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TABLE 3.-Unorganized industry, compounding of capital, overhead charges, and profits.
[Ten stages. Ten per cent overhead charges (on flat costs). Twenty-five per cent profit rate (on whole costs).]
Stage or in-process values, complete industry, as swollen by compounding.
1 Unnecessary capital, unorganized, increase due solely to compounding, 144.751 units or 1,447 per cent. Unnecessary capital, unorganized, 189.751 units, or 1,897 per cent.
Final selling price, original unit:
Saving (94.3 per cent of original, 1,656 per cent of sequenced price).. Final selling price, complete (10 units):
Saving (83.8 per cent of original, 517 per cent of sequenced price).
Final selling price, complete (10 units), unorganized..
Cost, complete (10 units), sequenced.......
Possible profit, unrestrained sequence combination, with 10 per cent.. Possible profit, unrestrained sequence combination, profit rate.
Reduction of tariff-trust "velvet" by 15 per cent reduction in customs tariff duties..
This table is formed like Table 2, except for the difference in the profit rate. The increase of 15 per cent in profit rate causes astounding increases in the wastes. The book capital necessary to carry unit A through the 10 stages, as found by the addition of the values in column 3, is increased from 27.273 (for 10 per cent) to 61.750-21 times-and the waste from 2,627 per cent to 6,075 per cent-215 times.
The book capital necessary to carry the commodity to finality, found under column 7, is increased from 109.528 (for 10 per cent) to 199.751, say 1 times; and the wastes from 995 per cent to 1,897 per cent-doubled. The waste due to compounding, under column 9, is increased from 54.528 units (for 10 per cent) to 144.751-almost 23 times.
Comparison of column 11 for 10 per cent and 25 per cent rate show that the possible profit rates, for sales at different stages, are increased from 10 per cent to 25 per cent (2 times) in the first stage and 200 per cent to 6717 (3 times) to the final stage.
The tables show that in a 10-stage industry with 10 per cent overhead and profit rates (Table 2) sequencing increases the power of capital 11 times, and that when the profit rate is increased to 25 per cent, sequencing increases the power of capital 20 times.
If our sequenced 10-stage industries were disintegrated into 10 independent agencies, those earning 10 per cent would have to increase their capital charges 11 times and those earning 25 per cent must increase them 20 times.
Civilization would break down under such increased burdens. The tables show that in a 10-stage industry with 10 per cent overhead and profit rates the final selling price is as made up of 263 per cent of necessary costs and profits and 633 per cent compounded profits and costs, and that if the profit rate be increased to 25 per cent, the final selling price is made up of only 16 per cent of necessary costs and profits and 83 wasteful, compounded, taxes on prior taxes, interest on prior interest, overhead charges on prior overhead charges, and profits on prior profits.
Stated in reverse form, if a sequenced 10-stage industry be disintegrated into its original elements (and physical conditions), then, in order to pay 10 per cent, the sequenced price of 263 must be increased nearly four times to 100; and to pay 25 per cent the sequenced price must be increased more than six times, from 16 to 100. (Table 3.) (Table 3.) Any such change would dislocate the entire fabric of civilization and plunge us into a condition of chaos beyond comprehension.
Yet such a threat is precisely what hangs over business. The Standard Oil Co., under court decree, has been disintegrated into some thirty-three corporations, without regard to natural law, and its sequences have in great measure been destroyed.
If all the great parallel corporations or "trusts" were to be at once decreed illegal and so disintegrated, all price would be annihilated, and the very foundation of commerce would be gone.
For all commerce depends on scientific adjustment of price; price must be adjusted so that both buyer and seller make a profit or business can not be transacted; and the fixing of "price" is the most vital and delicate and incessantly performed act of commerce. Our exchanges, which the ignorant inveigh against, with their
10-minute-edition newspapers and electric and instantaneous transmission of news from every part of the earth, perform this primal service, adjusting price by the shadow of a hair to the most remote
The great loss in a financial panic is loss of price. The duration of a financial panic and the dull times and dislocation that follow it measure the time necessary to reestablish price.
In the panic of 1897 "price" was substantially halved. We will suffer dislocation from it.
What will happen to us if, through the ignorant and incompetent application of the Sherman law, "price" must be doubled or quadrupled?
In financial panics each business reduces its selling price as near as it dares to no-profit price, and all, acting together, seek to reach a practicable adjustment of "price," so that business can be resumed and in time find the true "price" and become generally profitable. Experience shows that such readjustment requires three to five
What would happen if we had to readjust general "price" and come out of "panic" and "dislocation" by doubling each individual price?
