18. Can you cite any illustrations of the transfer of thought, skill, and intelligence to management?

19. What is the relation of machinery to large-scale production?

20. Draw up a statement of the effect of the machine upon the laborers who work in machine industries; upon other laborers.

21. One writer says that machine methods have profoundly influenced our mental outlook. How could this be true? Have these methods had sufficient time or have they covered a sufficient proportion of our human activities to have had a profound influence of this sort?

22. "We talk of machine industry having revolutionized society. It is power machinery which has done so, and thus power and not machinery is the matter which should have our attention." Is this true?

23. Explain what is meant by direct cost, indirect cost, prime cost, supplementary cost, overhead, constant cost, variable cost, burden.

24. If a railroad between New York and Chicago is already in existence and trains are running, what added cost would the railroad incur if it hauled a five-pound box from Chicago to New York?

25. Would it be good business policy for the road to haul such a box at a rate only a little in excess of this added cost if it could get no more for the service? Would it be good policy to haul all traffic at such rates?

26. A package of goods is shipped from London to Chicago. The freight charges are: for the ocean transportation from London to New York, $2, and for the railroad transportation from New York to Chicago, $1. But the consignee pays 50 cents for cartage in New York and 50 cents for delivery in Chicago, and gives 25 cents to the porter who carries the package upstairs at the destination. Why is it necessary to pay nearly a third of the total expense for carrying the goods a thousandth part of the total distance?

27. The efficiency of modern railroad transportation is attested by the example of a certain American railroad which is said to haul freight at an average cost of one mill per ton-mile. Should you regard it as worth your while to carry a ton of goods a mile for a tenth of a cent? How is the railroad able to do it?

28. Before the Erie Canal was constructed, the hauling of a ton of wheat over the roads from Buffalo to New York cost $100. As facilities for transportation improved, it was found that a horse could draw on a turnpike three times the load and in a canal-boat twenty-five times the load he could draw on ordinary earth roads. Today steam transportation permits the profitable shipment of wheat from the Far West to Liverpool. Why do earth roads and horse-drawn canal-boats continue to be used?

29. Suppose empty cars were being hauled in a certain direction. Would a railroad be justified in offering to haul traffic in that direction at very

low rates? If so, under what circumstances? If not, why not? Would your answer be the same from a social point of view as from the point of view of railroad management?

30. "In industries where the indirect cost is a large proportion of the total cost, it pays to take business at a price which is below total cost provided that price is above prime cost." Explain why.

31. Can you think of any circumstances under which it would be wise (a) from the railroad's point of view, (b) from the social point of view, for a railroad to charge less than direct cost?

y is an inland town on a railroad connecting x and z. The rate from x to z is "compelled" by water competition to be $3 per cwt. The local rate from z to y is 50 cents. The road charges $3.50 from x to y. When complaint is made to the Interstate Commerce Commission, the railroad alleges that the rate of $3 from x to z benefits rather than harms y, even though the rate from x to y, a shorter distance, is higher. How can this be urged?

33. An American manufacturer of a certain commodity could sell it in England if he quoted a price of $18 per ton in England. The market in the United States was such as to enable him to get $24. He contended that charging $18 (which included freight charges, etc.) in England actually benefited the American consumer. How could he argue this?

34. When we speak of industry in 1750 as having been "simple" and of industry today as being "complex," what do we mean? What are the component elements of this simplicity or complexity?

35. "The machine is not responsible for all the overhead costs in industry.” Is this true? If it is, what other factors share the responsibility? Would these factors have been present if we had not had machine industry?

36. "Indirect cost is the father of cut-throat competition." What does this mean?

37. Why does the competition of railroads so often force them into receiverships and reorganizations?

38. Are the economic problems of the railroad business essentially different from the problems of any modern industry in which indirect costs make up a large part of total cost?

39. "The formation of trusts was inevitable. The pecuniary organization. of society with its financial machinery, especially the corporation, made possible the assembling of large masses of capital. The expansion of markets and machine industry made such assembling wise. The pressure of indirect costs made competition intolerable at the same time that it rendered industry complex and thus not easily regulated by unfettered competition. The desire for monopoly profits and other

forms of individual gains were the matches which set the powder off." Do you agree? Explain the "why" of each statement with which you do agree.

40. The apportionment of productive energy is worked out through the agency of prices and margins of profits. What is the bearing of indirect cost upon efficient apportionment?

41. “It is of vital importance that the regulation of our public utilities shall be sane. We must have a proper proportion of our productive energy in such services." What bearing has indirect cost upon ease of securing wise regulation?

42. "Cost accounting is merely a device which man is developing to enable him to understand and control complex industry." Is this true? Can it really help us either to understand or to control? Should an accountant be primarily a mathematician, or an economist, or a mechanical engineer? Why?

