Frank Albert Fetter.

Source book in economics, selected and ed. for the use of college classes online

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sufficiently detailed figures on the higher counts abroad.
They do include, however, the great mass commonly manu-
factured in the United States. It is entirely possible that a
comparison of costs on these special counts or qualities would
show a different ratio between the two countries than is here

Duties on yarn. ... A comparison of the cost of produc-
tion in the two countries shows that in the case of the ordinary
warp and filling yarns the present duty is regularly in excess
of the difference in cost of conversion. If the relative costs
only of the two mills having the lowest cost of production are
considered, it appears that the present duty on the types of
warps and filling described, ranging from 30 's to 80 's, is in all
cases more than twice the difference in the total conversion
cost, and in some cases four or five times the difference. The
labor costs on these yarns is from 50 per cent, to 60 per cent,
of the total conversion cost.

These figures, as stated, are based on the difference in eon-
version cost between the two mills of lowest cost. Making,
however, a similar comparison between the lowest cost in Eng-


land and the highest cost in the United States, in practically
all cases the duty is greater thau the difference iu the con-
version cost. . . .

A somewhat different situation appears in the case of yarns
of this character which are of higher counts — on two-ply yarns
and in the ease of bleached, mercerized, and dyed yarns.
For such yarns the ratio of the duty to the American con-
version cost is decidedly less, ranging from 30 to 45 per cent.
A duty which is 30 per cent, of the American conversion cost
would oft'set the difference in cost when the English conver-
sion cost is 70 per cent, of the American. . , .

Cost of weaving. In the matter of turning yarn into
woven fabrics the Board was unable to secure such detailed
foreign-cost figures as in the case of spinning, and the relative
cost of this process of manufacture here and abroad cannot
be stated in the same way. For tariff purposes, however,
valuable conclusions may be drawn from a comparison of
relative prices under competitive conditions in this and other
countries and from a comparison of duties with domestic pro-
duction costs. These are considered below.

It is necessary, however, to recognize an important dif-
ference in the methods employed in the United States and
England in this branch of the industry. There seems to be
no wide difference between the two countries in the amount of
machinery tended or in the output per operative in the spin-
ning of yarn. In the case of weaving the situation is quite
different. English looms run somewhat faster than the looms
in this country, but the number of looms tended per weaver
is usually much less than here. This is in marked contrast to
the woolen industry, where the number of looms tended is
about the same in the two countries. In the case of plain looms
(not automatic) the English weaver seldom tends more than
4 looms, while in this country a weaver rarely tends less than
6, and more frequently 8, or even 12, if equipped with ''warp-
stop motions." Furthermore, English manufacturers make
little use of automatic looms. . . . Where automatic looms can


be used a single weaver commonly tends 20 looms, and some-
times as many as 28. The result is that whereas the output
per spinner per hour in England is probably as great or
greater than in this country, the output per weaver per hour
is, upon a large class of plain goods, less, and in the case
where automatic looms are used in this country and plain
looms in England it is very much less.

The foregoing statements apply to a comparison of plain
looms in the two countries or of plain looms in England with
automatic looms here. In the case of other methods of weav-
ing such as dobby, Jacquard, box dobby, box Jacquard, lappet,
etc., the difference in output is by no means so great. In the
case of dobby looms (without automatic attachment) on some
classes of fabric, the American weaver will tend 8 or more
looms as against 4 in England ; but with the more complicated
weaves the ratio seems to be nearer that of 6 to 4, and, in the
case of certain fancy fabrics, where the number of looms
tended is necessarily 4 or less, the output per weaver is about
the same in both countries.

