Frank Albert Fetter.

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

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costs at large fall materially below the average South

That in the Western United States the capitalization per
head of sheep (inclusive of land) is $5.30 upon which a gross
profit of 6.2 per cent, was realized during the twelve months
under review. The interest rate in that region ranges from
8 to 10 per cent, per annum.

That the labor, forage, and necessary miscellaneous ex-
penses in the ^Yesteru United States exceed $2 per head per
annum as against an estimated cost, covering the same ele-
ments of expense, of less than $1 in Australia and about $1.15
per head in South America. . , . [Here are discussed wool
duties and their effects.]

Relative prices [page 14]. On the other hand, prices in
this country on the fabrics just referred to are not increased
by the full amount of the duty. A collection of representative
samples was made in England of goods ranging from those
which cannot be imported at all to those which are imported
continually. These were then matched with a collection of
samples of American-made cloths Avhich were fairly com-
parable, and the mill prices compared for the same rate. It
is found that on goods entirely exelu(l(>(l the nominal rates
of duty would reach an ad valorcMu rate of I.IO or even over
200 per cent., but that the American fabric is actually sold in


the market at from only 60 to 80 per cent, higher than similar
goods sold abroad.

On sixteen samples of foreign goods, for instance, none
of which are imported, the figures are as follows:

Total of foreign prices $ 41.84

Duties wliich would liave been assessed bad they been

imported 76.90

Foreign price, plus the duty, if imported 118.74

Actual domestic price of similar fabrics 69.75

Thus, though the nominal duties on such fabrics equal 184
per cent., the actual excess of the domestic price over the
foreign price on similar fabrics of this kind is about 67 per
cent. This is the result of domestic competition.

At the present time the industry in general is on a compet-
itive basis. Certain specialities may be produced in limited
quantities by particular firms which cannot be duplicated
successfully by their competitors. This might be the result
of secret processes or of some special skill in designing or
finishing. This may mean a wide margin of profit per unit
of product in individual cases. It should also be noted that
even in the case of standard goods the industry is one pecul-
iarly dependent on fashion, and the manufacturer who
happens to succeed in anticipating the shifting public demand
may sell his goods upon a wide margin over the cost of manu-
facture and make large profits. Under ordinary circum-
stances the average manufacturer will find that he can sell
a part of his output with a good margin of profit, and that
another part which does not meet the public demand will have
to be sold close to the cost price or even below.

As to the productive capacity of the country in cloth-mak-
ing to meet the domestic demand, there is at the present time
no indication of any lack of adequate equipment. It is true
that some years ago a greatly increased demand for worsted
fabrics, assisted by the high tariff on worsted goods and their
by-products, made the manufacture of such goods very prof-
itable and the investment alluring, but this led to a rapid


increase of worsted luacliincry in tins country and the build-
ing of great modern mills in rapid succession in various parts
of the East. A very consideral)le part of this increase was
due to the inflow of foreign capital and the transfer of ex-
perienced cloth manufacturers from other countries. The
residt has been a great increase in competition.

Relative costs of manufacturing. The cost of manufac-
turing woolen and worsted yarns and cloth in the United
States is much higher than in Europe. The main elements
of cost of production are cost of plant, material, and labor.

The cost of erecting and equipping both woolen and
worsted mills is much higher in this country than in England.
The cost of erecting and equipping a woolen mill is about
45 per cent, greater. The same is true of the weaving de-
partment of a worsted mill using American machinery.

The excess in cost in the case of worsted spinning is greater,
as most of the machinery is imported. This pays a duty of
45 per cent, ad valorem, and to this must be added charges
for packing, freight, etc., which makes the foreign machine
cost 70 per cent, over or more in this country than abroad.
Nor does this include the cost of erection, as does the price
to the English manufacturer. The same is true of weaving
machinery when imported.

The material is increased in price by the duty on raw
wool. The manufacturer who imports his wool must pay the
full amount of the duty, and this means either additional
working capital or an additional interest charge to be paid.
"Wools grown in the United States are increased in value by
the duty, but not by the full extent of the duty.

