Iii. Development Of The Factory System.
XVI. TRANSPORTATION AND COMMUNICATION.
Almost as important for the conduct of modern industry as machine methods and credit are the rapid means of transportation and communication furnished by our railroad, steamship, express, post office, telegraph and telephone systems. Indeed the development of industry on a national scale and its integration under centralized control has been made possible only by these improvements. But not only have these businesses rendered the centralization of industry possible; they themselves exhibit on a national scale concentration of control. They are all industries of increasing returns and lend themselves naturally to monopolistic control. At the very beginning of railroad construction one of the most far-sighted managers enunciated the doctrine that “where combination is possible competition is impossible.” For years competition was regarded as the regulator of rates, pooling between railroads was forbidden, canals were advocated as competitors, and by every possible device it was sought to stimulate it. We are at last beginning to recognize the monopoly character of the railroad industry and to regulate it accordingly.
Consolidation in the railroad world is not a new phenomenon nor is it confined to that industry, but it has proceeded further there than in any other line of business. The first form which combination took was that of pooling, according to which the traffic was “pooled” and the earnings then divided among the companies entering into the pool according to some previous agreement. This was forbidden by the Interstate Commerce Act in 1887 and even more stringently by the Anti-Trust Act of 1890, and accordingly railroad managers next resorted to actual consolidation of competing lines. Where this has not been possible or desirable, virtual combination has been secured by the so-called “community of interests” arrangements, based on the acquisition by one road of enough stock in competing lines to secure representation on their boards of directors. Today some eight or nine groups of capitalists control over two-thirds of the railway mileage of the United States, and according to a recent widely-published statement the late Mr. E. H. Harriman was credited with controlling, directly or indirectly, a system aggregating over 67,000 miles. These great consolidations have followed mainly the territorial groupings of railroads; the United States has now been districted out by a few large transportation companies, much as France, Italy, England and other European countries had previously been divided up. Consolidation has in many instances resulted in increased convenience to the public and in economies in management and operation, but it places a dangerous amount of power in the hands of a few men, which has not infrequently been abused, and should clearly be under strict government control.
The primary economic problem connected with railways is always the question of rates. This has been called in a recent book “the heart of the railroad problem.” The first fact that strikes the student of the subject is the great reduction in rates and fares in the past twenty-five years, especially in freight rates. From 1.24 cents in 1882 the average revenue per ton mile received by railroads in the United States has decreased to .748 cents in 1906. Freight rates, especially through rates for bulky traffic, are considerably lower in this country, and passenger fares somewhat higher, than in Europe. But the vital problem connected with rates is not as to their relative cheapness or extortionateness; it concerns rather the granting of discriminating rates. Discriminations may be of three kinds: those between different classes of goods, those between localities, and those between persons. The first group is based upon the classification of freight and rests upon differences in cost of shipment, in bulk, in risk, etc. If reasonably employed, this kind of discrimination is justifiable. Local discriminations, that is, charging different rates to different localities for substantially the same service, is not only unwarranted in most cases, but is short-sighted as well. Where superior facilities or especially keen competition exists, lower rates may be permitted for favored localities, but the arbitrary exercise of such powers by railway officials is thoroughly unjustifiable. Even less defensible is the practice, now happily less frequent, of granting discriminatory rates to favored individuals or corporations. They have been given by means of secret rates and rebates, by under-billing and under-classification, by free passes, etc. Both of these latter evils have been forbidden or greatly restricted by the passage of the Interstate Commerce Act in 1887 and subsequent legislation.
The public nature of railroads is now fairly well recognized in our law and is beginning to be understood by the people at large. Railroads enjoy peculiar privileges in the grant of corporate franchises and charters, in the right of eminent domain, and in enormous grants of land and money which have been made to them in this country. Moreover in the functions they perform the social character of their duties is emphasized, and they are under the necessity of maintaining a constant service open to all. Though they are owned by private investors and managed as private enterprises, they are essentially public enterprises as to their privileges, functions, and duties. Consequently most of the states have now undertaken, through commissions, to regulate the railroads in the public interest. Some thirty-one have appointed commissions, which probably control four-fifths of the traffic originating and ending in a single state. These state commissions differ in power, those of the Mississippi Valley and the South usually having mandatory powers, that is, power to prescribe and enforce maximum rates. In the eastern and central states commissions with supervisory powers merely, of investigation and report, have been created. The only exceptions are found in the Far West where the need of improved transportation facilities is more pressing than regulation, and in five eastern states whose legislatures are controlled by the railroad interests. While the state commissions have done and are doing valuable service, it is clear that the growth of giant railroad combinations which traverse several states necessitates federal control. The appointment of the Interstate Commerce Commission in 1887 established the principle of federal regulation, but the application of the principle in active practice has been slow and has been impeded by the courts. The final control of rates has not yet been given to the Commission.
Owing to the individualistic character of our institutions and law, public ownership of railroads does not exist in the United States, which thus forms, together with England, almost the sole important exception to the world’s practice in this regard. On the continent of Europe government ownership is the rule. Public control through either ownership or regulation by commission is essential to secure an equitable adjustment of public and private rights and to prevent the abuse of monopoly power inherent in the very nature of railroads. Public ownership has many advantages and has given satisfactory results in Europe. But for the United States the principle of private ownership with stricter governmental regulation has been definitely laid down; the problem of the future is simply how far that control shall go.
The discussion of our steam railroads does not exhaust the subject of transportation. A recent and important development is the growth of electric interurban railways, which are opening up districts untouched by the more expensive steam roads and exercising a marked influence in rural districts upon business and social life. A more significant problem, both because of its close relations to the railroads and its monopoly character, is offered by the express companies. Organized at a time when railroads were new and undeveloped they took over the safe and expeditious delivery of small and valuable articles. They have since grown in importance and power; six large companies now control over 90 per cent of the business. Since they are generally in the form of partnerships and not of corporations it has not been possible to bring them under legal control, and their rates are extremely high—three or four times as much as freight rates. In some cases the railroads, in order to gain the profits from these high rates, have themselves organized express companies to operate over their lines, immune from interference by the Interstate Commerce Commission. Even where that is not done, the express companies are performing a service which could as well be performed by the railroads themselves and at lower rates. These facts have lent great strength to the demand for the establishment by the Federal Government in connection with the post office of a parcels post, such as exists in England and in most European countries. By the extension of the maximum limit of mail packages to ten or fifteen pounds the usefulness of the post office could be immensely increased without any loss in rates. So far, however, the express companies have been strong enough to resist the introduction of this reform, though it is warmly advocated by the present Postmaster-General. A recent important improvement in our postal service has been the extension of rural free delivery to the farming districts, thereby breaking down to a great extent the isolation of country districts. This and the rural telephone have been of great social value.
The importance of the telephone and telegraph in our modern industrial life cannot be overestimated. As means of transmitting intelligence they have served to bring the most distant parts of the world into almost instant touch, and have made possible the modern centralization of business. Both offer the same problems of monopoly that we have seen exist in other parts of this field, the telegraph business being completely monopolized by two large companies, the telephone business by one, all strongly entrenched behind patents. The desirability of public ownership of these utilities rests upon stronger grounds than in the case of railroads and is strongly urged by many conservative writers.
Although attention has usually been centered upon the railroads in any discussion of the transportation question in the United States, there are important practical problems connected with both the inland and the ocean water transportation. The questions of constructing artificial inland waterways and of subsidizing our foreign merchant marine are vital political and industrial issues. The United States is probably better provided with internal navigable natural waterways than any other country. Her navigable rivers comprise some 18,000 miles. Affording access to the very heart of the continent both from the Atlantic coast and from the Gulf. They form a cheap and convenient means of transportation, especially for bulky and cheap articles; 30,000,000 tons a year are carried on the streams of the Mississippi Valley alone, though much of the former traffic has been diverted to the railroads. On the northern border of the country the Great Lakes form an unrivaled series of inland seas. The traffic on these shows a great increase every year, amounting now to over 60,000,000 tons annually. The Federal Government has performed useful service in improving the conditions of navigation along these natural waterways, and is now considering a comprehensive scheme for their further improvement.
A very different problem is offered by our canal system. During the period 1820-1840 many canals were constructed by the states to connect existing waterways and provide an outlet for produce from the interior. The best examples of these were the Erie and the Ohio canals. After the development of the railway, however, traffic began to be steadily and then rapidly diverted from the canals to these quicker avenues of transportation. Many of the canals were bought up by their rivals and permitted to fall into disuse, while those retained by the state governments remained mere shallow ditches, unimproved and ill-adapted to modern needs. The recent appropriation by the people of New York State of over $100,000,000 for the improvement of the Erie Canal, and the construction of the Panama Canal by the Federal Government have brought the question of the rehabilitation of our neglected canal system to the front again. It seems wasteful not to connect the separate links in the magnificent system of natural waterways already provided by nature, and this will probably be the first step taken. And indeed a beginning has already been made by the construction of the Hennepin Canal, the Des Plaines Canal, and others, and a company has been formed to connect Pittsburg with Lake Erie and to cut through Cape Cod. It must, however, be borne in mind that there are two distinct types of canal: those which are simply short connecting links between navigable waterways and which permit the passage of vessels used on those waters; and those canals which are shallow, have extensive lockage, and permit the use of only small boats, thus necessitating the transshipment of freight. One might well advocate the construction and enlargement of the first type, and yet hesitate to approve of the second. As yet, however, owing in part to the opposition and clamor of railroad interests, the question of canals has not received the attention it deserves in the United States.
The ocean merchant marine comprises two widely different branches, the coastwise and the foreign trade. The former is open only to vessels flying the American flag, and has shown a very steady growth; five-sixths of our ocean merchant marine today is engaged in this branch of commerce. Coal, lumber, cotton, and similar bulky commodities constitute the chief items entering into the coastwise trade. The tonnage of American vessels engaged in the foreign trade, on the other hand, has shown a steady decline ever since the outbreak of the Civil War. Foreign vessels today carry fully 90 per cent of the foreign commerce of the United States. The causes of this decline are economic rather than political, for American legislation has on the whole been very liberal to the shipping interests. At the time the western part of our country began to be opened up and its great resources exploited, our merchant marine was one of the best in the world. But now the other opportunities for the investment of capital were so profitable and alluring, and the need of it so great, that all the available labor and capital of the American people began to be devoted to the development of their internal resources. A nation cannot do everything with equal advantage at the same time any more than an individual can. Accordingly we began to withdraw our capital from shipping and devote it to agriculture, mining, manufacturing, transportation, and similar more profitable enterprises. Foreigners could build vessels and run them more cheaply than we could and it paid us to hire them to do it. Recently, however, and especially since the recent awakening of a national consciousness after the Spanish-American War, the patriotism of many individuals has been hurt by the thought that we had to depend upon foreign vessels for the carriage of our foreign commerce, while in the minds of others a comprehensive naval program demanded the building up of a native merchant marine. Two questions suggest themselves here: Do we wish to stimulate this growth artificially? And, if we do, what means shall we adopt? On the second point the Merchant Marine Commission of 1904 recommended for the United States a general bounty on all shipping, such as France has, and the subvention of certain lines of steamers over ten specified routes, following the example of Great Britain, Germany, and Japan. Without committing ourselves on this point, it may be suggested that on political, geographical, and economic grounds we may expect in the near future to see the natural development of an American merchant marine. With the growth of our foreign trade, the accumulation of capital at home, and the building up of a strong navy, the conditions for American shipbuilding and shipping will become steadily more favorable, and we may expect to see American enterprise engage in this as in other lines of industry. Eventually we are destined to become a maritime nation.
XVII. TAXATION AND TARIFF.
In no way does the State affect the interests of its citizens more vitally than in the sphere of taxation. The State in modern society is the people organized for certain collective purposes, as for the public defense, the preservation of domestic peace, and the furtherance of the social and industrial welfare. To carry out these objects money is needed and the State has therefore to collect from its citizens sufficient revenue to defray its expenditures. John Fiske has tersely defined taxes as “portions of private property taken for public purposes.” Taxation thus implies a certain degree of compulsion; by it the Government interferes with the free choice of the individual and expends a part at least of his income for him in ways that he himself might not have chosen. The social and industrial consequences of a system of taxation may also be far-reaching and important. As Professor R. T. Ely says: “Taxation may create monopolies, or it may prevent them; it may diffuse wealth, or it may control it; it may promote labor or equality of rights, or it may tend to the establishment of tyranny and despotism; it may be used to bring about reform, or it may be used to aggravate existing grievances and foster dissensions between classes.” It is evident therefore that the utmost care should be exercised in framing a system of taxation.