As is well known, wages or earnings are not necessarily an
index of the labor cost of any particular process of manufac-
ture. The labor cost per yard depends on the relation between
wages and output. An extreme illustration can be shown by
figures secured by the Board in Japan. It is true that the
wages of spinners and weavers per day in that country are
very low, but the number of operatives employed to secure a
given output is much greater than in this country. In
the case of spinning, the lower wages paid are not offset by
the larger number of persons employed, and consequently the
amount paid to spinners per pound of yarn is materially less
than in this country. On the other hand, Japanese weavers
tend only one or two looms, and the lower output per weaver
under existing conditions makes the amount paid the
weaver per yard of cloth about 80 per cent, of the amount paid
in this country where plain looms are used in this country;
while compared with the use of automatic looms, the amount


paid the weaver per yard of cloth is greater than in this

It must be further noted, however, that the cost of weaving
is not merely a (luestiou of what the weaver receives per yard.
The ratio of other labor to weaver's labor varies greatly from
mill to mill and no general statement can be made regarding
it. The cost of this other labor, such as foremen, slashers,
warpers, drawers-in, loom fixers, is not reduced by the fact
that the weaver tends a large number of looms. Conse-
quently the total labor cost of weaving is not reduced in pro-
portion to the reduction of the actual weaver's rate per yard,
by the fact that a larger number of looms is tended by one

Keeping the above facts in mind it may be stated that, in the
case of a large variety of plain goods, the labor cost of turn-
ing yarn into cloth in the United States is not greater and in
some cases is lower, than in England. For cloths woven
on automatic looms, this is especially the case ; but on certain
classes of fabrics the same holds true for plain looms due to
the greater number of looms per weaver in this country.
This does not necessarily indicate any individual superiority
on the part of the American weaver. It is a matter of dif-
ference in industrial policy, whether determined by the manu-
facturer or the laborer, and it explains the difference in the
methods of production which prevail at the present time.
Where the automatic loom is now used in England a weaver
frequently tends 20 looms, as is commonly done in the United

In the case of finer goods, however, especially figured goods
with complicated weaves, the cost of weaving is higher here
than in England. This is due largely to the fact that the
difference in the number of the looms tended per weaver is
less than in the case of plain goods. On a large part of these
fancy goods (those requiring more than one kind of filling)
the automatic loom cannot be used. Even disregarding the
question of automatic looms, the difference in the number of


looms tended per weaver on such fabrics is less than in the
case of plain cloths. Consequently the comparatively small
difference in output per weaver does not offset the higher
wages paid in this country.

Figures are presented in the report showing that although
labor costs in the cotton industry are in many cases lower in
the United States than in England, yet the actual hourly earn-
ings in this country are, in most of the principal occupations,
much greater.

The conclusion that under present methods of production
on many plain fabrics the cost of production is not greater in
this country is also borne out by a comparison of English and
American mill prices. A comparison of such prices on a
large variety of these fabrics in England and the United
States for the date of July 1, 1911, shows that in the case of
plain goods the American price at the mill was in no case
much above the English mill price, while in the majority of
cases it was lower. It should be noted, however, that Amer-
ican prices of this date, relative to the price of cotton, were
somewhat lower than normal. The English prices are the
regular quotations for the home market, and are not neces-
sarily the prices for export and for neutral markets. In the
case of fancy goods, however, where the looms tended are
necessarily less, the American mill prices were in most cases
higher than the English.

The subject of prices is referred to below, but the fact that
in the case of a number of leading fabrics the American man-
ufacturer is selling at less than is the English manufacturer
is corroborative of the statement that plain goods can be man-
ufactured as cheaply in this country as in England. The
report also gives information as to the ability of the American
manufacturer to compete in neutral markets on goods of this

Cost of finishing. Finishing includes the processes of
bleaching, printing, dyeing, mercerizing, etc. It is the gen-
eral rule in England that the linishing of cotton fabrics is


carried on in establishments separate and distinct from the
weaving mills. This is also true in large measure in the
United States. Since the converter or the weaving manufac-
turer must pay the actual commission charges, a comparison
of these finishing charges in England and the United States is
adequate to show the relative cost of finishing in the two

