then anyone may try on his own to be the stronger (for instance, anyone working with lower costs of production) or at least to get off as easily as possible, and, in that case, he does not care in the least for his neighbour, although his actions affect not only himself, but also all his fellow strugglers.[10]

Thus a contradiction arises : the restriction of competition can be accomplished most easily when it is least necessary, namely in a period of prosperity, because the agreement among producers then only sanctions an accomplished fact. Conversely, during a depression, when the restriction of competition is most essential, it becomes extremely difficult to conclude any agreement. This accounts for the fact that cartels are most easily organized in periods of prosperity, or at least after the end of a depression, but frequently collapse during a depression, unless they are very strictly organized.[11] It is also clear that monopolistic combines will control the market much more effectively in good years than in times of depression.[12]

Besides the tendencies which give rise to a protracted decline in the rate of profit and in its average level, which can only be overcome by eliminating their cause - competition - there is also the phenomenon of a fall in the rate of profit in one industry resulting from an increase of profit in another. Whereas the first kind of decline is due to long-term causes, the second arises from the conditions of the industrial cycle; and while the first will eventually occur in all branches of advanced capitalist production, the second will only affect particular branches of production. Finally, while the former results from competition within an industry, the latter originates in the relation between different branches of industry in which one supplies the raw materials of the other.

In times of prosperity production expands. This expansion occurs most rapidly where the amounts of capital involved are relatively small and production can be increased quickly at many points. To a certain extent this rapid expansion of production checks the rise in prices, notably in a large part of the finished goods industry. On the other hand, production cannot be expanded so rapidly in the extractive industries, where sinking a new shaft, or installing new blast furnaces, requires a comparatively long period of time.[13] During the initial phase of prosperity the increasing demand is met by a more intensive use of the existing productive capacity. But at the height of the boom demand from the manufactured goods industries increases more rapidly than the output of the extractive industries. Raw material prices therefore rise more rapidly than those of manufactured goods. The rate of profit in extractive industries thus increases at the expense of the processing industries, and the latter may be still further impeded by the shortage of raw materials in their efforts to take advantage of the boom.

In a depression the situation is reversed. The drain of money and the curtailment of production are more marked and produce greater losses in the industries which supply raw materials than in the manufacture of finished goods. The rate of profit in the former industries therefore remains below the average for a longer period of time, and this is a factor which contributes to restoring the rate of profit in the processing industries to its normal level, whereas in the production of raw materials the depression is more profound and prolonged. The crisis in the iron and steel industry of the United States between 1874 and 1878 shows how acute and prolonged such depressed conditions may be under a regime of free competition. Pig-iron prices in Philadelphia fell from $42.75 in 1873 to a low of $17.63 in 1878.[14] The violent price fluctuations in the course of an industrial cycle are also illustrated by the following figures, bearing in mind that costs of production of pig-iron generally declined during this period : Base ore No. 1 Bessemer-Hematite fell continuously from $6.00 in 1890 until it reached a low of $2.90 in 1895. Messabi-Bessemer sold at $2.25 in 1894; non-Bessemer at $1.85. This was followed by a brief upswing in the steel industry, and immediately the price of these ores rose to $4.00, $ 3.25 and $2.40 respectively.[15] Bessemer pig-iron in Pittsburgh was priced at $2.37 in 1884, $10.13 in 1897, $20.67 in 1902, $13.76 in 1904. The best English pig-iron sold at $10.86 in 1888, $11.30 in 1895, $20.13 in 1900, $13.02 in 1903.[16] Levy provides the following instructive table to show the price relationship between raw materials and manufactured pig-iron during the downswing:



Price of 2240 lbs Bessemer pig-iron - $

Price of 2240 lbs Lake Superior ore - $

Price of 2000 lbs coke - $

Price of 4122 lbs ore plus 2423 lbs coke - $

Difference in price between pig-iron and ore plus coke - $



















































We can see from these figures the kind of situation which these firms, wholly dependent on the flow of coal and ore, found themselves in after 1890. The price of raw materials did indeed fall appreciably, but the difference between their costs and the price of the finished product declined even more, so that the situation of the consumers of raw materials deteriorated greatly. The old tendency was at work again whereby the price of pig-iron declined more rapidly and steeply than that of the raw materials, and this tendency, as I indicated, led to the combination of enterprises.[17]

