Some advocates of socialism have argued, as one of the counts in their
indictment of the present industrial system, that the price of a
commodity is determined by the cost at which the least efficient
concern in the industry can produce. They say, in effect, "Under the
present competitive regime, you have to pay for everything you buy a
price which far exceeds the necessary cost to a concern which is
managed with ordinary ability. For, as economic theory has shown, it
is the cost of the _marginal_ concern, i.e. the concern managed by the
most incompetent, and half-witted fellow in the trade; it is the cost
incurred by him, together with a profit on his capital, that the price
has got to cover. The producer of no more than average capacity is
therefore making out of you a surplus profit, which would be quite
unnecessary in any well-arranged society." Such an argument is a gross
caricature of the marginal conception. The half-witted incompetent
will, as we know well enough, speedily disappear under the stress of
competition, and his place will be taken by more efficient men. There
is an essential difference between him and the "marginal coal mine" of
which we spoke above. For the probabilities are that of the coal
resources, whose existence is clearly known, the more fertile and
better situated parts will already be in process of exploitation; and
there is not likely, therefore, to be a supply of substantially better
seams which can be substituted for the worst of those in actual use.
There _is_ likely, on the other hand, to be available a supply of
decent business capacity which can be substituted for the most
inefficient of existing business men. The marginal concern, in other
words, must be conceived as that working under the least advantageous
conditions in respect of the assistance it derives from the strictly
limited resources of nature, but under average conditions as regards
managerial capacity and human qualities in general. Thus in
agriculture we can speak of a marginal farm, which we should conceive