CHAPTER VIII

EXCHANGING THE PRODUCTS OF INDUSTRY

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43. Relation of division of labor to the market The result of the complex division of labor is that the output The division of the group or community is greatly increased. If one man working of labor in

the alone were to perform all of the operations of butchering a bullock, productivity the process might take him all day. But, as we have seen in the of the

group, last chapter, butchering in a Chicago packing plant is carried on by a number of specialists who, by means of dividing up their labor minutely, are enabled to butcher an average of more than four bullocks per day per man. It is clear that the division of labor increases the amount of product but is

limited by per man, yet it should be remembered that it is not economical to

the extent turn out this increased product unless there are purchasers for it. of the In other words, there must be an adequate market before the com

market, plex division of labor is practicable. In the following selection, Adam Smith explains the statement that the division of labor is limited by the extent of the market: As it is the power of exchanging that gives occasion to the division as Adam

Smith of labor, so the extent of this division must always be limited by

points out. the extent of the market. When the market is very small, no person can have any encouragement to dedicate himself entirely to one employment, for want of the power to exchange all that surplus part of the produce of his own labor, (which is over and above his own consumption), for such parts of the produce of other men's labor as he has occasion for.

There are some sorts of industry, even of the lowest kind, which can be carried on nowhere but in a great town. A porter, for example, can find employment and subsistence in no other place. A village

Some in-
dustries can
be carried
on only in
a large
town or
city.

a

a

Relation of
water trans-
portation to
the division
of labor
and

is by much too narrow a sphere for him; even an ordinary market
town is scarce large enough to afford him constant occupation. In
the lone houses and very small villages which are scattered about in
so desert a country as the Highlands of Scotland, every farmer must
be butcher, baker an brewer for his own family. In such situations
we can scarce expect to find even a smith, a carpenter, or a mason,
within less than twenty miles of another of the same trade. .
It is impossible there should be such a trade as even that of a nailer
in the remote and inland parts of the Highlands of Scotland. Such
a workman at the rate of a thousand nails a day, and three hundred
working days in the year, will make three hundred thousand nails
in the year. But in such a situation it would be impossible to dis-
pose of one thousand, that is, of one day's work in the year.

As by means of water-carriage a more extensive market is opened to every sort of industry than what land-carriage alone can afford it, so it is upon the sea-coast, and along the banks of navigable rivers, that industry of every kind naturally begins to subdivide and improve itself, and it is frequently not till a long time after that those improvements extend themselves to the inland parts of the country. A broad-wheeled wagon, attended by two men, and drawn by eight horses, in about six weeks' time carries and brings back between London and Edinburgh near four ton weight of goods. In about the same time a ship navigated by four or eight men, and sailing between the ports of London and Leith, frequently carries and brings back two hundred ton weight of goods.

Were there no other communication between ... (London and Edinburgh], therefore, but by land-carriage, as no goods could be transported from the one to the other, except such whose price was very considerable in proportion to their weight, they could carry on only a small part of that commerce which at present subsists between them. ...

Since such, therefore, are the advantages of water-carriage, it is natural that the first improvements of art and industry should be made where this conveniency opens the whole world for a market to the produce of every sort of labor, and that they should always be much later in extending themselves into the inland parts of the country. The inland parts of the country can for a long time have

commerce.

Character
of the
market in
the inland
parts of the
country.

no other market for the greater part of their goods, than the country which lies round about them. ... The extent of their market, therefore, must for a long time be in proportion to the riches and populousness of that country, and consequently their improvement must always be posterior to the improvement of that country. In our North American colonies the plantations have constantly followed either the sea-coast or the banks of the navigable rivers, and have scarce anywhere extended themselves to any considerable distance from both. ...

44. Beginnings in American railway development1 It follows from the above selection that an extensive market for Until the commodities is dependent primarily upon transportation. At the coming of

the railroad, time that Adam Smith was studying the relation of the market to the Amer

ican market the division of labor, transportation by means of the railroad was

was a relaunknown, and water transportation was not effective in reaching tively the interior parts of this country. As a result, the American market narrow one. for commodities was relatively a narrow one. It was not until after the first quarter of the nineteenth century that the American railway gave promise of greatly extending this market. The first important railway in the United States was the Baltimore and Ohio, which opened to traffic in 1830. This epoch-making event is described by Mr. Reizenstein in the following passage:

Upon the twenty-second of May, 1830, the first division of the The Baltimore and Ohio Railroad — thirteen and three-quarters miles Baltimore

and Ohio long, from Baltimore to Ellicott's Mills was opened for the trans

opens to

traffic portation of passengers. The cars needed for general traffic, however,

in 1830. were not ready until early in June, but after that time the travel on the road was constant. By the first of October, 1830, the receipts were $20,012.36, although the road had only a single track and was able to transport merchandise or produce during a few months only. The freight offered for transportation was about ten times the amount which the company was able to handle.