Certain canons or rules of taxation were laid down by Adam Smith over a hundred years ago and have been generally endorsed by economists ever since. One was that taxes ought to be certain and not arbitrary, as to amount, time and manner of payment; another was that taxes ought to be levied in the manner most convenient to the tax-payer; and a third, that taxes ought to take as little as possible out of the pockets of the tax-payer over and above what is paid into the public treasury. These three maxims—certainty, convenience, and economy—have been generally accepted, but less general agreement exists in regard to the fourth, which states that the subjects of every state ought to contribute to the support of the Government as nearly as possible in proportion to their respective abilities. This rule has given rise to two problems: first, is ability the most just basis of taxation; and secondly, if so, how is ability to be measured? The theory of justice generally accepted by legal writers and by the American courts is expressed in the maxim that taxes should be proportioned to benefits received. The benefit theory affords a good rule in the assessment of local property taxes, but fails utterly in the domain of national and state affairs. Who can measure the benefits to each individual of an appropriation for a new war ship or for a state penitentiary or for the public school system? Probably the benefits are in inverse proportion to the income or wealth of the individual, and the heaviest taxes would then have to be apportioned to those least able to pay. Most economists today agree that taxes should be apportioned according to “faculty” or ability to pay. It satisfies better our sense of fairness and is more readily applicable than the benefit theory. In the last analysis, of course, it may be said that taxation in general must confer real benefits upon society or it will not be tolerated. Here, however, we are concerned with a rule of apportionment.
The second practical problem encountered is when we attempt to apply the faculty principle in practice; how is ability to be measured? Three measures have been suggested: expenditure, income, and property. Expenditure is open to the objection that it would place an unduly large proportion of the tax burdens on the poor, whose expenditures are larger in proportion to their means than those of other classes of society. Property is objected to because large classes of society, including professional men with large incomes, would then escape taxation largely or altogether. Income on the surface seems the fairest measure of ability, but is objected to because the incomes of different individuals, both on account of source and size, really indicate unequal and not similar abilities. In practice, however, all three methods are employed in all advanced states, so it is not necessary to decide which is theoretically the fairest.
Still another practical question confronts us after we adopt the ability theory: Shall the rate of taxation be the same no matter what the amount of the property or income, or shall it increase as the amount grows larger? In other words, shall taxation be proportional or progressive? In general the advocates of the ability theory also support progression, though there are many exceptions to this statement. Three main arguments have been urged in support of this method. First, progression is advocated in order to secure equality of sacrifice; it is argued that each dollar of a $10,000 income affords less gratification to the owner than each dollar of a $1,000 income, and that consequently in order to equalize the sacrifices of the two individuals a larger proportion of the first income should be taken than of the second. Objection is made to this, that wants expand even more rapidly than incomes and therefore the initial assumption is untrue. Progression is urged, in the second place, by those who desire to use taxation as a method of introducing social reforms or of bringing about a more equitable distribution of wealth, as by the breaking up of large fortunes. It seems inadvisable, however, to use the machinery of taxation for such purposes. Other writers urge that the ability to earn or produce wealth increases at an accelerating rate, and that taxation should therefore keep pace with it. “It is the first thousand that counts.” The objection is made here that it would penalize ability and energy. In general, while the arguments are not conclusive, progression certainly secures a nearer approach to the ideal of the ability theory than does proportional taxation. The practical application, after we accept it, is still a difficult matter. It should be applied to the revenue system as a whole by the careful selection of special taxes. As a matter of fact we have just the opposite system in the United States, for the poor man undoubtedly pays out a larger proportion of his income in taxes—principally on articles of consumption—than do his wealthy neighbors.
In the main there has been a clear division in the United States between the sources of income of the Federal Government on the one hand and those of the state and local governments on the other. The Federal Treasury has derived its revenue almost entirely from indirect taxes—excise and customs—while the other governments have depended chiefly upon direct taxes upon persons, property, business, corporations, and inheritances. The division rests upon the constitutional allotment of powers, but it also corresponds very closely to the industrial and political functions of each in their relations to the individual citizens. The chief duty of the Federal Government is that of national defense and foreign intercourse, relations which are national in extent but which affect the individual only remotely; so, too, its taxing area is national and its exactions are felt only distantly. Few persons, it has been said, taste the tax in their tea or their whisky, yet over one-third of all the taxes collected in the United States are derived from either customs or excise duties. Whisky and tobacco contribute most of the internal revenue, while import duties are levied on practically everything brought into the country which could compete with any home product. These two sources yield over $500,000,000 a year to the Federal Treasury. During the Civil War these sources of revenue were supplemented by a federal income tax, but as such a tax was later declared unconstitutional by the Supreme Court, further recourse to this in the near future seems improbable. From a purely economic and financial point of view this is very regrettable, for the Federal Government should unquestionably have at its command the means of quickly raising large additional revenue with as little disturbance to industry as possible. Such a means would be afforded by the income tax, which moreover can be administered only by the Federal Government, as it must be national in its operations to be fair.
The main reliance of the state and local governments in this country is the general property tax, which amounted in 1902 to over $700,000,000 or almost half of all the taxes collected. This really consists of two very distinct parts, which present quite different problems, namely, the tax on real property and that on personal property. Under our peculiar system, by which property is assessed locally, and upon the basis of that assessment its share of the state taxes distributed to each locality, there is every incentive offered to the local assessor to under-value the land in his jurisdiction, thereby escaping part of the state burdens. This evil of inequality between localities could be obviated by the simple expedient of relieving real estate of all state taxes and leaving it solely to the counties and cities for purposes of taxation. In the case of personal property the great evil is evasion. Much of our modern wealth exists in the form of securities, stocks, bonds, mortgages, etc., and this is practically undiscoverable by assessors except by the voluntary declaration of the tax-payer, which is only truthfully made by trustees and a few conscientious persons. Most of our laws have been directed to the discovery of this intangible property, as it is called, but without avail. In a few of the most progressive states the effort has at last been recognized as futile, and the attempt is now being made to reach these sources of income indirectly, by taxes on corporations, on business, franchises and other tangible evidences of wealth.
Not only are corporation, business, license and similar taxes being developed, but increasing resort is had to inheritance taxes, over thirty states now making use of this form of taxation. They are more frequently imposed on collateral than direct inheritances, and in many states are progressive, both as to amount and as to nearness of relationship. Thus in Wisconsin the rates advance from one per cent for bequests under $25,000 to husband, wife, or lineal relation, to 15 per cent for sums over $500,000 to very distant relatives or strangers. These various forms of taxation are necessary to secure the needed revenues for the state governments, especially if these forego further resort to taxation of realty. The tendency is now sufficiently marked to make it possible to indicate with some certainty the future of taxation in this country. To a certain extent, however, this must be regarded as the expression of an ideal rather than the description of an existing system. The Federal Government should have customs and excise duties, supplemented by an income tax. The state governments should have corporation and inheritance taxes. The cities and minor civil divisions should have taxes on realty, and license and franchise taxes. Such a division is logical and avoids duplication of taxation of the same source by two or more grades of government. In view of the pre-emption of the field of corporation taxation by the states, it is therefore doubly regrettable that the Federal Government should now (August, 1909) have adopted a tax on income of corporations for federal purposes.
Other problems connected with finance are suggested in connection with the universal tendency to increase in governmental expenditures and in public debts. The former is an expression of the growth and expansion of state functions, which will be discussed in the next section. The latter is due in part to this same fact, in part also to the development of credit and the creation of a market for the sale of public and other securities, and finally to the growth of constitutional government, which has made the people willing to entrust their capital to a government which they themselves as citizens really control.
The question of the tariff involves such important economic as well as financial consideration that it seems best to discuss this form of taxation somewhat more fully. For it has been used not merely as a means of raising revenue but also as an instrument to develop particular industries and prevent foreign competition. Any detailed discussion of this subject therefore involves a statement of the pros and cons of protection and free trade. It should be said, however, in advance that the real issue is not free trade, for that is demanded by only a few doctrinaires, but freer trade through an intelligent revision of the tariff downward. The system of protection has prevailed in the United States for virtually one hundred years, and could not be suddenly changed and abolished if one would. From the financial standpoint, too, import duties are absolutely essential to the support of our Federal Government; the question here is not absolutely free trade, but the choice of articles for revenue purposes. Shall they be those which are not produced in this country or those which enter into competition with domestic products? If financial considerations alone prevailed, the former would undoubtedly be selected as the more convenient, certain, and economical. But in the determination of the tariff policies of the United States economic considerations have been paramount and to an examination of these we must now turn.
Historically the following arguments have played the main role in support of protection at different times in the United States. The infant industries argument was advanced by Hamilton in his celebrated Report on Manufactures in 1791 and has always been important until recently when the infants had grown to be so lusty that it was evident that other reasons for protecting them must be discovered. This was found in the plea for diversified production, which was necessary for a well-rounded economic development; the need of creating a strong national government and national spirit also played their part. In order to win over the farmers the home market argument was early urged; this has taken various forms. In the first place it was urged that the building up of manufacturing centers and the consequent increase in population would give the farmers a better market than the fluctuating foreign one. As set forth by Carey, it would keep within the country the elements taken from the soil. It would also save the freights on the transportation of goods back and forth across the ocean. Each of these arguments has lost force with the development of the country and the decrease in the cost of transportation. More important today is the wages argument; at first protection was urged because wages were high in the United States and the manufacturer needed to be protected against his foreign competitor who employed cheap labor. Today it is argued that protection has raised wages and must be continued in order to protect the laborer against the pauper labor of Europe. Curiously enough, in France protection is urged for French workmen against the highly paid and efficient American. The effect of the tariff on wages has been greatly exaggerated; wages are high in the United States because the productivity of labor is high. Indeed so far as the tariff raises prices it may be argued that the real wages of labor are lowered. More generally accepted as defensible grounds for protection are the political arguments that a nation should be able to produce its own military armaments and supplies, and that it should be able to use the tariff as a retaliatory measure. Recently this latter has received considerable force from the practice of “dumping,” by which is meant the occasional sale of products abroad at prices lower than those charged at home. Domestic manufacturers in the country thus treated are of course seriously injured and have insisted upon protection against this procedure which has been authorized in Canada.
In answer to these various arguments the free traders, or those desiring a modification of present high rates, make their main appeal to the doctrine of comparative costs. Briefly stated this asserts that nations, like individuals, can do some things better than others. Like the individual lawyer therefore who pays to have his boots blacked while he devotes himself to the law, the nation should produce the things it is best fitted for and pay others to produce other things which it can do less well. In this way each will obtain the largest possible return. Protection, which interferes with this natural international division of labor, simply diverts labor and capital from more into less profitable industries. Practically, this purely abstract economic argument has had little influence on the commercial policy of nations, which have been moved more by political and industrial considerations. Today, however, there is no question but that the freer movement of capital and industry throughout the world would be advantageous. In answer to the home market argument it is pointed out that with the growth of large-scale production the profitable area of manufacture has greatly widened and now in many cases transcends national boundaries. As home producers seek foreign markets, as they are beginning to do, they themselves will demand a reduction of the tariff, especially in the matter of raw materials. Free traders also deny the need of artificially diversifying industry in a country as large and varied as the United States, or of building up infant industries. Indeed, on the latter point, they urge that many of our trusts are the result of the tariff, and that the attempt to grant legislative favors has resulted only in wholesale demoralization and a debauching of our national politics.
In conclusion it may be said that under certain conditions the policy of protection is relatively defensible; that it has undoubtedly hastened the industrial development of the United States, though it has not caused it; and that, on the other hand, it is responsible for not a few evils in our political and industrial life. The struggle of particular interests during the framing of the Payne bill shows the impossibility of deciding this issue upon academic grounds. It may be prophesied, however, that as our manufacturers reach out more seriously after the foreign markets the tariff will be modified so as to make this possible; but he would be a rash prophet who should predict a sudden or great change in our tariff policy within the present generation.
