It will pay Brown better to sell 1000 boxes of soap at a profit of sixpence on each box than to sell 2000 boxes at a profit of twopence a box, and it will pay him better to sell 4000 boxes at a profit of twopence each than it will to sell 1000 boxes at a profit of sixpence each.
Now, suppose there is a demand for 20,000 boxes of soap in a week. If Brown and Jones are content to divide the trade, each may sell 10,000 boxes at a profit of sixpence, and so may clear a total profit of 250.
If, by repeated undercutting, the profit falls to a penny a box, Brown and Jones will have very little more than 80 to divide between them.
And it is clear that it will pay them better to divide the trade, for it would pay either of them better to take half the trade at even a threepenny profit than to secure it all at a profit of one penny.
Well, Brown and Jones have the full use of their faculties, and are well aware of the number of beans that make five.
Therefore they will not compete beyond the point at which competition will increase their gross profits.
And so we shall find in most businesses, from great railways down to tooth brushes, that the difference in prices, quality being equal, is not very great amongst native traders, and that a margin of profit is always left.
At the same time, so far as competition _does_ lower prices without lowering quality, the benefit is to the consumer, and that much is to be put to the credit of competition.
But even there, on its strongest line, competition is beaten by State or Municipal co-operation.
Because, assuming that the State or Municipality can produce any article as cheaply as a private firm, the State or the Municipality can always beat the private trader in price to the extent of the trader's profit.
For no trader will continue to trade unless he makes some profit, whereas the State or Municipality wants no profit, but works for use or for service.
Therefore, if a private trader sells soap at a profit of one farthing a box, the State or Municipality can sell soap one farthing a box cheaper, other things being equal.
It is evident, then, that the trader must be beaten unless he can produce more cheaply than the State or Municipality.
Can he produce more cheaply? No. The State or Municipality can always produce more cheaply than the private trader, under equal conditions.
Why? For the same reason that a large firm can beat a small one, or a trust can beat a number of large firms.
Suppose there are three separate firms making soap. Each firm must have its separate factory, its separate offices, its separate management, its separate power, its separate profits, and its separate plant.
But if one firm made all the soap, it would save a great deal of expense; for one large factory is cheaper than two of half its size, and one manager costs less than three.
If the London County Council made all the soap for London, it could make soap more cheaply than any one of a dozen private firms; because it would save so largely in rent, plant, and management.
Thus the State or Municipality scores over the private firm, and co-operation scores over competition in two ways: first, it cuts off the profit; and, second, it reduces the cost of production.
But that does not exhaust the advantages of co-operation over competition. There are two other forms of competition still to examine: these are adulteration and advertisement.
We all know the meaning of the phrase "cheap and nasty." We can get pianos, bicycles, houses, boots, tea, and many other things at various prices, and we find that many of the cheap pianos will not keep in tune, that the bicycles are always out of repair, that the houses fall down, the boots let in water, and the tea tastes like what it _is_--a mixture of dried tea leaves and rubbish.
Adulteration, as John Bright frankly declared, is a form of competition.
It is also a form of rascality and fraud. It is a device for retaining profits for the seller, but it is seriously to the disadvantage of the consumer.
This form of competition, then, has to be put to the debit of competition.
And the absence of this form of competition has to be put to the credit of the State or the Municipal supply. For since the State or Municipality has no competitor to displace, it never descends to the baseness of adulteration.
The London County Council would not build jerry houses for the citizens, nor supply them with tea leaves for tea, nor logwood and water for port wine.
The sale of wooden nutmegs is a species of enterprise confined exclusively to the private trader. It is a form of competition, but never of commercial co-operation. It is peculiar to non-Socialism: Socialists would abolish it entirely.
We come now to the third device of the private trader in competition: the employment of commercial travellers and advertisement.
Of two firms selling similar goods, of equal quality, at equal prices, that firm will do the larger trade which keeps the greater number of commercial travellers and spends the greater sum upon advertisement.
But travellers cost money, and advertising costs money. And so we find that travellers and advertisements add to the cost of distribution.
Therefore competition, although by underbidding it has a limited tendency to lower the prices of goods, has also a tendency to increase the price in another way.
If Brown lowers the price of his soap the user of soap is the gainer.
But if Brown increases the cost of his advertisements and his staff of travellers, the user is the loser, because the extra cost has to be paid for in the price of soap.
Now, if the London County Council made soap for all London, there would be
1. A saving in cost of rent, plant, and management.
2. A saving of profits by selling at cost price.
3. A saving of the whole cost of advertising.
4. A saving of the wages of the commercial travellers.
Under a system of trade competition all those four items (plus the effects of adulteration) have to be paid for by the consumer, that is to say, by the users of soap.
And what is true of soap is true of most other things.
That is why co-operation for use beats competition for sale and profit.
That is why the Municipal gas, water, and tram services are better and cheaper than the same services under the management of private companies.
That is _one_ reason why Socialism is better than non-Socialism.
As an example of the difference between private and Municipal works, let us take the case of the gas supply in Liverpool and Manchester. These cities are both commercial, both large, both near the coalfields.
The gas service in Liverpool is a private monopoly, for profit; that of Manchester is a co-operative monopoly, for service.
In Liverpool (figures of 1897) the price of gas was 2s. 9d. per thousand feet. In Manchester the price of gas was 2s. 3d.
In Liverpool the profit on gas was 8d. per thousand feet. In Manchester the profit was 7d. per thousand feet.
In Liverpool the profits went to the company. In Manchester the profits went to the ratepayers.
Thus the Manchester ratepayer was getting his gas for 2s. 3d. less 7d., which means that he was getting it at 1s. 7d., while the Liverpool ratepayer was being charged 2s. 9d. The public monopoly of Manchester was, therefore, beating the private monopoly of Liverpool by 1s. 1d. per thousand feet in the price of gas.
In _To-day's Work_, by George Haw, and in _Does Municipal Management Pay?_ by R. B. Suthers, you will find many examples as striking and conclusive as the one I have suggested above.
The waste incidental to private traders' competition is enormous. Take the one item of advertisement alone. There are draughtsmen, paper-makers, printers, billposters, painters, carpenters, gilders, mechanics, and a perfect army of other people all employed in making advertisement bills, pictures, hoardings, and other abominations--for _what_? Not to benefit the consumer, but to enable one private dealer to sell more of his wares than another. In _Merrie England_ I dealt with this question, and I quoted from an excellent pamphlet by Mr.
Washington, a man of splendid talents, whose death we have unfortunately to deplore. Mr. Washington, who was an inventor and a thoroughly practical man of business, spoke as follows:--