This discrepancy in rates of profit has to be overcome, and can only be overcome by a union of the extractive industries with the processing industries; that is, by the formation of combines. The impetus to combination will vary, of course, according to the phase of the business cycle. In times of prosperity it will come from the processing firms, which in that way overcome the problem of high raw material prices or shortages. In a depression, the producers of raw materials will attach processing plants to their own enterprise in order to avoid having to sell their raw material below the price of production. They will process it themselves, and realize a larger profit in the finished product. Stated in general terms, there is a tendency for that branch of business which is less profitable at any given time to attach itself to that which is more profitable.[18]

The various types of combination may be distinguished in terms of the way in which they are formed. Downward integration, for example, is illustrated by a rolling mill which acquires blast furnaces and coal mines; upward integration by a coal mine which buys blast furnaces and rolling mills. Or there may occur a 'mixed' type of combination in which a steel plant acquires coal mines on one side and rolling mills on the other.

It is, therefore, the differences in rates of profit which lead to combinations. An integrated firm can eliminate fluctuations in the rate of profit, whereas one that is not integrated sees its profit reduced to the advantage of some other firm.

Another advantage of combination is that it makes possible the elimination of commercial profit, and an increase in industrial profit by the amount that is thus saved. The elimination of commercial profit becomes possible when industrial concentration is well advanced. The function of commerce - that of integrating the activities which are fragmented among individual capitalist firms, thus enabling the demand of other industrial capitalists to be satisfied in the required quantities - becomes superfluous. A weaver prefers to obtain his different kinds and qualities of yarn from one yarn dealer rather than to deal with a host of individual spinners. Equally, the spinner prefers to sell his whole output to one dealer, rather than to a number of weavers. In this way circulation time and circulation costs are saved and the reserve capital reduced.

It is a somewhat different matter in the case of large integrated firms which produce standardized goods (mass consumption goods) and where the production of one branch of the enterprise meets the demand of another branch. Commerce then becomes entirely superfluous. The merchant and his profit can be eliminated, and he is eliminated by such combinations of enterprises. The elimination of commercial profit is peculiar to a combine as distinct from an association of businesses of the same kind, between which no commercial relations have developed in the natural course of events. Commercial profit, however, is simply a part of the total profit, and its disappearance increases the industrial profit proportionately. As long as the integrated concerns compete with those which remain independent, this increased profit gives them a competitive advantage.

If the rates of profit were the same for both types of concern, and equal to the average rate of profit, the combine would not enjoy any initial advantage, since it could only realize the average rate of profit. But combination smoothes out the fluctuations of the business cycle and so assures a more stable rate of profit for the integrated firm. Second, it eliminates the middleman's trade. Third, by the opportunity it offers for the introduction of technical improvements, it achieves an extra profit as compared with the non-integrated concerns. Fourth, it strengthens the competitive position of the integrated concerns as compared with others during a severe depression, when raw material prices fall less rapidly than the prices of finished goods.

Combination, which involves a contraction of the social division of labour, at the same time as it gives an impetus to the division of labour within the new integrated concern, extending increasingly to management functions as well, has been a feature of the capitalist mode of production from the beginning.

