UBC Theses and Dissertations

UBC Theses Logo

UBC Theses and Dissertations

The economic factors relating to the development of scientific research in American industry Grigg, Vernon Herbert 1949

Your browser doesn't seem to have a PDF viewer, please download the PDF to view this item.

Item Metadata

Download

Media
831-UBC_1949_A8 G75 E2.pdf [ 15.34MB ]
Metadata
JSON: 831-1.0106884.json
JSON-LD: 831-1.0106884-ld.json
RDF/XML (Pretty): 831-1.0106884-rdf.xml
RDF/JSON: 831-1.0106884-rdf.json
Turtle: 831-1.0106884-turtle.txt
N-Triples: 831-1.0106884-rdf-ntriples.txt
Original Record: 831-1.0106884-source.json
Full Text
831-1.0106884-fulltext.txt
Citation
831-1.0106884.ris

Full Text

THE ECONOMIC FACTORS RELATING TO THE  DEVELOPMENT Off  SCIENTIFIC RESEARCH IN AMERICAN INDUSTRY. by VERNON HERBERT GRIGG A T h e s i s submitted i n P a r t i a l F u l f i l m e n t of The Requirements f o r the Degree of MASTER OF ARTS THE UNIVERSITY OF BRITISH COLUMBIA A p r i l , 1949. ABSTRACT The trends i n the growth of r e s e a r c h a c t i v i t y i n Amer-i c a n i n d u s t r y "between 1860 and 1940 are ana l y z e d . The econ-omic, e d u c a t i o n a l , and t e c h n o l o g i c a l f a c t o r s w i t h i n the U n i t e d . S t a t e s which served to a s s i s t the development of r e s e a r c h a c t i v i t y are c o n s i d e r e d . S t a t i s t i c a l d ata based on r e p o r t s of the Work P r o j e c t s A d m i n i s t r a t i o n , N a t i o n a l Research P r o j e c t , and the N a t i o n a l Resources P l a n n i n g Board are em-p l o y e d to i n d i c a t e the growth i n r e s e a r c h employment; the c o n c e n t r a t i o n of r e s e a r c h employment i n the l a r g e r s i z e l a b -o r a t o r i e s and i n p a r t i c u l a r i n d u s t r i e s . An approximate i n d i c a t i o n of i n d u s t r i a l r e s e a r c h expenditures between 1920 and 1940 and the r e l a t i o n of r e s e a r c h expenditures to s a l e s , v a l u e added by manufacture, and c a p i t a l i z a t i o n a re p r o v i d e d . T h e trends i n c a p i t a l f o r m a t i o n and p r o d u c t i v i t y , p a r t i c u l a r l y aince 1920, are g i v e n . A mathematical a n a l y s i s f o r determining the economic l i f e of c a p i t a l equipment i s p r o v i d e d together w i t h an a p p r a i s a l o f the p e r t i n e n t econ-omic f a c t o r s i n v o l v e d i n the replacement of c a p i t a l equipment and i n l a r g e c a p i t a l investments. The e f f e c t o f t e c h n o l o g i c a l progress on the c o s t and demand schedules o f a f i r m "is a nalyzed w i t h the t o o l s of a n a l y s i s developed by Chamberlin and Robinson. P a t e n t s as instruments of monopoly c o n t r o l a re d i s c u s s e d and the i m p l i c a t i o n s of patent p o l i c i e s p r a c t i s e d by c e r t a i n i i i n d u s t r i e s to-day are i n d i c a t e d . The t h e s i s concludes Toy p o i n t i n g out the t w o f o l d r e s p o n s i b i l i t y of i n d u s t r i a l management i n m a i n t a i n i n g the co n f i d e n c e of i n v e s t o r s and i n b r i n g i n g the "benefits of r e s e a r c h to the whole community. PREFACE This t h e s i s has a double purpose: (1) to t r a c e the trends i n the development of s c i e n t i f i c a c t i v i t y i n American i n d u s t r y between 1860 and 1940. (2) to analyze the economic f a c t o r s and con-s i d e r a t i o n s a s s o c i a t e d w i t h and i n f l u e n -c i n g the development of s c i e n t i f i c a c t i v -i t y i n a f i r m and an i n d u s t r y . In the p r e p a r a t i o n of t h i s t h e s i s the w r i t e r i s s i n c e r e l y g r a t e f u l f o r the c o n s t r u c t i v e suggestions and guidance of P r o f e s s o r George F. Drummond, who read the p r e l i m i n a r y d r a f t . The a s s i s t a n c e of the Reference Depart-ment i n the L i b r a r y at the U n i v e r s i t y of B r i t i s h Columbia and the c o - o p e r a t i o n of the B r i t i s h Columbia Research C o u n c i l are a p p r e c i a t e d . F i n a l l y , the w r i t e r wishes to acknowledge the a s s i s t a n c e of h i s s i s t e r , M i s s Naomi Grig g , who typed the f i n a l d r a f t . TABLE OF CONTENTS. Page PREFACE i CHAPTER I . TECHNOLOGY, SCIENCE, AND RESEARCH DEFINED 1 Technology 1 S c i e n t i f i c knowledge 2 Research 7 Economic c o n s i d e r a t i o n s 10 CHAPTER I I . SCIENTIFIC RESEARCH IN AMERICAN INDUSTRY, 1850 - 1900. 12 I n f l u e n c i n g f a c t o r s 13 E d u c a t i o n 13 Growth i n p o p u l a t i o n 18 Development of t r a n s p o r t a t i o n 19 R i s e of the s t e e l i n d u s t r y 20 Development of power 20 V e r t i c a l i n t e g r a t i o n 22 Abundant n a t u r a l r e s o u r c e s 24 A growing market w i t h i n the country 27 T a r i f f p r o t e c t i o n 27 I n d u s t r i a l and s c i e n t i f i c a t t i t u d e s 29 P e r i o d of unorganized r e s e a r c h S t e e l i n d u s t r y 36 R a i l r o a d i n d u s t r y 40 Other i n d u s t r i e s 41 Economic motives f o r r e s e a r c h 42 CHAPTER I I I . THE DEVmOPMENT OF ORGANIZED RESEARCH BETWEEN 1900 - 1920. 46 P r i o r to World War I . E l e c t r i c a l equipment and apparatus 49 Telephone 50 Chemical i n d u s t r i e s 52 Economic determinants of or g a n i z e d r e s e a r c h 54 Durin g World War I. — Developments 60 TABLE OF COHTMTS. CHAPTER IV. DEVELOPMENT OF RESEARCH ACTIVITY BETWEEN 1920 - 1940. 66 I n t r o d u c t i o n 67 Trends i n r e s e a r c h employment 69 S i z e o f l a b o r a t o r y 75 C o n c e n t r a t i o n of r e s e a r c h 77 Growth of r e s e a r c h i n p a r t i c u l a r i n d u s t r i e s 82 Chemical i n d u s t r y 84 Petroleum i n d u s t r y 86 Rubber products i n d u s t r y 87 Other i n d u s t r i e s 88 C o n s u l t i n g and t e s t i n g l a b o r a t o r i e s 89 A n a l y s i s of i n c r e a s e s i n r e s e a r c h employment 91 Expenditures on r e s e a r c h 95 Research expenditures and va l u e added to manufacture 99 Research expenditures and r e l a t i o n to s a l e s and c a p i t a l i z a t i o n 102 CHAPTER V. TECHNOLOGICAL DEVELOPMENTS AND CAPITAL FORMATION. 106 Trends i n c a p i t a l f o r m a t i o n and p r o d u c t i v i t y 107 Larg e c a p a c i t y equipment 116 In s t r u m e n t a t i o n 117 Accessory equipment 121 High-speed c u t t i n g t o o l s 121 New processes i n equipment manufacture 121 Ma n a g e r i a l o r g a n i z a t i o n 122 Research and demand f o r c a p i t a l equipment 122 i v -TABLE OF CONTENTS. CHAPTER V. (Cont'd) TECHNOLOGICAL DEVELOPMENTS AND CAPITAL FORMATION. Determining the economic l i f e of c a p i t a l equipment 124 Ec o n o m i c - i m p l i c a t i o n s of l a r g e c a p i t a l investments 134 CHAPTER VI. THE EFFECT OF TECHNOLOGICAL.PROGRESS ON • • THE COST AND DEMAND SCHEDULES OF A FIRM AND INDUSTRY. - 138 A n a l y s i s of c o s t schedules 140 E f f e c t of product variaMonvt;/ 142 A n a l y s i s of demand schedules 144 Pure and p e r f e c t c o m p e t i t i o n 146 M o n o p o l i s t i c c o m p e t i t i o n 148 Gains from a t e c h n i c a l advance 155 CHAPTER V I I . PATENTS AND MONOPOLY CONTROL 157 Pat e n t s d e f i n e d 158 Pat e n t p o o l s 160 Pat e n t c o r p o r a t i o n s or t r u s t 161 C o n t r o l o f s c i e n t i f i c r e s o u r c e s 163 Suppression of pat e n t s 165 I n t e r n a t i o n a l monopolies im patents 167 SUMMARY CONCLUSIONS 170 APPENDIX 177 Taole I - VI i BIBLIOGRAPHY x INDEX: OF TABLES - V-NUMBER TITLE PAGE 1. Doctorates conferred and enrollment of grad-uate students i n American colleges and universities between 1876 and 1930. 