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vented a process of passing the thread over two pairs of rollers, one revolving much faster than the other. His invention received the name of water-frame, from the fact that the mill in which it was first used was run by waterpower. In the years from 1774–79 Samuel Crompton produced a machine which combined the inventions of Arkwright and Hargreaves. This machine was called a mule, because of “its nature” we are told. The invention of the steam-engine by James Watt in 1769 gave the power necessary to run machinery better than the water and horse power which had previously been used. These inventions first were applied to the manufacture of cotton, but later affected all textile industries. The use of machinery in the textile industries was followed by its introduction in other lines of manufacture. The Factory System.—With the use of expensive machinery and steam-power, industries were transferred from homes and from small shops to large factories. This brought about the separation between laborers and capitalists and the general use of the wages system. The word “manufacturer” in Adam Smith's Wealth of Nations, referred to a man who made things with his hands (manus and facio), or, as we would say, a laborer. “Manufacturer,” after the industrial revolution, received its modern meaning. The immense increase in production of goods brought about competition in a larger market. There were no laws regulating hours or conditions of labor, as the current thought and practice favored a laissez-faire, or let-alone policy. According to this theory everything, if let alone, would adjust itself properly. If one employer of labor was unfair, it was supposed that laborers would desert him. Hence he would discover that unfairness did not pay. If a man cheated, his deception would be found out and he would be shunned by other men. Slowly England learned the fallacy of a laissez-faire policy and successive acts were passed to protect labor against excessive hours, unsanitary conditions, accidents, and other defects of the factory system. The Extension of the Factory System to America.Parliament desiring to secure for England the benefit of the great inventions prohibited the export of any machinery, tools, plans, or models under severe penalties. Americans were able, however, to introduce the spinningjenny into this country in 1775. The first complete cotton factory was operated in 1789 by Samuel Slater at Pawtucket, Rhode Island. Although Slater, called by Jackson “the father of American manufacturers,” could not import any machinery or plans from England, he was able to reproduce from memory the most important machinery. The War of 1812 helped manufacturing in the United States, as the people had to make the things they wanted or go without them. After the war was over, manufacturing lagged in the United States and the factory system was not fully established until 1840. Albert Gallatin attributed the slow growth of manufactures in the United States to (1) the greater profit to be obtained from agriculture, (2) the abundance of land, (3) the scarcity of capital, (4) the high price of labor. The Factory System Still Being Extended.—The substitution of factory-made goods for those of home production has continued to the present time. Not long ago canned fruits and vegetables were prepared at home; now they are chiefly factory products. The same may be said of bread, cakes, and pies. Clothing for men and women is now chiefly factory made, but men who are still young can remember when these articles were the products of home labor. Tendency toward Production on a Large Scale.—There are several reasons to-day for large factories. Industries such as the making of pianos, automobiles, watches, and shoes, the slaughtering of animals for food, and the packing of meat, show a tendency for the large factories to become larger and the small factories to disappear. This does not necessarily mean monopoly, as the large factories still compete with one another. Some of the advantages of production on a large scale are the following: I. Greater economy in the use of capital. Machinery in a large factory may be kept busy all the time, while in a small factory the output is not large enough fully to employ the specialized machinery all the time. 2. There may be a greater division of labor, particularly among the more specialized lines of labor. A large plant can hire a skilful chemist, engineer, or superintendent. 3. There can be economy in the purchase of raw materials in large quantities and at regular intervals. 4. In the making of by-products a large factory can use much of what a small factory would waste. The great packing-houses produce many by-products such as fertilizers, glue, ammonia, leather, and pepsin. 5. A large establishment may secure its source of raw material, may have its own steamships and wharfs, may make its own barrels or other containers, and have its own storage plants.

Advantages of the Small Producer.—However, the advantages are not all with the large producer. The following are some of the advantages of the producer on a small scale: 1. The proprietor who manages his own establishment has an inducement to economy and hard work, which the hired manager does not have. Against competition of powerful establishments, many small plants operated by their proprietors flourish. 2. In some industries the greatest efficiency of plant may be obtained in a small factory. Any further increase in size is mere duplication. 3. Electric power may be had by the small producer. This tends to overcome the advantage of generating power on a large scale by the larger plant. 4. Waste materials may be sold to those who specialize in their use, thus overcoming the advantage which the large producer has in making by-products. Machinery and Labor.—On looking at a piece of machinery which will enable one man to do the work formerly done by ten men, the observer may jump at the conclusion that nine men have lost their jobs. This is far from the truth. The immediate effect of labor-saving machinery is to replace labor by machinery, but the ultimate effect upon labor is different. The lowering of the cost of production results in lower prices and an increased demand, which is generally followed by a larger number of men being employed in the industry, not to speak of the men employed in making the machines. For example: The introduction of type-setting machines was resisted by the men employed in the printing trade. At first a large number of men were thrown out of employment, but newspapers and books were so reduced in price that an increased demand led to an increased amount of work. Now many thousands of men are employed in the printing trades whose labor would not be in demand were it not for the type-setting machines. Likewise, the locomotive displaced the stagedriver, but the railroads have vastly increased the demand for transportation and have therefore increased the demand for labor. The fallacy which has just been explained is sometimes called the “lump of labor fallacy.” It assumes that there is, at any time, a certain amount of work to be done and that, if labor-saving machinery is introduced, a certain number of laborers will lose their jobs. The fact is that there is an indefinite amount of work to be done and whether or not the work is done depends upon cost and demand for the product. Without doubt the conditions of labor have improved through labor-saving devices. An engineer, operating a locomotive, has an employment more remunerative and more pleasant than the stage-driver and one that employs his intellect to a larger degree. The man who operates a lathe, or almost any other machine, has a better job than the hand laborer who formerly worked in a similar industry. The Law of Diminishing Returns in Manufacturing.— We have previously explained the law of diminishing returns in agriculture. It was once thought that the law of diminishing returns did not apply to manufacturing. This is a mistake. It must not be forgotten that the law of diminishing returns does not refer to industry as a whole but on a given area of land. The amount of labor and

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