XVIII. THE FUNCTIONS OF GOVERNMENT.
In the course of the preceding pages we have repeatedly referred to the necessity or desirability of governmental action, and have emphasized the important part which it plays in our economic life today. Every practical economic problem that confronts us calls in some degree for the exercise of state activity. It is necessary for us then, if we are to render sound judgment on these questions, to have a clear opinion as to the proper sphere of government action, as to how far the State should interfere in the economic activities of private individuals. We cannot do better than to state first the main functions of a modern state. The modern industrial system, as we saw in the first section, is based upon certain fundamental institutions—personal liberty, competition, and private property. The first function of government is to guarantee to every individual the rights of freedom, property, and contract; this involves the maintenance of peace and order. These are often spoken of as “natural rights”; rather they are rational rights, based upon expediency and human welfare, and are created and maintained by society. Without the constant support and intervention of government they would possess little reality or significance. But in addition to guaranteeing these fundamental institutions, modern governments grant individuals certain privileges, as patents, copyrights, trade-marks, franchises, etc., designed to stimulate the economic activity of individuals.
A second group of functions undertaken by the modern state is regulative. As we have seen, laws are made regulating the freedom of contract, the conditions of labor, the conduct of business, methods of banking and transportation, etc. The terms under which competitive business may be conducted are laid down, and while freedom of industry prevails for every individual it is only on condition that he conforms to the rules of the game thus prescribed. But the conditions are not merely restrictive; sometimes they are designed to promote enterprise, as in the case of gifts, subsidies, protective duties, etc. In all these ways the State interferes with the action of perfectly free competition for the purpose of securing better or more equitable conditions. A third group of functions embraces the direct participation in industry by the Government itself, as the post-office, gas, electric, and water works, canals, roads, sewers, parks, etc. In other countries, when the functions of government are more extended than in the United States, it conducts railroads, telegraph and telephone systems, tenements, pawn shops, theaters, industrial insurance, or various other activities. The line which divides public from private enterprise varies greatly in different countries.
This raises the general question, how far is it desirable that the economic functions of government should extend? As to the necessity of state activity in some form there can be no doubt. Production, exchange, distribution, and to a smaller extent consumption, are all social processes; they concern the whole of society, and must be brought under social control. Montesquieu laid down the proposition in the middle of the eighteenth century that taxes invariably increase with the growth of liberty. Historically this has been verified: the development of freedom in government and industry has meant the realization of self-restraint by the imposition of regulative law. But the modern State has gone further than this: it has realized the necessity of taking an active part in modern industrial life, for the equalization of the terms of competition, the redress of grievances, and the furnishing of utilities, either because it could do it better or because it was the only agency capable of acting. The standpoint of this treatise has been one of moderate individualism, believing in free competition and individual initiative, but not frightened off by the bogey of socialism, if at any point the interference of government seemed desirable or necessary. To present the matter clearly it will be well to state briefly the main theories that have been held as to the proper function of government, arranging them in their logical, though not in their historical, order.
At one extreme stands anarchism, which must be thought of not as anarchy and riot, but as a philosophical theory of society. Scientific anarchism contemplates an ideal state of perfect freedom, in which the State, the coercive exercise of authority by man over man, would not exist. According to this theory only the individual has rights; there is no more divinity of right in a majority than there is in kings. Government is an invasion of the right of the individual to do as he will, and should be abolished; with its abolition would vanish the various moral, social, and industrial evils to which it has given rise, and human society would develop on a higher plane. Stated in its extreme form anarchism is evidently too ideal for frail human nature as at present constituted. Of more practical importance has been the theory of extreme individualism as set forth by Herbert Spencer—a view designated by Huxley as the night-watchman theory of the State. According to this the functions of government should be limited to the protection of life and property and the enforcement of contracts, but should not include such things as education, regulation of industry, local improvements, charities, coinage, etc. Private initiative and competition are trusted to supply these things, while the economic harmony of the interests of each individual with those of society will prevent any wrong from being done. The keynote of the whole theory lies in the view that government is an evil, though a necessary one, and should consequently be restricted. Adam Smith’s system of “national liberty” went somewhat further, as it added to the three functions named above, the construction of public works and buildings, etc.; but it excluded such activities as education and the civil courts, which we regard as most suited to government management. This theory had its origin in the reaction against the undue interference with industry by the Government under mercantilism and had thus a historic justification and value.
The theory most generally held by economists and writers in the United States is probably the modified individualism set forth by John Stuart Mill. According to him, freedom of industry or “laissez faire should be the general practice; every departure from it, unless required by some great good, is a certain evil.” Industry, he said, should be left to individuals and the Government should never interfere unless there is an antagonism between social and private interests. Individuals following their own interests will always conduct business better than the Government, which is inefficient, corrupt, and can fall back on taxation to cover its mistakes. Individualism should therefore be the rule and governmental action the exception. But Mill himself admitted that there was no theoretical limit to the extension of governmental functions, and in so doing is said to have opened the door to socialism. Nevertheless, the basic idea is still that government is an evil and an extension of its activities is on the whole undesirable.
Opposed to this view is the culture state theory, enunciated by Roscher and very generally held in Germany, which regards the State as a beneficent, positive and constructive force in our industrial life. The advocates of this theory point out that the functions of the Government change with progress, and that in our complex modern industrial life it should seek to improve conditions positively, and not leave the people to the mercies of a blind competitive struggle; practically, it should regulate industry, conditions of work, housing, etc., and should manage all public utilities which affect the life or well-being of the citizens, as railroads, telegraphs, industrial insurance, etc. Still further in the same direction goes the view known as state socialism, of whom the best-known advocate is Professor Wagner. This advocates individualism, but insists that it is responsible for many injustices and evils, which it is consequently the duty of the State to redress. For instance, the State should correct the inequalities of wealth brought about by the distribution of the social income under the present competitive system; this should be done by the progressive taxation of inheritances and incomes, the limitation of inheritance and bequest, the government ownership of public utilities, as railroads, telegraph, telephone, coal mines, etc. This theory stops just short of socialism, but enlarges the functions of the State to the largest degree compatible with individualism. Beyond this, and at the farthest extreme from anarchism, stands socialism, which, however, demands a more careful examination than the other views have received because of its present prominence.
Socialism may be briefly defined in the words of Professor Ely as “that contemplated system of industrial society which proposes the abolition of private property in the great material instruments of production, and the substitution therefor of collective property; and advocates the collective management of production, together with the distribution of social income by society, and private property in the larger proportion of this social income.” Four features are involved in this definition, namely, common ownership, production, distribution, and private incomes. The cardinal and distinctive element in socialism is the collective or social ownership of the means of production, that is, of the land and capital. Instead of having these owned privately as today, they would be owned by the people as a whole, by the State, and used by them for production. Socialists do not oppose capital, as is often said, but only the private ownership of capital. But under such a system private business as we know it today, individual enterprise for the sake of profit, could not exist. It is often urged that socialism means a “grand divide,” and that in such an event the shrewder and more thrifty would shortly have the wealth of the idle or stupid members of society. But just that is guarded against under socialism, for there would be no private ownership of capital, and hence no one could get his neighbor’s share; it would all be held under collective ownership. With the abolition of private capital, there would disappear of course all the economic institutions that have grown up around it, as credit, banking, lease, hire, the stock and produce exchanges, etc.
Socialism also means the collective or social organization and management of industry. Socialists criticise severely our present methods of production, which they call planless and wasteful. They point to the constant recurrence of crises as an evidence of mistakes of the competitive system, which they say could be obviated under a well-organized comprehensive scheme. They also urge the wastes of modern capitalism, in the duplication of plants, advertising (which amounts to $500,000,000 a year in the United States and serves little useful purpose), traveling salesmen, multiplication of small stores, etc. Finally, an artificial disharmony between the interests of society and private individuals is promoted by our system of private property and profit: a coal trust limits the supply, farmers rejoice over small crops, and planters burn part of their cotton, in short the bounty of nature is regarded as a calamity. Some truth may be admitted in these criticisms, but in answer it may be said that some of them are being corrected under individualism, while as to those that remain the remedy offered is worse than the disease. The first and fundamental question is the effect of socialism on the amount produced, for as we have seen any diminution would mean a worse economic condition of society, even though it were offset by a more equal distribution. Under individualism the appeal to industry and thrift is the self-interest of the individual, and under the stimulus of this motive the production of wealth has been increased enormously. It is doubtful whether the motives of altruism, desire for social approbation, and similar ones suggested by the socialists would promote industrial activity as efficiently as the individualistic desire for pecuniary gain.
Moreover the difficulties of organizing and managing all industries would be enormous. According to the socialist plan, statistics of consumption would be gathered in advance, the idle changes of fashion would of course disappear, and production could be accurately calculated. But aside from the problem of securing an honest and efficient administration, the work of organizing industry from a centralized bureau would probably prove insurmountable. The distribution of the labor force among various employments suggests another difficulty. Under individualism the necessary distribution takes place through the agency of wage payments and the choice of an occupation is left free to the individual. As the wage-system would disappear with the abolition of private capital, some other means would have to be devised, as allotment by the Government. But more important would be the selection of the managers of industry; competition provides a process whereby the inefficient are eliminated and the able put in charge. As socialism would be an industrial democracy the selection of the captains of industry under that system would probably be made by election. Is it likely that the voters would place over themselves the ablest, that is the strictest, most economical, and most energetic man? Taking men as we find them today, this may well be doubted.
But it is as a scheme of distribution that socialism has been most warmly urged. The inequalities and injustices of present methods are pointed out and a more just system demanded. Socialists themselves, however, are not agreed as to what constitutes justice. Needs and merits have both been urged as bases of distribution, but suffer from vagueness and difficulty in administration; most socialists today agree that equality of income would best meet the requirements of justice. They claim that talented persons have been endowed by nature with their abilities and should use them as a trust for society and not expect greater rewards than their less talented brothers. To this individualists answer that the practical question is, how to secure the greatest exercise of these gifts, and that is now done by appealing to the motive of self-interest. Some writers even go further and assert that the desire for inequality is the chief stimulus to invention and enterprise. A crucial point in every socialistic scheme is the determination of value under such a system; most socialists follow Marx and say that this should be determined by the “socially necessary labor time” required for the production of an article. Such a measure leaves out of account entirely the aspect of utility or demand, and would clearly be inadequate. Prices would be fixed by the State and would be calculated in labor time, which would probably be represented by labor checks, which would constitute the media of exchange of the socialistic society.
Finally, in the definition given above, it was stated that private property would exist in the larger proportion of the social income after it was divided. There is no reason why this should not be true, for, though private capital would be abolished, the State would not interfere with the individual in the use of his income after it was earned. If one man preferred fine clothes and another pictures and books, it would be possible for the latter person to accumulate such articles of enjoyment or consumption. He could even have tools for private carpentering or a horse for riding, but under no circumstances would he be permitted to use these for production or as instruments of private gain. Socialism must stand or fall as a system of production and distribution; it is not necessary to criticise minor points. On these broad grounds it must be rejected, although it may fairly be admitted that socialists have often proved themselves keen and useful critics of existing institutions.
Many persons in this and other countries, who do not approve of socialism, nevertheless believe in the extension of state ownership or activity along particular lines. Thus Henry George, though in other respects an individualist, did not believe in the private ownership of land. Land is limited in quantity and yields, because of its monopoly character, an “unearned increment” or rent, quite apart from the return due the owner for improvements. He proposed that the Government should confiscate this unearned increment by levying a single tax on all land equal to it. He thought that this would provide revenue sufficient for all government needs without resorting to other forms of taxation; in this he was undoubtedly mistaken, but the main interest in the scheme for us is economic, and not financial. The reason for the scheme was that land, being a limited monopoly, would be increasingly in demand as society progressed, and that consequently the landlords would absorb in their increased rents most of the enlarged production of the future. This assumes that rents always increase and never decrease, which is historically untrue. Nor does the growth and progress of society necessarily increase the demand for land; it may be directed to other things, while improvements in the arts of agriculture may actually decrease this demand. We must, however, admit that there are many instances of unearned increments, not only in the case of ground rents, but also of monopoly profits from various sources; these might very properly be secured to society by means of special and heavy taxes.
