The Suntory and Toyota International Centres for Economics and Related Disciplines

The Economic Concept of a Public Utility Author(s): H. E. Batson Source: Economica, No. 42 (Nov., 1933), pp. 457-472 Published by: Wiley on behalf of The London School of Economics and Political Science and The Suntory and Toyota International Centres for Economics and Related Disciplines Stable URL: http://www.jstor.org/stable/2548908 . Accessed: 08/06/2013 01:40
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The EconomicConcept of a Public

Utility'
By H. E. BATSON SOME justificationmay seem to be needed for my choice of a subject for this paper, since the term " public utility" in the strictest sense cannot be considered to refer to an economic concept at all. Primarily,a public utility is whatever is defined as such by American statute law. The case for a concept of this kind cannot be adjudicated by economists. But the term " public utility" is not restrictedto this legal to English induspapers referring meaning. We meet it in official tries,2in which context the declarations of American law are obviously irrelevant. Behind the legislative concept of public utilities lies in fact a political concept, which may be definedas the idea that certain industriesneed special Governmentregulation. Even in America, an industry miglhtbe a public utility in this sense without being a public utilityin law. But this political concept is in its turnbased upon the idea that of there are certain industriesin which the ordinaryrestrictions of satisto ensure the appearance individualism are insufficient individualisticresults. factorily Thus one term is forcedto do duty for three related but quite distinct concepts. When the law of Illinois says that the owner of any property within the State used for the production of electricityis a public utility,it is using the term in the fifstof these senses. When the English Labour Party says that the iron it and steel industriesought to be reorganisedas public utilities,3 is using the term in the second or political sense. And when ProfessorGlaeser says, " the world over, public utilities are now he considereda thing apart fromother commercial enterprises,"4 seems to be using the term in the third or economic sense. It is with the economic concept of public utilities that we are con1 This paper was read, practically in its present form, at a meeting of the Economic Club on February gth, I932. 2 E.g., The Board of Trade JouynalSupplement, October 6th, 1927. 3 Election Programme,October 1931. 4 Outlinesof Public UtilityEconomics, 1927, p. 4.

457

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ofthethree, and cerned thisevening.It is themostfundamental the case forthe politicaland legal if it shouldproveuntenable, weakened. wouldbe seriously concepts it 2. Ourpurpose place, to inquirewhether thenis, in the first economic in thisfundamental differ is truethatcertain industries thisis to The bestway ofanswering other industries. sensefrom and see if take the industries that are made legal publicutilities being explaintheir thatmight theyhave any specialpeculiarities so legislated for. have not been,and are not legislatures American The different which need to be agreed about the industries yet, perfectly among agreement labelledpublicutilities; but thereis sufficient themforus to be able to say: included are commonly i. The following kindsof enterprise and tramlaws: railways within thescopeofpublicutility telephone, ways; postalserviceundertakings;telegraph, undertakings;and enterprises water,gas, and electricity auxiliary to these.1 as public utilities the industries ii. Some legislatures define ofsuchenterprises as theseinsteadoftheentercomposed of the enterthe owners prisesthemselves.Othersdefine are unimportant as publicutilities.Thesevariations prises as faras the economics ofthe questionis concerned.It is as on the wholemostconvenient to talk ofpublicutilities enterprises. are 3. Let us proceedto ask what the special characteristics that distinguish thesefrom otherenterprises. in fordistinction We certainly shall not findsufficient ground the characteristics by the name itself. Public utilities suggested on thefaceofit,be enterprises ofpublicutility; but this should, to us veryfar. In thefirst willnotcarry place,theidea ofutility the publicis a veryvague one that could serveat the best only ofkind. And in for ofdegreeand notfordistinctions distinctions we may draw the line the secondplace, howeverand wherever that are usefulto the publicand enterprises between enterprises that our first groupwillincludemany thatare not,we shallfind othersortsof undertakings than those which we have listed. bread,and housesare of at least as muchpublicutility Clothes, and grain-storage bakeries, as electricity, ; buttailors, tram-rides,
1 Some legislaturesinclude enterprisesof other kinds, but the doubtful cases are not very numerous and to neglect them will endanger the validity of our conclusions less than to add them to our list without a much longer critical examination thaii is here desirable.

