Plenty by Competition
circumstances is to compare his performance with what we could do for ourselves as amateur cobblers; before he came, that was the best service we had. Let us concede that our monopoly cobbler is a decent fellow and that he does the best he can for our footwear. But he is under no compulsion to do better, and his best may be determined by his conscience or the state of his health. Like the rest of us, he dislikes the irksomeness and weariness of toil and tries to get by with the minimum of effort. Since we cannot take our trade elsewhere, and Smith is aware of this, his natural inclination is to take a let-well-enough-alone attitude toward his workmanship, and in fixing his prices he follows the rule of "all the traffic will bear." The only restraint on his monopoly impulse is the possibility of driving his customers to self-help cobbling and losing their trade.
Only when Brown opens a rival shop in town is Smith compelled to look to and prove his competence. To attract trade the newcomer either undercuts the erstwhile monopolist or improves on the quality of his work; the latter retaliates by offering to sole shoes "while you wait"; Brown invents, or buys from an inventor, a machine enabling him to cut his labor costs, turn out more jobs in a given time, and therefore to charge less than Brown; and so it goes. Each improves his performance in some way, not out of compassion for his customers but out of regard for his own well-being. Nevertheless, it is the community that profits by the rising standard and shows its appreciation by patronizing the specialist who, all things considered, serves their interests best. They applaud the performance, not the performer.
The practical measurement of competence is the profit-and-loss statement of the competitor, for in it are recorded