The municipalization of local public utilities has been advocated by many persons who are not socialists, except in so far as they desire an extension of governmental activity along these lines. They urge this because the utilities in question—gas, water, electricity, telephone, street railways, etc.—are by their very nature monopolies, and because under private control they are often inefficiently or dishonestly managed. A less drastic remedy for these abuses might of course be found in regulation. Unrestricted private control of municipal monopolies is advocated by few; the real issue is between public regulation and public management. And this issue will depend in the last analysis upon the question which can give the best results to society.
XIX. ECONOMIC PROGRESS.
At the conclusion of a study of this character we are inevitably led to summarize our conclusions and to try to answer the question as to what the lessons of the past have taught us. In what direction are the forces of economic life taking us? The conclusion of this text is that they are making for economic progress, and it will be worth while to justify as far as possible this belief. It is, however, impossible to do this except in very general terms, for definite data for measuring this improvement do not exist, and economic progress itself is a somewhat vague conception. Even such comparatively simple facts as the rate of wages or the hours of labor can be stated only very generally. But both of these show a decided improvement in the condition of the working class. A careful investigation for Great Britain by Mr. A. L. Bowley shows that if wages for the decade 1890-1900 be represented as 100 then the course of wages during the nineteenth century would have run somewhat as follows:
Decade
1800-10
1810-20
1820-30
1830-40
1840-50
1850-60
1860-70
1870-80
1880-90
1890-1900
Without investigating the validity of the figures too closely, it may safely be affirmed that the movement of wages has been distinctly upward, and that the rise was certainly not less than 50 per cent. For the United States the increase has not been so great, probably because wages started at a higher level. According to the Aldrich report, if wages and prices in 1860 in the United States be taken as 100, relative wages in 1840 were 82.5 and relative prices 98.5; in 1880, they were respectively 143 and 103.4; in 1903, they were 187 and 103. That is to say, relative wages showed a marked advance and real wages, owing to the fact that general prices remained almost stationary, an even greater improvement. So, too, the hours of labor appear to have been shortened in Great Britain about two hours a day (from 10 to 14 hours to 8 to 12), and in the United States probably as much, the average length of the working day in certain employments decreasing from 10.3 hours in 1880 to 9.6 hours in 1903.
In the field of production the most dramatic and striking advances have been achieved. The application of steam and more recently of electricity as the motive power for the newly invented and constantly improved machinery has permitted an enormous expansion of production, which has been made still greater by the opening up of new mines and new lands and improvements in the machinery of transportation and exchange and in the organization of business. Especially in the United States where the natural resources were especially rich and the people energetic and ingenious, has the growth of wealth been marvelous. And yet almost a century after the beginning of the Industrial Revolution in England, Mill alleged that labor-saving inventions had not lightened the toil of any human being; they have only enabled a greater number to live the same life of drudgery and imprisonment. What answer can we make to this indictment today? Why is it that the working class still has so little of this vast increase of wealth and still lives so close to the border line of poverty?
To answer this question thoroughly would require an analysis of the subject of distribution, but a few reasons may be briefly suggested. While the social income has been greatly increased by these improvements the amount paid in rent to owners of land, water powers, etc., has also grown. If we approve of private property in land as best adapted to stimulate its use for society, then we must admit the justice of rent, and of its payment to present land owners. Similarly, too, the payment of interest to the owners of capital has absorbed a large part of the increased income of society, though the proportion going to this factor is probably growing smaller owing to the fall in the rate of interest. But as we have seen, modern industry is essentially capitalistic, that is, it depends upon the use of capital for its operations. Since we allow private property in capital and believe that to be the best method yet devised for securing its accumulation, we must justify interest. Profits in general are fairly earned by industrial organizers and others who manage our businesses, and are necessary to enlist their services. Probably in most cases society does not overpay these leaders of industry. But some forms of profit, as those derived solely from monopoly, especially from the monopoly of limited natural resources, are both too large and socially unearned. These society should clearly control and absorb.
One reason then why labor has not profited more by the great increase in wealth is that the other factors in production have laid claim to their shares also. There is good reason for believing, however, that the share of labor has been steadily growing greater all the time, and that it today gets a larger proportion of the social income than ever before. This fact is obscured by the great growth in population, which has more than doubled in the last hundred years in Europe and has shown a twentyfold increase in the United States. The larger income is divided among more people, and though each today gets more than his grandfather, there is not yet enough produced to make all rich. Indeed, if the wealth of the United States were divided equally, it would not provide a competence for anybody. The difficulty is not merely that there is inequality in distribution, but that the need of a much greater production of wealth must also be met. Inequalities may be adjusted by such measures as progressive inheritance taxes, but resort to this or similar methods must not be so severe as to weaken the motives for the accumulation of capital. That must form one of the strongest reasons for rejecting the drastic proposals of socialism.
Improvements in production have, however, not merely increased the total output; they have greatly reduced the cost of many articles and have brought within the reach of the poorest consumers others which a century ago would have been unattainable. Improvements in transportation have served to bring an ever-increasing variety of products to market. The material progress of a people can be gaged fairly well by their consumption of certain semi-luxuries, such as tea, coffee, sugar, tobacco, beer, etc.; these show a steady increase during the past century. “Thus in the United States between 1871 and 1903 inclusive, the per capita consumption of coffee increased from 7.91 to 10.79 pounds, that of sugar from 36.2 pounds to 71.1 pounds, that of malt liquors from 6.1 gallons to 18.04 gallons, that of wheat and flour from 4.69 bushels to 5.81 bushels.” A similar investigation for Great Britain shows an average increase in a considerably larger list of the same character of 40 per cent between 1860-64 and 1895-96. It must be admitted that there is much lack of economy in present consumption; there is often wasteful and positively injurious consumption, an illustration of which would be found by many persons in the increased consumption of malt liquors cited above. From a purely economic standpoint the enormous waste of war and the burdensome cost of military and naval armament must also be condemned.
The task of prophecy is usually a fruitless one, but at least it is now possible for us to indicate some of the lines along which reform is needed, and the goal towards which the future of progress will probably move. The natural resources of the nation must be more carefully conserved and reckless destruction prevented; at the same time the monopolization of limited resources by private individuals or corporations must be rigidly restricted. The growth of trusts seems but the last step in a steady growth in size of the business unit and may be accepted as an economical method of industrial organization, but the evils of corporate financial management must be carefully guarded against. The growth of labor organizations, on the other hand, must be admitted to be equally logical and desirable. While they often display monopolistic tendencies, yet our main reliance must be placed upon these agencies to secure bargains for laborers on terms of equality with their employers. But on behalf of wage-earners not easily organized we must resort to state interference by means of factory and labor legislation in order to secure equitable labor contracts. Free competition which exposes women and children to the greed of unscrupulous employers is defended by no one today, and it is clearly recognized that legislation along these lines must be further extended, as for instance in the direction of industrial insurance, old age pensions, adequate care for the unemployable, etc.
Reforms in our banking and currency laws, an extension of banking facilities to the working classes, the more careful regulation of railroad rates, reforms in methods of taxation, and a reduction in the tariff—all are called for by the development and readjustment of industry. On the other hand, much remains to be done in the education of the mass of the people to habits of rational living and enjoyment. In the great cities housing conditions should be effectively regulated, sweatshops suppressed, intemperance discouraged, and where possible a love of art and outdoor life promoted. A more rational use of income would increase the material well-being of the people considerably. Problems of distribution are still more insistent. No one who has the welfare of the laboring classes or of our democratic society at heart can view with approval the existence of widely separated classes, with disproportionate political and economic power. Greater equality in fortunes—a leveling up of incomes—must certainly be regarded as a sound social ideal. On the other hand, we have seen reason to reject the drastic remedies of socialism as a cure for the injustices of present methods of distribution or production. Improvement must come by conservative reform along the lines of our past development. In the last analysis all attempts to improve conditions permanently depend upon the character and capacity of the individual. Because of this fact education assumes great importance—education not merely in the art of production but also in that supreme art, the art of living.
Tarr, Economic Geology of the U. S., pp. 7, 119.
In Quarterly Journal of Economics, Vol. XIX, p. 3.
McVey, Modern Industrialism, p. 145.
The Truth About the Trusts, p. 469.
Tetter, Principles of Economics, p. 321.
Bogart, Economic History of the U. S., p. 412.
Seager, Introduction to Economics, 176.
Evolution of Modern Capitalism, 35.
F. J. Stimson, Labor in its Relation to Law, 51.
Bullock, Introduction to the Study of Economics, 428.
A. H. Ruegg, Law of Employer & Workman in England, 99.
Rep. of U. S. Ind. Com., XVII. 1.
E. L. Bogart, The Chicago Building Trades Dispute, in Pol. Sci. Quart., XVI., 134; also in Commons, Trade Unionism & Labor Problems, p. 107.
Evolution of Modern Capitalism, 297.
Report Industrial Commission, XIX, 926.
Report Industrial Commission, XIX, 746.
Bull. of U. S. Bur. of Lab., Sept., 1908, p. 418.
Industrial Evolution of the United States, ch. 28.
The Effects of Machinery on Wages, 65.
Principles of Economics, I, 315.
Industrial Efficiency, II, 451.
Schloss, Methods of Industrial Remuneration, 305.
Bliss, Encyclopedia of Social Reform, art. Distribution, p. 501.
Stated technically, its marginal productivity is small and hence its reward is also small.
More truly, the marginal productivity theory.
J. R Commons, the Distribution of Wealth, 252.
More, Wage-earners’ Budgets, 269.
Today the loss is probably double this sum.
Gide, Political Economy, Rev. Ed., 663.
Seager, Introduction to Economics, 73.
Bullock, Introduction to Study of Economics, 106.
Socialism and Social Reform, 19.
Wages in the United Kingdom in the Nineteenth Century.
Acknowledgment should be made at this point of indebtedness to the excellent final chapter in Prof. H. R. Seager’s Introduction to Economics.
Adams and Sumner, Labor Problems, 523.
MANUFACTURING.
BY O. P. AUSTIN.
[Chief of Bureau of Statistics, Department of Commerce and Labor. Native of Illinois. Engaged in newspaper work on arriving at manhood, and so continued in Chicago, Cincinnati and Washington, as reporter, editor and Washington correspondent, until appointed Chief of the Bureau of Statistics in 1898. Author of many official monographs, including: “Commercial Orient,” “Commercial Porto Rico, Hawaii and Philippine Islands,” “Commercial Alaska,” “American Commerce,” “Submarine and Land Telegraphs of the World,” “Transportation Routes and Systems of the World,” “National Debts of the World,” “Great Canals of the World,” “Colonies of the World and Their Government,” “Colonial Administration,” “Territorial Expansion of the United States,” etc., etc. Also author of publications for instruction of youth in national and international affairs. Member of American Academy of Political and Social Science, American Association of Geographers, American Economic Association, International Union for Comparative Jurisprudence and Political Economy, Central Statistical Commission of Belgium, Associate Editor National Geographic Magazine; Lecturer.]
INTRODUCTION.
The production of manufactures for the requirements of the world’s population is conducted in a comparatively small section of its land surface. Just as the manager of a great estate devotes one section of his estate to the production of certain articles, and other sections to certain other articles, so the great business instinct which rules the business of the world carries on in its various sections the varied industries best suited to the physical, ethnological and financial conditions of its various sections.
The people of western Europe and eastern United States are, for various reasons better able to produce the manufactures required by the world than are those of South America, Africa or the Orient; while, on the other hand, the people of South America, the Orient, Australia, Canada, the western part of the United States or the eastern part of Europe are better able, for various reasons, to produce the raw materials of manufacturing and the food supplies required by those engaged in the manufacturing industry than are the people of western Europe or eastern United States. South America and Australia produce wool in large quantities; Africa and the Amazon Valley produce the chief supply of india rubber; the Malayan peninsula and adjacent islands produce the bulk of the world’s tin; India produces jute; the Philippines, Manila hemp; Mexico, sisal; China and Japan, the bulk of the world’s silk; Egypt, India and the United States, the world’s cotton; Russia, Austria-Hungary, India, Australasia, South America, Canada, the central and western parts of the United States produce the bulk of the world’s wheat, corn and meats, at least the bulk of that in excess of the requirements for local consumption; Europe, the West Indies, the East Indies and the tropical sections of India, China and Central and South America produce the bulk of the world’s sugar.