Wages are much higher in the United States, but wages are
in themselves no necessary indication of relative cost of pro-
duction. Fre(iuently it is found that high wages and low
lal)or costs go together. The question at once arises whether
the labor in x\merican woolen and worsted manufacturing is
more efficient than such labor abroad, or whether by more
efficient management or greater speed in machinery the


American manufacturer is able to get a larger product per
operative in proportion to the difference in wages.

It appears that this particular industry is one in which
the high elements of costs in this country are not in general
offset by any particular advantage or by any marked supe-
riority in the efficiency of labor. To a certain extent, in fact,
European countries have the advantage of us in this latter
regard. In the centers of the industry abroad there is an
adequate supply of labor which has been trained for genera-
tions in this one industry. In the United States a consider-
able portion of the labor is found to be of unskilled
immigrants with no previous experience in manufacture ; and
in certain centers this population is of a very fluctuating
kind, and the manufacturer is obliged continually to break
in a new set of inexperienced operatives.

The American tendency to secure the maximum output is
noticeable in some cases, but comparing this country with
England, at least, it may be said that the possibilities of
speed have been practically reached in the latter country. So
far as worsted spinning is concerned, the best mills in this
country seem to be able to operate with fewer operatives per
machine and to get a greater product per operative than in
some European countries, but if this means a sacrifice of
quality of product to output it is not really a decrease in
cost. Looms in the Bradford district run, on the whole, at a
higher rate of speed than do looms in the United States.

Furthermore, there is no superiority in American machin-
ery over foreign machinery. As a matter of fact, a large
amount of foreign machinery is used in this country, and in
the worsted mills covered by the investigation into machine
efficiency 87 per cent, of all the machinery, from the scour-
ing of raw wool through to the finished yarn, was imported.
Only 22.9 per cent, of looms were imported.

It may be said, then, that, taking the industry as a whole,
the American manufacturer practically has no advantage in
efficiency of labor and equipment over his foreign competitor,

SOMK F1M)1\(;S OX WOOL 333

although this statement is siilijccl to exceptions in I lie case
of particuhir jiroeesses at partieuhir mills. On certain
specialties the laryest and most efficient American mills are
able by skilful organizations materially to reduce the dif-
ference in cost.

Detailed figures as to relative costs of production are given
in Part III of the report. Eoughly summarized they may
be expressed as follows:

Tops. Tile ditTerence in the cost of turning wool into
tops in this country and England varies with the quality of
the tops. Considering all grades, it may be stated tiiat 80
I)er cent, presents a rough approximation of the excess of
the American cost over the English. This, of course, does
not mean 80 per cent, of the value of the tops, but merely
80 per cent, of the conversion cost. The cost of conversion
in the case of tops is in any case but a few cents and but a
small fraction of the total value of the product, including
material. The charges for commission combing in the two
countries vary about 60 per cent. The reason for the di-
vergence of the cost figures from the commission charges is
explained in the report.

Worsted yarns. The cost of producing j-arns varies in
different countries according to particular qualities and
methods. In England the method of frame spinning is the
more common, and on the Continent mule spinning. The
latter is the more expensive process. Comparing frame spin-
ning in England with frame spinning in the United States
— which is the common method here — it may be said that al-
though there are wiile variations in both countries from mill
to mill, the conversion cost for the same quality and count
of yarns in the United States is about twice that in England.
The difference in the cost between the United States and
Germany is not so great.

This refers to the mere cost of turning tops into yarn,
and of course does not mean that the difTerencc in cost is
equal to 100 per cent, of the foreign selling value. The



foreign conversion cost of yarn from tops, except in the case
of the finest yarns, is normally less than 20 per cent, of the
total market value of the yarn. Care should be taken not to
confuse the ratio between manufacturing costs and the ratio
between total values, including cost of raw material.

Woolen and worsted industry. The difference in manu-
facturing cost here and abroad of woolen and worsted fabrics
(from yarn to finished cloth) varies greatly, according to the
character of the fabrics. The main processes included are
weaving, finishing, and dyeing. The figures of the board
show that the cost of turning yarn into cloth in the United
States compared with England is all the way from 60 per
cent, to 170 per cent, higher, according to the character
of the fabric. For a great variety of fabrics the American
conversion cost is from 100 to 150 per cent, greater than the
English cost. This is further substantiated by the fact that
the weaving scales per yard of product in the two countries
vary in almost exactly the same proportions.