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amongpublicutiliand estateagenciesare not usuallyreckoned is it that separatesthe public utilities ties. What characteristic to thepublic, thatarejust as useful undertakings from theseother ? but are not calledpublicutilities 4. I fearthat we shall not findit possibleto accept the traareundertakings supply which ditional answer thatpublicutilities thinking for Myreasons ofmonopoly. under conditions necessaries its authoritathatwe shallnotbe able to acceptthisview,despite is twofold. tive recommendations, in discovering In the first place, we shall have some difficulty " in thiscontext. If it is exactlywhatis meantby " monopoly " exclusive ofthe as meaning to be understood literally, possession tradein somecommodity,'1thenit willnotbe a truedescription that we have includedin our list. of manyof the undertakings monopoly by understanding But ifwe are to avoid thisdifficulty whichis, I competition," shortof perfect to mean " anything used in thisconthe sensein whichthe termis generally think, tossedour theory thatwe have merely nexion, thenwe shallfind into the fire. out of the frying-pan makesit quitetrue ofsucha definition Admittedly theadoption are monopolistic. But it also makesit to say thatpublicutilities is quite trueto say that nearlyeveryothersortof undertaking to be possiblewitha littleingenuity too. It might monopolistic, so as continuum dividetheperfect-monopoly-perfect-competition " of public from all otherindustries to segregate publicutilities in which public "; and thenifthatpartofthecontinuum utility and the restofthe continuum lay werecalled monopoly utilities definition of publicutilitics of coursethe monopoly competition, we would be freefromthis particular objection. Nevertheless, shouldstillbe obligedto rejectit. we in this disingenuous fashion, For if we defined monopoly the and t-o classical should not be able to proceed according whichare based on the hypotheories of monopoly, marginalist of shouldrequirea theory in of a market. We thesis one seller and what been called duopoly, whathas sometimes misleadingly have been moresuitably woulddoubtless, following J. J. Becher, so not been if the word had called cacophonous.Andthis polyp5oly needs of economics; which whichis one of the greatest theory, coverthe wholefieldof pricepheconceived, would,if properly to but complementary not supplementary nomenain a manner and pure monopoly; of pure competition the orthodox theories this theory has hardlybeen developedat all, if we except the
1 The Concise Oxford Dictionary.

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pioneer work of Cournot, Edgeworth's elegant fragments,and recent essays by a Danish' and an American2author which we must regard with gratitude if not with complete satisfaction. If writerson public utilitiesdefinethem in this special sense of the termmonopoly,then they must explain them by this special and as yet undeveloped branch of theory. I know of nobody who has attemptedto do this.3 And there is a more fundamentalobjection to this type of explanation. Our search for a definitionof a public utility is a search for characteristicsof a definitesort. We do not simply wish to know what conceivable characteristicsthe utilities have in common, essential or accidental, relevant or irrelevant. We wish to know what characteristics they have that attract the to discussions attentionofthe politician. A numberofcontributors on this subject fail to observe this point and thinkthat they have solved theirproblemmerelyby propoundinga listof commoncharacteristicsof public utilitieswithout troublingto inquire whether these characteristicsexplain anything. We ask them for an explanation and they give us a description. A typical example is the theorythat public utilities are transportundertakings; another is the theory under consideration-that they are monopolies. I do not mean to say that if public utilities were all transport undertakingsor all monopolies that would be a fact without any relevance at all for the question of State control; but I think that it would have a derived and not an immediate relevance. This is even more true if the word monopoly is to be understood in the special sense mentionedabove rather than literally. There is no imaginable reason why the fewnessof the sellersin a market should of itself alone demand Governmentinterference. Nobody of course really pretends that there is. What is really impliedis that when there are only a few sellersin a market,they act in a manner that calls for Governmentinterference.It is not monopolythat is objected to, but certainsupposed manifestations ofmonopoly ofmonopoly; and it is thesesupposed manifestations of are utilities. public the characteristics distinguishing that This criticismmight be dismissed as an academic quibble if
A. E. Monroe: Value and Income, I931. Since the above was written,several books and articles bearing more or less directlyon this matterhave been published. By far the best of these is Mrs. Joan Robinson's Economics of ImperfectCompetition(I933), but I do not think that even this helps us much towards a solution of the problems discussed above, forthat purpose. because I do not think that it starts fromthe right definitions touched upon my reasons forthinkingthis in an article in Scrutiny, I have briefly September I933, and hope to be able to deal with the whole problem more work on Some Economic A spectsofPublic Utilities. adequately in my forthcoming
2 3