Mankind has no experience of such a state of things, and may we never have.
Scarcely less appalling would be the effects of the increased burden thrown on all forms of fixed capital by disintegrating our sequences into their original elements, as in the Standard Öil dissolution.
Sequence combination, by combining as many as possible of the stages of production in one plant, renders unnecessary all interstage facilities for storage, handling, buying, selling, inspection, and testing and transportation from plant to plant.
Take, for example, the manufacture of steel bridges unorganized and sequenced.
Because the ores, fuel, and flux rarely occur in one and the same locality assembling transport is generally necessary to bring together the raw materials, and will be identical whether the industry be organized or unorganized; but in all subsequent stages there is great economy in fixed capital. Thus, in the unorganized industry, pig iron is made, which necessitates pig-casting machines, storage, apparatus for handling, railroads and their equipment and facilities for sale, and by the purchaser a second outfit for purchase, testing, inspection, handling, and storing; whereas a sequenced organization makes no pig and requires none of these things.
The purchaser of the pig adds 1,700 pounds of coke to a ton of pig, for melting and working it into steel, and must provide facilities for testing and handling and storing, the new fuel and gas producers to make gas, and transport (ships or railroads, or both) is necessary to bring it to the pig) and loading and unloading apparatus. In a sequenced plant the molten iron is charged into the steel furnace or Bessemer converter, which is cheaper and simpler and more durable because it does less work (no melting).
In an unorganized industry the ingot is rolled into blooms, and there must be facilities provided by the blooming-mill owner (steel maker) for storing and handling his blooms and for their sale. The blooms are bought by the rolling-mill owner, who must provide
facilities for purchase, testing, inspection, storage, and handling; and interplant transport such as a railroad with its equipment. Again, there must be more fuel and gas producers and storage and handling facilities for the fuel, and transport to bring it to the blooms, and the shapes turned out by the rolling mill require storage and handling facilities. Their buyer, the bridge works, must provide facilities for buying, inspecting, testing, handling, and storing the shapes; and again an interplant railroad, with its equipment, is necessary. The plant for final-stage manufacture is the same in either case, and likewise the transport for the finished product.
To recapitulate, in the supposed case sequence operation saves the capital necessary for storage, handling, sale, purchase, inspection, testing, and transport between the pig and the bloom, the bloom and the shape, and the shape and the bridge members ready to ship; it saves the pig-casting machine, the added fuels and facilities for storing and handling them and transport for them, and gas producers for the three plants.
It reduces the capital and cost of the steel plant, because the process is direct and immediate from the blast furnace to the finished shape, and one mill is abolished. It abolishes great part of the capital necessary for buildings, offices, etc., and of the plant facilities for transporting the material (as distinguished from interplant transport). Furthermore, it reduces the necessary fixed and fluid capital in facilities for serving and protecting the industry and its workers, such as mails, telegraphs, telephones, street railroads, streets and roads, sewers, water supply, fire and police protection and public service and governmental functions generally and by reducing the number of men necessary to produce a stated product, it reduces the capital (fixed and fluid) and men necessary to aliment the workers in the industry-its commissary department of the industry, so to speak. It will be seen that when an unorganized industry is sequenced the resulting economies in labor and in capital, both fixed and liquid, are not limited to the industry itself, but may spread to the ends of the earth.
It may be argued that sequencing, instead of increasing the power of capital, destroys fixed capital in that it renders some of the old plants obsolete. Sequencing does make obsolete a part of the fixed capital necessary in the unorganized industry. But obsolescence is a fact all well planned enterprises foresee and amortize.
The tables make many things plain: Huge corruption funds; tariff lies and syndicate control of newspapers and magazines to spread them; the solicitude of great manufacturing trusts for the continued existence of small, independent, single-stage plants, and for tariffs that will yield such plants good profit rates; why savings, wealth, production, freight tonnage, mineral output, etc., have been increasing many times faster than population; why so many Americans are richer than anybody else ever was before; why we all live in comfort hitherto nonexistent; the floods of immigration of workmen and emigration of farmers; the increase of wages; the fall in prices of manufactured articles; and others.
It is no wonder that bankers financed combinations. They are used to such calculations.
It is strange that any rational person opposes sequence combination. To do so is to be like a savage, insisting on his right to barter his belongings-labor of months or years-for a string of beads.