A comparison of sixty specific samples for which finishing
data were obtained shows that in most cases the differences
between the charges in the two countries were slight, but that
the American charges were slightly lower on most of the

Duties in relation to costs of weaving and finishing. . . .
In nearly all cases the duty is more than 80 per cent, of the
total American cost of conversion, and in a majority of cases
it more than equals the entire conversion cost in this country.
There are goods in which the ratio of manufacturing cost to
the total cost (which includes the value of the material used)
is small, and the actual ad valorem rates of duty — that is, the
duties on the selling price of the finished fabric — range from
20 per cent, to 45 per cent., with only four cases in which the
duty is over 50 per cent.

The above-mentioned list, as stated, includes only standard
goods of simple construction (plain, twill, or sateen). A
further comparison is made on 100 selected samples, covering
a wide range of fabrics, as sold at retail. It is impracticable
to tlraw any general average from these samples, but the facts
for each one are set forth in the report. In general, it may
be said that the ratio of duty to domestic cost diminishes as
the character of the weave becomes more complicated and
the number of looms tended per operative diminishes.

These figures show a large number of costs in which the
duty per square yard on the cloth unfinished (in the gray)
is more than equal to the total conversion cost. ... In the
greater number of cases the duties are greater than the total
domestic cost of spinning and weaving.



These same figures, taken with others presented in the re-
port, show that the additional duties imposed on finishing
processes bear little relation to the increased costs of these
■processes. ... In the majority of cases, so far as the actual
samples are concerned, for which cost figures were secured,
the increase in duty is in excess of the total actual increase
in cost, due to the finishing processes. . . .

American retail prices. As already stated, many standard
fabrics of simple construction are sold by American manu-
facturers at a price as low as or lower than that of the English
manufacturer. On the other hand, the English mill price of
finer fabrics is in most cases lower than in this country; but
it is only in the case of very few fancy specials that the Amer-
ican mill price is greater than the English mill price by any-
thing like the full amount of the present duty. It does not
follow, however, that the American consumer gets his goods
at the same price as the English consumer. One of the most
interesting results of the investigation is to be found in the
facts included in the report regarding the different methods
of distribution in the two countries and the greater margin
which exists between the price at which the manufacturer
sells his goods and the price at which the consumer buys
them in this country as compared with similar prices in Eng-
land. The relation of the tariff to the prices paid by con-
sumers can only be understood by fully comprehending the
significance in American trade of the principle of "set prices."
This principle is fully explained in the report, and many
figures are given to show mill price, converter's price, job-
ber's price, and retail price.

The most common retail prices for different kinds of cotton
cloth are 5, iy2, SVs, 10, 12y2, 15, 19, 25, 29, 35, and 50 cents
a yard. These prices in turn fix the prices which the jobber
can charge the retail merchant in order to bring the price of
the fabric inside a given "set price" to the consumer, and
these in their turn determine the prices which the jobber can
afford to pay the manufacturer. The result is that under the


existing system of distribution the effect of any change in
cost of production or in mill price cannot be determined ex-
cept in relation to the "set price" of the retail trade. In
some cases a reduction of one cent a yard in the mill price
might be just enough to enable the jobber to sell at a price
which would bring the goods within a lower retail class,
thereby possibly saving as much as 6 cents a yard to the con-
sumer. In another case a reduction in price of 3 or 4 cents
a yard might not be sufficient to bring the cloth into the lower
class, and in this case the whole reduction in mill price would
go to the jobber or retailer, or both, while the consumer would
pay the same price as before.

It may be said in general that goods which are sold at the
mill at from 8 to 9 cents reach the consumer commonly at 15
cents per yard.

When the mill price is 10 cents per yard, the fabric is
thrown into a different classification and will reach the con-
sumer at 19 cents. An increase of the mill price from 10 to
111/^ cents would probably not affect the price to the consumer.
When, however, the mill price goes to 12 cents, the consumer
will pay 25 cents. A further increase in the mill price of
2 cents in this case would not change the price to the consumer.

