Finance Capital, Hilferding 1910


The reorientation of commercial policy

Finance capital signifies the unification of capital. The previously separate spheres of industrial, commercial and bank capital are now brought under the common direction of high finance, in which the masters of industry and of the banks are united in a close personal association. The basis of this association is the elimination of free competition among individual capitalists by the large monopolistic combines. This naturally involves at the same time a change in the relation of the capitalist class to state power.

The bourgeois conception of the state has its origins in the struggle against mercantilist policy and against the centralized and privilege-dispensing state power. It represents the interests of the nascent capitalist manufacturing and factory system in opposition to the privileges and monopolies of the large trading and colonial companies on the one hand, and of the closed handicraft guilds on the other. The struggle against state intervention could only be carried on, however, when it could be shown that economic legislation by the state was unnecessary and harmful. The ascendancy of the laws regulating the economic system itself over state legislation had to be demonstrated.[1]

Thus the policy of the bourgeoisie comes to be based upon political economy and its struggle against mercantilism becomes a battle for economic freedom, which in turn develops into a broader struggle for individual liberty against the tutelage of the state. This is not the place to follow in detail the flowering of these ideas in the Weltanschauung of liberalism; but perhaps it should be pointed out that wherever, as in England, the struggle for economic freedom is victorious before the modern scientific outlook has emerged, liberalism does not incorporate this outlook in its view of the world. The revolutionary subversion of all moral and religious ideas, which French liberalism engendered, never took root in the popular consciousness in England, whereas conversely, liberalism became more deeply entrenched there than anywhere on the continent.

Yet even in England the triumph of laissez-faire was far from complete; the banking system remained immune, and the theory of banking freedom succumbed to the practical needs of the governors of the Bank of England. The theory of the Manchester School had an even smaller influence on the actual course of foreign policy, which remained the executive arm of English world trade in the nineteenth century just as it had been in the seventeenth and eighteenth centuries. On the continent the movement was limited to achieving freedom of the trades and professions, and remained a rule for domestic policy, while the policy for external trade quite naturally continued on a protectionist basis. England's free trade policy was based, after all, on its lead in capitalist development and on the technical and economic advantage which this gave to English industry. This lead was not due solely to natural causes, although they played an important role; thus until the modern transport system had developed water-borne traffic, and the saving in freight charges resulting from the location of iron ore and coal in close proximity to each other, were bound to have a decisive significance. On the other side, however it should not be forgotten that capitalist development is the accumulation of capital, and the more rapid accumulation in England was due, in large measure, to the outcome of the power struggles with Spain, Holland and France for control of the seas, and hence the control of colonies, as well as to the rapid proletarianization which followed the victory of the large landowners over the peasants.

England's industrial pre-eminence gave her a larger stake in free trade just as, at an earlier time, Holland's lead in capitalist development had committed her to a free trade policy.[2] Internally the development of industry, the growth of population, and its concentration in the cities, very soon made domestic agricultural output inadequate. As a result the price of grain was determined by the particularly high costs of transport which prevailed prior to the revolution in the means of transportation, and by the tariff which was then going into effect. Furthermore, even during the transition period, when good harvests made grain imports unnecessary, while bad ones increased them enormously, the landlords saw to it that through a system of export subsidies famine prices were periodically created, and the inelastic monetary system of England had the effect of bringing about a monetary crisis in the wake of every increase in food prices. This whole system was quite contrary to the interests of industry; manufacturers had no reason to fear the import of foreign industrial products since their own enterprises were technically and economically far superior, and on the other hand, grain prices were the most important element in the 'price of labour', which itself played a part in the industrialists' cost prices that was all the more important because the organic composition of capital was still low and the share of living labour in the value of the total product was therefore relatively high. The openly avowed purpose of the English anti-tariff campaign was to reduce costs by making both raw materials and labour power cheaper.