The difference in cost of manufacturing in France and the
United States is found to be very close to the difference be-
tween England and the United States. On the other hand,
the difference in the cost of the manufacture in the United
States and Germany is somewhat less.

Further, it should be pointed out that the statement that
the difference in the cost of manufacturing cloth is 100 per
cent, or more does not mean 100 per cent, of the market
value of the cloth. It merely means that, given the same
yarn, the cost of weaving and finishing in this country is
generally somewhat more than double that in England. It is
impossible to express this difference in relation to the total
value of the product, since the material going into two
different articles have the same conversion cost may vary
widely in value; while, on the other hand, the material for
the production of exactly the same article may vary widely
in value at two different periods and the conversion cost re-
main exactly the same. . . .

SOMI'] l'lM>L\(iS UN WOOL 355

Ready-made clothing [i);i;4e ISJ. The investigation into
the ready-made clotliiiig inilustry shows that tlie cloth is
the largest element in the clothing produced and is equal to
one-thirtl of tiie net wholesale selling price. It varies with
the grades of clothing i)roduced, being highest relatively in
the cheaper garments. The cost of linings is about 5 per cent,
of the net wholesale selling price. The total cost of cloth
and woolen materials, taken as a whole, is equal to about 40
per cent, of this price.

lu considering the importance of cloth cost to the wearer
of clothing, it is necessary to bear in mind the margin be-
tween wholesale and retail price. The retail price is usually
50 per cent, or more above the net wholesale price. On this
basis about 25 per cent, of the price paid to the retailer
goes to the manufacturer of cloth.

Taking the industry as a whole, the cost of material,
labor, and all other expense undergone in converting ma-
terial into finishetl garments is 80 per cent, of the net whole-
sale selling price of the finished product. Out of this 20 per
cent, margin between the total manufacturing cost and the
manufacturer's net selling price comes selling expense, such
general expense as cannot be charged directly to manufacturing
or selling, and prolit. These figures apply particularly to
men's clothing, where garments are more standardized and
represent costs more easy to determine.

In women's garments the cloth is also the largest single
item. In skirts it is eiiual to 40 per cent, of the net whole-
sale selling price ; on most cloaks ecfual to between 30 and
35 per cent. ; on cheap suits it is over 25 per cent. ; and on
more expensive varieties it falls below 20 per cent. To the
manufacturer, therefore, cloth is not so important an ele-
ment of cost in women's clothing as in men's. On the other
hand, the labor and manufacturing expense are more im-
portant in women's clothing. The margin remaining to the
manufacturer of women's garments, over and above the cost
of materials and expense of converting them into wearing


apparel, is somewhat less than in the men's clothing industry,
but selling expenses are considerably lower for these estab-
lishments. . . ,

Wages and efficiency [page 22]. The investigation as to
wages and efficiency covering 35,029 persons and 164 separate
occupations shows that the earnings of weavers based upon
actual yardage and piece rates per yard, range from $6 to
$18 per week, with an average for worsted weavers of $12.36
for males and $9.54 for females, and for woolen weavers an
average of $10.63 for males and $10.54 for females. The
weekly earnings are based on a week of 55.6 hours, the same
as the average hours for the industry in Great Britain.

Of the total 7990 scouring, carding, combing, drawing,
and spinning machines and 12,337 weaving looms investigated,
78 per cent, of all the machines excepting looms . . . are of
foreign manufacture and 22 per cent, of American make. It
is asserted by manufacturers that American-made machines
for worsted spinning cannot produce the desired results.
Seventy-seven and one-tenth per cent, of the looms in use
were made in the United States and 22.9 per cent, in foreign

Of the 35,029 employees, 36.5 per cent, were born in the
United States and 63.5 per cent in foreign countries. Thirty-
live and one-tenth per cent, of all employees were of the
newer immigration from Italy, eastern and southern Europe.
The supervisory class was made up principally of persons
born in the United States, the British Isles, and Germany.

