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sanitary goods, lighting systems, dry goods, men's furnishings, boots and shoes, corsets, hats and caps, textiles, clothing, women's furnishings, office furniture, office devices, stationery, typewriters, filing cabinets, printers' supplies, paper, machine tools, boilers, lubricants, electrical material, valves, wood-working machinery, belting, shafting, pulleys, packing, furniture, kitchenware, and agricultural implements." There are manufacturing houses in America that sell almost no goods in the United States. They pay as high wages as anyone.

It is often assumed that American manufacturers cannot compete in the world's market on even terms without protection, and can not even hold their own at home. The only way suggested of meeting competition is by reducing wages, the crudest, the coarsest, and the most brutal of all methods.

To get at the heart of the question, let us look at the cost of production from the manufacturer's standpoint. There are four groups that enter into every factory cost: 1) the cost of labor; 2) the cost of material; 3) overhead charges; and 4) selling cost. The aggregate of these four fixes the point per unit where profits begin. Let us discuss them separately:

First, labor cost. In a modern industry this is often not the largest element in cost per unit of product. It is a matter of testimony that in an American locomotive the percentage of direct labor cost is eighteen and that of material and overhead charges eightytwo. The important factor in labor cost is not the rate of wage, but the rate of output. It is not what you pay but what you get from what you pay that counts.

Once in Paris I employed a lot of French carpenters and paid them each $1.90 a day, and at the end of four days I was well-nigh crazy. Accidentally I found a man who looked like an American carpenter. "Are you a Yankee?" I said. "I want to employ you at once." He said, "Boss, I charge $4.50 a day." I said, "Come right along." Two days later I discharged four Frenchmen, for my one American carpenter did more than four Frenchmen. There are sound reasons for this. A French workman goes to work having eaten almost nothing. For breakfast he has a bit of bread and coffee. At eleven o'clock he eats a little bread and drinks a little sour wine. At three he does the same. At night he has what he calls a dinner. Such a man cannot work at any labor requiring steady physical exertion in competition with a man who eats three square meals a day.

Cost is everywhere and always variable-at every time and in every place. Output varies with the character of the workman, the

equipment, the arrangement, with the nature of the superintendence, with the discipline. It is absurd to assume that work done by a man paid $4 daily costs more per unit than work done by a man paid $2. It may be more or less costly. Therefore, because certain goods are produced at a certain labor cost per unit when the wage rate is $3 per day in a certain place, it can never be argued that the same wage rate on similar goods results in like labor cost per unit in another place. It may vary ten to fifty per cent. To discuss the wage-rate as the controlling factor in labor cost per unit is both inadequate and misleading. To say that a man gets $3 per day means nothing at all as to the cost of his product. It may be either high or low.

Apart from the wage rate, labor cost per unit is very largely under the control of the manufacturer and may be radically altered without changing the wage rate at all. I know a factory in which the product was doubled in two years without adding a man or without adding a machine. This is how it came about. The men had been paid on day work. The head of the concern changed to a piece work plan, guaranteeing the day wage as a minimum, and further guaranteeing that the piece work rate should not be cut. The first result was largely to increase the product. Then three other things happened. The manufacturer went to a man and said, "Pat, you are earning pretty good wages. The more you earn the better for us both. But there is one thing you cannot afford, and that is to have your machine shut down for repairs. It hurts me and hurts you every hour that machine is idle." The result was that the fifteen minutes which the employees were induced to spend in overhauling the machine each day saved many thousands a year for the factory. In the next place more scientific firing saved oneeighth of the operating time of that part of the plant, besides an immense saving in fuel. In the third place several thousands a year was saved on preventing the output of bad goods. In these ways the output of the factory was doubled in two years and the same thing is possible everywhere.

Labor cost per unit varies with time and place, and in the same shop is constantly changing. It is affected by sanitary and climatic conditions. It is enormously modified by the progress of inventions. The labor cost in July may be entirely altered in December. It varies with the arrangement of the machinery within the shop, is affected by the space available. It varies with the sufficiency and regularity of the supply of material and its suitability to the work. It is affected by the lighting and the power equipment of a

shop and will change with a change in superintendents. It is affected by the methods of paying. And I write from an experience in figuring labor costs to hundredths of a cent per unit. Labor cost is, therefore, a variable element. It can not be measured by any fixed standard. To offer a fixed rate of duty to cover the differences in labor cost is to state an absurdity, for the one is variable and the other is fixed. In like manner it can be shown that costs of material, overhead charges, and selling charges are variable.

In fact, given the scientific spirit in management, constant and careful study of operations and details of costs, modern buildings and equipment, proper arrangement of plant and proper material, ample power, space and light, a high wage rate means inevitably a low labor cost per unit of product and a minimum of labor cost. A steadily decreasing labor cost per unit is not inconsistent with, but is normal to, a coincident advance in the rate of pay when accompanied by careful study of methods and equipment. Conversely low-priced labor nearly always is costly per unit produced, and usually is inconsistent with good tools, equipment and large and fine product. From the above it is affirmed, without fear of successful contradiction, that American production today is often as cheap or cheaper in the labor cost per unit than foreign, and, so far from needing protection, it needs to be set free, that we may conquer the world.

