economic policy is, as
we have seen, the acceptance by the state of certain of the results of
corporate industrial organization. Such state recognition is equivalent
to discrimination in their favor, because it leaves them in possession
of those fundamental economic advantages, dependent on terminals, large
capital, and natural resources, which place them beyond effective
competition; and the state has good reason to suffer this
discrimination, because a wise government can always make more social
capital out of a cooeperative industrial organization than it can out of
an extremely competitive one.

It is extremely improbable that, even when officially recognized in this
way, the process of corporate combination would go beyond a certain
point. It might result in a condition similar to that which now prevails
in the steel industry or that of sugar refining; but it should be added
that in industries organized to that extent there is not very much
competition in prices. Prices are usually regulated by agreement among
the leading producers; and competition among the several producers turns
upon quickness of delivery and the quality of the service or product.
Whether or not this restriction of competition works badly depends
usually upon the enlightened shrewdness with which the schedule of rates
and prices is fixed. A corporation management which was thoroughly alive
to its own interest would endeavor to arrange a scale of prices, which,
while affording a sufficient profit, would encourage the increased use
of the product, and that is precisely the policy which has been adopted
by the best managed American railroad and industrial corporations. But
it must always be kept in mind that, in the absence of a certain amount
of competition, such a policy cannot be taken wholly for granted. A
short-sighted management may prefer to reap large profits for a short
time and at the expense of the increased use of its product or service.
Moreover, the margin between the cost of production and the particular
price at which the product or service can be sold consistent with its
largely increasing use may enable the producer to gather enormous
profits; and such profits may not stimulate competition to any
effective extent, precisely because they depend upon advantages in
production which cannot be duplicated. No state desirous of promoting
the economic welfare of its citizens can remain indifferent to the
chance thus afforded of earnings d