====================================================
| Millions of Dollars.
Countries |-----------------------------------
| 1820 | 1840 | 1860 | 1894
----------------+--------+--------+--------+--------
United Kingdom | 1,411 | 1,883 | 2,808 | 4,263
France | 1,168 | 1,606 | 2,092 | 2,900
Germany | 900 | 1,484 | 1,995 | 3,357
Austria | 511 | 852 | 1,129 | 1,596
Other States | 1,654 | 2,516 | 3,455 | 5,236
Europe | 5,644 | 8,341 | 11,479 | 17,352
United States | 268 | 467 | 1,907 | 9,498
----------------+--------+--------+--------+--------
Total | 5,912 | 8,808 | 13,386 | 26,850
----------------------------------------------------
Extraordinary as has been this universal growth, the development of
manufactures in the United States has been still more marvelous, both
absolutely and in relation to other branches of industry Between 1850
and 1900 the population and the products of agriculture both trebled;
but the value of manufactured products increased twelvefold and that
of capital invested in manufactures nineteenfold The United States,
though politically younger than the countries of Europe, is
industrially one of the most advanced The application of labor-saving
machinery and of improved and economical methods of production and
distribution has probably proceeded further here than in any other
place Nowhere can we study to better advantage, therefore, than in
America the problems that have grown out of this advanced capitalism.
The causes of this rapid industrial development are enumerated by the
census report as five in number: the agricultural resources of the
country, the mineral resources, the highly developed transportation
facilities, the freedom of trade between states and territories, and
the absence of inherited and over-conservative ideas We have already
considered the wonderful agricultural and mineral resources of the
country, and have seen how greatly the American people are indebted
for their industrial prosperity to the bounty of nature. The 31
magnificent system of inland waterways, comprising over 18,000 miles
of navigable rivers, and the railroad system, with over 200,000 miles
of track, facilitate a rapid and cheap exchange of products. The
enormous domestic market afforded the American manufacturer, larger in
consuming capacity than that in any other country in the world, has
permitted the economic production of goods on a large scale and a
consequent reduction in cost. Foreigners have often asked the question
why, if freedom from tariffs and trade restraints has been a good
thing within the United States, freedom of trade with other countries
would not prove equally advantageous. In answer to this, James G.
Blaine, formerly Secretary of State, wrote, “It is the enjoyment of
free trade and protection at the same time which has contributed to
the unexampled development and marvelous prosperity of the United
States.” Finally, the absence of tradition and of over-conservative
ideas handed down from a former and more primitive system of industry
has been a great boon. There have been developed traits of energy,
inventiveness, and ingenuity, which, aided by a universal system of
compulsory free education, have contributed greatly to the material
progress of the people.
The system under which the production of wealth in a modern industrial
nation is carried on is usually called the factory system, and to this
we must now turn, for it is in the factory that the utilization of
machinery and capital finds its greatest development. The term is not
easily defined, but we may adopt the description given by the late
Carroll D. Wright: “A factory is an establishment where several
workmen are collected for the purpose of obtaining greater and cheaper
conveniences of labor than they could procure in their own homes, for
producing results by their combined efforts which they could not
accomplish separately, and for preventing the loss occasioned by
carrying articles from place to place during the several necessary 32
processes to complete their manufacture.” The essential elements in
such a system are the minute division of labor, the large use of
labor-saving machinery, the increasing specialization and localization
of industry, and the concentration of production in fewer and larger
establishments with consequent increase of product and reduction of
cost.
The division of labor may mean either the separation of occupation or
the division of a process into minute parts. An illustration of
separation of occupations may be found in the manufacture of a
carriage: one factory produces hubs, another wheels, a third axles, a
fourth the body, a fifth manufactures upholstery, a sixth the
hardware, and a seventh (the carriage factory, so-called) assembles
the parts and places the completed product on the market in the form
of a carriage.
As an example of an extreme division of labor the slaughtering and
meat-packing industry offers a classical example, though in this case
the use of complex machinery is not involved. “It would be difficult,”
writes Professor Commons,[2] “to find another industry where division
of labor has been so ingeniously and microscopically worked out. The
animal has been surveyed and laid off like a map; and the men have
been classified in over thirty specialties and twenty rates of pay,
from 16 cents to 50 cents an hour. The 50-cent man is restricted to
using the knife on the most delicate parts of the hide (floorman) or
to using the axe in splitting the backbone (splitter) and, wherever a
less skilled man can be slipped in at 18 cents, 18½ cents, 20
cents, 21 cents, 22½ cents, 24 cents, 25 cents, and so on, a place
is made for him, and an occupation mapped out. In working on the hide
alone there are nine positions, at eight different rates of pay. A
20-cent man pulls off the tail, a 22½-cent man pounds off another
part where the hide separates readily, and the knife of the 40-cent
man cuts a different texture and has a different ‘feel’ from that of 33
the 50-cent man. Skill has become specialized to fit the anatomy.”