Finally, just as manufacture arises in part from the combination of various handicrafts, so too it develops into a combination of various manufactures. The large English glass manufacturers, for instance, make their own earthenware melting pots, because on the quality of these depends, to a great extent, the success or failure of the process. The manufacture of one of the means of production is here united with that of the product. On the other hand, the manufacture of the product may be united with other manufactures, of which that product is the raw material, or with the products of which it is itself subsequently mixed. Thus we find the manufacture of flint glass combined with that of glass cutting and brass founding; the latter for the metal settings of various articles of glass. The various manufactures so combined form more or less separate departments of a larger manufacture, but are at the same time independent processes, each with its own division of labour. In spite of the many advantages offered by this combination of manufactures, it never grows into a complete technical system on its own foundation. That happens only on its transformation into an industry carried on by machinery.[19]

The enormous strides made by combination during the most recent phase of capitalist development are attributable to powerful economic forces, and particularly to the formation of cartels. However, once a combination has come into existence as a result of economic forces it will very soon present opportunities for the introduction of technical improvements in the process of production. One need only consider, for example, the linking of blast furnaces with processing plants, which first made possible an efficient utilization of blast furnace gases as a motive power. These technical advantages, once achieved, in turn become a powerful motive for forming combinations where purely economic factors would not have brought them about.

By combination, therefore, we mean an association of capitalist enterprises in which one supplies the raw materials for another; and we distinguish this kind of association, which arises from variations in the rate of profit in different sectors of industry, from the association of enterprises within the same branch of industry. The latter is formed with the object of raising the rate of profit in that branch of industry above its sub-average level by suppressing competition. In the first case the rates of profit in the different branches of industry to which the enterprises belonged before they were combined do not undergo any change. The different rates of profit remain, except for the integrated enterprise itself. In the second case a rise in profits is expected in this branch of industry as a result of decreasing competition. Theoretically, this can happen even when only two enterprises unite, either because they put an end to the competition between themselves, or because the combination of the two enterprises is large enough to dominate the market and by this means to raise prices, thus limiting competition also for the other enterprises. Of course, a situation may also arise in which the unified enterprises use their more powerful position chiefly in order to beat down their rivals in competition, and only after this goal has been achieved does the rate of profit begin to rise.

The unification of enterprises can take two forms. The enterprises may retain a formal independence, and affirm their association only by agreements, in which case we are faced with a 'consortium' (Interessengemeinschaft). If, however, the enterprises are dissolved in a new enterprise, this is called a 'merger' (Fusion). Both a consortium and a merger may be either partial, in which case free competition continues to prevail in the branch of industry concerned, or monopolistic.[20]

A consortium comprising as many enterprises as possible, 'which is intended to raise prices, and hence profits, by excluding competition as completely as possible, is a cartel. Or, in other words, a cartel is a monopolistic consortium. A merger which is designed to attain the same end, by the same means, is a trust. A trust, then, is a monopolistic merger.[21]

Furthermore, a consortium and a merger may both be either horizontally integrated, i.e. encompass enterprises in the same branch of production, or vertically integrated, i.e. link enterprises which operate at successive stages of production.* We therefore refer to horizontal or vertical mergers and consortia, or to horizontal or vertical cartels and trusts. It should also be noted that consortia are quite frequently formed today, not by formal contracts, but through personal connections which express relations of interdependence among capitalist firms. Mergers and consortia are possible in commerce and banking as well as in industry. Such associations occur in the same sphere of activity, and I therefore refer to them as `homospheric'. But combinations can also be formed which link, for example, a commercial enterprise with a bank, as happens when a bank establishes a commodities department, or a department store opens a deposit bank. Similarly, an industrial enterprise may establish a commercial firm ; thus, for example, shoe manufacturers in large cities often establish retail shops to sell directly to the final consumers. In this case, I refer to the combinations as `heterospheric'.

It should be noted here that the various branches of industry are no more immutable than are the species of the natural world. Combination, carried to its logical conclusion, only constructs a comprehensive branch of industry out of previously separated branches. It is easily conceivable that the iron industry will come to constitute a single branch of industry comprising everything from the mining of coal and ore to the production of rails and wire, since every single iron works will encompass all these kinds of production and the specialized enterprise will have disappeared. In such a branch of industry all the means of limiting competition become possible, from the consortium to the trust.

