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efficiency of the labour employed in its production. The extent of the market may be limited by several causes: too small a population; the population too scattered and distant to be easily accessible; deficiency of roads and water carriage; or, finally, the population too poor, that is, their collective labour too little effective, to admit of their being large consumers. Indolence, want of skill, and want of combination of labour, among those who would otherwise be buyers of a commodity, limit, therefore, the practicable amount of combination of labour among its producers. In an early stage of civilization, when the demand of any particular locality was necessarily small, industry only flourished among those who by their command of the sea-coast or of a navigable river, could have the whole world, or all that part of it which lay on coasts or navigable rivers, as a market for their productions. The increase of the general riches of the world, when accompanied with freedom of commercial intercourse, improvements in navigation, and inland communication by roads, canals, or railways, tends to give increased productiveness to the labour of every
nation in particular, by enabling each locality to supply with its special products so much larger a market, that a great extension of the division of labour in their production is an ordi* nary consequence.
The division of labour is also limited, in many cases, by the nature of the employment. Agriculture, for example, is not susceptible of so great a division of occupation as many branches of manufactures, because its different operations cannot possibly be simultaneous. One man cannot be always ploughing, another sowing, and another reaping. A workman who only practised one agricultural operation would be idle eleven months of the year. The same person may perform them all in succession, and have, in most climates, a considerable amount of unoccupied time. To execute a great agricultural improvement, it is often necessary that many labourers should work together; but in general, except the few whose business is superintendence, they all work in the same manner. A canal or a railway embankment cannot be made without a combination of many labourers; but they are all excavators, except the engineer and a few clerks.
OP PRODUCTION ON A LARGE, AND PRODUCTION ON A SMALL SCALE.
§ 1. From the importance of combination of labour, it is an obvious conclusion, that there are many cases in which production is made much more effective by being conducted on a large scale. Whenever it is essential to the greatest efficiency of labour that many labourers should combine, even though only in the way of Simple Co-operation, the scale of the enterprise must be such as to bring many labourers together, and the capital must be large enough to maintain them. Still more needful is this when the nature of the employment allows, and the extent of the possible market encourages, a
considerable division of labour. The larger the enterprise, the farther the division of labour may be carried. This is one of the principal causes of large manufactories. Even when no additional subdivision of the work would follow an enlargement of the opera tions, there will be good economy it enlarging them to the point at which every person to whom it is convenient to assign a special occupation, will have full employment in that occupation. This point is well illustrated by Mr. Babbage.*
"Ifmachinesbekeptworkingthrougli * Page 214, et seqq.
the twenty-four hours," (which is evidently the only economical mode of employing them,) "it is necessary that some person shall attend to admit the workmen at the time they relieve each other; and whether the porter or other servant so employed admit one person or twenty, his rest will be equally disturbed. It will also be necessary occasionally to adjust or repair the machine; and this can be done much better by a workman accustomed to machinemaking, than by the person who uses it. Now, since the good performance and the duration of machines depend, to a very great extent, upon correcting every shake or imperfection in their parts as soon as they appear, the prompt attention of a workman resident on the spot will considerably reduce the expenditure arising from the wear and tear of the machinery. But in the case of a single lace-frame, or a single loom, this would be too expensive a plan. Here then arises another circumstance which tends to enlarge the extent of a factory. It ought to consist of such a number of machines as shall occupy the whole time of one workman in keeping them in order: if extended beyond that number, the same principle of economy would point out the necessity of doubling or tripling the number of machines, in order to employ the whole time of two or three skilful workmen.
"When one portion of the workman's labour consists in the exertion of mere physical force, as in weaving, and in many similar arts, it will soon occur to the manufacturer, that if that part were executed by a steam-engine, the same man might, in the case of weaving, attend to two or more looms at once: and, since we already suppose that one or more operative engineers have been employed, the number of looms may be so arranged that their time shall be fully occupied in keeping the steam-engine and the looms in order.
"Pursuing the same principles, the manufactory becomes gradually so enlarged, that the expense of lighting during the night amounts to a considerable sum: and as there are
already attached to the establishment persons who are up all night, and can therefore constantly attend to it, and also engineers to make and keep in repair any machinery, the addition of an apparatus for making gas to light the factory leads to a new extension, at the same time that it contributes, by diminishing the expense of lighting, and the risk of accidents from fire, to reduce the cost of manufacturing.
"Long before a factory has reached this extent, it will have been found necessary to establish an accountant's department, with clerks to pay the workmen, and to see that they arrive at their stated times; and this department must be in communication with the agents who purchase the raw produce, and with those who sell the manufactured article." It will cost these clerks and accountants little more time and trouble to pay a large number of workmen than a small number: to check the accounts of large transactions, than of small. If the business doubled itself, it would probably be necessary to increase, but certainly not to double, the number either of accountants, or of buying and selling agents. Every increase of business would enable the whole to be carried on with a proportionally smaller amount of labour.