With a mill price of 14 cents the consumer would still pay
25 cents retail. Where the mill price is, however, 15 cents,
the cloth enters another classification and probably reaches
the consumer at 29 or 35 cents. It will be seen, then, that an
increase of 2 cents, from 12 cents to 14 cents, does not affect
the 25-cent retail price, while an increase of 1 cent, from 141/2
cents to 1514 cents, may increase the price to the consumer
by 10 cents.

The same facts are brought out clearly by a study of the
course of mill prices, jobber's prices, and retail prices of
the same fabric over a period of years. A good many exam-
ples of this are shown in the report. To illustrate by a cer-
tain sample quilt: This was sold by the mill in 1908 for 621/^
cents and reached the consumer at $1. In 1910 the mill price


went up to 75 cents, an increase of I214 cents, which increased
the retail price paid by the consumer to $1.50.

Another quilt of a little lower grade sold in the earlier
period at the mill for 581/9 cents; jobber's price, 70 cents;
retail price $1. In 1910 the same quilt was selling for 67l^
cents at the mill; jobber's price 75 cents; retail price, $1. In
the case of the first quilt an increase in the mill price of 121^^
cents increased the price to the consumer by 50 cents, while
in the case of the other quilt an increase of 9 cents at the mill,
in the same year, did not increase the retail price at all. The
reason, of course, was that, the second quilt being of a little
lower value, the increase did not quite bring it out of the $1

These facts, besides being of interest as showing the rela-
tion of the consumer to the producer in this country, are
of importance in considering the effect of tariff changes.
Assuming that the method of distribution remains the same,
it would appear that the same rule would hold, whether the
jobber should buy his goods of the domestic or the foreign
manufacturer. We have seen that a slight reduction in the
price the jobber pays to the producer might mean a large
reduction in the price to the consumer. Conversely, a con-
siderable reduction in the mill price might have no effect on
Avhat the consumer must pay. For exactly the same reasons,
on the one hand, a slight reduction in duty might mean a
much more than proportional reduction in price to the con-
sumer, whereas, on the other hand, a very material reduction
in the duty might have no effect at all in decreasing the retail

This method of distribution is much more firmly fixed in
the United States than in other countries. This fact, com-
bined with the lower margin abroad between the mill price
and jobber's price and the lower margin between the jobber's
price and the retailer's price, as compared with this country,
brings about the result that goods which are manufactured
at the same cost in England and the United States and sold


at the same price in both countries at the mill nevertheless
reach the consumer in the two countries at quite different

English retail prices. A few comparisons may be given
here to show the wider margin between manufacturer's prices
and retailer's prices in this country as compared with Eng-
land. Thus one fabric which sells at the mill in the United
States at Sy, cents a yard will be jobbed at 11 cents and sold
at retail at 15 cents. The identical fabric in England would
sell at the mill for the same price — 8^/^ cents — be jobbed at
9.75 cents and retail at 131/^ cents.

A fabric selling at the mill in the United States at 10 1/^
cents would be jobbed at 121/^ cents and sold to the consumer
at 19 cents, or possibly 25 cents. The same fabric selling
at the mill in England at a price identical with that paid at
the American mill would be jobbed at III/2 cents and would
reach the consumer at 15 cents.

A fabric selling at the mill in the United States at 12 cents
would be jobbed at 16i/^ cents and reach the consumer at 25
cents. The same fabric with the same mill price in England
would be jobbed at 14 cents and reach the consumer at 19
cents. In the case of these particular samples it will be seen
that the price received by the manufacturer is the same in both
countries, but that the American consumer pays a decidedly
higher price than the British consumer.