Vertical integration, whether in the form of a consortium or a merger, does not restrict competition, but only strengthens the combined firm in its competition with those which remain independent. On the other hand, horizontal integration, even if it is partial, always reduces competition, and if it is complete, eliminates it altogether. Aside from their economic advantages, the combine, the merger, and the trust also enjoy the technical advantages which characterize large firms as against smaller ones. These vary according to the nature of the enterprise and the industry. Such technical advantages themselves may be enough to lead to the formation of combinations and mergers, but consortia and cartels, on the other hand, only arise from purely economic advantages.

As a rule all these unifications of industrial enterprises are facilitated by the common interests which link the enterprises with a bank. For example, a bank which has a strong interest in a coal mine will use its influence with an iron works to persuade the latter to purchase its coal from that mine. This is an embryonic form of combination. Or the bank's interest in two similar enterprises which are engaged in fierce competition in various markets, may lead it to attempt some agreement between them, and this prepares the way for a horizontal integration in the form of a consortium or a merger.

This kind of intervention by the banks expedites and facilitates a process which is implicit in the trend toward industrial concentration. But the banks employ different means to achieve this end. The outcome of the competitive struggle is anticipated; hence, unnecessary waste and destruction of productive forces is avoided, but on the other hand there is no immediate concentration of ownership such as usually results from competition. The owner of the other factory is not expropriated. There is simply a concentration of production and enterprises without concentration of ownership. Just as on the stock exchange there is concentration of ownership without any concentration of production, so there now takes place in industry a concentration of production without any concentration of ownership; a striking expression of the fact that the function of ownership has become increasingly separated from the function of production.

On the other hand the bank's involvement in these processes means, first, greater security for the capital it has lent as credit, and second, the opportunity for profitable business in buying and selling shares, floating new share issues, and the like. For the unification of these enterprises means larger profits for all of them. A part of this increased profit is capitalized and appropriated by the bank. The bank is interested in the process of unification not only as a credit institution, but also and primarily as a financial institution.

The growing concentration also creates obstacles to its own further progress. The larger, stronger, And more similar the enterprises, the less chance there is that any one of them will be able to expand its production by eliminating one of the others through competition. Furthermore, the low rate of profit and the fear that prices, which are low anyway, will be further depressed by an increase in production, prevents expansion, which might otherwise be desirable on technical grounds. But the advantages of large-scale production cannot be dispensed with in depressed market conditions, and a way out is offered by the unification of previously separate enterprises into a larger concern by means of a merger.

How large a share of the total production must a monopolistic combination have in order to dictate the market price? There is no general answer to this question valid for all branches of production. Yet there is a basis for an answer if we recall what was previously said about the differences in the behaviour of competitors in periods of prosperity and depression. When business is good, and demand exceeds supply, the price of the product will be as high as possible, and at such times outsiders sell above rather than below the cartel price. It is different during a depression when supply exceeds demand. This is the time when it must be made clear whether or not the combination does really control the market. This will be so only if its output is absolutely indispensable to meet the requirements of the market. It will only sell if its price is met, and this price must be met simply because the market cannot dispense with the output of the cartel. The latter can then sell the quantity lacking in the market, at its own chosen price. But it must restrict production sufficiently not to flood the market, whereas outsiders are able to dispose of their entire output. This kind of price policy is most likely to be followed first in those branches of production in which restriction of output does not involve too great a sacrifice, that is to say, particularly where human labour constitutes one of the main elements and the depreciation of constant capital does not play a very important part. Both these conditions prevail in the extractive industries. Ore and coal do not depreciate and human labour is the main factor in their production. Second, this price policy can be followed in the case of products, the consumption of which contracts only slightly during a depression. When both the above-mentioned features are absent, however, the cartel is obliged to make price concessions to meet the competition of outsiders if it is to maintain its sales. This is the point at which a cartel which does not dominate the total production loses its control over the market and free competition is re-established.