1 F. Zeuthen: Problems of Monopoly and Economic Warfare,1930.

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of public characteristics what I have called the distinguishing was foundand monopoly were always foundwherever utilities or describing else. Then insteadof enumerating neveranywhere we mightby a sort of mental shorthand the characteristics fearof being as " monopoly"without themcollectively describe be employing evenbyourselves.We shouldsimply misunderstood ofourobjection instance, ofspeech. We talk,for figure a common to the tsetseflyas a cause of sleepingsicknesswhen what we thatit carries; but nobody reallyobjectto is the trypanosomes of quarrelling withthis. thinks and the objectionceases breaksdown,however, This defence meanto ifthething thatwe really academicquibble, to be a mere of thething concomitant we nameas refer to is notan invariable sickthe causal agentofsleeping If, forinstance, its description. found and was sometimes in tsetseflies nesswas notalwaysfound or fleas, thenit wouldnot do to say thatthe cause in mosquitoes it wouldnot do was the tsetsefly. Certainly ofsleeping sickness wanted ifwhatwe really thetsetsefly just to set outto annihilate to stampout was the trypanosome. thatcertain Professor Pigou, notably writers, 5. It is significant have chosen to distinguish public utilitiesnot as monopolies but as discriminating monopolies.This step, while simpliciter, void mostofthe above objections at first sightto render seeming reallyabandonsthe wholecase monopoly, to theuse ofthe term not the fact of in its favour. It is the fact of discrimination, to the argument. that is essential monopoly, actuallyassumedby public I thinkthat a studyof the form Professor that will suggest Pigou is rightin utilitylegislation as -thetendency towardsdiscrimination the distinctive selecting of publicutilities; that is to say, I thinkthat in characteristic to interfere with cause driving legislators generallthe primary the a with been dissatisfaction pricesthat public utilitieshas be more often the that or with might prices werebeingcharged, is in Professor But I think that linking wrong Pigou charged. after a trypanothisup withthe idea of monopoly.In straining a totally tsetsefly. I call this somehe has swallowed superfluous in thefirst tsetsefly place because I think superfluous, particular
I Dr. Hugh Dalton and ProfessorPlant have both asked if it is not true that some public utilitylegislation might aim at the preventionof merelyextortionate but were nevertheless charges,i.e. of chargeswhich gave an unusually large profit, not differentiated.I think that the hypothetical case must be admitted; but I doubt very much if there have been many actual cases in which the charges of a and yet to remain undifferentiated. public utilitytended to yield abnormal profits If such cases were the rule rather than the exception, public-utilityregulation would have been a much simpler affairthan it is.

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that discriminationis a much wider and more fundamental phenomenonthan monopoly,unless monopoly is so definedas to embrace all types of enterpriseexcept the Stock Exchange and the auction room,which is certainlynot the practice of Professor Pigou. And I think that it is wrong in the second place to treat on the part of public utilitiesas a " result " of such discrimination kinds of monopoly as they do enjoy. I have used the term discrimination,although I consider it discussion. It is a termthat has ratherout of place in a scientific of it forwhich no fixedmeaningat all. The only sort of definition can be claimed is that it means undesirable any sortofuniversality But what is undesirablein one case of price differentiation. forms is of course not necessarilyundesirable in others.' Let us provisionally define discriminationas the charging of would be prices that vary among themselves where uniformity prices are usually regarded as " natural," but preferred.Uniform really they are a highly artificialphenomenon. The " natural" tendency,if it is right to talk of natural tendencies at all in a prices. It is only where social science, is towards differentiated prices are held togetherby the artificialmechanism that we call ensues, except of course fortuitously. the marketthat uniformity in If, then, thereis a strongertendencytowards discrimination the public-utilityindustries than in other industries of equal to the forceswhich public utility,it is to be explained by reference fixthe boundaries of markets. Anythingthat will cause anybody both to desire and to be able to make two markets exist where only one existed before will break down the safeguards of uniformityof prices.2 6. Let us assume, as is usual in discussions of this sort about prices and as best fitsthe facts,that the initiative in price-fixing is taken by the seller. Of course the conclusions built upon this
1 I preferto avoid using the word " discrimination" not so much because it is senses, although this is unfortunatelythe used rather widely in very different case, but ratherbecause it generallyimplies two notions that findno place in the above argument,viz. (i) the notion of deliberate action on the part of the seller (or whoever is the immediate fixerof prices) and (2) the notion that such action at least a priori. More detailed discussion of the implicais morallyreprehensible, " must be deferredto another tions of the term and of the term " differentiation occasion. 2 It does not necessarily follow that either party to the bargain must deal in not to use the word more than one market. This is another reason forpreferring " discrimination,"which suggests that the same seller, or possibly buyer, deals in more than one market. It is possible to imagine a case in which a seller S sells price from that charged by another a commodityto a buyer B at a different seller S' to another buyer B'. I should call this a state of price-differentiation and consider it to come within the scope of a discussion of public-utilityprices. But I do not thinkthat anybody would call it a case of discrimination.