16 2. Total annual horsepower provided by elect-r i c a l motors i n the manufacturing industry, between 1899 and 1929. 21 3. United States, per capita u t i l i z a t i o n of fuel for generating power in Br i t i s h thermal and equivalent kilowatt hour units, 1891—1945. 23 3a. Number of patents credited to specified individuals between 1877 and 1915. 33 4* Comparison of operations performed, number of workmen employed, time consumed and labour cost under hand and machine methods. 34 5. United States, growth of manufactures, 1860—1919 . 35 6. Advances i n the iron and steel industry, 1850—1900. 37 7. Amount of research by the principal iron and steel-making countries, 1900—1930. 38 8. United States, number of patents issued i n the telegraph, telephone, and automobile indus-t r i e s , guinquennially, i860—1920 . 43 9. Percent of aluminum sold i n different forms i n the United States. 45 10. Percentage distribution of research personnel by f u l l time and part-time employment, 1921—1938. 71 11. Distribution of companies and personnel by size of researchsstaff for 1921, 1927, and 1938 75 12. Distribution of increase i n research personnel between 1927. and 1938, classified by size of staff. . 76 -VI-INDEX OF TABLES NUMBER TITLE PAGE 13. Percentage distribution of companies and personnel by size of research staff for 1921, 1927, and 193S. 77 1 4 . Number of companies accounting for each third of industrial research employment, by relative size of staff, 1921, 1927, and 1938. 79 15* Average number of research workers employed by corporations of specified net worth. 81 16. Percentage of employees employed by twenty-five percent of companies i n specified industries, 1938. 92 17. Distribution of research personnel of companies reporting for the f i r s t time i n 1938, by i n -dustrial groups. 94 18. Research expenditures by American industry, 1920—1940 . 98 19'. Value added by manufacture as a percent of cost of manufacture and research expenditures as percent value added by manufacture. 101 20. Expenditures on industrial research as per-cent of gross salesi By capitalization. 105 21. Expenditures on industrial research as per-cent of gross sales: By industrial class-i f i c a t i o n . 105 22. Index numbers on the growth of manufacturing i n the United States, 1900—1914. 110 23. Index numbers on the growth of manufacturing i n the United States, 1922—1929. 110 24» Average annual rates of change i n physical volume of elements of capital equipment. 112 2 5 . Percentage Increase i n real estate improve-ments and equipment, 1880—1939* 115 INDEX OF TABLES IN THE APPENDIX. TITLE Statement of total number of patents issued i n the United States from 1850--1920. United States, annual number of patents issued i n four industries, 1846—1930. Number of research laboratories and per-sonnel of a l l companies and 575 identical companies, 1920—1938. Distribution of research personnel and growth of research personnel, by indus-t r i a l groups, 1927—1938. Distribution of research personnel by industrial groups, 1920—1938. Analysis of increases i n research employ-ment for industrial groups between 1927 and 1938. United States, horsepower equipment by broad industrial groupings, 1849—1923. United States, horsepower equipment per employee by broad industrial groupings, 1849—1923. INDEX OF FIGURES - v i i i -NUMBER TITLE FOLLOWEJG PAGE 1 . Average number of patents issued quin-quennially i n the telegraph, telephone, automobile, and radio industries, 1846—1930 . 48 2 . Total number of research workers and tota l salaries received, Du Pont Company, 1908—1918. ' 53 3. Expenditures on research by the Du Pont Company, 1902—1918. 53 4 . Growth i n the number of research labora-tories and employment of research personnel i n American industry, 1920—1940. 69 5 . Trends i n the employment of research per-sonnel by size of staff for years 1921, 1927, and 1938. 75 6 . Frequency polygon of number of corporate units using research by tangible net worth. 79 7 . Number of research workers employed by cor-porate units of increasing net worth. 79 8 . Trends i n the employment of research per-sonnel by selected industries, 1920—1938. 82 9 . Horsepower equipment by various industrial groups,. 1849—1923. p. 1 ° 9 1 0 . Horsepower equipment per employee for var-ious industrial groups, 1849—1923. • 1 ° 9 1 1 . Value of industrial instruments per $1,000 of machinery. s 118 1 2 . Value of industrial instruments and indus-t r i a l machinery. 118 1 3 . Determination of the point n when discounted values of replacement and operating costs are a minimum. 129 14 . Effect of increased output on average fixed cost, average variable cost, and average total cost. 129 - i x -INDEX OF FIGURES NUMBER TITLE FOLLOWING PAGE 15. E f f e c t o f t e c h n o l o g i c a l progress on average c o s t and marginal c o s t curves of a f i r m over time. 140 16. The e f f e c t o f product v a r i a t i o n on c o s t c u r v e s . 143 CHAPTER I . TECHNOLOGY, SCIENCE, AND RESEARCH DEFINED. THE ECONOMIC FACTORS RELATING TO THE DEVELOPMENT OP SCIENTIFIC RESEARCH IM AMERICAN INDUSTRY. CHAPTER I TECHNOLOGY, SCIENCE, AND RESEARCH DEFINED. TECHNOLOGY The h i g h l e v e l of s c i e n t i f i c a c t i v i t y which i s char-a c t e r i s t i c of contemporary economy has been a development from simple d i s c o v e r i e s which o r i g i n a t e d i n a n t i q u i t y . O r i g i n a l l y , man had no s c i e n t i f i c knowledge but he d i d Vto possess the c a p a c i t y to i n v e n t new ways a n d / p r a c t i s e them. He met the c h a l l e n g e of h i s p h y s i c a l environment by i n v e n t i n g t o o l s to a c q u i r e t h i n g s and to l i v e w i t h l e s s e f f o r t . H i s f i r s t t o o l s were the f l i n t axe, the wheel, the p u l l e y , the l e v e r , and other p r i m i t i v e i n s t r uments. Be .learned...-to use and c o n t r o l f i r e f o r the cooking of food and the m e l t i n g of metals from rock; s t i l l l a t e r , he p l a n t e d seeds f o r crops and domesticated animals to a i d him i n h i s work and f o r food. These e a r l y and simple d i s c o v e r i e s were t e d i o u s l y a c q u i r e d over many c e n t u r i e s by the method of technology, or as i t i s more commonly d e f i n e d , the process of t r i a l -and e r r o r , 1 The simple t o o l s of. e a r l y man, the use of f i r e , and a g r i c u l t u r a l methods were a l l d i s c o v e r e d by chance 1 Mees,"C. E. K., The path of s c i e n c e , New York, John Wiley, 1946, p.43. -2-and then repeated through a r o u t i n e of t r i a l - a n d - e r r o r u n t i l t he t o o l s or methods c o u l d be d u p l i c a t e d w i t h reasonable c e r t a i n t y . Through technology, man was a b l e to a c q u i r e a h i g h degree of s k i l l and to advance h i s environment to ah economic l e v e l c o n s i d e r a b l y above h i s o r i g i n a l p r i m i t i v e ' s t a t e . 2 SCIENTIFIC-KNOWLEDGE - -• • Progress through t e c h n o l o g i c a l methods i s l i m i t e d and w i l l e v e n t u a l l y stop, i f the knowledge of the fundamentals u n d e r l y i n g the methods i s not a c q u i r e d . ^ For example* the sowing of seed and the r a i s i n g of animals preceded any know* le d g e of the s c i e n c e of agronomy and animal husbandry. In a l i m i t e d way man was able to r a i s e crops which would y i e l d him enough food f o r h i s own i n d i v i d u a l use or f o r t r a d i n g w i t h i n a small group. However, a f t e r knowledge of s o i l s and s e l e c t i v e b r e e d i n g were a c q u i r e d and a p p l i e d , a marked Improvement i n a g r i c u l t u r a l y i e l d s Was r e a l i z e d . With h i s new knowledge, man was able to r a i s e crops s u f f i c i e n t to supply n a t i o n a l and world-wide markets. S c i e n t i f i c knowledge suggests how to experiment more a c t i v e l y and more e f f i c i e n t l y . 