The necessity of curtailing production makes for higher production costs on a diminished output and a lower rate of profit; and so runs counter to the tendency to maintain prices even during a depression, which reflects the cartel's domination of the market. The cartel can avoid this restriction of production, however, if it meets only the average demand of the market, and leaves the satisfaction of cyclical demand to the outsiders. But this is possible only if the outsiders cannot produce more than is required by the additional demand in a period of prosperity (for otherwise there is a danger that the sales of the cartel itself would be restricted), and second, the outsiders' costs of production are higher than those of the cartel. Only under these conditions would price levels that are still profitable for the cartel drive its competitors out of the market and guarantee its own sales. In other words, it is essentially the outsiders upon whom the entire burden of business fluctuations is imposed. The cartel makes large additional profits during periods of prosperity, and normal profits during a depression, when its competitors are eliminated. Under such conditions it is undoubtedly in the interest of the monopolistic combination not to prevent the activities of outsiders altogether, as it would have the power to do in many cases, thanks to its dominant position.

In what circumstances can production by outsiders be expected to operate at such a disadvantage? This may be the case when the size and technical equipment of the monopolistic combination ensure its superiority, but such advantages are often transient or not sufficiently great. It is a different matter when the cartels concerned have at their disposal more favourable natural conditions of production, and can therefore connect a natural monopoly with an economic one. Such, for example, are the cartels which have acquired particularly high-grade coal or ore mines, or advantageous water-power sites, leaving the outsiders at a disadvantage. The latter will then be unable to increase their production sufficiently to endanger the cartel's sales, and they will only be able to produce at all when the high prices during a period of prosperity cover their high costs of production.

The steel trust provides an excellent example of this kind of policy. The corporation could easily increase its output, but it does not do so, simply in order to avoid the burden of overproduction during a depression.

The large combined enterprises in the pig-iron industry consider it desirable to have a basic output which will always find a market. In order to achieve this, they allow the outsiders who do not belong to the combine, and whose costs of production are high, to expand steadily during times of lively demand and even give them more work by passing on orders to them. With rising prices the backward firms become profitable again, a speculative fever leads to the establishment of new independent concerns, and in short, production increases at a higher level of costs compared with the previous very low costs. This trend continues until the increasing demand is satisfied and prices begin to fall again. Now the blast furnaces which were brought into operation during the boom disappear from the market if their costs of production are too high, since they cannot show a profit. Only the firms With the lowest costs of production survive, because they are still able to produce profitably; and these are above all the steel trust, the large combines, and here and there a particularly well favoured, independent blast furnace concern.

This is how the large enterprises, and above all this corporation, establish a pattern of production which, in the main, can operate at a profit and find a market for its output in bad times as well as good. During good times, the corporation is not hurt by the increased competition of outsiders, for if it undertook to meet the increased demand itself it would suffer more keenly from the effects of overproduction in the subsequent recession, whereas the outsiders now have to bear the brunt of it.[22]

A somewhat different situation prevails, to take one example, in the case of the Rhenish-Westphalian Coal Syndicate. Here outsiders are not very important. In 1900 the syndicate mines accounted for 87 per cent of total production in the Dortmund Oberberg district, those outside the syndicate for only 13 per cent. The syndicate therefore controlled the market and prices. That is why it preferred to maintain the prosperity prices of 1900 even during the crisis of 1901, and to restrict production. As a result, the outsiders could increase their output somewhat in 1901 and 1902, whereas the output of the syndicate, which attached more importance to maintaining prices, declined.[23]

On the other hand, a monopolistic combination is obliged to follow a different policy in cases where the expansion of production is not restricted by any natural monopolies, and where it can be increased far beyond the amount of the additional demand in a period of prosperity, while costs remain the same or even lower. Control of the market will then depend essentially upon whether the combine controls an overwhelming part of the total output; otherwise a depression would make the cartel valueless to its participants, and perhaps destroy it.

The presence or absence of a natural monopoly has a crucial influence upon price formation and costs of production, and hence also upon the stability and durability of a monopolistic combination and the extent of its power to control the market. It is a crucial determinant of the proportion of total production which the combine must have in its own hands in order to be able to dominate the market.