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to cases mutandis be applied wtutatis hypothesis can afterwards wherethe buyertakes the initiative. want to makea seller thecausesthatare likely Let us takefirst of prices by whichuniformity to break down the mechanism would be assured. The most obvious cause need not detainus as large as possiblewill long. The meredesireto make profits encourage himto chargemorethan the averagepricewhenever assumethatthisalone discussions he can getit.' Mosttextbook But in of differentiation. sufficiently explainsthe phenomenon factit does not. would usuallyremain differentiation The scope forprofitable a ifit werenot foroverhead costs.2In fixing prices, verynarrow no itemof selleris governed primarily by the rule of accepting to mean the expensethat wouldbe mustbe interpreted context wererefused, and thisdifferential cost may saved ifthe business thantheaveragecostofall theitemsofbusiness be muchsmaller is due to the existenceof certain transacted.The discrepancy of the undercosts whichmustbe coveredby the transactions item as a whole, but neednotbe covered by anyparticular taking of these overheadcosts of business. The greater the proportion whatsome willbe thegap between to the totalcosts,thegreater in by themselves, itemsof business mustbring and what all the will be the itemsmustbringin on an average; i.e. the greater phenomenon seller's for differentiated prices. The charging motive of overheadcosts deservesmoreattention than it usuallygets. theory An adequate discussion of it wouldconstitute a complete of production.I do not proposeto enterupon this task this evening, but one or two thingsneed to be said about the part ofpublicutilities. costsin the theory playedby overhead all term. Practically i. " Overhead"here is a purely relative and prime, to thewayin costsarebothoverhead according of the item business or unit is defined. of which production as overhead to be Costscan only regarded withreference of batches commodities. specific forwhich ii. The batchesof commodities costsare particular or sold simultaneously or conoverhead may be produced secutively.Thus some costs appear to be overheadat a of time,othersonlyover a periodof time. But moment both are phenomenaof the same sort. fundamentally
1 Whenever he can get it, that is, without incurringa net loss. 2 For more detailed discussion of this influenceof costs, see my Price Policies Public UtilityUsdertakiings, passim. of Germain

business that will not at least cover its costs. But " cost " in this

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on public Failureto observethishas misledmanywriters especiallywhen they have been dealing with utilities, and amortisation. depreciation cost between the idea ofoverhead iii.The logicalrelationship and theidea ofjointcost appearsto have beenfrequently on both sides of the Atlantic. I would misunderstood, prefer to try to explain public utilitychargeswithout forthe reasons reference to joint costs,but not altogether Pigou. givenby Professor concepts ofoverhead costsby thederived iv. The occultation and DecreasingReturnsis in my opinion of Increasing forreasoning. It tendsto substitute formulae mischievous. and decreasing returns arenotprimary economic Increasing is not so muchthatthe boxes are concepts.My objection as thattheyare notboxesat all, but theshadowsof empty whichcast theseshadowsare costs, boxes.' The realities and any theorywhichis not directly based upon these to inadequacy. costsis predestined ability to charge upona seller's 7. Let us turnto thelimitations differentiated Pigou has pointedout,3 this prices.2As Professor depends upon two things-uponhis powerto sell to somebuyers are paying,and upon his powerto at a higher pricethan others from to the less customers re-selling prevent the morefavoured it dependsupon his ability to terms, favoured.In moretechnical betweenwhich do businessin two or moreof a set of markets transferable. unitsofsupplyand unitsof demandare imperfectly of markets This sortof isolation any of three may resultfrom conditions whichwe may call Fortuitous, different Undesigned, to movement ofunitsofdemandand and Intentional Hindrances willrespectively the processes by designate supply. These terms isolation whichmarketsare born isolated,achieve unintended orhave it deliberately thrust theactionofgovernments,4 through upon themby (or for)dealers. of transferability exists when units of Fortuitous limitation a cost from demandcannotbe transferred exceptat a significant and unitsof supplycannotbe transdearerto a cheapermarket cost froma cheaperto a dearer ferred except at a significant of special human regulation.5 market, independently
Vide the well-knowncontroversy in The Economic Journal, I922 and I924. i.e. not merelyto the limitationsupon a seller's ability to differentiate among his own charges,still less to discriminate. 3 Vide Economics of Welfare, 4 Or other authorities. 3rd edn., p. 275 if. 6 The position of the line of demarcation between fortuitousand undesigned limitation of transferabilitydepends on the definition of " special " in this
2