Eighty-three and three-tenths per cent, of the total em-
ployees had no previous experience in the woolen or other
manufacturing or mechanical industry before going to work in
the woolen mills. Fifty and nine-tenths per cent, of these
came directly to the mill from the school or the home and 32,4
per cent, had been employed in agricultural, transportation,
trade, domestic service, and other non-manufacturing occupa-
tions. About one-sixth (16.6 per cent.) had been in the in-

SOMi: KIXDIXCS ox wool, 337

(lustry less Hum txir year and 5:5.!) pi'i- ci'iil. less tlian live

Eiglity i)or cent, ol" loom prutlucliuu on worsteds and 70
per ceut. on wooKmis, with 20 per cent, of loom stoppages on
worsted and 'M per cent, on woolens wliile weaving, are the
manufacturers' desired standards of efficiency. The individ-
ual records kept by the Tail If Board of weavers opera-
ting 11,080 looms sliow that the weavers operating 4.1 per
cent, of the worsted looms and 2 per cent, of the woolen looms
attained a productive efficiency of 90 per cent, and over. On
24 7 per cent, of worsted and 12.9 of woolen looms the
efficiency was 80, but less than 90 per cent. On 30.9 per
ceut. of worsted and 21.6 per cent, of woolen looms the effi-
ciency was 70 but less than 80 per cent. On 34.1 per cent,
of worsted and 45.4 per cent, of woolen looms the efficiency
was 50 but less than 70 per cent. On 6.2 per cent, of worsted
and 18 per cent, of woolen looms the productive efficiency of
the weavers fell below 50 per cent.

Seventy per cent, of the weavers were born in the United
States, Germany, and the British Isles, and 30 per cent, in
Italy, eastern and southeastern Europe. Two menders and
burlers were employed for every four weavers and nine looms
to correct the imperfections in the woven cloth. Two and
eighteen one-hundredths per cent, of the yardage produced
was still imperfect after mending and was sold as seconds.

The productive efficiency per one man hour for machine
operatives and machines in the scouring, carding, combing,
ilrawing, and spinning departments, wnth 168 separate labor
costs per pound, show wide differences in eflficiency and cost,
hut indicate in general that the lowest labor costs per pound
were in mills paying the highest wages.


[President Taft in submitting to Congress the Tariff Board's report
on Schedule K, Dec. 20, 1911, made, among other comments, the fol-
lowing (Report, Wool and manufactures of wool, pp. 4-6) :]

The report shows that the present method of assessing
the duty on raw wool — this is, by a specific rate on the grease
pound (i.e., unscoured) — operates to exclude wools of high
shrinkage in scouring but tine quality from the American
market and thereby lessens the range of wools available to
the domestic manufacturer; that the duty on scoured wool
of 33 cents per pound is prohibitory. ...

The report shows in detail the difficulties involved in
attempting to state in categorical terms the cost of wool
production and the great diti'erences in cost as between dif-
ferent regions and different types of wool. It is found, how-
ever, that, taking all varieties in account, the average cost
of production for the whole American clip is higher than the
cost in the chief competing country by an amount somewhat
less than the present duty. . . .

The report shows that the duties on noils, wool wastes, and
shoddy, which are adjusted to the rate of 33 cents on scoured
wool are prohibitory in the same measure that the duty on
scoured wool is prohibitory. In general they are assessed at
rates as high as, or higher than, the duties paid on the clean
content of wools actually imported. They should be reduced
and so adjusted to the rate on wool as to bear their proper
proportion to the real rate levied on the actual wool imports.

The duties on many classes of wool manufacture are pro-
hibitory and greatly in excess of the ditference in cost of
production here and abroad. . , .


riNDixc.s O.N Tin; wool tariff 859

Oil tilt' other li;iiul. tlic liiulinus show . . . lliat the prices
of domestic fabrics are not. raised by tlie lull aiuoiiiit of
duty. . . .