Usually, however, when the division of labor becomes as minute as that
described, the routine-like process is handed over to a machine.
Indeed Mr. John A. Hobson states as a law of machine industry the fact
that as soon as a process becomes perfectly automatic and mechanical a
machine is invented which can do the work better and more rapidly than
human hands. Hand in hand, therefore, with the subdivision of labor
goes the extension of labor-saving machinery. Labor becomes relatively
of less importance than capital in the new methods of production, and
man becomes a machine tender rather than an independent producer.
There are practical benefits and disadvantages connected with this
system. Many writers insist that the effect on the worker is narrowing
in the extreme, but Professor Marshall points out that his labor as
tender of a machine demands a higher order of intellectual development
than that of a handicraftsman, and that he has more leisure, while the
product of the present system is immeasurably greater than under the
old hand methods. The manufacture of products by machinery has in turn
required the making of machines by machinery, as the complex machines
of today could not be turned out by hand methods. A characteristic
feature of the modern factory system therefore has been the growth of
the machine trades, which supply the equipment of the new industry.
With the growing specialization of industry there has gone on an
increasing localization in some favored spot or locality. Thus most of
the collars and cuffs (85 per cent) manufactured in the United States
are made in Troy, N. Y.; 64 per cent of the oyster canning is carried
on in Baltimore; 54 per cent of the gloves are made in Gloversville,
N. Y.; 48 per cent of the coke in Connellsville, Pa.; 48 per cent of 34
the brassware in Waterbury, Conn.; and 46 per cent of the carpets in
Philadelphia. While there are undoubted advantages in such
localization and specialization in a particular industry, such as
reputation, growth of special skill, etc., there are also offsetting
disadvantages, as the complete prostration of the whole community if
the particular trade upon which it depends is disastrously affected by
trade depression or by a shifting of the industry to some other
locality.
More striking than the concentration of manufactures in particular
places has been its concentration in a few large establishments and
under the control of fewer individuals. Without entering into the
discussion, as yet, of the trust problem, we may at this time take up
the earlier and important tendency of industry to be conducted on a
large scale. This concentration into a relatively smaller number of
establishments has been going on pretty steadily since 1850 and shows
no signs of abatement at this time. In the case of the iron and steel
industries, cotton manufactures, and leather goods, the movement is
positively startling, an actual decrease in the number of
establishments having occurred in the half century. This is most
marked in the monopolized industries. At the same time there has gone
on an enormous increase in the size of the individual plant, in the
capital employed, the number of men employed, and the value of the
product. Almost the only industries which have not yet displayed this
tendency are those which are essentially local in their nature, as
grist mills, cheese and butter factories, etc. But in general it is
characteristic of manufactures in the United States. The same tendency
has been manifest in the countries of Europe, though there a system of
well-developed and fairly vigorous hand trades has resisted the
movement and made the development in this respect much less rapid than
in this country.
Large-scale production is more profitable than production on a small 35
scale in all industries which are subject to increasing returns. By
this is meant that the return in product for each additional dollar’s
worth of labor and capital employed grows greater the larger the scale
on which the enterprise is conducted. When this is true the big
enterprise will be able to undersell the little enterprises and
eventually to drive them out of business. This is true not only in the
competitive industries, but also in those which enjoy a legal or a
natural monopoly, as street railways, gas and water plants, etc., all
of which show an irresistible tendency to consolidation. Before
drawing any conclusions as to the desirability of such a movement, let
us examine some of the economies of large-scale production. The most
striking and the most important is the economy in fixed capital.
Concentration is a result of machine production. As machinery becomes
more expensive, the breaking up of the processes of manufacture into
small parts requires more complex and detailed machinery; a larger
outlay is requisite for an up-to-date plant. Thus the average amount
of capital invested in each iron and steel establishment in the United
States increased from $47,000 in 1850 to $858,000 in 1900. The head of
a steel company in Pittsburg recently testified before the Industrial
Commission that to build and equip a plant for the manufacture of iron
and steel under modern conditions would call for an investment of from
$20,000,000 to $30,000,000. It is clear that under such conditions of
expensive machine methods a small plant would have little chance of
existence. Steam railways afford another good illustration of an
industry in which enormous economies are effected by the concentration
of a number of small, independent lines under one unified control.
Every machine is utilized to the utmost; there is no needless
duplication of machinery such as would occur if several small plants
divided up the business, while expensive machines to carry on 36
relatively small processes can be profitably installed.