The degree of assurance that control of the market is being maintained may vary greatly. It will be greatest when an economic monopoly can be effectively reinforced by a natural monopoly. At the same time, an established monopolistic combine has a great advantage because its large capital funds allow it to keep massive resources tied up over long periods of time. The strength of the syndicates which produce raw materials is largely due to their monopolization of the natural conditions of production, which is also greatly facilitated, in most cases, by mining legislation.

An economic monopoly is bolstered by a legal monopoly through the possession of patent rights by the monopolistic combinations. In this case too, because of their larger capital resources, they are in a better position than their individual competitors to acquire new patents and so to strengthen their monopolistic position.[24]

An intermediate stage between a natural and legal monopoly, and a purely economic monopoly, is that which encompasses means of transport.

Hence the effort of the trusts to acquire control over both land and water transport. Nationalization of the means of transport reduces monopolistic power and, to a certain extent, slows down the concentration of enterprises and property. Economic monopoly as such becomes all the stronger the larger the amount of capital necessary in order to establish a new enterprise, and the closer the connection between the banks and the monopolistic combination becomes ; for without the help of a bank, and certainly if the banks oppose it, a large industrial enterprise can scarcely remain viable today.


[1] Hobbes conceives this striving in universal terms: 'The general inclination of all mankind is a perpetual and restless desire of power after power, that ceaseth only in death. And the cause of this is not always that a man hopes for a more intensive delight than he has already attained to; or that he cannot be content with a moderate power; but because he cannot assure the power and the means to live well which he hath at present without the acquisition of more.' Leviathan, ch. XI, para 2.

That great portrayer of personified social types, Zola, has shown us, in Gunderman, the quintessence of the capitalist principle: profit for the sake of profit. Gunderman's entire consumption needs have been reduced to milk, but he continues to profiteer unremittingly. Hence his triumph - the triumph of the capitalist principle - over Saccard, whose passion for profit is clouded by elements alien to capital, such as the lust for power, cultural preoccupations, and the desire for luxury. In Gunderman the most senseless type of capitalist, the moneylender and stock exchange speculator, is admirably portrayed; much better than in Ibsen's John Gabriel Borkman, where social need is violated by capitalism. For Borkman bases his activities on social needs, rather than on an interest in profit; that is, on a motive alien to the capitalist. The tragic theme of capitalist drama is always this conflict between social interests and profit, which may account for their lack of realism. The personal suffering of the miser may, in some circumstances, convey a tragic impression, but the real capitalist is not a dramatic figure, only an episodic type in a novel.

[2] From the motives of active economic subjects, which themselves are determined by the nature of economic relationships, nothing more can be inferred than the tendency to equalize economic conditions: equal prices for equivalent commodities, equal profit for equal capital, equal wages and an equal rate of exploitation for equal work. But one can never get to the quantitative relationships themselves in this manner, by starting out from subjective motives. In order to discover the quantitative characteristics of the individual parts one must first know the size of the aggregate social product, in the distribution of which these equalizing tendencies take effect. Determinate quantitative conclusions can never be derived from psychological factors.

[3]The extent to which the participation of living labour has been reduced in modern rolling mills is illustrated by the following example: 'Lifting gear alone reduced the size of crews employed in rail rolling from 15-17 to 4-5 men. In America, the wage per ton (in cents) fell as follows:

For rail rollers, from 15 in 1880 to less than 1 in 1901;
For wire rollers, from 212 in 1880 to less than 12 in 1901;
For wire billet smelters, from 80 in 1880 to less than 5 in 1901,'

Hans Gideon Heymann, Die gemischten Werke im deutschen Grosseisengewerbe, p. 23.

[4]Heymann, op. cit., pp. 13 et seq.

[5] K. Rehe, Die deutsche Schuhgrossindustrie, p. 54.

[6]Heymann, op. cit., p. 26.

[7]The tendency towards the equalization of the rate of profit is important for understanding the movement of capitalist production and the mode of operation of the law of value as a law of movement. The law of value does not control directly each individual act of exchange but only the totality of exchanges, of which the individual exchange act is simply a part conditioned by the whole. From another aspect individual inequality of profits is important for the distribution of the total profit, for accumulation and concentration, and finally for the development of combinations, mergers, cartels and trusts.