The manufacturing industries of the world—confining this term for the moment to those industries in which the great proportion of the work is performed by machinery—are conducted chiefly in, it might almost be said confined to, western Europe and eastern United States. True, the exclusive application of the word “manufactures” to that portion of the world’s product of this character made by the use of machinery in conjunction with large sums of capital—the factory method—carries one beyond the original meaning of the word “manufactures,” which primarily meant, of course, made by the hand (from manus, the hand; and facere, to make); but the industrial habits of the world have also passed beyond that stage in which manufacturing for the masses is carried on by hand methods.
It must not be understood from this that all of the world’s manufactures are produced in western Europe and eastern United States, or produced by modern machine methods in conjunction with the investment of great sums of money—the factory system. On the contrary, large quantities of manufactures are still produced by hand in various parts of the world other than those in which manufactures by modern machine methods are a leading characteristic of the occupations of the people. Nor must it be assumed that the areas designated as the non-manufacturing sections are entirely dependent upon the manufacturing sections for their manufactures. On the contrary, large quantities of manufactures are still produced in the Orient, in Africa, South America, Australia and the islands of the sea by those simple processes which prevailed in Europe and the United States prior to the development of the modern methods less than two centuries ago. The industrious population of China, of India, of Japan, the millions of people in Africa, in South America and in the islands of the sea produce by simple methods large quantities, and in many cases a large proportion, of the simple manufactures which they require for their daily life. The cloth with which they cover their bodies, the simple requirements of household life and of agriculture are, in many cases, largely of their own production and made in keeping with the original meaning of the word “manufacture”—made by hand.
But the statement is still true, that the great manufacturing areas of the world—the areas which give their chief attention, or the continuous attention of a large part of their population, to the production of those requirements of man other than the natural products and do this through the application of power, machinery and capital, and the operations thereof under the factory system, are western Europe and the eastern part of the United States, though the systems which prevail there are gradually extending to other parts of the world—eastern Europe, central, southern and western United States, Japan, India, Australia, Canada and South America.
As to the relative share of the world’s manufactures now produced by the use of machinery, power and capital—the factory method—and by the hand process, respectively, no exact statement can be made; nor are there facilities for even offering an intelligent estimate of the relative production by these two methods. There is reason to believe that two-thirds of the cotton cloth consumed in China is still made by the hand process, and if this be true it may be estimated that perhaps two-thirds of the other manufactures consumed in that country are still made by hand; while in those other sections of the world in which railroads and the other methods which the people of the Occident are pleased to term “modern” do not yet prevail, a large proportion of the simple manufactures of the people, are still those produced by hand methods. The fact, however, that the sections which produce manufactures by modern methods are also supplied with modern facilities of transportation—the railroad and the steamship; and of communication—the telegraph, and also supplied with ample sums of capital and that other important quality born of long experience and the energy supplied by a temperate zone climate and the judicious admixture of the most energetic populations of the world—Europe and the United States—has enabled them to distribute their factory products in great quantities to those sections not producing by the factory method, and whose peoples are willing to exchange their natural products, food and raw materials, for the finished products of the factory.
This brings us to a consideration of the exchanges of the world—the exchanges of natural products for the products of the factory. This exchange, as already intimated, occurs chiefly in the requirements of the manufacturing section—raw materials and food—for manufactures. Western Europe, the great manufacturing section of that grand division, does not produce cotton, jute, or a sufficient supply of wool, silk, or hemp. For its india rubber, its tin, its copper and the numerous articles of tropical production required for manufacturing, it is dependent wholly or chiefly upon other parts of the world. The United States, while producing a large share of the world’s cotton and copper and iron, and a considerable supply of wool, must rely upon other parts of the world for its hemp and jute and sisal and india rubber and silk and many other of its tropical requirements. As a result the Orient exchanges its raw silk, its jute, its Manila hemp, its tin, and numerous less important articles, for the factory products of Europe and the United States. Australia exchanges its wool, its meats and its gold for the products of the manufacturing sections. Africa sends its india rubber, its ostrich feathers, its gold and diamonds in exchange for factory products of those sections in which the manufacturing system has developed. South America offers as its exchangeable products wool, wheat, corn, meats, coffee and india rubber. Canada gives in exchange for her factory requirements timber, ores, wheat and other agricultural products.
Thus the business intelligence that rules the world, adapting one to another those various conditions which prevail in its varying sections, has built up in certain sections of its great area—Europe and the United States—a great factory system, operated by the great supplies of power (coal) which there exist in conjunction with the wealth, the intelligence, the climatic conditions and the quality of population, which system, besides supplying its own six hundred millions of people with their own requirements, sends to the other ten hundred millions of people in other parts of the world its surplus products and takes in exchange the natural products, the manufacturing material and food required by its own people and its own industries.
George J. Chisholm, in the Introduction to Bartholomew’s Atlas of the World’s Commerce, outlines the history of the development of manufactures and the relation thereof to commerce as follows:
“In the latter part of the eighteenth century there took place in England a number of inventions which have brought about a change in the conditions of manufacturing industry and of commerce, and an acceleration of the rate of the economic development of the world, to which all previous history presents no parallel or approach to a parallel. It is a change that has affected the entire world, bringing about an entirely new trade with the New World and the antipodes, and completely altering the character of the trade with the East, depriving spices of the peculiar value which they held in commerce for so many centuries, and developing a trade of incomparably greater magnitude with the East than was at one time ever dreamt of, and largely in commodities of a bulky character yielding comparatively little profit on small quantities. The revolution was inaugurated by the inventions in connection with the cotton industry between 1769 and 1785 and the concurrent improvements in the steam engine by James Watt, who thereby first made this a generally serviceable machine. These were followed by the introduction of steam locomotion by land and water in the first quarter, and the rapid extension of these modes of transport in the remainder of the nineteenth century. The result of these inventions was to give a new value to the stores of coal and iron in the United Kingdom, and ultimately a new value to undeveloped land in new countries. It was railways that first made it possible to fill great ships with bulky produce like grain drawn from the far interior. The remarkable expansion of commerce thus brought about greatly increased the commercial advantages of Great Britain due to its situation and local facilities for shipping. In so far, however, as the unexampled development of British manufacturing industry and commerce in the period immediately following the Industrial Revolution was due not to geographical conditions but merely to the fact that the great inventions originated there and consequently the resources of Great Britain for carrying on manufactures by the new methods were developed first, the expansion of British manufactures and commerce was bound to be affected by the development of similar resources elsewhere; and the more rapid growth of manufactures in some rival countries resulting from this cause, and partly, it may be, from other causes, has been one of the marked features of recent economic history.”
I. MODERN MANUFACTURING SYSTEMS OF THE WORLD.
The manufacturing systems of the world have developed from mere hand and household industries to those of the machine and factory in less than two centuries. For thousands of years the simple requirements of men—of clothing, of domestic life, of agriculture and of transportation—were met with articles produced by hand labor, performed for the greatest part in the household or in simple workshops adjacent thereto. Then, in the latter half of the eighteenth century, man discovered that he could harness the power of the waterfall and, by making the wheels which it turned turn other wheels, could utilize that power in performing many tasks which he had hitherto performed laboriously by hand. The turning wheels twisted the wool and flax and cotton into threads stronger and finer and better than his wife had been accustomed to twist with the spinning wheel and distaff, and produced in a single day as much of this yarn as a hundred industrious women could produce in a week or a fortnight. By gearing the wheels to operate a loom he could weave the yarn into cloth with a small fraction of the labor and time which had been required to weave it by the hand loom and obtain better results.
Thus arose the custom of manufacturing by machinery operated by the power of the waterfall the cloth which had hitherto been manufactured by hand labor in the household; this was the beginning of the modern manufacturing industry.
To do this, however, it was necessary to plant the machines beside the waterfall and bring to them the raw material and the persons necessary to operate them, for the machine was unable to perform its task unless assisted by the intelligent labor and guidance of experienced men and women. Thus arose the system of performing in a single workshop, with the aid of a considerable number of people and machines, the manufacturing which had been hitherto performed by many people in many households and with many machines of simpler form and operated by human power—the factory system.
This new system developed new occupations. The buildings in which the work was carried on must be constructed. The machinery required for operating the factory must be made and kept in repair, and new machines made to take the place of those worn out. So there came occupation for mechanics and skilled machinists in manufacturing and repairing the machines, and for others skilled in operating them. The material used in manufacturing the cloth must be transported to the factory, instead of being used at the place where it was grown as formerly; and the cloth must again be transported to the consumer; and thus there were new occupations for man and beast in transportation and in constructing and maintaining the roads over which the material was transported. Still another, and equally important, industry developed was that of supplying the food and other requirements of the men and women engaged in the factory, and this gave new activity to the agricultural industries near the factory and further occupation to those engaged in transportation.
To supply the wants of those employed in the factories, who were so busily engaged that they could not find time to grow their own food, or make their own clothing, other enterprising men and women established themselves near the factory to sell the required food and household supplies, to supply the fuel with which they cooked their daily food, to buy small portions of the cloth made in the factory and turn it into clothing to sell to the operatives, to shave their rough beards and occasionally trim their hair—and thus arose the factory town.
So the factory system, which at first threatened to take away the occupation of thousands who had formerly devoted their time to making yarn and cloth by hand labor, developed new occupations and new industries, and brought portions of the hitherto scattered people into groups, and these groups in time developed better accommodations for themselves and their families in homes, in comforts of life, in educational facilities, and in hours of labor; and in doing this they also supplied the masses with cloth at a less cost of labor than they had formerly expended in obtaining it.
Meantime man was learning another important lesson, one which was to develop even more rapidly the art of manufacturing. He found through a long series of experiments that power could be generated by heating water until it turned into an expansive vapor which he called steam, and that this expansive force could be controlled in such manner as to put in operation a machine which he called the steam engine, which could in turn transmit its power to that machinery formerly operated exclusively by the power of the waterfall.
This discovery again revolutionized the manufacturing industry, which had hitherto been limited in the scope of its operations by the supply of water power so located that the raw material could be transported to it and the finished products in turn transported thence to market. With this new force, steam, by which the manufacturing machinery could be made entirely independent of the waterfall, the factories were located at points convenient to the natural supply of fuel and manufacturing material or to the market for the finished products. Where this was not practicable the factories were located at places to which the materials could be readily and cheaply carried by water transportation, either on some navigable stream or the sea-coast.
Another important contribution made by steam power to the development of the manufacturing industry was the decrease in cost of transportation. Before the development of the railway and the steamship the material of manufacture, unless produced within a short distance of some navigable water, canals, rivers, lakes or oceans, was of comparatively little value. It was not always practicable to plant the factory in the section which most readily produced the wool or cotton or flax or hemp or silk, or to place it alongside the iron or copper mine; and even if this were done the manufactured material was valueless unless it could be transported to those requiring it. Even the lighter articles of manufacture, such as wool or cotton or fibers or silk, could not be transported any considerable distance without greatly increasing the cost to the manufacturer, and thus proportionately advancing the cost of the manufactured article. But when, in the middle of the nineteenth century, the railways began to penetrate the continents and the steamships began to cross the ocean and extend their tours to the commercially undeveloped sections of the world, the manufacturers found new sources of supply open to them and quantities of raw material reaching them from distant lands at such comparatively low cost as to enable them to enlarge their output, increase the variety of their productions and reduce the cost of both the necessities and conveniences and luxuries which they were offering to the public. The railways of the world grew from 25,000 miles in 1850 to 500,000 miles in 1900 and 600,000 in 1909. The tonnage of steam vessels on the navigable waters of the world grew from less than one million tons in 1850 to 24 million in 1909; and the carrying power of the sail and steam vessels of the world, measured in sail tons, grew from 15 million tons in 1850 to 100 million in 1909. The general reduction in freight rates meantime is illustrated by the fact that the price of transporting wheat from Chicago to New York by rail fell from 33½ cents per bushel in 1872 to 10 cents per bushel in 1900, and the charge for transporting wheat from New York to Liverpool fell from 17 cents per bushel in 1875 to 3 cents per bushel in 1905; and similar reductions were made in the charges for transporting manufacturers’ materials.