4 The p o s s i b i l i t y of e r r o r i s 2 ' I b i d . , p. 42. 3 I b i d . , p. 43. 4 I b i d . , p. 44. -3-reduced and new avenues f o r experimentation are suggested. Although technology i s not an o f f s p r i n g of s c i e n c e and o r i g i n a t e d b e f o r e man began to a c q u i r e s c i e n t i f i c knowledge* i t i s s t i m u l a t e d and advanced by s c i e n c e * ^ The progress of technology has t h e r e f o r e been from a t r i a l - a n d - e r r o r p r o c e s s to an understanding of the b a s i c s c i e n t i f i c p r i n c i p l e s be-h i n d the methods employed. J u s t as technology developed from man's d e s i r e f o r b e t t e r c o n d i t i o n s , s c i e n t i f i c knowledge r e s u l t e d from man's c u r i o s i t y to understand phenomena connected w i t h h i s e x i s -tence and the world on which he l i v e d . Very early» man c o l l e c t e d f a c t s based on h i s experience, such as the movement o f the p l a n e t s and s t a r s , the c l i m a t e , and the growing of c r o p s . Science o r i g i n a t e d when he attempted to c l a s s i f y and c o r r e l a t e these f a c t s of experience, and then to e x p l a i n them by some g e n e r a l law, 6 The accumulation of s c i e n t i f i c knowledge and the ad-vancement of technology p r o g r e s s e d very s l o w l y u n t i l the b e g i n n i n g of the seventeenth century. The f o l l o w i n g reasons have been advanced f o r t h i s delayed development: 7 5 L o c . c i t . 6 Mees, Science, p. 45. 7 I b i d . , p. 67 et seq. -4-( i ) The r a p i d and accurate t r a n s m i s s i o n of knowledge among men was not f e a s i b l e u n t i l a f t e r the d i s -covery of p r i n t i n g i n the middle of the f i f t e e n t h c entury. ( i i ) The p r e s t i g e a s s o c i a t e d w i t h p h i l o s o p h y and r e l i g i o n was- d e c l i n i n g ; no stigma was a t t a c h e d to manual work and experimentation which were so e s s e n t i a l f o r the advancement of s c i e n c e , ( i i i ) The i n f l u e n c e of f e u d a l i s m w i t h i t s emphasis oh custom and t r a d i t i o n was d i m i n i s h i n g ; i n i t s p l a c e was an atmosphere of i n d i v i d u a l i n i t i a t i v e , freedom of e x p r e s s i o n , and the c r e a t i o n of new i d e a s . During t h i s p e r i o d of t r a n s i t i o n , F r a n c i s Bacon (1561 -1621) advanced h i s method of i n d u c t i v e r e a s o n i n g : • • . . . a l l f r u i t f u l knowledge was to be based upon i n f e r e n c e from par-t i c u l a r o c c a sions i n the past to p a r t i c u l a r occasions i n the future..."® Bacon a l s o d e c l a r e d "that knowledge i s a c q u i r e d by o b s e r v a t i o n and experiment and t h a t the a p p l i c a t i o n of s c i e n t i f i c knowledge c o u l d l e a d to p r a c t i c a l r e s u l t s of the utmost v a l u e . " 9 At the b e g i n n i n g of the seventeenth century, the acceptance of knowledge a c q u i r e d by experimentation Was a r e v o l u t i o n a r y concept. P r i o r to t h i s , the d o c t r i n e s of men h e l d i n h i g h esteem were accepted as i r r e f u t a b l e f a c t s . The 8 I b i d . , p. 81. 9 L o c . c i t ; -5-a p p l i c a t i o n of Bacon's p r i n c i p l e prompted Galileo to declare the incorrectness of A r i s t o t l e ' s statements on gravity which had been accepted since 323 B.C. A contemporary of Bacoh, Rene Descartes, a French mathematician and philosopher, advanced the method of com-mencing an a n a l y s i s W i t h t h e "simplest and s u r e s t notions and then proceeding cautiously to deduce inferences.'" 1^ Descartes, while recognizing the experimental method* demon-strated that deductive reasoning could also be used to ad-vance s c i e n t i f i c knowledge. The methods of thinking advocated by Bacon and Descartes started a s c i e n t i f i c revolution at the beginning of the sev-enteenth century. More progress was made i n science during the three hundred years following 1600 than i n the entire period from the stone age to the beginning of the seventeenth century. So great has been the accumulation of knowledge* that separate f i e l d s of s c i e n t i f i c a c t i v i t y , such as physics* chemistry, metallurgy, biology, bacteriology, and the lilfce Iiave developed. S c i e n t i f i c s o c i e t i e s were established i n I t a l y , France, England, Germany and the United States, between the seventeenth and eighteenth centuries. These so c i e t i e s brought together men of science and thereby f a c i l i t a t e d the spread of know-> 10 Mees, Science, p. SO. -6-ledge and prepared the way for the i n s t r u c t i o n of science i n the u n i v e r s i t i e s . Late i n the seventeenth century s c i e n t i f i c i n s t r u c t i o n 12' commenced i n a number of European u n i v e r s i t i e s . These i n -s t i t u t i o n s provided the necessary environment for the ad-vancement of science by permitting men to set up laboratory space to carry out experimental work so essential f o r the discovery of the natural laws. With s c i e n t i f i c a c t i v i t y progressing i n the u n i v e r s i t i e s * the reservoir of knowledge was f i l l i n g , and as i t f i l l e d * attention was directed towards the use and application of t h i s knowledge. Although Francis Bacon i n 1600 had predicted that results of material V a l u e could be r e a l i z e d from science* i t was not u n t i l the nineteenth century that serious atten-t i o n was paid to using s c i e n t i f i c knowledge for the i'mprove-12 ment of man's environment. U n t i l t h i s time, investigations had always been directed i n the search for new knowledge f o r i t s own sake rather than i n the search of hew ways of using 171 existing knowledge. ° It Was soon found that the use and application of s c i -e n t i f i c information presented new problems. Science had grown so quickly and i n so many directions that one "man could no longer hope to be a master i n every f i e l d , The app l i c a t i o n of science to a p a r t i c u l a r purpose often involved 11 Ibid., p. 87. L 2 i r I b i d t > p > 87 and p. 173. 12 Ibid., p. 174. 1 3 ' B a r t l e t t , "The development . . . i n d u s t r i a l research i n the United States," Research--a n at i on a l r e s ource, v o l . II, In d u s t r i a l research, p. 275 '. ~ adequate knowledge of more than one s c i e n t i f i c d i s c i p l i n e . Problems of. a p p l i c a t i o n c o u l d not be s o l v e d by drawing from th e accumulated s t o r e of knowledge and u s i n g the i n f o r m a t i o n "as i s " . F u r t h e r i n v e s t i g a t i o n was r e q u i r e d to s o l v e the , s p e c i a l c o n d i t i o n s of any problem. RESEARCH • As the complexity of s c i e n c e i n c r e a s e d , the search f o r new knowledge evolved as an o r g a n i z e d and systematic a c t i v i t y * known as r e s e a r c h . Research i s d e f i n e d "as the p u r p o s e f u l s e e k i n g f o r new knowledge or new ways of a p p l y i n g knowledge through c a r e f u l c o n s i d e r a t i o n , experimentation, and study* I t i n v o l v e s i n v e s t i g a t i o n s d i r e c t e d towards the d i s c o v e r y of p r e v i o u s l y unknown s c i e n t i f i c f a c t s or p r i n c i p l e s , and the new a p p l i c a t i o n of known f a c t s or p r i n c i p l e s . " 1 3 Research has been c l a s s i f i e d i n t o t h r e e major types:' 1"* ( l ) Fundamental or pure r e s e a r c h - - T h i s i n c l u d e s i n v e s t i g a -t i o n s " d i r e c t e d towards the d i s c o v e r y of p r e v i o u s l y un-known f a c t s r e s u l t i n g i n g e n e r a l knowledge-and linderstah- ;. ding of nature and i t s laws." The a p p l i c a t i o n of the r e s u l t s - i s not of immediate c o n s i d e r a t i o n . T h i s type o f r e s e a r c h i s t h e r e f o r e a c o n t i n u a t i o n on a more e l a b o r a t e s c a l e of the s c i e n t i f i c a c t i v i t y of the u n i v e r s i t i e s from 1650 onwards. 