Similarly, English industrial and commercial capital was greatly interested in encouraging free trade in other countries, but had little interest in the possession of colonies. To the extent that colonies served as markets for industrial products and for the purchase of raw materials, England had to face no competition worth mentioning so long as these areas remained under a regime of free trade. The campaign for an active colonial policy, which was very expensive, raised taxes, and weakened the parliamentary system at home, abated in face of free-trade propaganda. Nevertheless, the idea of abandoning the colonies remained a platonic demand of radical free traders. The most important of these colonies, India, was never regarded as a mere market; dominion over India assured a large and influential class of high incomes as a 'tribute for good government'.[3] Moreover, in this important market 'security' was an essential condition of sales, and it was questionable whether the surrender of England's dominion might not revive old conflicts which would reduce its trading opportunities.[4]

The commercial policy interests on the continent were entirely different. Here the principal champions of free trade were the agrarian suppliers of raw materials and the exporting landowners, because free trade would have enlarged the market for their own produce and lowered the price of imported industrial products. The interest of the industrialists, on the other hand, lay in the opposite direction. There was no question of a tariff on agricultural products, but the overwhelming English competition obstructed or retarded the development of indigenous industry. It was necessary first of all to overcome the difficulties of take-off, to master the obstacles created by the shortage of skilled workers, foreman and engineers, to close the technological gap, to create marketing organizations and promote the development of credit, to accelerate proletarianization by undermining the competitive position of the handicraft producers, and to dissolve the traditional peasant economy - in short to catch up with all the things which gave England her supremacy. In addition, there was a fiscal interest in tariff revenues, which at that time, when the system of indirect taxation was in its infancy, and the existence of a natural economy over large areas of the country posed insuperable obstacles to its extension, were far more important than they are today. The tariff revenues of the continental states, in so far as they came from duties levied on industrial products, were apparently not economically harmful during that period. It is true, of course, that the domestic consumer had to pay more for the product, say, of English industry by the amount of the tariff, but the difference flowed into the state treasury, whereas today the protective tariff not only pours money into the state treasury but also exacts enormous payments from domestic consumers and transfers them to industrialists and landowners. Conversely, the fiscal interest is now coming to the fore in England, because the tax system evolved to date can be perfected only with great difficulty and in the face of fierce resistance, given the present distribution of political power among the various classes. So far as their colonial possessions were concerned, the colonial powers also had to reckon in this case with the overwhelming power of English competition if ever they dismantled the protective tariff barriers and privileges.

Thus the tariff policies of the industrial classes in England and on the continent followed different directions, as a result of the industrial pre-eminence of English capitalism. The continental and American protective tariff systems were given a theoretical justification in the works of List and Carey. List's system is not a refutation of the theory of free trade as it was formulated, for instance, by Ricardo. It propounds an economic policy which would really make the free trade system feasible, by facilitating the development of a national industry for which that system would be appropriate. This was the only purpose which List's 'educational' tariffs were intended to serve, and he therefore proposed low tariffs designed to eliminate the disparity between England's superiority and Germany's backwardness, which would only be imposed for a limited period of time since his policy was intended ultimately to make tariffs unnecessary.

This tariff policy of developing capitalism is transformed into its opposite by the tariff policy of advanced capitalism. List's system was avowedly a system designed for backward capitalist countries. But here again the law of the heterogony of ends asserted itself.[5] It was not free trade England, but the protectionist countries, Germany and the United States, which became the model states of capitalist development, if one takes as a yardstick the degree of centralization and concentration of capital (that is, the degree of development of cartels and trusts) and of the domination of industry by the banks - in short, the transformation of all capital into finance capital. In Germany the rapid rise of industry after the abolition of internal tariff barriers, and especially after the establishment of the empire, brought about a complete realignment of interests with respect to commercial policy. When the landowners stopped exporting agricultural products they became protectionist. The supporters of a protective tariff in industry made common cause with them, and it was precisely the representatives of heavy industry, particularly the iron industry, who clamoured for protection against the more powerful competition from England. This branch of industry had a high organic composition of capital and could easily bear the rise in food prices, which at that time was moderate, and the effects of which were being offset by nascent agricultural competition from America. On the other hand, industry suffered greatly as a result of the crisis. English competition was all the more difficult to meet because the German iron industry lagged far behind the English for natural and technical reasons, especially before the discovery of a method for removing phosphorus from pig-iron. In addition, it was precisely in the industries with a very high organic composition of capital and an exceptionally large component of fixed capital, that it was difficult to overcome the advantages of industries which had developed earlier elsewhere. A part of bank capital, which was intimately associated from an early stage - indeed from the very outset - with the development of heavy industry in Germany, also supported a policy of protective tariffs. The opponents of such a policy were those sectors of industrial capital which had invested in the export industries, and commercial capital. The victory of protectionism in 1879, however, marked the beginning of a change in the function of the tariff from an 'educational' tariff to a protective tariff for cartels.[6]

There is no doubt that the exclusion of foreign competition gives an exceptional impetus to the formation of cartels. It does this directly in so far as a reduction in the number of competitors facilitates agreement among them; and indirectly, because the protective tariff, by its nature and origin - since it is at this stage of development in Europe and the USA the vehicle of the powerful capitalists of the raw materials and semi-finished goods industries - is as a rule more advantageous to these industries than to the export oriented finished goods industries, which had to compete on the world market with similar English products, the cost price of which had not been increased by tariffs. It was this circumstance which necessarily favoured the development of the industries engaged in the production of means of production, placing at their disposal all the capital they needed for their technical equipment, accelerating their advance to a higher organic composition of capital and at the same time their concentration and centralization, thus creating the prerequisites for their cartelization.