Thus the application of steam to manufacturing and transportation multiplied the power of production. The area over which it could be performed was greatly enlarged, the cost of materials was reduced through cheaper transportation, new devices and processes were developed as a result of the competition, cheaper raw material was obtained from countries where plentiful supplies and cheap labor give low prices, and the opportunity of locating the factory near the place of production or at some convenient meeting point between the various places of production—all these contributed to reduction of cost and increase of supplies of material of manufacture. The great iron and steel works of western Pennsylvania, and northern Ohio, Indiana and Illinois, for example, are located not at the iron mines or the coal fields, but at places between these two fields to which these materials can be cheaply carried from their respective places of production. The iron ore is chiefly produced in the Lake Superior region and carried at a very low cost by vessels especially constructed for this purpose to the southern shores of Lake Erie. The coal is chiefly produced in western Pennsylvania and central Ohio, Indiana and Illinois. The cost of transporting the coal from the mine to the lake shore, or the ore from the lake shore to the mine, or both coal and ore to some mutually convenient meeting point by river or canal or railroads constructed for this purpose across a comparatively level country, is extremely small, less in many cases than that of carrying material to the waterfall which is not infrequently located at places difficult of access. The vessels carrying the manufactures of the United States or the manufacturing countries of Europe to South America, Africa and the Orient, bring back at a very low cost the india rubber, the tin, the fibers, the wool, the silk, the Egyptian cotton of those distant countries; and the manufacturer who a century ago was limited in his supply of raw materials to the immediate vicinity of his factory may now bring his material from all parts of the world, while the area in which he may sell his products has been correspondingly enlarged.
One very recent contribution to the convenience and cheapness of manufacture is found in the transmission of power in the form of electricity. Formerly the machines of the factory were operated by power obtained from the steam engine or the water wheel through lines of shafting, gearing, belts, friction pulleys, etc. This made it necessary that the factory operated by water power be placed alongside the waterfall, or at least within a comparatively short distance of the source of power. Recent inventions have made it possible to transform power into electricity, carry that electricity hundreds of miles on a wire, and transform it back into power for the operation of the machinery of the factory or the transportation of the raw material or the finished product. This has increased greatly the value of the world’s water power in its relation to manufacturing. Formerly only a small part of the waterfalls of the world were used at all, largely because of their comparative inaccessibility and the cost of transporting the raw material to them and the finished product from them. Now that power, generated at any point, however inaccessible for freight handling, may be transmitted in the form of electricity on a simple piece of wire to any convenient point within a hundred or even two hundred miles of the place of production, and by a simple process applied to the operations of machines small or large, simple or complex, the possibilities of the waterfall in supplying power for the manufacturer are greatly enlarged.
Not only is this true of the waterfalls now in existence but of those which may be brought into existence, for now that man has found a way to use the power thus generated he may readily increase the number of waterfalls by constructing dams at many places, and using the water over and over again in its flow from the place of origin to the ocean level. The great quantities of water stored up in the form of snow and ice in the mountain ranges of the world, and gradually liberated by melting may supply almost untold quantities of power as they flow down the mountain sides used not merely once but many times. The manufacturing power of Italy, Switzerland and southern France is now being greatly augmented by this process.
Another possibility of the use of this new distributor of power, electricity, is the multiplying of workshops and the return in some instances and certain articles to household or small shop manufacture. It is now so easy to introduce the electric wire and a small electric motor into the household or the shop adjoining the household and to so operate small machines for the various processes in many of the manufacturing industries, that this new use of electricity for the transmission of power is already making visible changes in the factory systems of the world, and promises still greater changes. In many lines of manufacture in which the machinery occupies small space and requires little power and the quantity of material handled is not great, such as watch and clock making, the manufacture of clothing, boots and shoes, toys, etc., a part or all of the work can now be performed in the household or small shop through the power generated miles away and brought into the workman’s home on a simple piece of wire.
On the other hand the use of electricity in the great factory or manufacturing establishment is equally important. Instead of transmitting the power of the engine to the various classes of machinery by belts, shafting and gearing, much of it is now transmitted and applied in the form of electricity. Great cranes which handle many tons of material are operated by the electric motor without the intervention of the costly shafting, belting and gearing; and the great magnet, made such by electricity, picks up its ton of steel rails with the same ease that the toy magnet picks up the needle, and is managed with no greater physical exertion than the other.
Cassier’s Magazine, an accepted authority on engineering matters, publishes with favorable editorial comment, in its issue of September, 1909, a statement by Sylvester Stewart that “we could take out in regions where water power is needed at least a hundred times as much water power as is now employed, furnishing a safer and cleaner power than steam, at a lower cost, and thus prolong the existence of our coal fields. * * * A running stream may be compared to an endless driving belt only awaiting connection to the machinery it is capable of driving, but it has not been appreciated because we have become so familiar with it; if it had suddenly been discovered, doubtless it would have been harnessed immediately. Coal is passing away, but water flows continuously. A hundred thousand horsepower may be taken from a river and its place is still filled, but the coal vein once emptied is emptied forever.” Mr. Stewart adds that probably not one-thousandth part of the water power of the world is now utilized, and that while the greater part of this power is not at present available, because of its existence in out-of-the-way places, or in rivers so deep and sluggish that the energy obtainable from them would cost more than steam power, at least a hundred times as much water power as is now used could be, under present conditions, utilized in a manner to supply it at less than the cost of coal at present prices.
II. THE USE OF MACHINERY IN MANUFACTURING.
The statements made in this discussion that the great expansion in the production of manufactures came with the adoption of machinery for manufacturing must not be understood as meaning that no machinery was used in manufacturing prior to the period of expansion. Machines have been used in manufacturing for many centuries.
The spinning wheel, used many hundred years ago, was a machine, and so was the hand loom, by which the threads spun by the wheel were woven into cloth. Flax and wool were originally turned into thread by the use of the distaff, a stick to which the spinner attached a small portion of the fiber, and by revolving the stick against his body twisted the fibers into a thread. Then by letting the end of the stick drop downward he drew out the thread, and with another roll of the stick against his body again twisted the fibers and lengthened the thread, which he then wound around the distaff. After many years of this process it occurred to somebody that by setting the distaff in a frame and passing a cord or a piece of rawhide around it and also around a large wheel and turning the wheel he could get a much more rapid and regular revolution of the distaff. This was the beginning of the use of the “machine” in the making of yarn, for the spinning wheel was a machine, of a crude type, to be sure, but a machine. This served many generations of men and women for the manufacture of thread and yarn, from flax, from wool and from cotton.
To turn this thread or yarn into cloth another “machine” was used, the loom, which, by fixing the thread on certain frames and passing other threads back and forth as the frames were raised or lowered, formed the cloth. But this “machine,” the loom, was operated by human power, as was that other machine, the spinning wheel. The women and children spun the thread or yarn, the father and sons operated the loom, chiefly in the winter months in which they had no occupation in the fields. If a man chose to give his time to weaving and became a weaver by trade he lightened his heavy labors at times by attention to the garden surrounding his workshop, performing the necessary work for the production of his food supply. “The workshop of the weaver,” says Ure in his History of the Cotton Manufactures, “was a rural cottage from which, when he was tired of the sedentary labor, he could sally forth into his little garden and with the spade or hoe attend to his culinary products. The cotton which was to form his weft was picked clean by the fingers of his younger children and was carded and spun by the older girls assisted by his wife, and the yarn was woven by himself assisted by his sons.” In the manufacture of woolen goods conditions were similar. “The work,” says James in his History of the Worsted Manufactures, “was entirely domestic, and its different branches widely scattered over the country. The manufacturer had to travel on horseback to purchase his wool among the farmers or at the great fairs or markets, and the wool, after being sorted and combed, was distributed among the peasantry and received back as yarn. The machine used by them was still the old one-thread spinning wheel, and in summer weather on many a village green might be seen the housewives plying their busy trade. Returning with his yarn the manufacturer had to seek out his weavers, who ultimately delivered to him his camelets or russells or calimancoes ready for sale to the merchant or delivery to the dyer.”
These are pictures of the manufacturing industry in England as late as 1770. “Machines” were in use, but of the simplest type, and all operated by the power of the man or woman using them, or at the best by human or animal power, and in most cases the work was performed in the household or a small shop adjoining the household.
The transformation to the “machine method” or factory system began when some power greater than that of man or beast was applied to the operation of the machines, and the machines themselves were so enlarged as to multiply their producing power. “In tracing the effect of the application of modern machinery to English industry,” says Hobson in his Evolution of Modern Capitalism, “there appear two prominent factors, the growth of improved mechanical apparatus, and the evolution of extra-human motor power. We speak of the industry which has prevailed since the middle of the eighteenth century as ‘machine production’ not because there were no machines before that time but, firstly, because a vast acceleration in the invention of complex machinery applied to almost all industrial arts dates from that period, and secondly, because the application upon an extended scale of non-human motor powers manifested itself then for the first time.” “The water frame, the carding engine, and the other machines which Arkwright brought out, in a finished state,” says Cooke Taylor in his History of the Factory System, “required both more space than could be found in a cottage and more power than could be applied by the human arm. Their weight required them to be placed in strongly built walls, and they could not be advantageously turned by any power then known but that of water. Further, the use of machinery was accompanied by a greater division of labor, and therefore a greater co-operation was necessary to bring all the processes under a central supervision.”
The new and enlarged machines which were thus operated by water power and brought together in factories had been invented chiefly during the eighteenth century. John Kay, in 1738, invented what was known as the flying shuttle, which doubled the amount of weaving which could be performed by one man in a given time. Hargreaves, in 1764, invented the spinning jenny, a machine which operated a number of spindles for spinning yarn, and so did many times as much as one spinner with a spinning wheel could do. Arkwright, a few years later, devised the water frame, by which the spinning jenny could be operated by water power. Crompton, a little later developed the “spinning mule,” which combined the important qualities of the spinning jenny and the water frame. Before the end of the century the steam engine began to supply power and was utilized in many cases where water power was not available. Then, in 1792, came Whitney’s cotton gin, by which the seeds were readily extracted from the cotton, and that valuable fiber rendered much more available for manufacturing purposes.
The effect of the development of the machine and factory system, through the devices of these thoughtful men, enormously increased the manufacturing industries of England and later of the other parts of the world. The importations of cotton into England prior to the invention of the spinning jenny averaged less than 2 million pounds per annum. With the invention of the spinning jenny and the water frame the importation of cotton and cotton manufacture quickly doubled and trebled and then grew at such rapid rate that by 1800 the importation was about 40 million pounds, by 1830, 260 million pounds and by 1840 over 400 million pounds. The importation of wool grew from less than 2 million pounds in the latter part of the eighteenth century to 150 million pounds in 1860 and over 700 million pounds in 1890, though in this article of manufacture the growth in importation was less strongly marked than in cotton because of the fact that much of the wool used in manufacture was produced at home, while all of the cotton used was imported.
In the iron and steel industry the growth in the use of machinery was even more closely connected with the great development of recent years than in that of textiles. It was quite natural that man should seek the use of machinery in the iron and steel industry. The material to be handled was of such great weight that it could not be handled in quantities without the aid of extra-human power, and the fact that it must be manipulated while at an intense heat necessitated the use of devices of some sort for its handling. Yet a long time, a very long time, elapsed after the beginning of the manufacture of iron and steel before men developed the machinery which has resulted in such a wonderful development in the manufacture. The slow rate of growth in the earlier centuries, and the rapid rate in the past century may be measured in some degree by the world’s production of pig iron, the basis of all iron and steel manufactures. Mulhall estimates the world’s production of pig iron in the year 1500 at 60,000 tons, in 1700 at 100,000 tons, and in 1800 at 460,000 tons. Then the increase began to be more sharply defined, the production reaching 1 million tons in 1820, 2½ million in 1840, 7 million in 1860, 18 million in 1880, 40 million in 1900 and nearly 60 million in 1907. The increase in the eighteenth century was about one third of a million tons, and that of the nineteenth century was 39½ million tons, or more than 100 times as much as that of the eighteenth century. The great development in the transformation of iron into steel did not come until the second half of the nineteenth century, the world’s production of steel in 1850 being, according to Mulhall, 71,000 tons, in 1870, 540,000 tons, in 1880, 4 million tons, in 1890,12 million, in 1900, approximately 20 million, and in 1907 about 40 million. The growth in production of pig iron and steel was more rapid in Europe than in the United States in the earlier part of the nineteenth century, but in the latter part of that century the United States outstripped all her rivals, and her production of iron and steel is now more than that of any other two countries of the world.
