This section is from the "Economics In Two Volumes: Volume I. Economic Principles" book, by Frank A. Fetter. Also available from Amazon: Economic
§ 10. Management of technical processes. The manage-ment, directly or by the aid of other employees, must choose the general processes to be used, the kinds of machinery, the. order and arrangement of it, the kinds of materials, and the various technical processes, chemical and mechanical, by which these are to be manipulated. The factors bought - equipment, materials and labor - are to be skilfully and economically combined to secure a product worth more than it cost. Indeed, the very buying of them in certain quantities and of certain qualities implies and requires a decision more or less exact, as to how they will be used. For the performance of this task of combining the factors the management must have, somewhere in the personnel, adequate technical knowledge of methods, processes, and materials, and experience in the art of applying the knowledge. In small undertakings, the owner-manager must personally embody these qualities, but in more complex organizations the chief executive may do without all but the broadest knowledge and ability to judge of the results of different processes, and to compare different plans. The technical knowledge of details must be supplied by numerous specialists, working under his direction - engineers, draftsmen, pattern-makers, chemists, mechanics, efficiency-experts, cost-accountants, etc.
§11. Management of men. The management must also choose and direct the corps of workers. Workmen must be selected with a due degree of skill, but not of a grade of skill, and therefore of wage, higher than is needed for the task. In a small business a manager's tact in handling men is one of the most important qualities, and, as the organization grows, foremen with managing tact must be hired. In one, it is a genial manner that wins the affection of the men; a sense of humor and ability to turn a joke smooths many a difficulty and is said to have obviated many a strike. In another, a dignified but sympathetic attitude toward the men is equally effective.
Not infrequently after a new superintendent, experienced and capable in mechanical matters, has taken charge of a large shop, the use of materials increases, the output falls off, and a strike follows. The explanation in such cases usually is that the new manager mistakes a smooth working, efficient organization for a slow moving one. It does not rattle and creak as he thinks it ought, and he begins to prod and irritate the men. The reverse may happen, when a new manager coming into a difficult situation replaces discord with harmony, increases wages per man but reduces greatly the cost per piece, and then has a continual struggle to convince his superiors in authority that he is not making it too easy for the men at the expense of the company. Of late it has been more and more clearly recognized that emphasis had been laid too exclusively upon the manipulation of machinery and material as a means of attaining efficiency in production. The rapid growth of large industry under corporations, separating the men from those in authority, has helped to bring this about. It is now seen that the management of the human material is just as much a part of technical efficiency as is engineering science or skill in the technical arts.
§ 12. The right proportioning of the factors. The right proportioning and skilful substitution of the factors is a delicate technical task for the management. The enterpriser must constantly study the question whether the application of another unit of any one factor at the price will, following the principle of proportionality, add to value of the product as much or more than the cost. This calculation is made for every one of the minor factors entering into the business, and for the business as a whole. The proper proportion varies at different prices, or costs. If wages rise, "it pays" to get machinery; if wages fall, it pays to let some of the machinery deteriorate and to do more by hand-labor. Likewise there is constant substitution of the various materials. The right proportions change constantly with inventions. A model factory is so proportioned that the buildings hold the right number of machines, with the right amount of space for the workmen, and the right amount of power. If there is more of a single factor than the ideal proportion, it is an unnecessary cost. Even the model factory begins to be out of date almost as soon as the walls are dry, and the method now is to build as nearly as possible on the unit system, so that new parts may be added without the loss of harmony and proportion.
§ 13. Adjustment of production to changing conditions. In the adjustment of processes to changing market conditions, many opportunities for business judgment are presented.2 The agents employed in any industry range from the more valuable down to the less valuable grades in a more or less regular series. As the place of agents on the scale of efficiency is constantly shifting, the various agents represent all grades. One depreciates, possibly is restored later and takes a high place, and again depreciates, until finally it is thrown out of use. One loom embodies the latest improvements and corresponds to the most fertile field; another can still be made to yield a little income; the use of a third results in certain loss. A great mass of unused agents lie just below the margin of utilization in every industry. Some of these are permanently abandoned; some will be taken back into use when business conditions improve. "When the iron industry is dull, many forges are out of blast; but when iron is again in demand, there is a gradual taking up of the abandoned forges, factories, and machines as they are brought within the margin of profitable utilization. Many agents not actually earning an income, may do so through a change in business conditions. Great quantities of the poorer grades of wealth, even of those things that are relatively fixed in quantity, lie unused. Great areas on the edge of civilization still await the pioneer, the prospector, and the miner.
2 See, for example, ch. 7, sec. 6; ch. 9, sec. 11-13; ch. 10, sec. 8-9; ch. 11, sec. 11; ch. 12, sec. 7-14; ch. 13, sec. 5, 7; and Part VI passim. The opportunities are so great that some have been inclined to exaggerate their importance, and to see in this meeting of dynamic conditions the only opportunities for profit.
Here is a source of wealth and a field for enterprise, to take these unused things or things imperfectly used, and convert them into effective agents. A rise in the value of any agent at once causes an attempt to duplicate it or to find a substitute for it; this attempt, if successful, puts a check upon, or sets a limit to, the rise. In this search for new devices the man who can see most quickly and clearly has a key to wealth, and he is helping to meet the wants of his fellows in society. Some inventions suddenly increase the efficiency of some grades of goods to such a degree that less efficient ones are thrown out of use, and the margin of utilization is moved to a higher plane than it was on before. Improved types of machinery in the progressive establishments displace the older, less efficient types, which, therefore, more or less completely lose their earning power long before they are physically worn out. The wish of the individual is to raise the efficiency of his own establishment, but in doing that he affects the agents owned and controlled by others. Inventions and improvements gradually become common property, and increase the free goods and free uses not bearing rent and open to every one. One who improves the quality of a machine or the economy of a process may thus unintentionally injure some of the owners of other agents, but the more lasting effect is to increase the efficiency of all agents on the margin of utilization.