There was still another circumstance, stemming originally from the backwardness of German industrial development, which eventually became a cause of the organizational superiority of German industry as compared with that of England. English industry developed so to speak organically and gradually from small beginnings to its later greatness. The factory was an outgrowth of co-operation (simple division of labour) and manufacture, which first developed principally in the textile industry, an industry which required comparatively little capital. Organizationally it remained, for the most part, at the stage of individual ownership; the individual capitalist rather than the joint-stock company predominated, and capitalist wealth remained in the hands of individual industrial capitalists. There emerged gradually, but at an increasing pace, a class of wealthy industrial entrepreneurs, owning large capital resources, whose property consisted of their productive plant. Later on, when joint-stock companies acquired greater importance, especially with the development of large transport undertakings, it was mainly these large industrialists who became shareholders. It was industrial capital, in terms of both its origin and its ownership, which was invested in these companies. Like industrial and merchant capital, so too bank capital - and notably the capital used in share issuing activities - remained exclusively in the hands of individual capitalists, while the joint-stock banks only provided circulation credit and so acquired little influence upon industry. The bankers who specialized in share issues had equally little influence, since as a result of their activities they had ceased to be bankers and had become, at least to some extent, industrialists themselves. This predominance of capital accumulation in the hands of individual capitalists, one of the earlier and, as it were, organic features of English capitalism, was lacking both on the continent and in the United States. In addition the large sums flowing in from the colonies, especially India, and from the exploitation of England's trade monopoly, were also accumulated in the hands of individual capitalists; and this too was entirely absent in Germany and America.

Thus when the political obstacles to capitalist expansion were finally overcome in Germany by the customs union (Zollverein) and then by the establishment of the Empire, so that the way was clear for capitalism, it was obvious that capitalist development could not simply follow the English pattern. It was essential, indeed, to put every effort into establishing as the starting point the technical and economic stage already reached in the more advanced country. In Germany, however, there was lacking that accumulation of capital in the hands of individuals which was needed if production in the most highly developed industries were to be brought to the level already attained in England on the basis of individually owned enterprises. Hence the joint-stock company had to assume a new function in Germany, besides those which it had in common with English companies; namely, to become the instrument for raising the required capital which, as a result of the smaller scale of accumulation, neither individual capitalists nor the industrial capitalist class as a whole possessed. Whereas in England the joint-stock company, particularly in its early days, was essentially an association of wealthy capitalists, its task in Germany was also to provide industrialists with the capital they needed and to direct into their enterprises the money of other classes. This could not be accomplished through the direct issue of shares on the same scale as was possible through the services of the banks, in which all the idle money of the capitalists themselves, but also of other classes, was concentrated and could be made available to industry. The same cause which favoured the joint stock form of enterprise in industry was also responsible for the fact that the banks became joint-stock banks. Thus the German banks, from the very outset, had the task of providing German industrial companies with the capital they needed; they were the source of capital credit and not only of circulation credit. In Germany, therefore, and in a somewhat different way in the United States, the relation of banks to industry was necessarily, from the outset, quite different from that in England. Although this difference was due to the backward and belated capitalist development of Germany, the close connection between industrial and bank capital nevertheless became, in both Germany and America, an important factor in their advance toward a higher form of capitalist organization.[7] This conjunction of a protective tariff policy with the financing of industry by the banks necessarily produced, in conditions of rapid industrial growth, those tendencies towards cartelization which themselves then created new groups which had a stake in protective tariffs, because the function of the tariff changed.