These wonderful developments in the production of iron and steel were even more dependent upon the development of machinery for transporting the material and handling it in the factory than was the case with the textiles. Pig iron cannot be made without having in immediate conjunction three natural materials, iron ore, limestone and some material to produce intense heat. The iron is only found in the form of “ore,” being iron mixed with rocks, earth or other matter which must be removed in order to use the iron. To do this the ore must be heated. Formerly this was done by placing small quantities of charcoal in a hole in the ground and placing the iron on top of it, and then more charcoal on top of the ore. By fanning the burning charcoal or blowing the fire from the lungs through a reed the heat was increased and the ore was softened, and by hammering it while hot the useless material was worked out. Then by further heatings it could be hammered into such form as desired. After a while it occurred to men to build a wall of stones and mud and place the ore and charcoal in this, and to make a bellows of the skin of some animal (the prototype of those which blacksmiths and other workers in metals now use), and so force the air into the bottom of the mass of charcoal and iron. With this the iron could be so heated that it actually melted and ran to the bottom of the furnace, and when cooled was ready for the finer processes by which it was made into the desired articles. After a time the walls of the furnace were built higher and if it could be located near to a waterfall the shaft of the water wheel was so adjusted as to operate the bellows and keep the stream of air flowing into the fire, for the heat of the burning charcoal was not sufficient to melt the iron without this forced draft.
This was the process by which men made iron for many generations. But it was a very expensive process, for the quantity of wood which must be used to produce the charcoal was so great that the forests were soon depleted, especially in England, where iron making became active. Efforts were made to use coal instead of charcoal, but the weight of the iron ore was so great that it crushed out the fire in the coal which softened as it burned. Then after a time it occurred to somebody to treat the coal in a manner somewhat similar to that by which the wood had been transformed into charcoal, and coke was produced and successfully substituted for charcoal in heating the iron ore and making iron.
In the United States the charcoal process was used until a period much later than that of its abandonment in England, for the supplies of timber were very great and men who were clearing the land for use in agriculture were glad to turn the wood into charcoal and find a market for it. The simple charcoal furnace and forced draft by a simple process furnished the iron-making systems of the world until the early part of the nineteenth century. As a result there were hundreds of small furnaces, simply operated, and turning out small quantities of iron, in various sections of the United States. Meantime somebody discovered that if the air which was forced into the furnace was heated before being sent into the fire it would greatly increase the heat-giving power of a given quantity of charcoal or coke, and the hot blast became a part of the larger furnaces. Then it was found that the anthracite coal of the United States was hard enough to bear the weight of the ore and would produce a heat sufficiently intense to melt it; and so a great iron industry developed in the anthracite region of the United States. Then it was found that certain bituminous coal in western Pennsylvania would make excellent coke for the manufacture of iron, and the Connellsville coke became a successful competitor of anthracite coal, and later other cokes were also used. Later came the natural gas discoveries and they contributed to iron making and working. Meantime railways were built to carry the ore to the coal or the coal to the ore or both the ore and coal to some convenient meeting point, and machinery began to be introduced for handling the ore and the coal along the railway and at the furnace. This led to the devising of other machinery for handling the iron after it left the furnace and of rollers for rolling the iron into bars and for giving it the sort of manipulation that the hammer of the earlier iron maker had given it when produced in the primitive furnaces. Then great deposits of iron ore, the richest known to the world, were discovered in the Lake Superior regions; and steam-driven machinery was devised to scoop it up from the beds in which it was found, place it in cars, which in turn carried it to the water’s edge, and dumped it into great receptacles from which it could run by the force of gravity into the hold of the steamer. Then other machinery operated by steam was devised to take it from the hold of the steamer and load it again on the cars which transported it to the furnace where it met the coal or the coke, produced, transported and handled by similar machine processes, and was turned into iron to also be handled by great machines.
While all this was happening—indeed long before the later happenings above mentioned—workers in iron had found that the pig iron coming from the furnaces contained so much carbon that it could not be successfully worked. So they managed to get rid of the carbon, by melting the iron in an open hearth and passing flames over it, and as the carbon is combustible it was gradually burned out. This made soft malleable iron, but not of the consistency to have the required strength or serve the purposes that are now served by steel. To bring it to the proper condition it was necessary to reintroduce a very small quantity of carbon so evenly that both the quantity and the distribution could be determined. This was done for many years by placing the bars of iron in a crucible or other closed receptacle surrounded by charcoal, and subjecting them to intense heat for several hours or days. So the making of steel was a slow and expensive process until about the middle of the nineteenth century. Then Sir Henry Bessemer, an Englishman, discovered that by forcing air into the bottom of a great retort containing molten iron the oxygen of the air would combine with the carbon of the iron and in a few minutes the objectionable carbon would be all burned out, and that by then reintroducing in this molten mass of pure iron the required amount of carbon in the form of spiegel iron or ferro manganese, steel could be made much more cheaply and quickly than before. William Kelly, an American, also devised a similar process about the same time. Thus began the process of modern steel making, which has in a single half century increased tenfold the world’s consumption of steel and thus of iron, for a very large proportion of the iron now utilized in the world is transformed into steel before being applied to the service which it is to perform for men.
In all the processes by which iron and steel making have been transformed from the simple methods of a century or two centuries ago to the present system by which a single establishment may now make in a week or month or year as much iron or steel as the whole world then made in an equal length of time, machinery and capital have been the great causes of the development—machinery for digging iron and coal, for transporting them to the place of manufacture, for handling the material in the natural state, for handling it in the furnace, for handling it in the molten state, for rolling and shaping it after it passes from the molten state to that in which it begins to take the form of the finished product, and capital to purchase this machinery and the great quantities of material required. “The very richness of our resources,” says J. Russell Smith in The Story of Iron and Steel, “has made such a wealth of opportunity for occupation in the United States that labor is and has been scarce. As a consequence the American iron industry has been driven over to a machine basis, and its very success has arisen from the fact that a scarcity of labor has compelled the introduction of machinery which has surpassed the dreams of its inventors. In the iron and steel industry of America man does little more than touch levers, while the balance is done by steam and electricity. Four large Bessemer converters, holding 15 or 20 tons of molten iron do their work by an air blast driven through the molten material by the force of an engine. The electric cranes swing the 20-ton charges and the heavy converters as easily as a schoolboy swings his dinner pail, and pours the new made steel into a metal mold which stands on a tram ready to take it to the hydraulic machine which draws the mold off the red-hot ingot. The manless way in which this great steel ingot is turned into a useful piece of steel never ceases to be a marvel. The great machines are seen but the plant seems to be deserted. Then there arises a rumble and roaring noise and the great piece of red-hot metal is seen to travel with all the independence of a serpent across a lot of black rollers and dive into the jaws of the rollers which squeeze it into flatter shape. Then it stops, turns over and dives again through the same rollers, which flatten it still more. After this has been repeated a few times you discover, standing on a high platform, a man or two pulling the levers which start the machinery of the six or seven thousand horsepower engines that drive the knowing rollers which are crushing and rolling the ingot into the shapes which man can use.”
“Perhaps the greatest difference between English and American steel works,” said an English writer on this subject, “is the absence of laborers in the American mills. The large and growing employment of propelling and directing machinery is responsible for this. In a mill rolling three thousand tons of rails in a day not a dozen men are to be seen on the mill floor. To witness in such a mill the conversion in a half hour of a red-hot steel ingot weighing several tons into finished stamped steel rails ninety feet long, and all this perfectly, by the agency of unseen hands, is to gain new ideas of the possibilities of mechanism, of the subservience of matter to mind.”
These are some of the steps by which the systems of the manufacturing world have been, in the past 150 years, transformed from household work, or that of the small shop, into that of the factory—and the factory developed into enormous establishments through the investment of great sums of money in the purchase and installation of ever-improving machinery, more ingenious, more productive, more costly, but turning out more and better of the finished product with each new device and new investment of capital.
III. DEVELOPMENT OF THE FACTORY SYSTEM.
The inventions by which the manufacturing of the world was transformed from the household and the workshop to the great factory were the result of years, generations indeed, of study of conditions one by one as they arose. “No one of the inventions which were greatest in their effect,” says Hobson, “was in the main attributable to the effort or ability of a single man: each represented in its successful shape the addition of many successive increments of discovery; in most cases the successful invention was the slightly superior survivor of many similar attempts. This is the history of most inventions. The pressure of industrial circumstances directs the intelligence of many minds toward the comprehension of some single point of difficulty, the common knowledge of the age induces many to reach similar solutions, that solution which is slightly better adapted to the facts comes out victorious, and the inventor, purveyor or in some cases the robber is crowned as a great inventive genius.”
England was the earliest scene of the development of the factory system, the bringing together of great buildings and centers of great masses of machinery operated by water or steam power and manned by great numbers of people—for however ingenious the machine a certain amount of human intelligence is necessary for its management and the conduct of the work which it is to perform. The reasons for the earlier development in England are not difficult to find. It had its colonies in all parts of the world, from which to draw the raw material and in which to market the manufactures, for it for many years discouraged or prohibited manufacture in the colonies; it had great shipping facilities for transporting its products to all parts of the world, and to bring raw material and food supplies to its workers at home; the ownership of its lands in great estates had a tendency to send to the cities and manufacturing centers that part of the population which under other circumstances would have employed itself in agriculture; the laboring population yielded more readily to the methods of the manufacturing interests than in other countries where trade guilds determined more definitely the occupations and methods of occupation of the working classes; and the comparative freedom from wars permitted a more rapid growth than that of other countries in which disturbances of this character were more frequent and more liable to frequency than in an insular country, England. “When Crompton’s mule, Cartwright’s power loom and Watt’s engines were transforming the industry of England,” says Hobson, “her continental rivals had all their energies absorbed in wars and political revolutions.”
Much of the wool and flax required in the English industries was produced at home. The colonies supplied the other fibers; the ships returning from their voyages to the colonies brought the raw silk; the absence of mountains to separate the country and the people into districts and classes enabled the interchange of labor and materials; the early development of rivers and canals gave cheap transportation; the plentiful supply of coal encouraged the development of steam power; and the proximity of iron ore and coal aided in developing that other great manufacturing industry, iron and steel. Mr. Mulhall, the celebrated statistician, estimates the value of the manufactures of the United Kingdom in 1780 at 177 million pounds sterling, France 147 million, Germany 50 million, Austria 30 million, Russia, Italy and Spain 10 million each, and the United States 15 million. In 1896 he estimated the value of the manufactures of the same countries as follows: United Kingdom, 876 million pounds sterling; France, 596 million; Germany, 690 million; Austria, 328 million; Russia, 380 million; Italy, 190 million; Spain, 121 million; and the United States, 1,980 million. According to his estimate the gain in the 116 years, from 1780 to 1896, was: United Kingdom, from 191 to 876 million pounds sterling; France, from 115 to 596 million; Germany, from 50 to 690 million; Austria, from 30 to 328 million; Russia, from 10 to 380 million; and the United States, from 15 to 1,980 million. Mr. Mulhall’s estimates put the total value of the manufactures of continental Europe in 1780 at about 1½ times those of the United Kingdom; in 1896 at about 3 times those of the United Kingdom. His estimates put the value of manufactures in the United States in 1870 at about 3⅓ per cent that of all Europe; in 1896 at about 55 per cent that of all Europe.