But other economies than those in the use of capital are present in
large-scale production. A large concern can hire more expensive and
better managers, can afford to experiment with new methods, can effect
a more minute and economical division of labor, as for example in the
slaughtering business above referred to. A striking economy can also
be effected in the utilization of what were formerly waste products,
and still are in small concerns. This has been carried furthest in the
oil-refining and meat-packing industries; a recent statement of Swift
and Co., for instance, alleged that the dividends on the stock were
paid out of the by-products, such as neatsfoot oil, land fertilizer,
glue, fats, etc. Owing, however, to the generally wasteful methods
prevailing in the United States not so much attention has been given
to this point as in England and Germany. A final economy may be
mentioned that can be secured by a large business, namely, carrying on
allied or subsidiary processes. Thus the Standard Oil Company builds
its own pipe lines, makes its own barrels, tin cans, pumps, tanks,
sulphuric acid, etc.
Such an extension in the size of the single establishment would of
course not have been possible if improvements in the arts of
communication and transportation had not at the same time immensely
widened the market. As long as the market was local, and a factory
could afford to send its goods over only a limited territory there was
of course a fixed limit to the expansion of that industry. Now,
however, when markets are often world-wide and the demand for goods
has so enormously increased, while the modern railway and steamship
can transport goods cheaply and quickly half around the globe,
enterprises can be expanded and carried on on a scale commensurate
with the expanded market and improved methods. It is clear then that
the tendency to production on a large scale is the logical result of 37
machine methods, that it secures great economies, and that in
industries of increasing returns it is absolutely inevitable.
But not only in manufacturing is this movement observable. More
recently concentration in large establishments has revolutionized the
retail trade. Department stores have supplanted the small shops
because they can buy on better terms, get transportation cheaper,
offer a greater variety to the customer at a lower price, and save
time and trouble to the customer. The growing ease of communication
with central shopping districts, the rapid changes in fashion with the
consequent large variety which only a large establishment could afford
to carry--all these factors have helped along the movement. There are
limits to such a movement, for small tradesmen will always hold the
repairing trades, and the sale of perishable goods; thus there are no
businesses so scattered as the small stores of the “butchers and
grocers.” But on the whole we may safely conclude that the small
storekeeper is doomed now just as the small manufacturer was two or
three decades ago. In the carrying trade country carriers and a few
cabmen in the cities are the only survivals of the small independent
business; the steam railroad and the electric railway have driven the
small carrier out of business. In agriculture alone, where
concentration is strictly limited by the necessity for intensive
cultivation, and in professional and personal service, where the very
nature of the business prevents it, is there little or no development
in the direction of large-scale methods.
The industrial and social effects of this development have been marked
in all countries. In the United States the main attention has been
given to the organization and development of machinery, and a
wonderful industrial advance has followed the movement. The economic
readjustments have consequently been made with comparative ease, and
the labor set free by the invention of new machines has been 38
reabsorbed in the same or other industries. Consequently the social
effects have not been so marked as to call for special emphasis; as
the same question presents itself, however, in connection with the
more recent trust movement we may profitably defer its discussion to
the next section.
There is one other characteristic feature of modern capitalistic
machine industry which deserves special mention, especially as its
development has been carried furthest in the United States. Reference
is made to the system of standardization and of interchangeable parts.
In no single feature is the contrast between modern machine methods
and those of the old hand trades greater. By standardization is meant
the production of so-called “standard products” according to some
acceptable size, form, or shape. In the manufacture of screws or iron
beams, or even ready-made clothing, for example, certain dimensions
and sizes which are best adapted for general use, are selected as
standard sizes and these are then turned out in large quantities by
automatic machinery. The advantages of such a system, in cheapness,
quickness of delivery, ability to replace a single broken part, etc.,
are numerous and manifest. “The possibilities of standardization are
strikingly shown in a recent international incident. The Egyptian
Government desired a bridge for the Atbara at the earliest possible
moment; inquiry was made of the English bridgemakers, but no promise
of prompt delivery could be secured. Within twenty-seven days after
the tender of the contract was made to an American firm the bridge was
ready for shipment. The feat, not a remarkable one, was due to the
standardization of bridge material. This in itself was a guarantee of
quick delivery and construction.”[3]
Standardization was followed by the system of interchangeable parts,
according to which each part of an intricate machine or product is 39
made exactly like the same part in every other machine. The parts can
thus be turned out in large quantities and “assembled” at a single
operation. From the standpoint of the consumer or user of the machines
thus made, the great merit of the system lies in the fact that he can
quickly and at small expense duplicate any broken part. It is today
applied to almost every product of large consumption, from
agricultural implements and steam engines to watches and nails. By
producing machinery on this plan it has been possible for American
manufacturers to extend their trade very materially in foreign lands.
It was recently reported in the newspapers that Mr. E. H. Harriman had
expended $65,000,000 in standardizing the equipment on his railroad
systems; while this sum is enormous, it will undoubtedly be justified
by the increased economy of repairs and operation.