43. What bearing, if any, has accounting upon the regulation of public utilities?

44. Draw up a list of the consequences (a) to society, (b) to the business manager, of the rise of indirect costs.

45. Make a list of non-serviceable aspects of machine industry. Precisely why is it difficult to secure adequate social control in the case? Is it because the adjustment of problems is so delicate that the inevitably somewhat clumsy machinery of control works poorly? Is it because we do not know enough to control wisely? If the latter, what explanations can you give for our lack of knowledge?

46. Try to state the relationship of machine industry to (a) specialization, (b) money economy, (c) capitalism, (d) interdependence, (e) the formation of classes, (f) speculative markets.

47. Would a socialistic state make use of machinery? If so, would they have problems of social control? What is their scheme of control?

48. "Machine industry has been tried-abundantly tried-and has been found wanting." Why or why not?

B. The Rôle of the Machine

157. THE SERVICES OF THE NEW TECHNOLOGY1

A peasant requires drinking water. The spring is some distance from his house. There are various ways in which he may supply his daily wants. First, he may go to the spring each time he is thirsty, and drink out of his hollowed hand. This is the most direct way;

I

Adapted by permission from Eugen von Böhm-Bawerk, The Positive Theory of Capital, pp. 18-22. (Macmillan and Co., Ltd., 1891.)

satisfaction follows immediately upon exertion. But it is an inconvenient way, for our peasant has to take his way to the well as often as he is thirsty. And it is an insufficient way, for he can never collect and store any great quantity such as he requires for various other purposes. Second, he may take a log of wood, hollow it out into a kind of pail, and carry his day's supply from the spring to his cottage. The advantage is obvious, but it necessitates a roundabout way of considerable length. The man must spend, perhaps, a day in cutting out the pail; before doing so he must have felled a tree in the forest; to do this, again, he must have made an axe, and so on. But there is still a third way; instead of felling one tree he fells a number of trees, splits and hollows them, lays them end to end, and so constructs a runnel or rhone which brings a full head of water to his cottage. Here, obviously, between the expenditure of the labour and the obtaining of the water we have a very roundabout way, but then the result is ever so much greater. Our peasant needs no longer take his weary way from house to well with the heavy pail on his shoulder, and yet he has a constant and full supply of the freshest water at his very door.

Another example. I require stone for building a house. There is a rich vein of excellent sandstone in a neighboring hill. How is it to be got out? First, I may work the loose stones back and forward with my bare fingers, and break off what can be broken off. This is the most direct, but also the least productive way. Second, I may take a piece of iron, make a hammer and chisel out of it, and use them on the hard stone-a roundabout way, which, of course, leads to a very much better result than the former. Third method: having a hammer and chisel, I use them to drill a hole in the rock; next I turn my attention to procuring charcoal, sulphur, and nitre, and mixing them in a powder, then I pour the powder into the hole, and the explosion that follows splits the stone into convenient pieces-still more of a roundabout way, but one which, as experience shows, is as much superior to the second way in result as the second was to the first.

Yet another example. I am short-sighted, and wish to have a pair of spectacles. For this I require ground and polished glasses and a steel framework. But all that nature offers towards that end is silicious earth and iron ore, How am I to transform these into spectacles? - Work as I may, it is as impossible for me to make spectacles directly out of silicious earth as it would be to make the

steel framework out of iron ore. Here there is no immediate or direct method of production. There is nothing for it but to take the roundabout way, and, indeed, a very roundabout way. I must take silicious earth and fuel, and build furnaces for smelting the glasses from the silicious earth; the glass thus obtained has to be carefully purified, worked, and cooled by a series of processes; finally, the glass thus prepared-again by means of ingenious instruments carefully constructed beforehand is ground and polished into the lens fit for short-sighted eyes. Similarly I must smelt iron in the blast furnace, change the raw iron into steel, and make the frame therefromprocesses which cannot be carried through without a long series of tools and buildings that, on their part again, require great amounts of previous labour. Thus, by an exceedingly roundabout way the end is attained.

In the last resort all our productive efforts amount to shiftings and combinations of matter. We must know how to bring together the right forms of matter at the right moment, in order that from those associated forces the desired result, the product wanted, may follow. But, as we saw, the natural forms of matter are often so infinitely large, often so infinitely fine, that human hands are too weak or too coarse to control them. We are as powerless to overcome the cohesion of the wall of rock when we want building stone as we are, from carbon, nitrogen, hydrogen, oxygen, phosphor, potash, etc., to put together a single grain of wheat. But there are other powers which can easily do what is denied to us, and these are the powers of nature. There are natural powers which far exceed the possibilities of human power in greatness, and there are other powers in the microscopic world which can make combinations that put our clumsy fingers to shame. If we can succeed in making those forces our allies, in the work of production, the limits of human possibility will be infinitely extended. And this we have done.

Often, of course, we are not able directly to master the form of matter on which the friendly power depends, but in the same way as we would like it to help us, do we help ourselves to gain it; we try to secure the alliance of a second natural power which brings the form of matter that bears the first power under our control. Just as we control and guide the immediate matter of which the good is composed by one friendly power, and that power by a second, so can we control and guide the second by a third, the third by a fourth, this again by a fifth, and so on-always going back to more remote causes of the