It must not be supposed, however, that this transformation was, by any means, instantaneous. It was, in fact, a matter of slow growth, even in the older countries, and still more so in those countries which had not yet developed their natural products or their agricultural industries. In the case of the United States, for example, the transformation from the hand to the machine methods did not come until many years after that of the leading countries of Europe. The reason for this slow movement on the part of the United States is not difficult to understand. Her people were chiefly engaged in agriculture, in felling the trees and clearing the lands in the eastern part of the country, and in opening farms on the prairies of the great West. Those who had capital to invest in enterprises other than that of agriculture gave their attention to the construction of methods of transportation, first, toll roads, stage coaches and pack trains, then, canals, and finally railways. This occupied the attention of the people of this new country for a generation after the people of Europe and especially England were engaged in developing their manufacturing industries.
So it is not surprising to see that Mr. Mulhall’s figures show that English manufactures in 1820 were nearly 6 times as much as those of the United States, and in 1840, 4 times as much as those of this country; and even in 1860, considerably exceeded our own. But in the next twenty-year period there came a great change. The Civil War in the United States, with the home demands in the manufacturing section, the North, rapidly developed the manufacturing industries, and the development thus created continued after the close of that unhappy period. So his figures indicate that in 1888, the next date which his table touches, that our manufactures were 1¾ times as much as those of the United Kingdom, and in 1896, 2¼ times as much in value as those of the United Kingdom and half as great as those of all Europe. Accepting the figures of Eugene Parsons, elsewhere referred to, for the European countries in 1904, and accepting the official figures of the United States for that same year, we find that the figures of the value of manufactures in the United States are nearly 3 times those accredited to the United Kingdom and but little less than those of all Europe.
It is proper to say, however, that these statements, whether of Mulhall, Parsons, or other authorities on this subject, are liable to be extremely misleading unless carefully and intelligently considered. The reason of this is found chiefly in the fact that the official figures of the United States are made up on a materially different basis from those of the other countries in question. To be sure, the figures of the United States are official and therefore may be considered reliable as to the facts which they purport to show, but in fact some of the things which they purport to show are presumably quite different from those quoted for the other countries included in these estimates—for they can be only estimates for the other countries, since no country other than the United States takes a census of manufactures (England is taking one as this text is being issued, but has not yet completed it), and the figures quoted regarding their manufactures are necessarily estimates. Generally speaking, it may be said that the census of the United States includes certain articles which are not usually classified as manufactures in other countries, such as products of slaughtering, canning, the milling industry, etc. Aside from this it must also be remembered that the usually quoted figures of the United States’ manufactures include many duplications, due, as elsewhere explained, to the fact that the total so quoted is merely an aggregation of the product of all factories; and as the product of one factory often becomes the manufacturing material of another, its value is again reported by the manufacturer who reports merely the total value of his products. These duplications are so numerous and prevail in such important and costly articles that the census estimates the net or true value of our manufactures at but about two-thirds as much as the usually quoted figures of gross products. It would appear, therefore, that the usually quoted figures of “manufactures in the United States,” when compared with the estimate of manufacturing in other countries, should be reduced about one-third to make them properly comparable with those usually quoted for the other countries of the world. Even if this were done, however, it would show the value of the United States’ manufactures probably about twice as great as those of the United Kingdom and probably little less than those of continental Europe.
Taking Mulhall’s figures for the other countries which he includes, as presented in a table on another page of this text, it will be seen that the chief growth in manufacturing during the 116 years covered by the table under consideration has occurred in the last third of the period. English manufactures, he says, grew from 177 million pounds sterling to 290 million in the 40-year period from 1780 to 1820; from 290 to 577 million in the next 40 years, from 1820 to 1860; and from 577 to 976 million in the 36 years from 1860 to 1896—a growth of 113 million pounds sterling in the first 40 years, of 287 million in the second 40 years, and of 400 million in the third period of 36 years. Germany showed a more rapid growth in the third period; the growth in the first 40-year period being from 50 million pounds sterling to 85 million; in the second 40-year period, from 85 to 310 million; and in the third period, of 36 years only, from 310 to 690 million. France has not made as rapid a gain as Germany, the figures showing her products in 1780, 147 million pounds sterling; in 1840, 220 million; in 1860, 380 million; and in 1896, 596 million.
The total of Mulhall’s table, including the somewhat over-estimated figures of the United States, and relating chiefly to the products of Europe and the United States, show total manufactures of all the countries named, in 1780, 480 million pounds sterling; in 1820, 865 million; in 1860, 2,404 million; and in 1896, 5,710 million, again indicating that the chief growth has occurred in the last third of the period under consideration, the period of transformation from the hand industries to those of machine production in conjunction with vast sums of capital and plentiful transportation facilities for collecting the raw material and distributing the finished product.
When we consider nations or groups of people and their use of modern methods of manufacturing, we may properly say that the principal manufacturing sections of the world are western Europe and the United States, and that, as above indicated, the bulk of the world’s manufactures by the factory process are now produced in those two sections of the world. Manufacturing by machinery may perhaps be said to have originated in England, spreading thence to France, to Germany, and westward to the United States. More recently it has extended in a somewhat limited form into Canada in the west and India and Japan at the extreme east. India has utilized modern methods of manufacture, especially in cottons and certain other industries, for more than a score of years, while the one other country of the Orient which has as yet entered the field of machine manufacture, Japan, though somewhat later in adopting machine methods, has been more active and extended modern manufacturing to a much greater variety of industries than have the people of India.
While certain of the European countries were earlier in the manufacturing field than the United States, the larger population, the greater supply of natural materials, the larger supplies of fuel for cheap power, the ingenuity of the American workman, and the enormous domestic demand of an active and prosperous people, have brought the United States clearly to the head of the list of manufacturing nations. It may safely be said that the value of manufactures produced in the United States is approximately twice as great as that of any other manufacturing nation, and that the stated value of our manufactures is nearly as great as the estimated value of the manufactures of all Europe. The latest official figures on the value of the manufactures of the United States are those of the Census Bureau, which put the value of manufactures produced in the calendar year 1904, as recorded by the Census of 1905, at 16,867 million dollars, including in this an estimate of a little more than 2 billion dollars’ worth of manufactures classed as “mechanical and neighborhood industries,” which were included in all former census reports, but not recorded by the Census of 1905, which was by law merely a census of manufactures produced under “the factory system.”
No other country than the United States takes a periodic census of its manufactures. The United Kingdom is at the present time about taking for the first time a census of its manufactures, but no figures with reference thereto are as yet available. As a consequence all statements regarding the value of manufactures of European countries, or indeed of any country other than the United States, are estimates and estimates only. True, they are based upon certain known facts of quantities of raw materials consumed in manufacturing, values of manufactures exported, and the estimated proportion which these form of the total manufactures; but in no other country than the United States are there available official statements of the total value of manufactures produced in the country in question. Therefore the estimates of the value of the manufactures produced by European countries which are quoted from time to time and which are presented elsewhere in this text, must be accepted as merely estimates. A comparatively recent estimate, and one which has been given wide publicity, and appears to have been generally accepted, is that of William J. Clark, published in The Engineering Magazine in 1904, which put the value of the manufactures of the United Kingdom at 5 billion dollars, Germany 4,600 million, France 3,450 million, Austria-Hungary 2 billion, Russia 1,980 million, Italy 1,700 million, Belgium 750 million. These estimates, if accepted, would bring the value of the manufactures of the countries enumerated to a figure slightly in excess of that officially reported by the Census Office as the value of the product of all manufacturing establishments of the United States in 1904. The figures above quoted for certain European countries present however no estimate of the value of the product of Switzerland, Spain, Holland and the Scandinavian countries, so that it probably might be said with greater accuracy that the stated value of the manufactures of the United States is about equal to the estimated value of continental Europe, and about three times as great as the estimated value of the manufactures of the United Kingdom.
It is proper, however, before leaving this question of the relative value of the manufactures of the various countries, to again call attention to the fact that the official figures of the value of manufactures produced in the United States include certain articles not classed in certain other countries as manufactures, and in addition to this contain many duplications due to the fact that the products of one manufacturer frequently become the raw material of another, and thus the grand totals which merely combine the stated value of the product of each manufacturer necessarily include a second and in some cases a third valuation of the products thus utilized. The manufacturer of yarn, for example, reports to the Census Office the full value of the product of his factory. The manufacturer of cloth, who utilized that yarn, also reports the full value of the product of his factory, and thus includes in that valuation the value of the yarn purchased by him but already reported by the manufacturer of yarn. The manufacturer of clothing, in stating the value of the product of his factory, includes the sums which he paid for the cloth already reported by the manufacturer of clothing and included in his statement. Thus many duplications occur in our census statement of the gross value of the products of the manufacturing industries of the United States. “This gross value,” says the Census Report of 1900, page cxxxix, “does not represent the final value of the manufactured products of the country. It does fairly represent the total value of commercial transactions involved in manufacturing enterprises.... As the finished products of one branch of manufacture are constantly used as materials in other branches, in the ascending scale of modern industry, it follows that they are counted over and over again, swelling in this manner the gross total value of products. Thus in cotton manufacture, the product of the yarn mill, manufacturing yarn for sale as the material of the cloth mill, and the product of the cloth mill as the material for the manufacturer, so that by the time the aggregate is made the value of the yarn has been counted three times and the value of the cloth twice.... Duplications and re-duplications of this sort run all through the total value of products as reported by this (the Census) office. * * * The net or true value of the products is found by subtracting from the gross value the cost of all materials purchased in a partially manufactured form. In 1900 the cost of these manufactures was $4,633,804,967 and” (subtracting this sum from the gross value, $13,004,400,143), “the net value of products was therefore $8,370,595,176.”
When it is further considered that the Census of Manufactures in the United States includes in its list of manufactures all products of slaughtering and meat-packing establishments wholesale, valued in 1905 at 112 million dollars, the product of printing and publishing newspapers and periodicals only, valued at 309 million, and the product of canning and preserving fish, oysters and vegetables, valued at over 100 million—it will be seen that an effort to determine even approximately the share of the world’s manufactures produced by the United States or by the various manufacturing nations of the world is a difficult—an impossible—task.
It may safely be asserted, however, that the United States is the world’s greatest manufacturing nation, and that the value of our manufactures exceeds those of any other country. This is due, as already indicated, to the fact that our supply of raw materials is greater than that of any other country, our supply of materials for producing power also greater than that of any other country, our use of machinery for manufacturing far in advance of that of any other nation, the activity of our inventors and the skill of our workmen quite equal to those of any other part of the world, and the demands of our home population upon our own manufacturers far in excess of those of any other country, both by reason of the large population and high purchasing power of a people prosperous and active in all lines of industry—agriculture, transportation, manufacture. The country which produces three-fourths of the world’s cotton, twice as much iron and steel as any other single nation, as much copper as all of the remainder of the world combined, more of wood suitable for use in manufacturing than any other country, more wool than any other of the manufacturing nations, and a population much larger than that of any other country actively engaged in the manufacturing industries, has quite naturally and almost necessarily become the leading manufacturer of the world.
The growth of the manufacturing industry in the United States has been phenomenal. Stated in the methods of valuation followed by the census above referred to—the gross valuation—the value of manufactures produced in the United States has been, speaking in round terms, in 1850, 1 billion dollars, in 1860, a little less than 2 billion, in 1870, 4¼ billion, in 1880, 5⅓ billion, in 1890, 9⅓ billion, in 1900, 13 billion, and in 1905, a little less than 17 billion, though the figures usually quoted for 1905 are 14.8 billion, owing to the fact that the Census of 1905 only included factory products, and added parenthetically an estimate of 2 billion as the probable value of the “mechanical and neighborhood industries,” thus bringing up to nearly 17 billion the total properly comparable with the totals of earlier periods, which in all cases included the mechanical and neighborhood industries.
That this rapid growth in the value of manufactures has been far in excess of the consuming capacity of the home population is evidenced by the growth in exportation of manufactures, which aggregated in 1880, 122 million dollars, in 1890, 179 million, in 1900, 484 million, and in 1908, 750 million. Manufactures formed in 1880 but 15 per cent of the total exports, in 1890, 23 per cent, in 1900, 35 per cent, and in 1908, 41 per cent of the total merchandise exported from the United States.