[8]There can be no doubt that the different course of development taken by the banking system in England, which gives the banks far less influence over industry, is one cause of the greater difficulty of cartelization in England, and of the fact that when cartels have been formed, they have in most cases involved loose price agreements which achieve extraordinarily high prices during periods of prosperity and then collapse in a depression. (For numerous examples of such collapse see Henry W. Macrosty, The Trust Movement in British Industry, pp. 63 et seq.) Improvements in the organization of English industry, particularly the growth of combinations in recent years, are due to American and German competition. English industry has been retarded by its monopoly on the world market; the best proof that competition is necessary in the capitalist system.

The development of English banking also shows another characteristic. In Germany and the United States the common interests of industry are mainly represented by bank directors, through personal connections, whereas in England this is less important, because there the personal relations are established among directors of industrial corporations.

[9] Thus in mid June 1907 the entire output of the German and English spinning mills for the first quarter of 1908 had already been sold many times over. German coal consumers had placed firm orders with the coal syndicate in January 1907 for deliveries until March 1908, that is, 15 months ahead (Frankfurter Zeitung, 16 July 1907).

[10]Capital, vol. III, pp. 228-9 [MECW, 37, pp192-3]. The following passage cited by Marx is also quite a propos: 'If each man of a class could never have more than a given share or aliquot part of the gains or possessions of the whole, he would readily combine to raise the gains (he does it as soon as the proportion of demand to supply permits it); this is monopoly. But where each man thinks he may in any way increase the absolute amount of his own share, though by a process which lessens the whole amount, he will often do it; this is competition.' (An Inquiry into those Principles respecting the Nature of Demand, etc., London, 1811, p. 105, Anonymous.) In times of prosperity the 'given share' is fixed, and equals the entire product which a single entrepreneur can produce, but during a depression he must fight for his market.

[11] 'Experience has shown that even if cartels can be described as "children of necessity", and although in most cases the efforts to unite members of a trade find the most fertile soil in times of declining economic activity or crisis, nevertheless it is easiest to form cartels when business is good, and in a period of prosperity, for the prospect of maintaining favourable prices, linked with strong demand, provides the most powerful incentive to the unification of common interests. On the other hand, the attempt to obtain orders at all costs, even at the lowest price, and to take them away from competitors impedes any concerted action.' (Dr Wicker, in his paper on the Association of German Newsprint Producers, in Kontradiktorische Verhandlungen über deutsche Kartelle.) On the history of cartels, see also Heinrich Cunow, 'Die Kartelle in Theorie and Praxis,' Die Neue Zeit, XXII, 2, p. 210.

[12]Thus Levy observes, after citing the fact that despite the fluctuations of the world market price and the prices of raw materials, the price of steel rails in the United States remained unchanged at $28 from May 1901 to the summer of 1905: 'It appears that this organization, the pool, has always lost its power during bad times only to regain it during good times.'

`Thus, as soon as prices fell in 1892, the rails pool broke up, as a result of conflicts between its principal constituents, the Carnegie Steel Co. and the Illinois Steel Co. Similarly, the second pool broke up in 1897 after the brief upswing of 1896. A general demoralization of the market followed, which induced producers to take concerted action once again at the end of 1898, and to reconstitute the rails cartel.' Hermann Levy, Die Stahlindustrie der Vereinigten Staaten, p. 201.

[13]In the Ruhr, opening a new mine takes from 5 to 7 years. In the USA installing a steel works and rolling mill requires 2 years; longer, if it is combined with a blast furnace (Heymann, op. cit. p. 221).