This crude means of transportation

attracted a
great deal
of attention.

The first steam locomotive was small, but fairly efficient.

a

The sight presented on that May day in 1830, upon the occasion of the opening of the first railroad worthy of the name in America, was far less imposing than that presented upon a similar occasion to-day. There were merely a number of small open carriages, much resembling the old-style stage-coaches, with wheels so constructed as to enable them to run upon the tracks. Horses were used to furnish the motive power.

The railroad, being the first of its kind in the country, naturally attracted much attention, and people came from considerable distances to see and travel upon this new and strange road.

The trial of the first steam locomotive on the tracks of the Baltimore and Ohio Railroad took place on August 25, 1830. The locomotive, which was the first intended for railroad purposes ever built in America, was the invention of Peter Cooper. It was scarcely more than a model, weighing but a single ton, and was appropriately named the “Tom Thumb.” ... The boiler was a small upright one, about the size of a modern kitchen boiler; its cylinder measured but three and a half inches in diameter, and its speed was gotten up by gearing. In order to secure the necessary steam pressure, a sort of bellows was used, which was worked by a pulley and cord passing over a drum on one of the car wheels. This crude machine was able to pull an open car of small dimensions from Baltimore to Ellicott's Mills, thirteen miles, in an hour and twelve minutes, and the return trip was made in fifty-seven minutes. .

The extension of the railroad to the Point of Rocks had an immediate effect upon that place. Several warehouses were erected; inns, dwellings and other improvements rapidly arose. The facilities for the transference of produce from the Potomac River to the railroad were ample, and the boatmen and farmers farther west resorted more and more to the Point of Rocks as the most convenient spot from which to reach the Baltimore market. It was stated also that every species of agricultural product, lime, timber of various kinds, and even paving-stones had been brought to Baltimore with profit to those making use of the road. In return, ... plaster of paris, coal, boards, bricks and scrap iron had been sent into the interior. The existence of the road had also brought into use articles, in the sparsely settled country through which the railroad passed, which

The opening of this railroad greatly stimulated trade and industry.

more

had before been valueless to their possessors. Forests and quarries hitherto useless became sources of new profit to the owners.

On January 4, 1831, the company published a notice offering In 1831 a $4,000 for the most approved engine which should be delivered for new and trial upon the road on or before June 1 of the same year. ... When efficient the time specified for the trial had arrived, three locomotives were

engine was

installed submitted for competition. Only one . . . stood the test. It ... by the weighed 31 tons. It was mounted on wheels such as those on the

railroad

company. common cars, thirty inches in diameter, and ordinarily made the trip between Baltimore and Ellicott's Mills, drawing four cars in one hour. ... The success of this engine and the satisfaction that it gave in its regular use after its trial led President Thomas to remark in his annual report in 1832 that the engine was but “as the commencement of a series of experiments which will even more fully than has yet been done, prove the adaptation of steam and railroads to every part of our country and for all purposes of trade and travel.”

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45. The nature and function of money The development of adequate means of transportation and com- Importance munication has made possible the efficient transfer of commodities of money

in exchange. from places in which they are not wanted, or are wanted relatively little, to places where they are in greater demand. But while transportation widens the market for the products of industry, it should be noted that the actual exchange of commodities is impracticable, and often even impossible, until there is some device for measuring the relative values of commodities, and otherwise facilitating their exchange. The need for such a device has given rise to money, the nature and function of which Adam Smith has described in the following passage: When the division of labor has been once thoroughly established, Specializa

tion the it is but a very small part of a man's wants which the produce of his own labor can supply. He supplies the far greater part of them the division

of labor. by exchanging that surplus part of the produce of his own labor,

result of

1 From Adam Smith, An Inquiry into the Nature and Causes of the Wealth of Nations. London, 1776. Book 1, Chapter iv.