13 Canada, Department of R e c o n s t r u c t i o n and Supply, Research and s c i e n t i f i c a c t i v i t y Canadian f e d e r a l expenditures 1958-1946, 1947, p. 11. 14 I b i d . , p. 14. Also Bush, V*., Science, the, endless f r o n t i e r * 1945, U n i t e d S t a t e s , Government P r i n t i n g O f f i c e , pp. 75-77. -8-(2) Applied or industrial research— This includes the or-ganized search for new applications of scientific facts or principles to practical problems. In this type of research, the investigation is directed towards a well defined objective, such as the creation of a new product, the improvement of a production process, or the develop-1 *5 ment of new uses from waste materials. (3) Background research-- This includes the collection and analysis of available data for both pure and applied re-search. The extensive accumulation of scientific know-ledge has made background research a necessary step before an inquiry for unknown facts is initiated. Frequently, background research will yield new associations of facts which will serve as the basis for a new discovery. The distinction between the three classifications is one of degree rather than type. All classifications contri-bute to progress in scientific knowledge and the demarcation line between them depends upon the character of the problem and the nature of the agency carrying on the investigation. For example, the investigation of monomolecular films by a producer of electrical equipment might be fundamental research while the investigation of the same subject by an oil refinery-engaged in the production of lubricants would be classified as applied research. 15 Voorhies, D. H., The co-ordination of motive, men and money in industrial'research, San Francisco, Standard Oil Company, 1926, p. 4. 16 Stine, C, I I . A., "Fundamental research in industry," Research - A natural resource, Vol. II, Industrial"research, 1940, p. 99. -9-The p r o s e c u t i o n of fundamental and a p p l i e d r e s e a r c h has c e n t r e d i t s e l f i n d i f f e r e n t . i n s t i t u t i o n s . The p u r s u i t of the fundamental s c i e n c e s has be'en concentrated i n the u n i v e r s i t i e s , c o l l e g e s , and l a r g e r e s e a r c h i n s t i t u t i o n s of the government. A p p l i e d or i n d u s t r i a l r e s e a r c h has been c e n t r e d i n the l a b -1 7 o r a t o r i e s of i n d u s t r y . With few excepti o n s , i n d u s t r i a l f i r m s cannot a f f o r d pure r e s e a r c h . The time i n v o l v e d i n the i n v e s t i g a t i o n s and the u n c e r t a i n t y of the r e s u l t s make an investment i n funda-mental i n v e s t i g a t i o n s u n a t t r a c t i v e f o r the average i n d u s t r i a l f i r m . C o r p o r a t i o n s such as the B e l l Telephone L a b o r a t o r i e s , Inc., E . I . du Pont de Nemours and Company, and the General E l e c t r i c Company, are abl e to sponsor pure r e s e a r c h as the g r e a t f i n a n c i a l resources of these companies permit them to make the necessary expenditures without i m p a i r i n g t h e i r f i n a n c i a l p o s i t i o n . Fundamental r e s e a r c h i s the b a s i s of a l l a p p l i e d and background r e s e a r c h . Without the fundamental i n v e s t i g a -t i o n s , i n d u s t r i a l r e s e a r c h would g r a d u a l l y d e c l i n e f o r l a c k o f b a s i c i n f o r m a t i o n . The c h a n n e l l i n g of b a s i c i n f o r m a t i o n i n t o i n d u s t r y i s achieved by the flow of students from the u n i v e r s i t i e s f o r r e s e a r c h f e l l o w s h i p s i n the s c i e n c e s . 17 P e r a z i c h , G. and F i e l d , P. M., I n d u s t r i a l r e s e a r c h and changing technology, P h i l a d e l p h i a , Pa., Work P r o j e c t s Administration7 N a t i o n a l Research P r o j e c t , Report no. H-4, 1940, p. 3. 18 Canada, Department of R e c o n s t r u c t i o n and Supply, Research" and s c i e n t i f i c a c t i v i t y Canadian f e d e r a l expenditures, 1938-1946, 1947, p. 12. -10-EC0N0MIC COHSIDERATIONS In i n d u s t r y , s c i e n t i f i c a c t i v i t y i s o f t e n d e s c r i b e d as a t w o - f o l d p r o c e s s . 1 9 There i s the r e s e a r c h stage which commences with the t e s t t t u b e and progresses to the p i l o t p l a n t , where l a b o r a t o r y f i n d i n g s are t e s t e d under semi-commercial c o n d i t i o n s . The second stage f o l l o w s when the da t a a c q u i r e d from the p i l o t p l a n t are used f o r the •devel-opment of a commercial i n s t a l l a t i o n . T h i s second stage i s p o p u l a r l y r e f e r r e d to as the a p p l i c a t i o n of "know how" and i n v o l v e s the s k i l l s o f en g i n e e r i n g a n d . d e c i s i o a s o f management. Research and "know how" are necessary but not s u f f i c i e n t c o n d i t i o n s f o r t e c h n o l o g i c a l p r o g r e s s i n i n d u s t r y . U l t i m a t e l y the adoption of a t e c h n o l o g i c a l i n n o v a t i o n a r i s -i n g out of s c i e n t i f i c a c t i v i t y i s determined by economic c o n s i d e r a t i o n s . 2 0 The development of s c i e n t i f i c a c t i v i t y i n i n d u s t r y and th e f u l l economic s i g n i f i c a n c e of r e s e a r c h can t h e r e f o r e be gauged only by c o n s i d e r i n g the economic p r o c e s s . Such c o n s i d e r a t i o n s may i n v o l v e c o n d i t i o n s of cost W i t h i n the f i r m or i n d u s t r y ; c o n d i t i o n s of p r i c e , i n t e r e s t r a t e s oh c a p i t a l investment; and the demand schedules f o r the products o f the f i r m . A l l of these economic f a c t o r s are i n f l u e n c e d hy f o r c e s beyond the c o n t r o l of the f i r m . 19 Ibid.,, p. 6. 20 L o c . c i t . -11-Thi3 t h e s i s has a double purpose: (a) to t r a c e the trends i n the development of s c i e n t i f i c a c t i v i t y between i860 and 1940 i n American i n d u s t r y (b) to analyze the economic f a c t o r s and c o n s i d -e r a t i o n s a s s o c i a t e d "with and i n f l u e n c i n g the development of s c i e n t i f i c a c t i v i t y i h a f i r m and an i n d u s t r y . CHAPTER I I . SCIENTIFIC RESEARCH IN AMERICAN INDUSTRY, 1850 - 1900. CHAPTER I I SCIENTIFIC RESEARCH IN AMERICAN INDUSTRY, 1850 - 1900 INFLUENCING FACTORS Two e s s e n t i a l c o n d i t i o n s which must e x i s t b e f o r e any s c i e n t i f i c r e s e a r c h may be undertaken are (1) an adequate f u n d of s c i e n t i f i c knowledge and (2) a s u f f i c i e n t supply o f pe r s o n n e l t r a i n e d to apply t h i s knowledge. 1 S c i e n t i f i c knowledge and t r a i n e d personnel are r e q u i s i t e f o r the prose-c u t i o n of r e s e a r c h i n the same way t h a t raw m a t e r i a l s and l a b o u r are e s s e n t i a l f o r the manufacture of goods. E d u c a t i o n Knowledge and personnel are the products of the t e c h n i -c a l schools and the u n i v e r s i t i e s . With r a r e exceptions* such as the chemistry course of P r o f e s s o r B. S e l l i m a h at Y a l e ( 1 8 0 2 ) , 2 the chemistry l a b o r a t o r y of P r o f e s s o r R. Hare at the P h i l a d e l p h i a Medical- School of t h e ' U n i v e r s i t y Of P e n n s y l v a n i a ( 1 8 3 0 ) , 3 and the chemistry l e c t u r e s at the Re n s s e l a e r School (1825),*^ o r g a n i z e d i n s t r u c t i o n i n the s c i e n c e s at the u n i v e r -s i t y l e v e l d i d not commence u n t i l 1846. 