This section is from the "Elementary Principles of Economics" book, by Richard T. Ely and George Ray Wicker. Also available from Amazon: Elementary Principles Of Economics: Together With A Short Sketch Of Economic History
We come now to the last of the stages in man's economic development. Inasmuch as this last stage is the one in which we are living, it will be well to give to it a more detailed study than has been given to the preceding stages. After a general description of the characteristic differences between the industrial stage and the stage which preceded it, we shall pass on to study the history of the great movement by which the industrial stage was ushered in. As it was in England that the movement began, and as it is in the United States that the movement has perhaps proceeded to the greatest extreme, we shall consider the history of the movement with reference to these two countries.
A closer study of the period than we shall be able to devote to it would disclose the fact that the industrial stage has up to the present shown three distinct phases. The distinguishing characteristic of the earliest phase say from 1760 to 1830 was development of machine industry and the application to it of steam power. From about 1830 to about 1870 the distinguishing characteristic of industry was the development of steam-power transportation. From the latter date to the present, the most striking fact in industry has been the concentration and integration of capital in the fields of manufacture and transportation. To study these minor periods in detail would require greater space than can be given to the subject in a book of this sort; but in our study of conditions in the United States at various points in the text we shall have occasion to throw further light upon them.
I. The Industrial Stage General Characterization. As we have said, man may manufacture by hand or by power. It was a great step forward when man learned to manufacture at all; it was a transformation of society when man learned to manufacture by power. Mere human muscle is an insignificant force as compared with the external forces of nature, and man's greatest accomplishments when he depends upon his own unaided efforts are relatively unimportant. But man has more brains than any other creature, and pro--gresses by their use.
It is hardly necessary to state to the student that the industrial stage began with the inventions and discoveries which resulted in the steam-engine. The date usually associated with this important change is 1769. Here, as in the preceding chapter, it will conduce to clearness if we analyze the situation and show the characteristic contrasts between the industrial stage and the former stage of economic development.
1. Relation between Classes. Under the old system of hand manufacture, each master in a trade worked by himself or with a few others, apprentices or journeymen, who in time would normally become masters themselves. Hence we may say that men in the full possession of their trade worked on their own account and owned what they made as well as the means of manufacture. When pricesrose, the benefit went to them. Strictly speaking, there were no class divisions in manufacture, an apprentice or a journeyman being simply a master "in the making," living on terms of intimacy in the master's family, and in many cases marrying the daughter of the master and later succeeding to the business.
Rise of Factories. But it is manifestly impossible for every workman to own an engine and elaborate manufacturing machinery. The result of the application of steam to manufacturing, therefore, was that a few men, more enterprising or wealthier than the rest, made the experiment, bought high-priced machinery, employed workmen, and quickly distanced the conservative ones who resisted the change. Under these conditions, as we can now see, the factory system was bound to grow and to supplant the old system of house industry. Those who resisted had to go to the wall. They did not enjoy the process nor were they patient under its operation; but at length, their fortunes wasted, their business ruined, their hope of successful resistance gone, they yielded and sullenly sought places as workmen in the new factories.
Before this great industrial change, employer and employed were not, as we have said, sharply or permanently divided by class distinctions. Living and working together, apprentice and master had that mutual respect, which came from the remembrance of his own apprenticeship on the part of the master, and the assurance of a future position of independence in the breast of the apprentice. Now we have two distinct industrial classes, with interests that seem irreconcilable, and between them is fixed a great gulf which in an old society comparatively few men can hope to cross.
2.The Wages System. Formerly the workman had what he made and sold it for what he could get. This was natural under a system of divided labor in which each man made one article and that a whole article. But in the more efficient processes of production that obtain today, there is necessary a much greater division of labor, or rather combination of labor. Now, it requires many men working together to make a single article efficiently. But when a group of men have made a case of shoes, of which one has cut out the soles, another has made the heels, etc., who can say how many shoes the individual workman has made? Then, too, the employer has furnished materials and machinery and has assumed the risk of loss. He must be paid. How many shoes shall be his portion of the whole? Some way out of the trouble must be found. As a matter of fact the way adopted was the simplest one and perhaps the best. The employer takes all the shoes, and gives the workmen for their labor, not the actual product of their labor, but a stipulated wage which is represented to be an equivalent. And thus has grown up the modern " wages system " of employing labor.