I believe that protection is an injury to American manufacturers by limiting their scope and by narrowing their horizon. I believe it costs them enormously in the loss in foreign business, and that is one reason why manufacturers in this country are so rapidly ceasing to be protectionists. Another reason for their change of faith is that their plants have become so large that only in rare years. has the demand in this country become enough to take their total product, and they have had to sell abroad. And so long as they must pay the high price for materials they find it somewhat difficult to sell abroad, although they succeed at it. An overstocked domestic market is often no theory but a real condition. Take away the shackles that bind the manufacturer and he will be free to sell in the world's markets, without touching his pay roll.

Protection, however, causes a manufacturer almost inevitably to depend on the Government for help, instead of carefully and minutely studying the details of his own business. Protection, moreover, has enabled many American manufacturers to prosper by selling to their fellow countrymen at prices so high that they have not thought it necessary to study their own businesses closely, because they depend upon Government backing.

171. Investigation and Tariff Legislation37

BY HENRY C. EMERY

It is easy to point out the difficulties in determining the cost of production, the great variations in the cost of production at different times and in different places in the same country, and the absurdity of applying this principle with absolutely rigid logic. But any principle of actual commercial legislation must be somewhat rough and ready and is never intended by practical men to be carried to absolutely logical conclusions. It can, of course, be pointed out that in strict logic such a principle as that just mentioned would require the enactment of a different tariff on goods imported from different countries, according to the variations in cost of production in those countries.

This, however, can be easily met by the application of a little common sense and the recognition that the real question is to adjust rates in such a way as to meet the competition of the chief competing country. If there are several countries whose products compete actively, the true protectionists would demand that rates should be adjusted to meet the competition of that country in which the cost of production was the lowest.

It can, of course, be pointed out, furthermore, that the logical application of this principle would require enormous duties on articles, like coffee and rubber, which are not produced in this country at all. But here, again, it is not a question of strict logic, but of practical common sense. Not even the most extreme protectionist ever dreamed of applying the principle to articles of this kind.

I am convinced, however, that it is possible in the case of most staple articles of manufacture, to determine the ratio of the costs between two different countries with sufficient accuracy for practical legislation. There is, of course, no single cost of production of any article for a given country, but there is a fairly definite difference in the money costs of a given specified article between two different countries; and this ratio can in many cases be sufficiently well determined to make such information of great value.

As to the question of getting this information, the problem has proved easier, so far as domestic manufactures are concerned, than was expected, and has not proved insuperable in the case of foreign manufactures. Although in most cases it is impossible to get foreign information as complete and detailed as that which can be se

"Adapted from an article in the American Economic Review, II, Supplement 20-25. Copyright by the American Economic Association (1911).

cured for the industry in this country, we are convinced that enough information can be secured for an adequate basis of judgment. In any case, even if foreign costs could not be secured, the determination of the cost of production at home would still be an important part of a tariff inquiry. The real question is not so much what is the actual mill cost in a competing country, but at what prices. and under what conditions could goods be laid down in the American market to compete with the home product in the absence of any customs duty. These facts can be determined with sufficient accuracy for legislative purposes.

Of course, many of you will say that all the foregoing implies the maintenance of the protective principle, and that since you do not believe in the protective principle you can see no utility in investigations of this kind. There are two answers to this. In the first place, it seems to me absurd to protest against a better method of accomplishing a given result, simply because you do not believe in the result itself. If the free trader can get his policy adopted and put into actual practice by the people, well and good. But if, as a matter of actual politics, the people prefer a protective tariff, even the free trader ought to welcome an effort to have such a tariff, of which he disapproves in principle, levied as honestly and fairly as possible. To do otherwise, would be to put one's self in the position of a man who could oppose regulations protecting the safety of passengers in ocean travel, or the welfare of seamen engaged in such occupation, on the ground that he did not believe in people going abroad, and therefore did not believe in making travel as safe as possible.

The second answer is that a tariff with no protection features has never been seriously considered by any political party in this country. One great party does, on the whole, believe in a revenue. tariff and is working toward that end, meaning by this only that duties shall be levied primarily for revenue purposes rather than for protective purposes. However, this program involves the placing of import duties on a large variety of articles which are produced at home and which consequently bear incidental protection.

Therefore, a study of relative industrial conditions becomes as important for the person who believes in a revenue tariff as it does for the protectionist. In the first place, it may be assumed that a Congress wishing to adjust duties in this way, while aiming solely to secure revenue, would prefer to get the needed revenue with the least disturbance possible to business. Furthermore, they wish

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