4' i n t h a t year* 1£a.le U n i v e r s i t y o r g a n i z e d the S h e f f i e l d School f o r i n s t r u c t i o n i n a p p l i e d chemdstry 5 and Harvard U n i v e r s i t y o r g a n i z e d the Lawrence S c i e n t i f i c S c h o o l 6 f o r the p r o v i s i o n of s c i e n t i f i c t r a i n i n g . 1 B a r t l e t t , H.» "The development of i n d u s t r i a l r e s e a r c h i n the U n i t e d States," Research - a n a t i o n a l r e s o u r c e , V o l . I I I n d u s t r i a l Research, Washington, U n i t e d S t a t e s Government P r i n t i n g O f f i c e , 1940, p. 19. 2 I b i d . , p. 21 4 B a r t l e t t , Research, p. 22. 3 L o c . c i t . . 5 L o c ^ c i t . 4 1 I b i d . , pp. 21-22. 6 L o c . c i t . Both, the S h e f f i e l d and the Lawrence Schools Were organ-i z e d from the c o n t r i b u t i o n s of wealthy donors. These Contri-b u t i o n s were the f i r s t of others to be made d u r i n g the ensu-i n g p e r i o d of i n d u s t r i a l expansion i n America. B e f o r e 1900, such i n s t i t u t i o n s as the Case School of A p p l i e d Science at C l e v e l a n d ; the Rose P o l y t e c h n i c I n s t i t u t e at T e r r e Haute, Indiana; the C a l i f o r n i a I n s t i t u t e of Technology at Pasedena, C a l i f o r n i a ; the Armour I n s t i t u t e of Technology at Chicago* I l l i n o i s ; L e h i g h U n i v e r s i t y at South Bethlehem, P e n n s y l v a n i a ; and Worcester P o l y t e c h n i c I n s t i t u t e at Worcest-er, Massachu-s e t t s , were e s t a b l i s h e d through generous endowments. 7 E s t a b -l i s h e d u n i v e r s i t i e s a l s o f o l l o w e d the l e a d of Y a l e and Harvard and o r g a n i z e d s c i e n t i f i c departments and schools of s c i e n c e . Added impetus to the development of s c i e n t i f i c and -tech-n i c a l education i n the U n i t e d S t a t e s was brought about by the passage of the M o r r i l l Act of 1862. T h i s Act p r o v i d e d f o r "the issuanc e to every s t a t e of s c r i p f o r 30,000 acres o f l a n d f o r each r e p r e s e n t a t i v e and each senator sent to Congress by t h a t s t a t e . " 8 With the- funds o b t a i n e d from the s a l e of t h i s s c r i p , some S t a t e s endowed s c i e n t i f i c and i n d u s t r i a l education i n e x i s t i n g - i n s t i t u t i o n s , otners founded p u r e l y a g r i c u l t u r a l c o l l e g e s , and s t i l l o thers founded separate schools which have s i n c e grown i n t o g r e a t i n s t i t u t i o n s of s c i e n t i f i c l e a r n i n g . W i t h i n e i g h t years a f t e r 1862, t h i r t y - s e v e n s t a t e s 7 B a r t l e t t , Research, p. 23. 8 L o c . c i t . h a d agreed to accept and c a r r y out the p r o v i s i o n of the M o r r i l l A c t ; and by 1900, f o r t y - s e v e n s t a t e s had o r g a n i z e d l a n d grant c o l l e g e s under the A c t , 9 The g e n e r a l e f f e c t of the M ' o r r i i l Act has been to i n s u r e the e x i s t e n c e i n every S t a t e of a c o l l e g e o r h i g h e r i n s t i t u t i o n of l e a r n i n g which emphasized i n s t r u c t i o n a l o n g s c i e n t i f i c l i n e s and Which possessed f a c i l i t i e s and s t a f f f o r r e s e a r c h i n a number of f i e l d s , p a r t i c u l a r l y a g r i -c u l t u r e and the mechanical a r t s . 1 ^ The development of s c i e n t i f i c education on an advanced l e v e l i n the c o l l e g e s of the U n i t e d S t a t e s d u r i n g the p e r i o d 1850 to 1900 e s t a b l i s h e d the f a v o u r a b l e p r e r e q u i s i t e s f o r the a p p l i c a t i o n of s c i e n t i f i c p r i n c i p l e s to i n d u s t r i a l o p e r a t i o n s . T h i s growth of knowledge i s an i n t a n g i b l e concept and no s t a t i s t i c a l evidence on i t s development can be g i v e n . However* d a t a on the enrollment of graduate students i n American educa-t i o n a l i n s t i t u t i o n s and on the c o n f e r r i n g of d o c t o r a t e de-grees:, p r o v i d e a r e l i a b l e i ndex of the growth of t e c h n i c a l l y t r a i n e d personnel w i t h i n the country. Thus, i n d i r e c t l y these d a t a i l l u s t r a t e the development of s c i e n t i f i c knowledge, 9 K l e i n , A. J . , Survey of l a n d grant c o l l e g e s and u n i v e r s i t i e s , 1930, U n i t e d S t a t e s , Department of I n t e r i o r , B u l l e t i n no. 9, pp. 10-11. 10 Op. c i t . , p. 23 -16-TABLE I. DOCTORATES CONFERRED AND -ENROLLMENT OF 1 GRADULATE STUDENTS IN AMERICAN COLLEGES AND UNIVERSITIES BETWEEN 1876 AND 1930. Year No. of P h . D . 1 1 degrees c o n f e r r e d No. e n r o l l e d i n graduate study 12' 1876 1890 1900 1910 1920 1926 1928 1930 1.302 1,447 2,024 44 164 342 409 532 2,382 5, 831 9,370 15,612 32,500 44,165 399 The data i n the f o r e g o i n g t a b l e i n c l u d e graduates who s p e c i a l i z e d i n the h u m a n i t i t e s and the s o c i a l s c i e n c e s as w e l l as- the n a t u r a l s c i e n c e s . However, i t can be s a f e l y as-sumed t h a t the graduates i n both f i e l d s are evenly d i s t r i -r e f l e c t the development i n graduate education brought about . by the establishment of new u n i v e r s i t i e s and the expansion of e s t a b l i s h e d c o l l e g e s . The f i g u r e s p e r t a i n i n g to the growth i n the number of d o c t o r a t e s i n d i c a t e the expansion of post-graduate s t u d i e s and the f a c t t h a t p o s s e s s i o n c,J ••. -. ~ 11 John, W. C., Graduate study i n u n i v e r s i t i e s and c o l l -eges i n the U n i t e d S t a t e s , 19"-34, U n i t e d S t a t e s , Department or I n t e r i o r , B u l l e t i n no. 20, p. 19, c i t e d i n U n i t e d S t a t e s , ©ffice of E d u c a t i o n , B i e n n i a l survey of education, 1928-30, . p. 339. 12 I b i d . , p. 13. 13 Hughes, R. M . , "Research i n American u n i v e r s i t i e s and c o l l e g e s , " Research - a n a t i o n a l r e s o u r c e , Vol 1. I - R e l a t i o n of the F e d e r a l government to r e s e a r c h , Washington, U n i t e d S t a t e s Government P r i n t i n g O f f i c e , 1938, p. 171. b u t e d . 13 The s t r i k i n g i n c r e a s e s f o r the years p r i o r to 1910 -17-o f a d o c t o r a t e degree opens the door to r e s p o n s i b l e and o u t s t a n d i n g p o s i t i o n s i n r e s e a r c h , e i t h e r i n a u n i v e r s i t y o r i n an i n d u s t r i a l r e s e a r c h l a b o r a t o r y . 1 4 I t i s estimated t h a t o f the Ph.D. graduates from the u n i v e r s i t i e s each year, from 70 to 75 percent accept employ-ment i n the c o l l e g e s and the u n i v e r s i t i e s , and from 25 to 30 p e r c e n t i n i n d u s t r y and i n the government s e r v i c e . 1 4 l t Seems pr o b a b l e t h a t a f t e r a p e r i o d of t e a c h i n g i n the u n i v e r s i t i e s , many t r a n s f e r from t e a c h i n g i n t o i n d u s t r y or the government s e r v i c e . 1 ^ The a c t u a l number of those p o s s e s s i n g degrees of t h e d o c t o r a t e l e v e l t h e r e f o r e , was very small p r i o r to 1900, and has only become- s i g n i f i c a n t a f t e r 1920. 