cent of the brassware in Waterbury, Conn.; and 46 per cent of the carpets in Philadelphia. While there are undoubted advantages in such localization and specialization in a particular industry, such as reputation, growth of special skill, etc., there are also offsetting disadvantages, as the complete prostration of the whole community if the particular trade upon which it depends is disastrously affected by trade depression or by a shifting of the industry to some other locality.
More striking than the concentration of manufactures in particular places has been its concentration in a few large establishments and under the control of fewer individuals. Without entering into the discussion, as yet, of the trust problem, we may at this time take up the earlier and important tendency of industry to be conducted on a large scale. This concentration into a relatively smaller number of establishments has been going on pretty steadily since 1850 and shows no signs of abatement at this time. In the case of the iron and steel industries, cotton manufactures, and leather goods, the movement is positively startling, an actual decrease in the number of establishments having occurred in the half century. This is most marked in the monopolized industries. At the same time there has gone on an enormous increase in the size of the individual plant, in the capital employed, the number of men employed, and the value of the product. Almost the only industries which have not yet displayed this tendency are those which are essentially local in their nature, as grist mills, cheese and butter factories, etc. But in general it is characteristic of manufactures in the United States. The same tendency has been manifest in the countries of Europe, though there a system of well-developed and fairly vigorous hand trades has resisted the movement and made the development in this respect much less rapid than in this country.
Large-scale production is more profitable than production on a small scale in all industries which are subject to increasing returns. By this is meant that the return in product for each additional dollar’s worth of labor and capital employed grows greater the larger the scale on which the enterprise is conducted. When this is true the big enterprise will be able to undersell the little enterprises and eventually to drive them out of business. This is true not only in the competitive industries, but also in those which enjoy a legal or a natural monopoly, as street railways, gas and water plants, etc., all of which show an irresistible tendency to consolidation. Before drawing any conclusions as to the desirability of such a movement, let us examine some of the economies of large-scale production. The most striking and the most important is the economy in fixed capital. Concentration is a result of machine production. As machinery becomes more expensive, the breaking up of the processes of manufacture into small parts requires more complex and detailed machinery; a larger outlay is requisite for an up-to-date plant. Thus the average amount of capital invested in each iron and steel establishment in the United States increased from $47,000 in 1850 to $858,000 in 1900. The head of a steel company in Pittsburg recently testified before the Industrial Commission that to build and equip a plant for the manufacture of iron and steel under modern conditions would call for an investment of from $20,000,000 to $30,000,000. It is clear that under such conditions of expensive machine methods a small plant would have little chance of existence. Steam railways afford another good illustration of an industry in which enormous economies are effected by the concentration of a number of small, independent lines under one unified control. Every machine is utilized to the utmost; there is no needless duplication of machinery such as would occur if several small plants divided up the business, while expensive machines to
carry on relatively small processes can be profitably installed.
But other economies than those in the use of capital are present in large-scale production. A large concern can hire more expensive and better managers, can afford to experiment with new methods, can effect a more minute and economical division of labor, as for example in the slaughtering business above referred to. A striking economy can also be effected in the utilization of what were formerly waste products, and still are in small concerns. This has been carried furthest in the oil-refining and meat-packing industries; a recent statement of Swift and Co., for instance, alleged that the dividends on the stock were paid out of the by-products, such as neatsfoot oil, land fertilizer, glue, fats, etc. Owing, however, to the generally wasteful methods prevailing in the United States not so much attention has been given to this point as in England and Germany. A final economy may be mentioned that can be secured by a large business, namely, carrying on allied or subsidiary processes. Thus the Standard Oil Company builds its own pipe lines, makes its own barrels, tin cans, pumps, tanks, sulphuric acid, etc.
Such an extension in the size of the single establishment would of course not have been possible if improvements in the arts of communication and transportation had not at the same time immensely widened the market. As long as the market was local, and a factory could afford to send its goods over only a limited territory there was of course a fixed limit to the expansion of that industry. Now, however, when markets are often world-wide and the demand for goods has so enormously increased, while the modern railway and steamship can transport goods cheaply and quickly half around the globe, enterprises can be expanded and carried on on a scale commensurate with the expanded market and improved methods. It is clear then that the tendency to production on a
large scale is the logical result of machine methods, that it secures great economies, and that in industries of increasing returns it is absolutely inevitable.
But not only in manufacturing is this movement observable. More recently concentration in large establishments has revolutionized the retail trade. Department stores have supplanted the small shops because they can buy on better terms, get transportation cheaper, offer a greater variety to the customer at a lower price, and save time and trouble to the customer. The growing ease of communication with central shopping districts, the rapid changes in fashion with the consequent large variety which only a large establishment could afford to carry—all these factors have helped along the movement. There are limits to such a movement, for small tradesmen will always hold the repairing trades, and the sale of perishable goods; thus there are no businesses so scattered as the small stores of the “butchers and grocers.” But on the whole we may safely conclude that the small storekeeper is doomed now just as the small manufacturer was two or three decades ago. In the carrying trade country carriers and a few cabmen in the cities are the only survivals of the small independent business; the steam railroad and the electric railway have driven the small carrier out of business. In agriculture alone, where concentration is strictly limited by the necessity for intensive cultivation, and in professional and personal service, where the very nature of the business prevents it, is there little or no development in the direction of large-scale methods.
The industrial and social effects of this development have been marked in all countries. In the United States the main attention has been given to the organization and development of machinery, and a wonderful industrial advance has followed the movement. The economic readjustments have consequently been made with comparative ease, and the labor set free by the invention of new machines
has been reabsorbed in the same or other industries. Consequently the social effects have not been so marked as to call for special emphasis; as the same question presents itself, however, in connection with the more recent trust movement we may profitably defer its discussion to the next section.