THE RELATION BETWEEN STATICS AND DYNAMICS 63 
fact, and actual expenses differ widely, so that their relation to 
price offers material for much inductive study.” 
Among the special situations of actual competition are those 
preferences and habits which give rise to “good-will,” and the 
ownership of brands which have some real or supposed uniqueness 
and thus have some of the quality of monopoly about them, but 
of which only the most successful can earn a consistent quasi- 
monopoly profit. Another situation is the state of mind among 
entrepreneurs which leads to sustaining the price in the face of 
the fact that the demand is falling off and will not take the full 
“supply” (a term which itself needs redefining for dynamic pur- 
poses). Those mores of business which resist cutthroat competi- 
tion and the “spoiling of the market” are phases of actual compe- 
tition, yet they have no place at all in the competition of abstract 
theory. Another situation is that of a trade in which there are 
one or more concerns so large that their price policy is said to 
“dominate” the trade, in spite of the existence of many smaller 
rivals. Such a situation cannot be fully and quantitatively 
explained by deduction from the assumption of independent and 
self-interested action, though a shrewd observer of human nature 
in business may make surmises which will afford useful first 
approximations and material to be tested by further inductive 
study. To mention only one specific instance, the degree and kind 
of competition among American railroads—which are clearly far 
from being complete monopolies—is probably not exactly the 
same as that found in any other business, and can best be handled 
by direct induction. 
 ) 
age 
10. The Business Cycle 
Assuming without argument the great importance of the busi- 
ness cycle and the need for inductive study in handling it, let us 
ask further what its effects are on some of the general assumptions 
which economic theory is accustomed to make and the tools it is 
accustomed to use. For one thing, in place of a universal ten- 
dency of supply and demand to equality, it exhibits a definite 
tendency toward persistent inequalities. And in place of supply 
of goods it forces us to look at the productive capacity or potential 
supply, if we are to get at the forces actively at work on the 
* This topic is given more extended treatment in Social Control of 
Business, Chap. IX.