manent and distinct the business organizations (corporations), the stronger becomes this tendency.

We see here a transformation which is analogous to that which took place in industrial technics when handicraft was supplanted by machine production. Indeed, it is the "business" aspect of the same evolution. The single business enterpriser and the ordinary partner are, so to speak, the handicraftsmen of business. As with productive processes, so now with property, there is less stability and more flexibility. Sentiment is either less influential or of a different sort. Interest in the thing concerned is less personal. More than ever, "business is business."

We should not forget that this transformation has its beneficial features, just as the industrial revolution had. While technical processes and ownership are both becoming more roundabout, the possibilities of diffusing goods and property are becoming greater. Few men can own factories, but many can own a share of factory stock. And if the many have some voice in the affairs of the organization whose stocks they hold, need they lose all interest in property and products? Truly, the transformation has great potentialities for good or for evil, and it should be the aim of the statesman to retain the interest of the mass of stockholding proprietors in their real productive property, and to insure such a democratic conduct of corporate affairs that corporate shares may become the means of diffusing property and of democratizing business.

CHAPTER II

CLASSES OF BUSINESS ORGANIZATION, THEIR EVOLUTION, AND THE TESTS OF EFFICIENCY

It is no simple matter to understand and discuss business organization, even when the purely economic point of view is taken and attention is confined to forms of business units. Something must be left out. Some basis of classification must be adopted and followed at the expense of other bases. It is the purpose of this chapter to mention several classifications and to discuss them briefly before passing to a fuller discussion of the one selected for detailed treatment. Also, the general tests which have operated in determining the evolution of the forms of business organization and which may be applied in judging their efficiency to-day will be outlined.

Classes of Business Organization and their Development.1. Size of Establishment. The most obvious point of difference in business units is their size. Large business units came first in foreign trade and banking. In the former industry relatively large risk-taking ability and capital have always been required. Operations must extend over a great territory and a long period of time, and accordingly the joint-stock plan of raising capital was very early applied in this field. Banking and insurance, too, require great funds to insure the public against loss, and have always been associated with relatively large-scale operations.

But when one turns back into history, going to the seventeenth century in England and to the eighteenth in America, one finds none but small business units in manufacturing and agriculture. The typical unit was the family and the typical market, if it can be called a market, was the family or immediate locality. Toward the end of the eighteenth century Alexander Hamilton

referred to American industry as a vast scene of household manufacturing." Though early in the eighteenth century there were in England some few large establishments in the cotton and silk industries which employed a hundred or more men under one roof, it was not until the importance of capital was realized that large-scale business units became common. This development came with the invention of machinery and the application of mechanical power. These new factors made it economically necessary to divide labor, and to utilize as fully as possible the expensive machines and the buildings required to house them. In England the big factory came in late in the eighteenth century, beginning in the cotton industry; but its rise was retarded in America. The census of 1900 truthfully observes: "It seems probable that until about the year 1850 the bulk of general manufacturing done in the United States was carried on in the shop and the household, by the labor of the family or individual proprietors, with apprentice assistants, as contrasted with the present system of factory labor, compensated by wages, and assisted by power." The chief exceptions were in the New England towns like Lowell and Lawrence, where cotton mills of considerable size were established as early as 1830.

1

Although one must be extremely careful not to imagine that any establishments just like the average are actually to be found, and not to forget the great variety of sizes and kinds of businesses that exist, still it is of some significance to note the change in the size of the average manufacturing establishment which is indicated in the figures which follow:

One may form a rough picture of the average manufacturing establishment of 1850 having a capital of $4300, employing 7 wage earners, and turning out products valued at $8200. Over against this may be put the establishment of 1910 with its capital of $64,800, its labor force of 25 men, and its output valued at over $76,000. In contrast with Hamilton's characterization one may put the words of a living economist: "The typical unit of production is no longer a single family or a small group of persons working with a few cheap, simple tools upon small quantities of material, but a compact and closely organized mass of labor composed of hundreds of individuals, coöperating with large quantities of expensive and intricate machinery, through which passes a continuous and mighty volume of raw material on its journey to the hands of the consuming public." 1

The thirteenth census of the United States reported that in 1909, out of a total of over 268,000 manufacturing establishments, slightly over 3000 made products valued at $1,000,000 or more. These very large establishments formed 1.1 per cent of the total number. This was an increase of 0.2 per cent over 1904, when they equaled 0.9 per cent. The medium-large establishments, which produced products valued at from $100,000 to $1,000,000, formed about 10 per cent of the total number in both periods, while those which produced to the small amount of $5000 or under made about one third of the total number. a little over 3000 of the very large establishments and 93,300 of the very small establishments, with such increases in each class that the percentage each forms of the total number has not changed much of late years, a fact which seems to show little tendency towards concentration in large businesses. It is not numbers that count, however, but output.

This makes

On this latter score we find that the 1.1 per cent of very large establishments employed 30 per cent of the laborers engaged in manufactures nearly one third-and contributed over 35 per cent of the value that manufacturing added to the value of the raw materials used. Here is striking evidence of

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1 Hobson, The Evolution of Modern Capitalism (London, 1901), p. 88.

the great concentration of manufacturing in very large establishments! Nor is this all. The percentage of output coming from such establishments is increasing. The very large establishments produced 38 per cent of the total value of products in 1904, while, as just indicated, they produced nearly 44 per cent in 1909. The next census may show that 2 per cent of the number of establishments produces 50 per cent of the value of products!

Another indication of the trend of developments is seen in the fact that during the five years 1904-1909 the average value of products per manufacturing establishment increased from $68,400 to $76,900. Because of a great increase in the number of laborers in small establishments the average number of wage earners per establishment remained stationary at 25 during this period.

A more general indication of the movement in this regard is found by comparing the increase in number of establishments with the recent increase in capital, employees, and the value of products. If the former item increases less rapidly than the latter ones, a larger average establishment may be inferred. The facts are as follows:

During the decade covered by the statistics, value of products increased 60 per cent, but there were only 28.4 per cent more establishments at the end than at the beginning.

The situation is similar in the case of railways. There were 1224 operating roads in 1900; in 1910 there were 1306. Meanwhile the railway mileage increased from 193,300 to 240,400, with a tremendous increase in tonnage. The insurance business also shows an increase in the size of its business units.