3. Competition. Under the old gild system of manufacturing for purely local markets, prices, as well as many other elements of industry, were regulated by custom or law. The man trying to undersell his neighbor would have been an object of public contempt and hatred. Men sometimes entered into rivalry or competition to see who could make goods of the best quality, but even here custom and law sometimes entered to reduce all to a dead level by determining what the quality of the commodity should be.
But with the growth of great markets in the industrial stage all this was changed. Factories now competed not for the trade of a single city or county, but for that of a whole country or of the world. The producers were no longer neighbors living in close and friendly intercourse, but great hostile businesses often situated in different parts of the country. The earlier stage had been prevailingly a period of " town economy "; the new stage was a period of "national economy," which in our own time has developed into something very like a "world economy." Under such conditions, competition once begun must go on getting ever fiercer and fiercer. It was not a competition in well-doing, but in money-making.
The struggle had its good results. It was what men needed to stimulate their energy and enterprise. Invention followed invention; business rapidly centred in places where it could be carried on at the greatest advantage ; labor processes were divided and subdivided as the increase of machinery and the growth of markets rendered division profitable, and by these and other means the cost of production was constantly lowered.
Thinkers of the time not unnaturally were profoundly impressed by the rapid increase of wealth due to competition, or rather to freedom of industry, as well as by the irksomeness of the old gild restrictions, to which appeals were being made by those who wished to curb the new movement. They overlooked the evils of unrestricted freedom, and in consideration of its benefits concluded that the State should not try to guide industry, as it had so long been doing, but that industry needed only to be left alone to achieve its grandest results. It will be necessary later to note some of the results of the attempt of the government to follow this principle.
4. Banking and Credit. All great movements are complex, the various parts being mutually cause and effect, one of another. The preceding stage had developed money; the industrial stage has developed credit. Credit has been in part the result, as it has been in part a cause, of the other great changes which characterize the age. Money is still used as the most common medium in retail trade and in small transactions generally, but in large transactions it has been displaced in great measure by the various instruments of credit, such as checks, drafts, and bills of exchange. Moreover, to secure a proper organization of credit, it has been necessary for society to develop the system of banking as we know it to-day. Thus one great improvement forms others and is in turn formed by them. In 1782 there was but one bank in the United States; in September, 1902, the national banks alone numbered 4601, while if we add to this number the state banks, private banks, and trust companies which perform banking functions, the total would rise to over 12,000.
5.Transportation. Before the beginning of the industrial stage, the problem of moving things was far less important than it has since become. Not much could be moved long distances by land while only packhorses and wagons were known. Often, too, the roads were such as prevented the best results even from such a mode of locomotion. Transportation by land being so difficult, commerce depended then, as always before, chiefly upon water. Sailing vessels, though slow, could carry even bulky commodities between places connected by water, and large cities were therefore always seaports. We have become more independent of waterways furnished by nature or by art. Important cities can now grow up miles away from navigable rivers or the seacoast, though the importance of water communication even to-day is attested by the slight proportion of cities that are so situated. In all this we see that civilization is marked by man's increasing domination of nature.
6. Moral and Legal Restraints. Always in past stages of economic development, we have seen a sharp distinction drawn between neighbors and strangers. The family and neighbors have formed a constantly widening circle, and have always been protected by detailed law and custom; strangers on the other hand were exposed to whatever treatment might be considered advantageous. Indeed, the word " stranger " in many languages even had the added meaning of enemy. It is characteristic of the industrial stage that the distinction between neighbor and stranger is no longer a clearly defined one. It may be asked, Have all men, then, become brothers, or have they all become strangers and enemies? Few will claim that men in their business dealings are brotherly. Yet if we look at the whole of the industrial stage, we shall have reasons for believing that the change which has been taking place has been to make neighbors of those who were strangers and enemies. The great and sudden widening of the circle of neighbors was naturally accompanied by a weakening of the feeling of neighborliness. But in our own time more than ever before there has been a conscious effort to strengthen this feeling of neighborliness or brotherhood, and to widen the circle even beyond national lines. Humanity, on the whole, has not been lessening but growing.