As a general rule, the expenses of a business do not increase by any means proportionally to the quantity of business. Let us take as an example, a set of operations which we are accustomed to see carried on by one great establishment, that of the Post Office. Suppose that the business, let us say only of the London letter-post, instead of being centralized in a single concern, were divided among five or six competing companies. Each of these would be obliged to maintain almost as large an establishment as is now sufficient for the whole. Since each must arrange for receiving and delivering letters in all parts of the town, each must send letter-carriers into every street, and almost every alley, and this too as many times in the day as is now done by the Post Office, if the service is to be as well performed. Each must have an office for receiving letters in every neighbourhood, with all subsidiary arrangements for collecting the letters from the different offices and re-distribnting them. To this must be added the much greater number of superior officers who would be required to check and control the subordinates, implying not only a greater cost in salaries for such responsible officers, but the necessity, perhaps, of being satisfied in many instances with an inferior standard of qualification, and so failing in the object.
Whether or not the advantages obtained by operating on a large scale preponderate in any particular case over the more watchful attention, and greater regard to minor gains and losses, usually found in small establishments, can be ascertained, in a state of free competition, by an unfailing test. Wherever there are large and small establishments in the same business, that one of the two which in existing circumstances carries on the production at greatest advantage, will be able to undersell the other. The power of permanently underselling can only, generally speaking, be derived j from increased effectiveness of labour; and this, when obtained by a more extended division of employment, or by a classification tending to a better economy of skill, always implies a greater produce from the same labour, and not merely the same produce from less labour: it increases not the surplus only, but the gross produce of industry. If an increased quantity of the particular article is not required, and part of the labourers in consequence lose their employment, the capital which maintained and employed them is also '<et at liberty; and the general products of the country is increased, by some other application of their labour.
Another of the causes of large manufactories, however, is the introduction of processes requiring expensive machinery. Expensive machinery supposes a large capital; and is not resorted to except with the intention of producing, and the hope of selling, as much of the article as comes up to the
full powers of the machine. For both these reasons, wherever costly machinery is used, the large system of production is inevitable. But the power of underselling is not in this case so unerring a test as in the former, of the beneficial effect on the total production of the community. The power of underselling does not depend on the absolute increase of produce, but on its bearing an increased proportion to the expenses: which, as was shown in a former chapter,* it may do, consistently with even a diminution of the gross annual produce. By the adoption of machinery, a circulating capital, which was perpetually consumed and reproduced, has been converted into a fixed capital, requiring only a small annual expense to keep it up: and a much smaller produce will suffice for merely covering that expense, and replacing the remaining circulating capital of the producer. The machinery therefore might answer perfectly well to the manufacturer, and enable him to undersell his competitors, though the effect on the production of the country might be not an increase but a diminution. It is true, the article will be sold cheaper, and therefore, of that single article, there will probably be not a smaller, but a greater quantity sold; since the loss to the community collectively has fallen upon the work-people, and they are not the principal customers, if customers at all, of most branches of manufacture. But though that particular branch of industry may extend itself, it will be by replenishing its diminished circulating capital from that of the community generally; and if the labourers employed in that department escape loss of employment, it is because the loss will spread itself over the labouring people at large. If any of them arc reduced to the condition of unproductive labourers, supported by voluntary or legal charity, the gross produce of the country is to that extent permanently diminished, until the ordinary progress of accumulation makes it up: but if the condition of the labouring classes enable them to bear a tempo" * Supra, chap. vi. p. 69.
rary reduction of wages, and the superseded labourers become absorbed in other employments, their labour is still productive, and the breach in the gross produce of the community is repaired, though not the detriment to the labourers. I have restated this exposition, which has already been made in a former place, to impress more strongly the truth, that a mode of production does not of necessity increase the productive effect of the collective labour of a community, because it enables a particular commodity to be sold cheaper. The one consequence generally accompanies the other, but not necessarily. I will not here repeat the reasons I formerly gave, nor anticipate those which will be given more fully hereafter, for deeming the exception to be rather a case abstractedly possible, than one which is frequently realized in fact.
