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Economy in Age of Great Inventions

Technology and Scale

Production in the late nineteenth century skyrocketed as the United States moved from being the world's fourth largest manufacturer in 1870 to being the world's largest in 1900. In industry after industry, the introduction of new processing technologies led to a re-casting of the production process on a previously unimaginable scale.

The classic example is the American steel industry. Before the 1860s, there hardly was an American steel industry—just low-output, local operations, and production was slow throughout the decade. After a trip to Europe in the 1870s, the enterprising industrialist Andrew Carnegie adopted the European innovations of the Bessemer blast furnace and the Siemens-Martin open-hearth process that had already revolutionized steelmaking across the Atlantic. Both the Bessemer and open-hearth technologies were new ways of heating iron (to be transformed into steel) more evenly and efficiently, replacing an older, more costly method that took days with one that took less than an hour. All it required was an investment in the new technology—and in America; Andrew Carnegie was among the first to see this. Following his lead through the decade, steel production had reached 1.25 million tons by 1880, roughly ten times the amount produced in 1870. That output would increase another the ten times by 1900.

The secret? New industrial entrepreneurs like Carnegie, although not necessarily scientists or engineers themselves, understood that a technology like the Bessemer furnace didn't just change the industry by converting iron ore into steel more quickly and cheaply. The new technology implied, in its speed and cost-efficiency, the possible reorganization of the industry as a whole into larger and larger firms, achieving vast economies of scale and pushing steel down the organizational track laid by the railroads decades earlier. Increasingly, steel would be produced in accordance with the capacity and rhythm of the industrial factory—of the machine.

Cheap steel contributed to mass production as a construction material and as a model product for the new industrial economy. It's the story we know best, but there's a similar story to be told for the cigarette industry, soap, flour, cameras and many more, each of which saw new processing technologies feed the growth of huge companies that tapped into the new national market.11

Eventually, the super-abundance of American manufacture would push the boundaries of the national market, driving American commerce further into the global economy. As Indiana Senator Albert Beveridge prophesied in 1898, "American factories are producing more than the American people can use; American soil is producing more than they can consume. Fate has written our policy for us; the trade of the world must and shall be ours."12

Many businessmen and a considerable number of policymakers shared Beveridge's view of America's economic destiny, and consequently, U.S. foreign policy from the 1890s (epitomized by the Spanish-American War of 1898) through the early twentieth century was marked by an increased interest in the profit potential of acquiring new territory overseas outright or, at the very least, ensuring that America would have access to plenty of "friendly" markets and trading partners. Quite literally, the technology-driven expansion of American production meant an expansion of the country's role in the global economy and, therefore, in the affairs of the world.

Time is Money: The Gospel of Efficiency

"Time is money." The saying, usually attributed to Ben Franklin, is probably at least as old as America itself. But time—whatever it was worth before—seemed to become more valuable in the late 1800s.

This trend had everything to do with technology, and, here again, the earliest and most vivid examples are the mid-century innovations in transportation and communication. Consider first the railroad: Before the Michigan Southern line made it to Chicago in 1852, the trip from New York took more than three weeks. By rail, it took less than two days. And what the railroad did for people and goods, the telegraph did even faster for information. News that had taken many weeks to cross the country before the introduction of the telegraph in 1848 took only minutes to communicate in the latter part of the century.

As these new technologies drew the country together and made distances seem shorter, the value of time naturally increased. Think of it this way: if a task that once took a week now takes only a day, wouldn't taking a week to do it feel like a waste of time?

Now follow that argument into business. Imagine that you own a business and that your business produces enough of something each hour to earn you $20 profit. Not bad, right? That's $20 per hour—better than most summer jobs. Well, let's say a new technology develops and that, by adopting it for your business, you can produce twice as fast. Suddenly, your time can be worth $40 an hour. You might put a greater premium on it and resent the idea of it being wasted all the more. With the valuation of time comes the expectation of timeliness and efficiency; by increasing the speed of production or transaction with the use of new technology, you're increasing the value of time. That process and the mindset it implies essentially describes what happened throughout American business and life in the late 1800s.

Frederick Winslow Taylor and the "Differential Rate"

No one is associated with the commoditization of time as strongly as Frederick Taylor. He was the original efficiency expert, the kind we think of when we picture someone scrutinizing a process with a stopwatch and clipboard. Taylor more than anyone else brought science to management, beginning with his introduction of the idea of the "differential rate" near the end of the nineteenth century.

Taylor was also almost maniacally obsessive and universally loathed by his workers. He once said, "It was a horrid life for any man to live, not being able to look any workman in the face without seeing hostility." By some accounts, Taylor had to be escorted home from work with an armed guard to protect him from his own men. At the time, his ideas—which heavily favored the interests of management—were that controversial.

Taylor's concept of scientific management emerged out of experiments he conducted at the Midvale Steel Company and Bethlehem Steel Works in Pennsylvania in the 1880s and '90s. He set out to scientifically establish the correct output for a "fair" day's work and to establish a "fair" day's wage for that output. In his famous time studies (think "stopwatch") of industrial work, Taylor broke down manual tasks into their essential motions with the idea of scientifically determining how long a task should take. What he actually succeeded in determining was the maximum speed of a task done at peak efficiency—the way a machine could do it, continuously and without slackening.

With this maximum speed as his basis, Taylor extrapolated the output (a quota) for a day's work by a "first class" worker and affixed to that output what he considered a "fair rate" for the job. The new pay rate was higher than laborers generally received, and in Taylor's mind, this increased incentive for increased efficiency would benefit both employers (who often underpaid workers) and employees (who often underperformed) and help to ease the explosive tension between labor and management that was typical of the early industrial era.

The reality of the situation was somewhat different. Taylor's expected output was an ideal based on a backbreaking pace, often two or three times what his workers were generally achieving, while his fair rate was rarely more than double the standard pay. Worse still, laborers who failed to meet the expected output would earn only about half the "fair rate." The hard truth about Taylor's "differential rate" is that, more often than not, it exploited wokers. It would go on to inform many of the day's ideas on "scientific management" and become very popular in the 1890s. In the beginning of the twentieth century, Taylor's controversial ideas would bring him even more fame—along with a fair share of infamy.

And while the differential rate concept (as would later be the case with scientific management) tended to do little more than inflame relations between labor and management, it has to be acknowledged that Taylor hit upon something important. His obsessive focus on efficiency would spread throughout society, certainly in the culture of management, but also in the broader culture of mass production and consumption which was fast becoming central to the American lifestyle.13

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