'The advancement of i n d u s t r i a l technology i s not e x c l u s -i v e l y the accomplishments of persons With d o c t o r a t e s i n the s c i e n c e s and e n g i n e e r i n g . In f a c t , the* world's g r e a t e s t f u l l time i n v e n t o r , Thomas A. .Edison, d i d hot possess a u n i v e r s i t y t r a i n i n g . E d i s o n ' s d i s c o v e r i e s alone have been g i v e n an . 16 e s t i m a t e d economic 'value of $15,000,000,000. HoWeVer* the f i e l d s of s c i e n c e have been advancing so r a p i d l y and haVe been becoming so complex t h a t men w i t h advanced s c i e n t i f i c t r a i n i n g have been r e q u i r e d by i n d u s t r y to advance the d e v e l -opment of t h e i r p r o d u c t s . 14 I b i d . , p. 170. 15 I b i d . , p. 175. 16 B a r t l e t t , H*» "Development . . . I n d u s t r i a l Research i n the U n i t e d S t a t e s , " Research —• A n a t i o n a l , r e s o u r c e , p. 31* 14' Hughes, "Research i n American u n i v e r s i t i e s and col« l e g e s , " Research - a n a t i o n a l r e s o u r c e , v o l . I, p. 175. E s t i m a t e s , a p p a r e n t l y based on data i n the American Men  of Science, 6th e d i t i o n , 1938. ~* 15' Mees, Science, p. 62. -18--I' More important, however, men w i t h s c i e n t i f i c t r a i n i n g have "been a b l e to r e c o g n i z e new d i s c o v e r i e s and to e x p l o i t them to t h e i r f u l l e s t v a l u e . T h i s can b e s t be i l l u s t r a t e d w i t h r e f e r e n c e to the vacuum tube. E d i s o n was the f i r s t to observe t h a t i f "he s e a l e d two elements Into a. lamp and heated one of them by a c u r r e n t , the second f i l a m e n t i n the vacuum r e c e i v e d e l e c t r i c i t y a cross the space from the heated f i l a m e n t . " x a E d i s o n , however, did not f o l l o w up t h i s ob-s e r v a t i o n ; but l a t e r , the phenomena was observed and s t u d i e d by o t h e r s , s c i e n t i s t s i n the General E l e c t r i c and Westing-house Companies. The r e s u l t has been the development of the e l e c t r o n i c tube, which has made the r a d i o p o s s i b l e and formed the b a s i s f o r a new branch of e l e c t r i c a l s c i e n c e — e l e c t r o n -i c s . The development of s c i e n t i f i c e ducation i n the U n i t e d S t a t e s o c c u r r e d when the economy of the country was Under-going a r a p i d expansion. T h i s expansion was brought about by a number of predominant economic f a c t o r s , which i n t u r n i n f l u e n c e d the establishment of o r g a n i z e d r e s e a r c h by American i n d u s t r y . A number of these f a c t o r s and t h e i r b e a r i n g oh s c i e n t i f i c p r ogress are now examined. Growth i n P o p u l a t i o n Between 1860 and 1910, the p o p u l a t i o n of the U n i t e d S t a t e s i n c r e a s e d from 31,443,-321 to 91,972,266 or more than 17 • -292.5 p e r c e n t . jfhli?ty-s;i-x'-"pe'rcen-t?--df^'the^o-giiil-a^ioh" increase fwas due to 16a Mees, The path of s c i e n c e , p. 109. 17 U n i t e d S t a t e s , Department of Commerce, l o t h Census  P o p u l a t i o n (1910), 1913, pp. 30-31. -19-21,963,648 immigrants who entered the U n i t e d S t a t e s d u r i n g t h i s p e r i o d . 1 8 T h i s i n c r e a s e i n p o p u l a t i o n p r o v i d e d a l a r g e l a b o u r f o r c e f o r i n d u s t r y and i n c r e a s e d the domestic market f o r the commodities produced by the expanding economy. 1^ Durin g the p e r i o d the c h a r a c t e r of the p o p u l a t i o n a l s o changed. In 1880, 29.5 p e r c e n t were c l a s s i f i e d as urban and 70.5 p e r c e n t as r u r a l ; i n 1910, 46.3 percent were c l a s s i f i e d as urban and 53.7 percent as r u r a l . 2 0 These percentages are i n d i c a t i v e of the s h i f t of p o p u l a t i o n away from primary to secondary p r o d u c t i o n . Development of T r a n s p o r t a t i o n C o i n c i d e n t w i t h the growth i n p o p u l a t i o n was the r a p i d expansion of the r a i l r o a d i n d u s t r y . Between 1860 and 1900 t h e mileage of t r a c k i n o p e r a t i o n i n c r e a s e d from 30,626 to 193,346. 2 1 T h i s i n c r e a s e was due to the a b i l i t y of the s t e e l i n d u s t r y to. produce l a r g e q u a n t i t i e s of s t e e l r a i l s w i t h the p h y s i c a l p r o p e r t i e s which would permit the c a r r i a g e of heav-i e r l o ads and a consequent reduction-: i n t r a n s p o r t a t i o n . * 22 c o s t s . 18 Computed from "United S t a t e s of America," Encyclopae-d i a B r i t a n n i c a , 14th ed.,-1940, v o l . 22, p. 732. 19 L i p p i n c o t t , I . , Economic development of the U n i t e d S t a t e s , New York, D. Appleton and r Company, 1933, p. 424. 20 U n i t e d S t a t e s , Department of Commerce, 15-th- Census P o p u l a t i o n (1910), 1915, p. 57. " 21 S t a t i s t i c a l A b s t r a c t s , 1946, p. 500 22 T a u s s i g , P. W.., Some aspects of the t a r i f f q u e s t s n, Cambridge, Harvard U n i v e r s i t y P r e s s , 1945, p. 128. -20-R i s e .of S t e e l I n d u s t r y The r a p i d expansion of the s t e e l i n d u s t r y was due to the Bessemer" process f o r the manufacture o f s t e e l and t r a n s p o r -t a t i o n f a c i l i t i e s by r a i l and water which allowed i r o n ore from Lake S u p e r i o r to be t r a n s p o r t e d cheaply to the smelters a t the bituminous c o a l f i e l d s of P e n n s y l v a n i a . An i n d i c a -t i o n of the s t e e l i n d u s t r y ' s growth may be a s c e r t a i n e d by the i n c r e a s e of the y e a r l y average p r o d u c t i o n from 2,248,293 tons between 1871 and 1875 to 24,024,722 tons between 1906 and 1 9 1 0 . 2 3 Development of Power A s i g n i f i c a n t development duri n g t h i s p e r i o d was the expansion and change i n sources of power. In 1870, 1,130,431 horse-power was d e r i v e d from water wheels and motors and 1,215,711 horse-power was-generated by steam engines and t u r b i n e s . 2 4 Since 1870, the-use of steam engines as prime movers and the use of e l e c t r i c i t y f o r the t r a n s m i s s i o n of power has r a p i d l y surged ahead. By 1909, prime movers i n the manufacturing i n d u s t r y were g e n e r a t i n g 16,393,467 horse-power of which 84 percent Was d e r i v e d from Steam engines and 12 percent from water Wheels and hydro t u r b i n e s . 2 5 The the use r a p i d i n c r e a s e i n / o f e l e c t r i c a l power i s r e v e a l e d i n Table 2 which d e p i c t s the t o t a l annual horse-power p r o v i d e d by e l e c -23 U n i t e d S t a t e s , Department of Commerce, S t a t i s t i c a l A b s t r a c t s , 1942, p. 850. 24 L i p p i n c o t t , I . , Economic development of the U n i t e d S t a t e s , p. 426. 25 U n i t e d S t a t e s , Department of Commerce, S t a t i s t i c a l A b s t r a c t s , 1946, p. 812. -21-t r i c motors i n the manufacturing i n d u s t r y at t e n y e a r l y i n -t e r v a l s "between 1899 and 1929. A f t e r 1919, e l e c t r i c a l energy produced f o r manufacturing i n the U n i t e d S t a t e s exceeded a l l o t h e r forms of energy.26 TABLE 2. TOTAL ANNUAL HORSEPOWER PROVIDED BY ELECTRICAL MOTORS IN THE MANUFACTURING INDUSTRY BETWEEN 1899 AND 1929.27 . Year Horsepower 1899 475,342 1909 4,582,689 1919 15,612,644 1929 21,793,762 J u s t as the steam engine was r e s p o n s i b l e f o r the i n -d u s t r i a l r e v o l u t i o n d u r i n g the pre c e d i n g century i n England, e l e c t r i c i t y has been r e s p o n s i b l e f o r the expansion o f the e x t r a c t i v e and manufacturing i n d u s t r i e s i n the U n i t e d S t a t e s a f t e r 1890. E l e c t r i c a l energy as a source of power a f f o r d e d many p r o d u c t i o n economies 2^ and was an important f a c t o r i n promoting the expansion of those i n d u s t r i e s where l a r g e amounts o f c a p i t a l equipment were e s s e n t i a l . The f a c t t h a t e l e c t r i c a l energy c o u l d be purchased as r e q u i r e d and t r a n s m i t t e d over l o n g d i s t a n c e s p e r m i t t e d the establishment of f a c t o r i e s at p o i n t s where they c o u l d secure the maximum economies regard-i n g markets, t r a n s p o r t a t i o n , and raw m a t e r i a l s . 