The purpose of the old protective tariff, aside from compensating for various natural disadvantages, was to accelerate the emergence of industry within the protected borders. It was intended to guard the developing domestic industry against the danger of being stifled or destroyed by overwhelming competition from a well developed foreign industry. It needed only to be high enough to offset the advantages of foreign industry, and in no circumstances could it be prohibitive because domestic industry could not yet satisfy the entire demand. Above all it was not regarded as permanent. Once it had fulfilled its 'educational' function, and domestic industry had developed to the stage where it could both satisfy domestic demand and begin to think about exports, the protective tariff lost its meaning. It became an obstacle to export promotion, since it induced other nations to adopt similar policies. Under a system of free competition, it would cease to raise prices when the protected domestic industry could satisfy domestic demand and begin to export goods. The price on the protected market would then necessarily be the same as the price on the world market, because the saving of freight charges to more distant foreign markets would make sales on the domestic market more profitable than those abroad and the output of industry would equal or exceed domestic demand. The protective tariff, therefore, was intended to be both moderate and temporary, simply to help an infant industry overcome its initial difficulties.

But matters are different in the age of capitalist monopolies. Today it is just the most powerful industries, with a high export potential, whose competitiveness on the world market is beyond doubt and which, according to the old theory, should have no further interest in protective tariffs, which support high tariffs. If we assume the maintenance of free competition a protective tariff loses its power to raise prices once domestic industry fully satisfies domestic demand. But the protective tariff for industry was one of the most effective means of promoting cartels, first by making foreign competition more difficult,[8] and second, because cartels provided an opportunity to take advantage of the tariff margin even when industry had become capable of exporting. By restricting production quotas for domestic consumption the cartel eliminates competition on the domestic market. The suppression of competition sustains the effect of a protective tariff in raising prices even at a stage when production has long since outstripped domestic demand. Thus it becomes a prime interest of cartelized industry to make the protective tariff a permanent institution, which in the first place assures the continued existence of the cartel, and second, enables the cartel to sell its product on the domestic market at an extra profit. The amount of this extra profit is given by the difference between the domestic price and the price on the world market. This difference, however, depends upon the level of the tariff, and so efforts to raise tariffs have become just as unrestrained as those to increase profits. Cartelized industry has therefore a direct and supreme interest in the level of the protective tariff. The higher the tariff, the more the domestic price can be raised above the price on the world market; and so the 'educational' tariff has evolved into a high protective tariff. The protagonist of friendly agreements and advocate of the gradual reduction of tariffs has become a fanatical high tariff protectionist.

But the cartel does not only benefit from the protective tariff on its own products. As we know, the cartel price, other things being equal, is constrained by the rate of profit in other industries. For example, if the rate of profit of the machine tool industry is increased by a higher duty on imported machinery, the cartels in coal and iron production will be able to raise their prices and so appropriate for themselves part or all of the extra profit of the machine tool industry. Monopolistic combinations thus acquire an interest in tariff protection not only for their own products, but also for those of industries which use their products in a later stage of production.

The protective tariff thus provides the cartel with an extra profit over and above that which results from cartelization itself,[9] and gives it the power to levy an indirect tax on the domestic population. This extra profit no longer originates in the surplus value produced by the workers employed by the cartels; nor is it a deduction from the profit of the other non-cartelized industries. It is a tribute exacted from the entire body of domestic consumers, and its incidence on the various strata of consumers - whether, and to what extent, it is a deduction from ground rent, from profit, or from wages - depends, as with any other indirect taxes imposed on industrial raw materials or consumer goods, upon the real power relations and upon the nature of the article which is made more expensive by the cartel tariff.

An increase in the price of sugar, for example, affects the mass of workers more severely than does an increase in the price of agricultural machinery or of bentwood furniture. But whatever the final outcome of these increases, the fact remains that a part of society's income is seized in this way for the benefit of cartelized industry, protected by tariffs, which is thereby enabled to accelerate enormously its accumulation of capital.

This way of increasing profits was bound to assume greater importance when it became impossible to raise the rate of profit by means of an increase in absolute surplus value, by extending the working day and depressing wages, as a result of the growing strength of labour organizations, which tended to produce a trend in the opposite direction. The fact that the introduction of a protective tariff for industrial goods was accompanied by increases in the duties on agricultural products, had little importance for the heavy industries. Since the organic composition of their capital is high the increased cost of labour power is not an excessive burden, their position in wage disputes is extraordinarily strong, and the modest rise in costs of production as a result of the agricultural tariffs is more than compensated by the extra profit derived from their own protective duties, provided they are high enough.