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existswherea governlimitation of transferability Undesigned in thisway,but not hinders movement mentor otherauthority ofprices. differentiation objectoffacilitating withtheprimary existswherea dealer of transferability Intentional limitation is responsible for to movement, with thehindrances (orauthority) of prices. of facilitating differentiation the intention boththedesire and theability industries 8. In thepublicutility because the extentof is considerable, of sellersto differentiate to movement markets between overhead costsand thelimitations ofa techare bothunusually great. The causesofthisare largely here. nicalnature, and can onlybe summarised ofoverheadcostsare: causes of the largeproportion The chief i. The technicalnecessityforplant of a type that can be largeunits. added to onlyin relatively " distributing plant. ii. The peculiarnatureof " octopoid capacity. iii.The specialneed forreserve of the " peak," whichoftennecessitate iv. The phenomena in the use made of different fluctuations considerable But it is a mistaketo treat sectionsof the undertaking. forall publicutilities. the peak as veryimportant ofmarkets isolation are: conditions which The principal permit under theproducts conditions which ofmost i. The physical arenecessarily, orat leastmost conveniently, publicutilities supplied. ease ofcreating intentional hindrances to ii. The comparative on thepartofcertain markets kindsof movement between groupsof customers. to mention herethe limitations to I do not thinkit appropriate or indirectly movement whichmaybe fostered by public directly be reckoned sincethesecan hardly among itself, utility regulation ofthatregulation.1 fortheexistence thereasons 9. This, then,is the basis of the economicconceptof public industries have thatthereare certain which utilities.It is simply to chargediscriminating2 prices for theirproducts. a tendency oftheseindusis thattheevilsofregulation The political concept triesare outweighed by the evils of leavingthemunregulated. can come to any This is not a matterthat we, as economists, about. All thatwe can say is (i) whether thistendency conclusion
sentence. But it is undesirable to attempt a full discussion of the theory of individualismin a footnote. Cp. note , p. 467. 1 Some writersdo not appear to be troubled by this consideration. 2 The word is used here, and later, in the sense mentioned in paragraph 5.

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thereis in certain industries-i.e.whether prominent is specially conceptof a publicutility; (ii) whether a case forthe economic would cause certainanticipated the presenceof this tendency regulationwould cause effects; and (iii) whetherpreventive effects.But the balancingof these effects, certainanticipated the otherto such an and the decisionthat the one outweighs is desirable; thisis the politicalcase for extentthatregulation and one upon whichwe cannotpass concept, the publicutility
judgment. (i) The firstquestion hlas already been answered with reservations in the affirmative; i.e. it has been said that there is a group of industriesin which prices are noticeably more differentiated than in other industries of like public importance. There is, of here, but the quantitative course, no real qualitative difference is so great as perhaps to warrantits being regardedas a difference of kind. The tendency to differentiated pricing exists difference everywhere; but only in certain industriesis it extreme. The second and third questions, viz. those relatingto the evils of discriminationand of regulation respectively,do not strictly come withinthe scope of this paper. But economics may be called

it is not thejudge. in evidence, although (ii) The chiefobjectionsthat are usually raised against disare: crimination to those customers unfair who pay the (i) It is considered higher prices. are not finalconsumers concerned (2) When the customers it is considered to modify in but industrial undertakings, of productive an undesirablemannerthe distribution in otherindustries. resources to encouragecut-throat competition, It is considered (3) is disliked becauseit is believedto have bad effects which of serviceand to discourage on continuity and reliability that is " sociallydesirable." investment
also involves questions of fact,which cannot be settled by appeal

two objectionsare based on mereopinion. The last The first

by Sidgwickfor to historical evidence,as has been attempted in their since. Publicutilities wild and by lesserwriters example, state are almostas extinctas the dodo nowadays,and the prehistoryof their captivityis not over-welldocumented. The ofcut-throat can case fortheinevitability deductive competition as Professors Clark and Davenport be made very convincing, that the interalia have shown; but only on the assumption