26 L o c c i t . 27 L o c c i t . 28 L i p i n c o t t , I., Economic development of the U n i t e d S t a t e s , p. 427. ~~ -22-A s s o c i a t e d w i t h the growing use of power, was the i n -c r e a s i n g u t i l i z a t i o n of f u e l - c o a l , o i l and n a t u r a l gas -f o r the purpose of g e n e r a t i n g power. An i n d i c a t i o n of the i n c r e a s i n g t r e n d i n the use of f u e l i s p r o v i d e d i n t a b l e 3 on page 23, which g i v e s the per c a p i t a u t i l i z a t i o n of f u e l i n B r i t i s h thermal and k i l o w a t t hour u n i t s . V e r t i c a l I n t e g r a t i o n of I n d u s t r y T h i s p e r i o d a l s o witnessed the v e r t i c a l i n t e g r a t i o n of i n d u s t r y i n the! U n i t e d S t a t e s . In the s t e e l i n d u s t r y f o r example, a l l phases of p r o d u c t i o n -- i r o n mines, c o a l mines, coke ovens, steamers, docks, sm e l t i n g works, and r a i l r o a d s --were i n t e g r a t e d under one management. T h i s i n t e g r a t i o n of i n d u s t r y was f o s t e r e d by the f o l l o w -i n g motives:*^ (a) to secure economies of l a r g e s c a l e p r o d u c t i o n through the e l i m i n a t i o n of u n e s s e n t i a l i n t e r m e d i a t e o p e r a t i o n s and the d o v e t a i l i n g of a l l steps i n the p r o d u c t i o n . p r o c e s s . (b) to achieve c o n t r o l of raw m a t e r i a l r e s o u r c e s , t r a n s -p o r t a t i o n f a c i l i t i e s and s u p p l i e s of l a b o u r . (c) to secure gains from monopoly or quasi-monopoly and to a v o i d the s h a r i n g of p r o f i t s under c o m p e t i t i o n . 29 I b i d . , p. 460. 30 I b i d . , p. 131. - 2 3 -TABLE 3. UNITED STATES. PER CAPITA!UTILIZATION OF FUEL  FOR GENERATING POWER IM BRITISH THERMAL AND KILOWATT HOUR UNITS Year B.T.U.: Hundreds of  Millions COAL EQUIVALENT: In K.W.H. p e r M i l l i o n B. T. U. KILOWATT HOURS 1891-1895 .78 — . — 1896-1900 .89 10.00 890 1901-1905 1.22 12.26 1500 1906-1910 1.52 14.71 2200 1911-1915 1.65 18.41 3000 1916-1920 1.88 22.92 4300 1921-1925 1.62 32.24 5200 1926-1930 1.88 43.28 8100 1931-1935 1.41 51.20 7200 1936-1940 1.71 54.68 9499 1941-1945 2.20 59.00 13000 Source: Jackson, G., Wages and Wage Rates. Toronto, p. 20, September, 1948. -24-A~bundant N a t u r a l Resources A l l of the f o r e g o i n g economic developments o c c u r r e d d u r i n g the f o r t y y e ars f o l l o w i n g the American C i v i l War and had only "begun to s l a c k e n at the commencement of World Y/ar 1. During t h i s p e r i o d the U n i t e d S t a t e s was c o n s i d e r e d to be a l a n d of seemingly i n e x h a u s t i b l e n a t u r a l resources.31 L a r g e d e p o s i t s of s u i t a b l e i r o n ore were a v a i l a b l e oh Lake S u p e r i o r ; enormous beds of s a t i s f a c t o r y bituminous c o a l were found i n P e n n s y l v a n i a ; abundant producing o i l w e l l s were d i s c o v e r e d s u c c e s s i v e l y i n P e n n s y l v a n i a , Ohio, Texas, and C a l i f o r n i a ; l a r g e f o r e s t s stood i n Wisconsin and' the P a c i f i c North-West. These res o u r c e s o f f e r e d unique o p p o r t u n i t i e s f o r enormous p r o f i t s f o r those who were w i l l i n g to take the r i s k i n i n i t i a l e x p l o i t a t i o n and development. In order to e x p l o i t these r e s o u r c e s , three f a c t o r s were needed: (1) a cheap l a b o u r supply (2) i n e x p e n s i v e and e f f i c i e n t t r a n s p o r t a t i o n and (3) e f f i c i e n t management and a source of c a p i t a l f o r investment. The i n f l u x of Immigrants p r o v i d e d a supply of l a b o u r which was manageable and f r e e from union c o n t r o l . The a b i l i t y of the s t e e l i n d u s t r y to produce l a r g e q u a n t i t i e s of s t e e l r a i l a t d e c r e a s i n g p r i c e s and the c o m p e t i t i v e s t r u g g l e of the r a i l w a y companies assured the e x i s t e n c e of adequate t r a n s p o r -t a t i o n f a c i l i t i e s . The element of e f f i c i e n t management was 31 B a r t l e t t , H.» "The development of i n d u s t r i a l r e s e a r c h i n the U n i t e d S t a t e s * " Research - a n a t i o n a l resource, V o l . I I , I n d u s t r i a l r e s e a r c h , Washington, U n i t e d S t a t e s Government P r i n t i n g O f f i c e , 1940, p.24. , - 2 5 -found i n men who r e a l i z e d how to achieve o f t e n r u t h l e s s l y <—> the economies of l a r g e s c a l e p r o d u c t i o n and were W i l l i n g to t a ke the necessary r i s k s to e x p l o i t these r e s o u r c e s and de-r i v e the p r o f i t s . C a p i t a l was secured from i n v e s t o r s i n f o r e i g n c o u n t r i e s p r i n c i p a l l y England. During t h i s p e r i o d , the i n d u s t r i a l i s t d e s i r e d to b u i l d h i m s e l f an i n d u s t r i a l empire. A l l thought and energy were d i r e c t e d towards c o n t r o l l i n g the n a t u r a l r e s o u r c e , the t r a n s -p o r t a t i o n f a c i l i t i e s , and the l a b o u r s u p p l y . 3 2 E l i m i n a t i o n o f c o m p e t i t i o n and complete freedom from government c o n t r o l were a l s o expected. By p u r s u i n g the economies of l a r g e s c a l e p r o d u c t i o n and the d i v i s i o n of l a b o u r , entrepreneurs achieved economies which enabled them to compete s u c c e s s f u l l y i n a market founded i n an expanding economy. P r o d u c t i o n methods were imported from England and other c o u n t r i e s which were tech-n i c a l l y advanced at t h i s t i m e , 3 3 and q u i c k l y adapted to t h e needs of American i n d u s t r y . T r i a l - a n d - e r r o r methods Were employed r a t h e r than the s c i e n t i f i c a n a l y s i s of the process-i n g problems i n v o l v e d . The development of the s t e e l i n d u s t r y i s an example. The r a p i d expansion of t h i s i n d u s t r y was due to the Bessemer pro c e s s which i n v o l v e d a l a r g e p l a n t f o r the s m e l t i n g of the 32 T a u s s i g , Some aspects of the t a r i f f q u e s t i o n , p. 131 e t . seq. 33 B a r t l e t t , op. c i t . , p. 24. 32' Duncan, R. K,, "Temporary i n d u s t r i a l f e l l o w s h i p s , " N o r t h American Review, v o l . 185, p. 54, May, 1907, c i t e d i n B a r t l e t t , Research - a n a t i o n a l resource, p. 24. -26-of the ore, the e l i m i n a t i o n of the carbon from the s t e e l , arid then r e p l a c i n g the carbon i n the c o r r e c t p r o p o r t i o n s . Amer-i c a n steelmen adopted t h i s process, which was developed i n England, to c o n d i t i o n s i n the U n i t e d S t a t e s . Marked r e d u c t i o n s i n c o s t s were achieved by adding l a b o u r saving d e v i c e s , such as mechanical conveyors, l o a d e r s , s p e c i a l l i f t s , and d o c k s . 