The increase in prices on the domestic market, however, tends to reduce the sales of cartelized products, and thus conflicts with the trend towards lowering costs by expanding the scale of production. This may well endanger the existence of cartels which have not yet become firmly established. The largest, best equipped concerns, for which the reduction of sales as a result of cartel policy is unacceptable, would renew the competitive struggle in order to destroy the weaker firms and take over their share of the market; and after the battle is over a still stronger cartel may emerge on a new basis. But if a cartel is already well established, it will try to compensate for the decline of the domestic market by increasing its exports, in order to continue production as before and if possible on an even larger scale. On the world market, of course, the cartel has to sell at world prices. If the cartel is efficient and capable of exporting - which is our assumption here - its real price of production (c + p) will correspond with the world market price. But a cartel is also in a position to sell below its production price, because it has obtained an extra profit, determined by the level of the protective tariff, from its sales on the domestic market. It is therefore able to use a part of this extra profit to expand its sales abroad by underselling its competitors. If it is successful it can then increase its output, reduce its costs, and thereby, since domestic prices remain unchanged, gain further extra profit. It can also achieve the same result by paying its domestic customers export subsidies out of the extra profit when they ship its products abroad. The maximum export subsidy in this case, given the size of the economic area and the volume of domestic consumption, is determined by the level of the tariff. When business conditions are good, the cartel will be able to set this subsidy much lower, or even eliminate it altogether, and in this way appropriate a part of the profits of prosperity which would otherwise have gone to its customers. In bad times even the full subsidy may perhaps be inadequate to compensate its customers for the losses resulting from the fall in prices on the world market. The history of cartels shows repeatedly how important it is for their continued existence that they should have the export trade in their hands, since otherwise they are continually threatened by a restriction of exports as a result of the failure to develop an adequate system of subsidies. With the development of export subsidies the function of the protective tariff has undergone a complete change, and indeed has turned into its opposite. From being a means of defence against the conquest of the domestic market by foreign industries it has become a means for the conquest of foreign markets by domestic industry. What was once a defensive weapon of the weak has become an offensive weapon in the hands of the powerful.

English free trade was certainly never regarded by its advocates as an economic policy to be followed by England alone. Indeed, a general extension of free trade was a major interest of English industry, assuring it of its monopoly on the world market. The protective tariff of other states meant a diminution of the marketing possibilities for English goods. There has been a change also in this respect today because capital has found a way of surmounting this obstacle. The introduction or raising of the tariff in another country means indeed, as always, a decline in the marketing opportunities of the country which exports to it, and hence an obstacle to the industrial development of the latter. But the protective tariff also means extra profit in the former country, and this becomes an inducement for other countries to transfer the production of commodities, rather than the commodities themselves, to the foreign country. As long as capitalism was still not fully developed such opportunities were relatively limited, partly because state legislation at that time intervened obstructively, and partly because the economic prerequisites for capitalist production were still inadequate. The lack of public order, the shortage of labour, especially skilled labour, constituted obstacles which could only be overcome slowly and by degrees, and made the transfer of capital extraordinarily difficult. But today these obstacles have, for the most part, been eliminated, and so it has become possible for capital in a developed country to overcome the harmful effects of a protective tariff on the rate of profit by means of the export of capital.


[1]Since the essence of political economy is the discovery of economic laws, the struggle against mercantilist economic policy became one of the most powerful driving forces in the development of economic theory. The other stimulus, antedating it, and of greater fundamental importance, was the attempt to solve the key problem of economic legislation at the beginning of modern capitalism, that of establishing a sound monetary system. By raising the problem of money Petty became the founder of classical political economy, because this question leads directly to the problem of value, and hence to the basic law of political economy.

[2]'Dutch supremacy in trade and seafaring reached its peak during the period from the founding of the East India Company to the wars against Cromwell and Charles II (1600-75). At the end of this period, Colbert estimated the entire merchant marine of the European states at 20,000 seagoing vessels, of which 16,000 belonged to Holland alone, thus earning for the Dutch the title of the freight carriers of Europe. They created an enormous colonial empire in Asia, in South and North America, and in Africa; a large insurance business grew up; the leading stock exchange was that in Amsterdam, which was virtually the world market for money, and its low interest rates always stood industry and commerce in good stead. No other nation could rival the Dutch in herring fishing and whaling. Holland's commercial policy was the most liberal of that period. There were no competitors whom the Dutch had any reason to fear.' Sartorius, Das volkswirtschaftliche System, p. 369.

[3]The amount of the pensions alone which stream into England each year from India is currently estimated at 320,000,000 marks. These are supplemented by the enormous contributions for the salaries of English officials, for the maintenance of the army, and for the conduct of some of England's colonial wars in Asia.