A considerable part of the saving of labour effected by substituting the large system of production for the small, is the saving in the labour of the capitalists themselves. If a hundred producers with small capitals carry on separately the same business, the superintendence of each concern will probably require the whole attention of the person conducting it, sufficiently at least to hinder his time or thoughts from being disposable for anything else: while a single manufacturer possessing a capital equal to the sum of theirs, with ten or a dozen clerks, could conduct the whole of their amount of business, and have leisure too for other occupations. The small capitalist, it is true, generally combines with the business of direction sorne portion of the details, which the other leaves to his subordinates: the small farmer follows his own plough, the small tradesman serves in his own shop, the small weaver plies his own loom. But in this very union of functions there is, in a great proportion of cases, a want of economy. The principal in the concern is either wasting, in the routine of a business, qualities suitable for the direction of it, or he is only fit for the former, and then the latter will be ill done. I must observe
however that I do not attach, to this saving of labour, the importance often ascribed to it. There is undoubtedly much more labour expended in the superintendence of many small capitals than in that of one large capital. For this labour however the small producers have generally a full compensation, in the feeling of being their own masters, and not servants of an employer. It may be said, that if they value this independence they will submit to pay a price for it, and to sell at the reduced rates occasioned by the competition of the great dealer or manufacturer. But they cannot always do this and continue to gain a living. They thus gradually disappear from society. After having consumed their little capital in prolonging the unsuccessful struggle, they either sink into the condition of hired labourers, or become dependent on others for support.
§ 2. Production on a large scale is greatly promoted by the practice of forming a large capital by the combination of many small contributions; or, in other words, by the formation of joint stock companies. The advantages of the joint stock principle are numerous and important.
In the first place, many undertakings require an amount of capital beyond the means of the richest individual or private partnership. No individual could have made a railway from London to Liverpool; it is doubtful if any individual could even work the traffic on it, now when it is made. The government indeed could have done both; and in countries where the practice of co-operation is only in the earlier stages of its growth, the government can alone be looked to for any of the works for which a great combination of means is requisite; because it can obtain those means by compulsory taxation, and is already accustomed to the conduct of large operations. For reasons, however, which are tolerably well known, and of which we shall treat fully hereafter, government agency for the conduct of industrial operations is generally one of the least eligible resources, when any other is available.
Next, there are undertakings which individuals are not absolutely incapable of performing, but which they cannot perform on the scale and with the continuity which are ever more and more required by the exigencies of a society in an advancing state. Individuals are quite capable of despatching ships from England to any or every part of the world, to carry passengers and letters; the thing was done before joint stock companies for the purpose were heard of. But when, from the increase of population and transactions, as well as of means of payment, the public will no longer content themselves with occasional opportunities, but require the certainty that packets shall start regularly, for some places once or even twice a day, for others once a week, for others that a steam ship of great size and expensive construction shall depart on fixed days twice in each month, it is evident that to afford an assurance of keeping up with punctuality such a circle of costly operations, requires a much larger capital and a much larger staff of qualified subordinates than can be commanded by an individual capitalist. There are other cases, again, in which thongh the business might be perfectly well transacted with small or moderate capitals, the guarantee of a great subscribed stock is necessary or desirable as a security to the public for the fulfilment of pecuniary engagements. This is especially the case when the nature of the business requires that numbers of persons should be willing to trust the concern with their money: as in the business of banking, and that of insurance: to both of which the joint stock principle is eminently adapted. It is an instance of the folly and jobbery of the rulers of mankind, that until a late period the joint stock principle, as a general resort, was in this country interdicted by law to these two modes of business; to banking altogether, and to insurance in the department of sea risks; in order to bestow a lucrative monopoly on particular establishments which the government was pleased exceptionally to license, namely the Bank of England,
and two insurance companies, the London and the Royal Exchange.
Another advantage of joint stock, or associated management, is its incident of publicity. This is not an invariable, but it is a natural, consequence of the joint stock principle, and might be, as in some important cases it already is, compulsory. In banking, insurance, and other businesses which depend wholly on confidence, publicity is a still more important element of success than a large subscribed capital. A heavy loss occurring in a private bank may be kept secret; even though it were of such magnitude as to cause the ruin of the concern, the banker may still carry it on for years, trying to retrieve its position, only to fall in the end with a greater crash: but this cannot so easily happen in the case of a joint stock company whose accounts are published periodically. The accounts, even if cooked, still exercise some check; and the suspicions of shareholders, breaking out at the general meetings, put the public on their guard.
These are some of the advantages of joint stock over individual management. But if we look to the other side of the question, we shall find that individual management has also very great advantages over joint stock. The chief of these is the much keener interest of the managers in the success of the undertaking.
The administration of a joint stock association is, in the main, administration by hired servants. Even the committee, or board of directors, who are supposed to superintendthe management, and who do really appoint and remove the managers, have no pecuniary interest in the good working of the concern beyond the shares they individually hold, which are always a very small part of the capital of the association, and in general but a small part of the fortunes of the directors themselves; and the part they take in the management usually divides their time with many other occupations, of as great or greater importance to their own interest; the business being the principal concern of no one except those who are hired to carry it on. But