General conclusions. In conclusion it may be stated that
the foreign cost of spinning is less than in the United States,
as shown by the figures above. The same holds true for
weaving fancy fabrics, on which the number of looms to the
weaver in this country is not much greater than the number of
looms to the weaver abroad. On account of the different mill
methods in this country, the domestic labor cost of weaving
on a large variety of plain fabrics of wide consumption is
below the foreign cost. Except in the case of a few special
fabrics, and in the case of various manufactured articles,
some of which are produced in this country to a very slight


extent, the American industry practically supplies the whole
consumption. The imports of yarn in 1910 were less than
one-half of 1 per cent, of the home production in pounds.
The imports of cotton cloth were less than 2 per cent, of the
home production in value. Mill prices are in many eases as
low in this country as in the world 's markets. Where higher,
as in the ease of the finer classes of products, they are rarely
higher by anything like the whole amount of the duty. The
effect of the present tariff, then, in most cases is not so much
to add the duty to the domestic manufacturer's price as to
secure him the American market; and, in the case of most
articles of widest consumption, to prevent the competition
of the foreign manufacturer, either in normal or abnormal
times. On account of more costly methods of distribution in
this country from producer to consumer, the latter pays a
decidedly higher retail price than the European consumer,
even in the ease of fabrics on which the cost of production and
the mill price are as low here as there.


[Herbert Kxox Smith, the Commissioner of Corporations, submitted
to tJie President, Jan. 22, 1912, a report on the cost of production in
the steel industry. Accompanying the report was a letter of submittal
■which in effect ia a summary of tlie results of the inquiry. This
letter is here reproduced entire to show not only the facts and con-
clusions but the form in which such matters are presented to the
President. (Report on the Steel Industry, Part II, cost of production,
preliminary report, pp. xiii-xviii.) ]

Department of Commerce and Labor,
Bureau of Corporations,
Washington, January 22, 1912.

Sir : I have the honor to submit a report on the cost of pro-
duction of iron and steel.

The cost of steel making is a basic industrial fact, which
bears on tariff legislation, prices and profits in a great indus-
try, and the concentrated control of a great natural resource.

The Bureau has used the actual records of companies cov-
ering, roughly, two-thirds of the country's production of iron
and steel for 1902 to 1906. These data are most complete.
More limited figures for 1902 to 1910 make it clear that these
five-year figures substantially represent present conditions

The costs of the United States Steel Corporation for the
chief materials and products are also given for 1910.

During 1902 to 1906 the steel industry was based on Lake
ore, but very low costs for Southern pig iron appear in the

"Book costs" and "intercompany" profits. Many of
these companies were highly "integrated" ; that is, they linked
up under one control, through various subsidiaries, ore mines,



blast furnaces, steel works, etc. Their ' ' cost sheets, ' ' however,
did not correspond with this integration. The costs of each
subsidiary were shown as though it were independent, and
included profits paid to other subsidiaries. To illustrate, one
subsidiary of a combination, operating blast furnaces, would
pay to another subsidiary, which mined ore, a price for ore
that included a profit to the ore company. This price would,
however, be entered by the furnace company as a part of its
costs. That is, they were "book costs," and they included
considerable profits really received by the same interests.

These intermediate profits are very important. For ex-
ample, the average "book cost" of Bessemer pig iron over
the five-year period was $13.89 per ton. "Transfer" profits
were $1.79, leaving a net cost of $12.10. (Gross tons are used
throughout, except where otherwise specified.)

The bureau deducted these intermediate "transfer" profits
for all the important simpler products. The resulting "re-
vised cost" must, however, be handled with great caution.
The margin between this revised cost and the selling price
is, of course, much larger than the margin over the "book
cost"; but, on the other hand, that larger margin must cover
all the stages of production, and therefore a much larger in-
vestment. The profit above the "book cost" of a subsidiary
is to be applied simply to the investment of that company.
On the other hand, the profit above the revised cost of an
integrated company, carrying through many stages of produc-
tion, must he set against that entire investment.

Online LibraryFrank Albert FetterSource book in economics, selected and ed. for the use of college classes → online text (page 19 of 30)