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competiwill act in that " perfectly of publicutilities managers appearsto be an almostexclusive whichnormally tive" manner savages, and mathebeaver-hunting of stockbrokers, speciality maticalsymbols. that questionsof cut-throat But in any case I do not consider are therealpointsat issue. Theyare notwhatlegiscompetition thinkthey aimed at, even if some theorists lationhas primarily law oughtto have been. In fact,as any studyof the American and the Englishstatutebook willshow,the chiefaim of reports of price-differentiahas been the control regulation publicutility theprevenbe preferred, tion,or,ifthe less accurateterminology aim or not is thisis a desirable Whether tionof discrimination. judgment. a purely political In considering these objectionsto laissez-fairein the public of certain mention omitted I have deliberately utility industries advanced, but that are that are very frequently arguments not peculiarly relevantto public utilities. They are, in fact, objections, to laissez-fairein general. These socialistic objections thosewhichdo not themfrom as we maycall themto distinguish include ofthegeneral thesisofindividualism,' involvea rejection the following: " servicesthat would (i) The desirefor" sociallydesirable such privateenterprise, not be provided by unregulated as unremunerative bus services,transportat reduced districts, faresforworkmen, postal servicesin country of operationor of a share in The desireforthe profits of the rates" as it is oftenattracthem," forthe relief tivelyphrased. in some cases, are the but socialistic Not necessarily socialistic, following: moreup to date to keeptheregulated industry (3) The desire than it would be underprivateenterprise. (4) The desire to ensure the attractionof the " socially " proportion of productive into the resources desirable industry.
(2)
1 I do not believe that there is any thesis of individualism that is universally valid. I think that particular actions can only be described as more or less individualistic in nature, not absolutely as individualistic or otherwise. And, I do not thinkit possible to conceive of a " general thesis of individualtherefore, ism " or of socialism in the way in which a general thesis of anarchism or combe undermunismmightperhaps be conceived. The above phrase must therefore stood to mean the generalthesis of individualism as this is commonlyinterpreted in Europe and North America nowadays. 2 i.e. " discrimination,"in some senses at least.

etc.2

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I do not proposeto deal herewithsuch motives. They form thecase partofthegeneral case against individualism, withwhich forpublicutilities, as I apprehend it, is incompatible. ofregulation or worsethan theresults are better (iii) Whether is also a matter in thepublicutility thoseoflaissez-faire industries ofpurely political judgment, although it maybe basedoneconomic evidence.The chief objections to regulation are: (i) That it tendsto hinder progressive management. hiddentaxes on certain (2) That it may be used forlevying of the community. sections ofunitsofmanage(3) That it maylead to theestablishment size. mentofan uneconomical (4) That it opens the way to undesirable politicalinfluence ofindustry. on theconduct theevilsthatit deals with, (5) That it doesnotreally remedy but merely givesthema legal status. Perhaps the strongest argumentof all would referto what of Marshall ratherthan disciples mightlike to call the external, of publicintervention. to the internal, diseconomies oftheseobjections, ofthem The evaluation and thecomparison to laissez-faire, is theoffice ofthepolitician. withtheobjections IO. When the case forthe politicalconcept has been settled, ofpublicutilities thatfor thelegalconcept It maybe considered. industries are to be speciallydealt withby assumesthat certain and defines theGovernment, theway in whichthisis to be done. for It is a matter who principally has thechoicebethelegislator, tween and forbidding private permitting private operation.Where it may be controlled as in Americaor as is permitted, operation in England,or,conceivably, in otherways. That is to say, there areother in thepolitical sense withpublicutilities waysofdealing inthelegalsense. Therefore, thanby making them publicutilities ifwe arespeaking as legislators we maylegitimately public regard as an alternative of,public ownership to,and evenas theopposite as politicians, status. But ifwe are speaking we shallnot utility regardthis as an accurateopposition. The oppositeof public statusas a politicalconceptis not public operation, but utility the absenceof a need forspecialregulation The case altogether. forthe politicalconceptof a public utilityis the case against not the case againstmunicipal in certainindustries, laissez-faire or any otherform of special control. ownership thepossible ii. I should likeat thispointto anticipate criticism that this afterall is merelya strife about words,as so many