The process described in the text is a phenomenon of competition, which explains why an analysis of it did not come within the scope of the investigation undertaken in Capital. Yet Marx did allude in passing to a similar phenomenon in another context : 'It is in the nature of things that vegetable and animal substances which are dependent on certain laws of time for their growth and production cannot be suddenly augmented in the same degree as, for instance, machines and other fixed capital, or coal ore, etc., whose augmentation, assuming the natural requirements to be present, can be accomplished in a very short time in an industrial country. It is therefore possible, and under a developed system of capitalist production even inevitable, that the production and augmentation of that portion of the constant capital which consists of fixed capital, machinery, etc., should run ahead of that portion which consists of organic raw materials, so that the demand for the latter grows more rapidly than their supply, and their price rises in consequence' (Capital, vol. III, p. 140 [MECW, 37,119-20]). The discrepancy described in this passage is due to the difference in turnover times. In the case of organic raw materials, the causes lie in nature; in the case of inorganic materials, the cause is the size of the capital, particularly the fixed capital.

[14]Levy, op. cit., p. 31.

[15] 15 ibid., p. 98.

[16]ibid., p. 121.

[17]ibid., p. 136.

[18]Heymann, op. cit., p. 223. In America, it was the demand of the railroads, which itself depended upon the size of harvests, which was the crucial factor in the fortunes of the iron industry during the initial stages of its development. Hence the violent fluctuations and large price variations in the course of the business cycle, and the early drive to form combinations in the United States. Cf. Levy, op. cit., p. 77.

[19]Capital, vol. I, pp. 381-2. [MECW, 35, 352-3]

[20]It should be noted here that an association is already monopolistic if it has a decisive influence in determining market prices. The continued existence of some independent firms, which always follow the lead of the combination in fixing their prices, does not alter the fact that free competition in the theoretical economic sense no longer exists in this branch of production. But in order not to offend any pedantic scruples, I refer to such combinations as 'monopolistic' rather than as fully-fledged consortia or mergers. Cf. R. Liefmann, Kartelle und Truste, p. 12.

[21]ibid., p. 13.

*Hilferding uses the terms homogen and kombiniert for what is referred to in English as horizontal and vertical integration. [Ed.]

[22]Levy, op. cit., pp. 156 et seq. Levy then illustrates what he has said with the following figures of pig-iron production. These include, to be sure, the production of poured and puddled iron in which the corporation had an insignificant stake, but as data illustrating the points made above they are striking. Production of pig-iron was as follows:



By the corporation (gross tons)

By independents (gross tons)

%share of the corporation in total production














The corporation's output therefore declined in 1903 compared with the previous year, while that of outsiders increased, so that its share in the total output fell from 44.3 per cent to 39.9 per cent. But in the depression year 1904 the corporation's production still increased somewhat, while the output of the outsiders fell by the enormous amount of 1,400,000 tons; that is, below the 1902 level.

In passing it should be remarked how superficial are the views of those who regard everyone outside a cartel as some kind of moral freak and economic criminal. This is ridiculous even from the standpoint of the profit interests of the cartel, let alone from that of society, because it is just the competition of outsiders which can be extremely valuable for the technical and organizational development of the monopolistic combination, leaving aside the interests of consumers.

[23] Kontradiktorische Verhandlungen über deutsche Kartelle, I, 1903. Testimony of Kirdorf, p. 80.

[24]On the other hand, the possession of patents may make unification more difficult under certain circumstances, if the extra profit achieved thereby is large enough to make the continuance of competition advantageous. 'Each branch of the textile machinery trade contains but a few names. Eight large firms in Lancashire manufacture cotton machinery, and, in addition to monopolizing the home trade, export to the value of about 4,500,000 annually. Repeated suggestions have been made for an amalgamation of their interests but they have always broken down. Mechanical industries lend themselves to inventions which, when patented, produce a monopoly for a term of years and while it lasts a patent is an argument against combination. Unwillingness to sink a world-famous name, especially when it has been gained by the exercise of individual enterprise and ingenuity, in an impersonal amalgamation must be reckoned as a powerful deterrent'. H. Macrosty, op. cit., p. 48.

In this 'case the small monopoly is the foe of the large one. Yet it is just the desire to pool patents which may provide the incentive to form a consortium. The agreements in the German chemical industry and between the Deutsche Allgemeine Elektrizitätsgesellschaft and the American Westinghouse Co. fall into this category.