[4]'Despite Cobden, England did not give up her colonies. The leading liberal statesman of the day, Lord John Russell, probably expressed the sentiment of his party when he declared that the time had not yet come to give them up. In the meantime, England would have to do everything in its power to educate the colonies for self-government. In fact, under the influence of the Manchester School, England had rejected its previous point of view that colonies were useful possessions. Sir Robert Peel had declared that "in every one of our colonies, we have a second Ireland". England now began to build up a voluntary relationship with its colonies, endowing them with parliamentary institutions. The adherents of the Manchester School thus became - quite unwittingly - the founders of a new British Empire which could not have been held together by redcoats.' Schultze-Gavernitz, Der Britischer Imperialismus, p. 75.

[5]The term `heterogony of ends' is taken from the psychological theory of Wilhelm Wundt, and refers to the possibility that the consequences of a course of action will lead to a modification of the original end or the emergence of unintended ends. [Ed.]

[6]See Rudolf Hilferding, 'Der Funktionswandel des Schutzzolles', in Die Neue Zeit, XXI, 2 (1902/3); and Robert Liefmann, Schutzzölle und Kartelle. A wealth of illustrative material is to be found in Hermann Levy, `Einfluss der Zollpolitik auf die wirtschaftliche Entwicklung der Vereinigten Staaten', Conrads Jahrbücher, XXXII (1909) and `Entwicklungsgeschichte einer amerikanischen Industrie', Conrads Jahrbücher, XXIX (1905).

[7]That a similar development, for which the founding of the Crédit Mobilier paved the way, proved abortive in France can be explained by the same causes which frustrated the industrial expansion of France in general. These included a distribution of land unfavourable to capitalist development, its consequences in the two-child family, and hence the absence of a sufficiently large industrial reserve army, an excessively protective tariff policy, and the excessive export of capital itself, caused by the existence of a rentier class based upon the petty bourgeoisie, the small peasants, and the luxury industries.

The testimony given by Alexander at the Stock Exchange inquiry, (Deutsche Börsenenquete, Part I, p. 449) throws light on the relation between the nationalization of capital and the reinforcement of the banks' influence on industry as a result of the fact that German industrialists lack capital resources of their own. According to him a large number of coal mines such as Herne, Bochum, etc., were owned until recently (1892) by French and Belgian shareholders. At the same time a process of concentration was taking place. The banking institutions acted as middlemen in purchasing the shares because the companies themselves did not have the necessary liquid resources. The banks could only undertake these transactions because they were certain that they would soon be able to dispose of these securities, in which they had tied up their funds, through futures operations.

It may be assumed, moreover, that the weakening of the stock exchanges through legal restrictions, especially those which limit trading in futures, tends to increase the influence of the banks over industry, because industry then becomes more dependent upon the services of the banks than would be the case if there were a vigorous stock exchange. And in fact the consequences of German stock exchange legislation were very advantageous to the banks.

[8]Naturally, manufacturers are well aware that free trade tends to impede the formation of cartels. An English manufacturer, writing in The Times of 10 October 1906 proposed the formation of a cartel of English electrical manufacturers. The writer admitted that 'in a free trade country, high prices or underproduction would merely throw the trade into the hands of foreign rivals'. Another manufacturer answered, 'If we had protection in this country, it is possible that we might do something in the way suggested in this letter, but we have found from experience that it is absolutely impossible to attempt any combination, as things are, to keep prices up on the lines suggested by your correspondent. We are all suffering at present from overproduction, and until this is rectified, either by manufacturers restricting their output or going out of trade altogether, we shall continue to suffer.' H. J. Macrosty, The Trust Movement in British Industry, p. 319. Macrosty himself writes: 'The weakness of every form of combination in the United Kingdom is due to the free admission of foreign competition. If that can be removed their strength is enormously increased and all the conditions of the problem are altered' (op. cit., p. 342).

[9]The extent to which this has served as an incentive to cartelization is shown by the great shock which the German and Austrian sugar cartels sustained when the sugar duty was reduced to 6 francs, as required by the Brussels Convention. The Austrian duty of 22 kroner, for example, gave the refineries united in the cartel an extra profit which was so high that it far outweighed any advantages which the largest and most technically advanced firms might have gained from competing with and eliminating the smaller firms and it was the main inducement to forming a cartel. At the same time it was much easier to accept the allocation of production quotas, even though they imposed heavier burdens on the largest and technically most advanced firms, because the level of the tariff and the resulting increase in domestic prices more than compensated for the disadvantages. This example shows that it is not just the tariff itself, but its level, which is significant for cartelization.