I’m writing this post from memory yet based on The Age of Capital, Eric Hobsbawn’s terrific history book of the period between 1848 and 1875.
Factories – and mass-production which is their economic superposition – used to be an extremely profitable way to make a living, at least for factory owners. Those days are gone now yet we’re going through the period where the consequences of the decline of factories are playing out.
In 1848 the bourgeoisie across Europe was faced with countless revolutions which all failed. Yet the important consequence of this period was that the bourgeoisie realized that they had to give the poor population of their region something, or else face revolution after revolution after revolution.
Their plan was simple: take the idea of the factory that came to prominence in the late 18th century in England and elsewhere and use it to out-price and out-perform the medieval trade professions. A factory owner – through the accumulation of enough capital – could build machines, hire workers and pay highly specialized workers higher salaries than they ever got before.
Not all workers were specialized, most did work for which no qualification was required. But by creating an elite group within the working population within the walls of factories the bourgeoisie was giving anybody willing to improve themselves in a craft the chance to make a decent living.
This was a revolution. Before trades – and the money to be made – was inaccessible to the working population at large. Only people born into trading families – or willing to become part of the trading communities – could make a decent living. Others were excluded and were destined to hard agrarian work for their entire lives.
Factories changed this all defining social balance. Now any adolescent farmer’s daughter of son could move to the city and start working in a factory were they would learn a profession. After many years of low pay and hard work they would become skilled and would start to make more money.
Because of these new disruptive opportunities and mass production an entirely new market emerged. Workers making a better living could afford to buy more things, especially textile but also better housing and better food. The opening of specialized jobs to anybody who wanted to work hard completely changed society. This revolution happened before public schooling became the norm in Europe. Skilled workers could only the trained on the factory floor, they weren’t formed in schools.
This revolution continued in the twentieth century although some important changes occurred. Media and media consumption increased dramatically. Much more children went to school and became literate. Technological innovation boomed, requiring more factories and more skilled workers in more niches than ever before.
School started engineering education, delivering knowledge workers which could be in charge of factories and their production processes. Henry Ford introduced significant productivity improvements in factories. Tasks that previously required skilled workers could now be performed by unskilled workers, again decreasing their salaries.
This increase in productivity – producing the same at a lower cost, or producing more for the same cost – decreased the marginal cost of mass production. The economic boom in the two decades after WW2 increased the market for mass produced goods significantly.
But in a way mass production went the way of agriculture, albeit in a much faster pace of only 150 years. In the 19th century a small farmer hardly made a living, and a failed harvest meant harsh poverty, illness and eventually death. Today we’re seeing the same happening in factories.
They have moved to low wage territories, work is hard and people hardly make a living. A few qualified engineers can prepare a mass production process after which hundreds or thousands of unqualified workers can step in. When demand declines there is no safety net, only poverty, illness and eventually death.
In short, we seem to have reached the productivity maximum in factories. Increasingly bigger investment are required yet only increase productivity marginally. Production and productivity require such specialized and secret knowledge that entering a mass market for new players is all but impossible, think for example computer processors.
In our time the credit bubble has masqueraded this stagnation of productivity and decline in salaries for at least a decade, but finally the curtain has fallen. Productivity increases in the mass production of goods can no longer be expected. The only way forward is to reduce costs, especially wages.
This drive to keep the marginal cost low will unavoidably lead to deflation: the decrease of the amount of money in circulation. When people start to make less because they can’t create growth anymore in their jobs we’ll unavoidably end up on a deflationary spiral.
The only way out is to increase productivity in other areas, namely on the edges, away from the center and away from mass production. Seth’s post today is a timely reminder of this issue.
(the making of)
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