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along likeNewton are,and thatifwandering discussions scientific the shoreof the ocean of truthwe have happenedto pick up a much it does not matter moreinteresting pebblethan ordinary, Unternehmor an Oeffentliche whether we call it a PublicUtility else so longas we call it something. ungor anything to agreewiththe latterpart of this statement. I am inclined of the But I thinkthat it would be misappliedas a criticism referring argument.I do not thinkthat all arguments preceding are necessarily and otherverbalquestions to " mere" definitions be regarded fancifully maynotaltogether A science unimportant. That is to say,oneofthe ofdefinitions. buta collection as nothing up intogroups useful thata sciencedoes is to dividethings things for thussavinga gooddeal ofwork and giveeachgroupa symbol, But the processof afterwards. thosewho deal withthesethings is quiteuselessifthegroupsare nothomogeneousclassification that is, when judged by criteriasuitable to the homogeneous, in hand. purpose Now I would agree that it does not matterverymuch what a particular group. I do not is chosenforrepresenting symbol becausewe are ofindifference, a matter think thatit is absolutely whichwe usually not theonlypeoplewhouse thelanguagefrom choose the symbols. In some ways this is a pity. Economics if it took a leaf out of some other avoid manydifficulties might books and launcheda campaignof depopularisation, scientific like like the stars,or by letters callingits conceptsby numbers or by the signsof the Zodiac; or at least by chemical elements, speech,after new names that do not look like ordinary strange of Professor IrvingFisher. Perhapsit is one of the the manner minor faults of economics thatit has been too timidin inventing unenterit has beenrather newideas. Certainly newnamesto fit piece of in acceptingthe giftof such an unsatisfactory prising It is easy to see how the termcame into existence.For those indusof certain withthe specialregulation who wereconcerned in the the public interest regime, triesunderan individualistic or at least their theirmostremarkable, industries was naturally the But for the economist, most advertisable, characteristic. imporis a matterof secondary of publicutilities publicutility about thing and interesting thepeculiar tance. For theeconomist, charging;and theterm" public them is their habitofdifferential " failsutterly to indicatethis. utility does seem thattheterm On theother hand,we mustremember to have the popularear. We even meetit in Hansard. It would
jargon as the term " public utility."

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economics." If generalusage insiststhat the of " publicutility termhas this meaningwhen it alreadyhas two quite distinct thenwe can do little besidesthenon-technical, meanings technical had wouldbe verypleasantif economists about it. It certainly dropthe to be able to makepeople gradually influence sufficient commodities and talk about multi-priced wordin thisconnection quite uniambiguous or something industries and multi-pricing to do'this, like thatinstead. Untiltheworldat largeis disposed whilefor us to do so in it is worth a mootpointwhether it remains unimportant. is relatively ofnomenclature does notmeanthatall matters This,however, but we whatwe call a thing, It maynotmatter are unimportant. mustknowwhereit belongs. Even the younglady who did not mind whether the poet called her Lalage or Doris made the " Only call me thine." In Johnsonian terminology, stipulation we may talkas otherpeople do so longas we clearour mindsof in cant. It seemsto me thatthereis a hintofcant,forexample, should the argument that coal minesor banksor dairycombines possesses be madepublicutilities.It seemsto methatnoneofthese admitted public thatdistinguishes thefundamental characteristic todealwith and thattheattempt utilities from other undertakings, of government control should forpurposes themindiscriminately be resisted. characteristic I consider thatthisfundamental To recapitulate, Thereis not price-differentiation. towards is an unusualtendency of the matter. A economics a whitmorethan thisin the strict whichsomewouldincludein the definisecondary characteristic, forthat reserved but whichis better tionoftheeconomic concept of beingof considerable of the politicalconcept,is the property to to thepublic. I do not meanthatthereis no tendency utility tendency;but it elsewhere.It is a universal price-differentiation do I meanthat is usuallyoverruled by othertendencies.Neither to thepublic. All that I meanis are ofno utility someindustries are commonly reckonedof greaterpublic that some industries thanothers. utility that bear on the case foreven the Thus some of the factors or at least are indeterminate of a publicutility economic concept that this if we reflect variable. This will not appear surprising
our private discussions.
. .