Although these duties do not increase prices of domestic
poods by anythinfj like their full amount, it is none the less
true that such prohibitive duties eliminate the possibility
of foreign competition, even in time of scarcity ; that they
form a temptation to monopoly and conspiracies to control
domestic prices; that they are much in excess of the dill'erence
iu cost of production here and abroad ; and that they should
be reduced to a point which accords with this principle.

The findings of the board show that in this industry the
actual manufacturing cost, aside from the question of the price
of materials, is much higher in this country than it is abroad;
that in the making of yarn and cloth the domestic woolen or
worsted manufacturer has in general no advantage in the form
of superior machinery or more efficient labor to ofTset the
higher wages paid in this country. The findings show that
the cost of turning wool into yard iu this country is about
double that in the leading competing country and that the
cost of turning yarn into cloth is somewhat more than double.
Under the protective policy a great industry, involving the
welfare of hundreds of thousands of people, has been estab-
li.shed despite these handicaps.

In recommending revision and reduction I therefore urge
that action be talcen with these facts in mind, to the end that
an important and established industry may not be jeopardized.

The Tarift" Board reports that no equitable method has been
found to levy purely specific duties on woolen and worsted
fabrics and that, excepting for a compensatory duty, the rate
must be ad valorem on such manui'actuies. It is important
to realize, however, that no flat ad valorem rate on such
fabrics can be made to work fairly and eft'ectively. Any
single rate which is high enough to equalize the difference
in manufacturing cost at home and abroad on highly finished
goods, involving such labor, would be prohibitory on cheaper


goods, in which the labor cost is a smaller proportion of the
total value. Conversely, a rate only adequate to equalize
this difference on cheaper goods would remove protection
from the fine-goods manufacture, the increase in which has
been one of the striking features of the trade's develop-
ment in recent years. I therefore recommend that in any
revision the importance of a graduated scale of ad valorem
duties on cloths be carefully considered and applied.


["TuE Act to Regulate "Commerce" was approved Feb. 4, 18S7, ami
went into effect April 5, lSiS7. It was amended slightly in 1885), and
11)08, and greatly in IDOG and again in U)l(). Below are given some
of the most important sections entire, other whole paragraplis, and
a syllabus of the rest of the act. The dates of the acts in which the
several features first occurred are in brackets preceding each significant
statement, thus indicating the more important clianges and the growth
of the Act.]

§ 1. (As amended June 29, 1906, April 13, 1908, and June
18, 1910.) [1887] That the provisions of this Act shall
apply to any [1906] corporation or any person or persons
engaged in the transportation of oil or other commodity, ex-
cept water and except natural or artificial gas, by means of
pipe lines, or partly by pipe lines and partly by railroad, or
partly by pipe Hues and partly by water, and [1910] to tele-
graph, telephone, and cable companies (whether wire or wire-
less) engaged in sending messages from one State, Territory,
or District of the United States or to any foreign country,
who shall be considered and held to be common carriers
within the meaning and purpose of this Act, and to any
1 1887] common carrier or carriers engaged in the transpor-
tation of passengers or property wholly by railroad (or partly
by railroad and partly by water when both are used under a
common control, management, or arrangement for a con-
tinuous carriage or shipment), from one State or Territory
of the United States or the District of Columbia, or [1906]
from one place in a Territory to another ])lace in the same
Territory, |1887] or from any place in the United States
to an adjacent foreign country, or from any place in the
United Slates through a foreign country to any other ])lace



in the United States, and also to the transportation in like
manner of property shipped from any place in the United
States to a foreign country and carried from such place to
a port of transshipment, or shipped from a foreign country
to any place in the United States and carried to such place
from a port of entry either in the United States or an adja-
cent foreign country: Provided, however. That the pro-
visions of this Act shall not apply to the transportation of
passengers or property, or to the receiving, delivering, storage,
or handling of property wholly within one State and not
shipped to or from a foreign country from or to any State
or Territory as aforesaid, [1910] nor shall they apply to the
transmission of messages by telephone, telegraph, or cable

Online LibraryFrank Albert FetterSource book in economics, selected and ed. for the use of college classes → online text (page 28 of 30)