finished goods. The workmen continued to work in their own homes or in sheds or outhouses attached to them; and for this reason the system may be spoken of as domestic (German: Hausindustrie). I think this is on the whole the most convenient practice, and I have followed it. If we are to invent a new term, perhaps factor-system might serve; although the employing capitalists in England were only in certain small trades actually called "factors." Commissionsystem, which has been proposed, is obviously inaccurate, because the work was not done on commission, either by the employing capitalist or by the cottage workman.

The question of classification and terminology, however, may be passed over with some equanimity because in the period between the gild and the factory it was that more completely capitalized form which involved the provision of material by the capitalist and the payment by him of wages which was by far the most widely prevalent. That this was the case with the clothiers of the south and west of England throughout the sixteenth and seventeenth centuries is beyond all question. The point I want just now to emphasize is that the plan of giving out material and paying wages was characteristic of every other important industry in the eighteenth century. The proof is to be found in the legislation against embezzlement of material. There was first the temporary act of 1702, reciting that "many frauds are daily committed by persons employed in the working-up of the woollen, linen, fustian, cotton, and iron manufactures, by embezzling and purloining of the materials with which they are entrusted," and providing certain penalties. In 1710 it was made perpetual. The act of 1740 extended its provisions to persons employed "in cutting or manufacturing gloves, breeches, leather, boots, shoes, or other goods," This "proving deficient," in 1749 the workpeople affected were classified anew, as "any person hired to make any felt or hat, or work up any woollen, linen, fustian, cotton, iron, leather, fur, hemp, flax, mohair, or silk manufactures." In all these cases the dominance of the capitalist middleman was due to the fact that, as things then were, he was needed to organize the manufacture and to assume the risk which was involved in advancing the necessary capital, in view of a market which was too distant and uncertain for the individual artisan to cope with. The craftsman was not yet necessarily "divorced from the instruments of production"-to use the phrase of certain modern writers; he commonly owned his own loom in the woollen and silk trades, just as many a sweated sempstress of our own day owns her

own sewing-machine. It was not the instrument of production, but access to the market that he was cut off from by circumstances. And the essential similarity between industrial conditions then and under the subsequent factory system is shown by the fact that we already come across combinations of cottage workpeople against their merchant employers and movements for higher wages.

Conditions approached more nearly to the later factory system when the capitalist "undertaker" owned the necessary instrument of production and let it out to the workman-as, for instance, in the hosiery industry with its knitting-frame.

An even closer approximation to the factory of later days would be reached when the capitalist thought it expedient to gather a body of workpeople together in one place and under one roof. It is certain. that though occasional examples may be found, as in the pin manufactory described by Adam Smith, the aggregation of workpeople under the control of capitalists was not the "prevalent characteristic" of the period.

Without special governmental favors, the advantages which the collection of his workpeople in a single building would give an employer were usually too slight and too dubious to encourage any large movement in this direction. Where the work could be broken up into a number of separate operations, as in the manufacture of pins, it would doubtless greatly facilitate that type of division of labor to bring together under one roof a sufficient body of men for each to be assigned a specialized job. But where, as in the woollen industry, division of labor could not go beyond the processes of combing, spinning, dyeing, weaving, fulling, etc., there would be no such gain in a mere aggregation of workpeople performing the same operation. The only advantages that I can discern would lie in the better supervision of the quality of the work and in the greater regularity of output. Against these had to be set the cost of providing the building as well as of the necessary supervision. Accordingly the only successful introduction of the textile factory, on a considerable scale, was in the silk-spinning industry; and here the explanation is to be found in the introduction of machinery which required "power" (in this case supplied by water) beyond that producible by human muscle. It is only because the spinning of silk was, after all, a relatively small trade that the advent of the factory on the Derwent in 1718 did not transform English industrial life as the subsequent cotton factories did.

The appearance of the factory is therefore the characteristic feature of the industrial revolution of the later years of the eighteenth century, even though it had actually come into existence sporadically half a century earlier. It meant a new forward step in the evolution of capital: the assumption, on a large scale, by the owner or controller of capital of a further function besides that of the mercantile intermediary—the function of actually directing and supervising the manufacturing process itself. And this, if it did not produce absolutely new phenomena, immensely intensified the effects of the capitalist control already established. The effects, I hasten to add, were good as well as bad. For the advent of capital brought about a vast enlargement and cheapening of production. This should never be lost sight of, though it is so obvious that one sometimes forgets it.

D. Some Examples of Differentiation of Function

76. THE RISE OF FUNCTIONAL MIDDLEMEN1

It is necessary to analyze the functions performed by the middleman. Roughly the general functions may be listed as follows: (1) sharing the risk; (2) transporting the goods; (3) financing the operations; (3) selling (communication of ideas about the goods); (5) assembling, assorting, and reshipping.