We even have-horribile diclu-textbooks and journals and chairs

be futileforus to emulateCanute and take to our arm-chairs ofthematter discussions thesea ofusage. All theexisting against point of view use the termpublic utilities. from the economic

. But it is quite true that all this

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THE ECONOMIC CONCEPT OF A PUBLIC UTILITY

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be expressedso as to answersome such case mustultimately results exhibit ifuncontrolled as: Wouldpublicutilities question ? ofindividualism results from theordinary different significantly of course,on what is meantby to thisdepends, And the answer is both narrower conceptof a publicutility I2. The economic than the politicaland legal concepts. It and morefundamental becausethe othersare based upon it. It is is morefundamental becausetheyare notbased uponit alone. The economic narrower fromothersin a differ conceptassertsthat certainindustries way. The politicalconceptassertsthat because they particular theymustbe regulated.That is to say, the are thusdifferent, politicalconceptimpliesthe additionalnotionthat the evils of as far as these are less than the evils of laissez-faire regulation are concerned. And the legal concept asserts that industries they shall be called public because theyhave to be regulated, prescribedto public utilitiesand subjected to the treatment statutes. That is to say, the legal conceptimin certain utilities these notionthat the best way of regulating plies the further is that which has been adopted in America. But industries or not,i.e. however in thisfashion the whether theyareregulated or not it case forthelegalconceptmay be settled; and whether at all, i.e. however is feltthat theyneed any special regulation thepolitical maybe settled; thecase forthe concept thecase for economicconceptremains,to be settled accordingto purely our verdict we shall ask how farthe suggested In considering of all the industries description is a trueand complete definition it relates to all the public utilitiesand on our list; whether nothing but the publicutilities. has alreadybeenmentioned.De minimis One set ofexceptions are omitted industries noncurat lex,and some " discriminating" are thought to be so unimportant becausetheir products merely howtheychargeforthem. Manysortsof thatit doesnotmatter The chargesfor personalservicefall underthis condemnation. professions, suchas thoseoftherecognised other services, personal because theyare reguregulation are exemptfrom government as in a waythatthepublicregards themselves latedby thesellers their doubtless charges, acceptable.If theydid not thusregulate lawyersand doctorswould take theirplace among the public and tramways. utilities alongwithgasworks areseparated themarkets where form ofdifferentiation, Another to put theindusis notusuallyreckoned by national boundaries,
G

" and by " ordinary result." difference " significant

economiccriteria.

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is, because dumping it amongthe publicutilities triespractising by the verynatureof the case, usuallya matterover whichno has jurisdiction. authority singlelegislative One ratheranomalouscase remainsfor consideration-retail trade,otherthan that of the kindsalreadydiscussed.' Perhaps because retailers public utilityregulation this is excludedfrom similar to that of theprofessions a sortofself-regulation practise in comare usuallynegligible price-differences and theremaining of regulation from outside. parisonwiththe difficulties of the notionthat the I3. All this goes to expose the error concept-ofa public utilityhas a fixedconnotation.Professor it phrasein describing Glaeserhas appliedto it an illuminating content. Manykindsof ciras a fixedconceptwitha changing to createnewpublicutilities.Theymay cumstance mayconspire we all be created simply by a changein opinion. If,forexample, to regardopera as a wentmad and decided like the Germans some theatres would become small-scale national necessity,2 publicutilities. Or they may be createdby technicalchanges, in theproportion ofoverhead causingan increase suchas changes and not " social" to primecosts. Or, since it is entrepreneurs' a conversion ofprime intoovercoststhatbearuponthismatter, about by legislation alone. Again, head costsmightbe brought in thefacilities by an increase be created might newpublicutilities thiswas due to policyor fordealingin isolatedmarkets, whether accident. Similarly,any of the recognisedpublic utilitiesmight be of by analogouschanges. And sincethe wholesystem abolished is essentially a patchon thecoat ofmany regulation publicutility of that coloursthatwe call individualism any generaldiscarding do awaywithpublicutilities altogether. ofcourse, would, garment that the publicutility concept For it is important to remember by no meanscoversall cases ofregulation.
1 i.e. other than in the railway, tramway, electricity, gas, water, postal, 2 See note I, p. 458. telegraph, telephone, and allied industries.

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