These functions were at first taken over by areas; that is, each successive middleman in the series took over a part of each function. Each took the risk of destruction of the goods while he held title. Each took the risk of credit losses. Each took a share in the transportation of the goods along the route from the producer's stockroom to the hands of the consumers. Each took a part in financing the entire operation. Each had a part in the selling, disposing of the goods to be purchased to succeeding middlemen and finally to the consumer. And each finally took a part in assembling, assorting, and reshipping the goods to make them physically available to the consumer.

But at a relatively early date a taking-over of these functions by kind instead of by area appeared. Today we have what may be termed functional middlemen in the insurance companies, direct transportation companies, and banks.

The insurance company is in a real sense a middleman in distribution. When it insures the producer against loss of goods by fire, against credit losses, and the like, it is taking over the function of risk formerly

Taken by permission from A. W. Shaw, "Some Problems in Market Distribution," Quarterly Journal of Economics, XXVI (1912), 731-33.

shared by successive middlemen. Today the insurance company will assume practically the entire element of risk. It is possible, for instance, for a large department store to insure against unseasonable holiday weather. The insurance company differs from the ordinary middlemen in that it takes over one function as such rather than portions of a number of functions.

So improvements in direct transportation have enabled the producer to turn to a functional middleman to convey the goods to the consumer. The transportation companies and the express companies are in a true sense middlemen in distribution, though they perform but one of the functions formerly shared by the successive middlemen who took over functions by area. The physical conveyance of the goods to the consumer was formerly one of the most important functions performed by a series of middlemen.

So the function of financing the operations has largely been taken from the regular middleman. In former times the middleman took his part in the burden of finance, in addition to his other functions. In most industries today the bank, as a functional middleman, cares for the element of finance in the operations of distribution. By advancing on goods and on commercial paper, it largely absorbs the function of finance in distribution.

Another development has lessened the dependence of the producer upon the middleman for financial assistance. The application of the corporate form to industrial organization has made it possible to draw together larger bodies of operating capital and hence to place the producer in a stronger financial position.

As a result of the development of functional middlemen, ready to take over the functions of sharing the risk, transporting the goods, and financing the operations, the importance of the middleman for these functions has diminished. There remain the function of selling (the communication of ideas about the goods) and the function of assembling, assorting, and reshipping. It is as to these functions that the middleman is of most importance today.

77. CARRIERS AND COMMUNICATORS'

Under the old market system the farmers did their own carrying to market. A very good description of the method of carriage is given by Henry Best in 1641. The custom was to dispatch a train

'Adapted by permission from R. B. Westerfield, “Middlemen in English Business," Transactions of the Connecticut Academy of Arts and Sciences, XIX, 362-69. (Yale University Press, 1915.)

of eight horse-loads at a time under the charge of two men. A load consisted of two three-bushel sacks of oats. The trip required a long day. A like system of horse-pack carriers was used by the Staffordshire potteries to distribute their products and to bring fuel. The Manchester men employed horse-pack trains in their own charge or in that of their agents. The petty chapmen and travelling merchants were carriers as well as tradesmen.

The effect of improvements in transport facilities was to call forth a specialized class of carriers, to reduce the costs of carriage, make possible larger loads, increase the speed of transit, and add to the safety, comfort, and convenience of travel and traffic. It also broke down the local prejudices and customs, travel became less an adventure among unknown peoples, news travelled more quickly, England became more metropolitan, sensitive, united.

Carriage by wagon and cart increased as the roads were improved. Wagoners brought wool and cloth to London by regular time-schedules in 1706 and this was spoken of as a "wonted" practice. In 1745 many farmers and others kept teams and carriages for hire to others to bring corn, meal, and malt to London, and carry back coal, groceries, wine, salt, iron, cheese, and other heavy goods for the shopkeepers and tradesmen of the country. It was said that there were in London in 1770 a hundred and fifty inns at least for the reception of such commodities and provisions as were brought thither by land in wagons out of the country, and that these returned at stated times with London commodities.

A kind of stage-coach was introduced into London in 1608. This hackney-coach soon acquired a "general and promiscuous use" in the city and spread into the country. By 1685 there had become established a system of stage-coach service between London and important termini scattered over England, and even Edinburgh. Schedules of times and rates were published. Many private parties took up the occupation of common carrier; they owned stage-coaches of their own, had regular places and times of departure and arrival, and sought public patronage by advertising. The "Stage-coachmen upon the grand roads of England" were derived from and fostered by other trades, such as the innholders, the coach and harness makers, and the licensed coachmen of London. The rise of the stage-coach was opposed by a large part of the people on the grounds that it would destroy the breed of good horses, destroy good horsemanship, lessen the king's revenues, etc.; but it became the most common means of travel in the eighteenth century.