3 4 The v e r t i c a l i n t e g r a t i o n of the v a r i o u s i n d u s t r i e s i n the p r o d u c t i v e process p e r m i t t e d the s y n c h r o n i z a t i o n of o p e r a t i o n s and the e l i m i n a t i o n of unnecessary overhead i n a d m i n i s t r a t i o n and management. L i t t l e a t t e n t i o n was p a i d to the p o s s i b i l i -t i e s of l o w e r i n g c o s t s by u t i l i z i n g waste or by the c r e a t i o n 34' o f new p r o d u c t s . Such an a t t a c k was i m p o s s i b l e as s t a f f wiJth adequate knowledge to s o l v e the t e c h n i c a l problems were not a v a i l a b l e . Moreover, i t would r e q u i r e a knowledge of the m e t a l l u r g i c a l processes i n v o l v e d i n the s m e l t i n g of the ore and the e f f e c t of small q u a n t i t i e s of elements such as chro-mium, manganese, carbon on the p h y s i c a l p r o p e r t i e s of s t e e l . I t i s t r u e that by i n v e n t i o n and t r i a l - a n d - e r r o r , improvements were made which r e s u l t e d i n s u b s t a n t i a l savings to the man-agement. But these i n v e n t i o n s were not the r e s u l t of the s c i e n t i f i c knowledge of the m e t a l l u r g i c a l o p e r a t i o n s of the i n d u s t r y and were d e r i v e d from the independent e f f o r t s o f v a r i o u s i n d i v i d u a l s . 34 T a u s s i g , op. c i t . , pp. 128-130. 34' P e r a z i c h and F i e l d , I n d u s t r i a l r e s e a r c h and changing  technology, pp. 40-42. -27- -A Growing Market.within the country As long as the manufacturer could s e l l his entire pro-duction and as long as resources were p l e n t i f u l and e a s i l y accessible, no incentive existed for technological improve-ments to better production techniques, to develop new pro-ducts, or to u t i l i z e waste materials. 3 5^ The inexpensive a c c e s s i b i l i t y of resources and the economies r e s u l t i n g from large scale methods of production more than offset any costs incurred as a res u l t of waste and i n e f f i c i e n c y i n production methods. Further, since labour Was p l e n t i f u l and inexpensive, the need for large i n s t a l l a t i o n s of c a p i t a l equipment had not yet arisen, although even at t h i s time entrepreneurs were discovering the, operation of mechanical devices were cheaper than labour. 3^ Economic conditions i n American industry had not yet reached the point where the application of s c i e n t i f i c knowledge was required for reduc-ing costs and creating new markets.°7 T a r i f f Protection The pre v a i l i n g t a r i f f p o l i c y was another factor Which affected the adoption of organized research by American i n d u s t r y . 3 8 High t a r i f f s were i n s t i t u t e d during the C i v i l War and with minor exceptions were retained for f i f t y years without any appreciable reduction. During t h i s period the 35 B a r t l e t t , Research - a national resource, p. 24. 36 Taussig, op. c i t . , pp. 138 - 9 . 37 B a r t l e t t , op. c i t . , p. 24. 38 Loc. c i t . -28-t a r i f f s reduced the competition for the steel industry from other steel producing countries, p r i n c i p a l l y England, and permitted the American industry to r e a l i z e enormous p r o f i t s during the decade 1860 to 1870 and especially during the years of active demand i n 1880, 1882 and 1886-7. 3 9 The high p r o f i t s would tend to hide the need for achieving economies i n the cost of production or for manufacturing "better products to y i e l d sustained revenues during the periods of d e c l i n e . 4 ^ • The influence of t a r i f f s on the technical progress of ah industry i s most evident i n those industries which compete with s i m i l a r industries i n foreign countries. In such cases* the effect of a t a r i f f i s to hide i n e f f i c i e n c i e s i n the pro-tected industry and to retard the adoption of techniques which may be u t i l i z e d by the industry i n the foreign country. T a r i f f s , however, would not have the same influence on the technical progress of firms competing within the same CD untry. In such cases, the t a r i f f would not provide one firm protection at the expense of the otner. By the close of the nineteenth century, competition between firms within the same industry i n the United States was becoming of more concern than the competition from foreign firms. This competition could hot be met through t a r i f f protection, but through lower produc-39 Taussig, Some aspects of the t a r i f f question, pp. 150-1. 40 B a r t l e t t , op. c i t . , p. 24, - 2 9 -t i o n costs. One of the methods employed to achieve these economies was the use of organized research. I n d u s t r i a l and S c i e n t i f i c Attitudes Before science could be applied i n industry, the a t t i -tudes of the i n d u s t r i a l entrepreneur and the s c i e n t i s t had to be r e c o n c i l e d . 4 1 In the early part of t h i s period the i n d u s t r i a l i s t scorned the suggestion that a man with a u n i v e r s i t y t r a i n i n g i n the..sciences could apply t h i s knowledge to bring increased revenue to the industry. "This f e e l i n g was p a r t l y the result of ignorance of what a properly trained man could accomplish and p a r t l y the res u l t of numerous f a i l -ures of men who were employed to do research, although u n -q u a l i f i e d by temperament, resourcefulness, and t r a i n i n g to undertake i t . " 4 2 Furthermore, the i n d u s t r i a l i s t , preoccupied with achiev-ing.; better management and control did not appreciate the economies from physical changes i n the manufacturing process* He was therefore unwilling to provide the necessary conditions and equipment for research. Changes i n the organization and i n the'flow of the production process can be foreseen, planned, and accomplished within a specified time. On the other hand, the results of s c i e n t i f i c investigation are unknown, Unpre-dictable as to success or f a i l u r e , and indeterminate as to the time required to achieve them. Confronted with such un-certainty, the i n d u s t r i a l i s t was disappointed when immediate re s u l t s were not forthcoming from research. 41 Ib i d . , p. 24 42 Ib i d . , p. 24 -30-On the other, hand, the trained s c i e n t i s t at th i s time was not concerned with the application of his knowledge to p r a c t i c a l problems. 4 3 His immediate concern Was the search f o r new knowledge for i t s e l f alone. By -the close of the nineteenth century, t h i s gap i n outlook became smaller, because the growing volume of technically trained personnel were seeking employment, and industry was seeking means to overcome technical problems and reduce production costs. The attitudes of the i n d u s t r i a l i s t and the s c i e n t i s t during the middle of the nineteenth century are s t r i k i n g l y i l l u s t r a t e d i n the petroleum industry, i n 1859, When the p r i n c i p a l o i l producing wells were i n Pennsylvania, crude and wasteful methods of r e f i n i n g were used to obtain ah o i l which would be a valuable substitute for expensive animal and vegetable o i l s . 4 4 The advice of chemists to improve r e f i n i n g methods was. scorned, p r i n c i p a l l y due to previous f a i l u r e s to solve r e f i n i n g problems. 4 4"These f a i l u r e s were att r i b u t e d to the lack of knowledge possessed by the chemists of r e f i n i n g methods, and the expectancy of the refinery op-erators that the chemists could solve problems without t h i s s p e c i f i c knowledge. In 1885, new o i l wells were discovered i n Ohio, and i t was soon found that current r e f i n i n g methods could not be used on o i l from these wells. Owing to the prejudice among the r e f i n i n g companies against the chemical 43 I b i d . , p. 25. 44 Ibi d . , p. 28. 44' Burton, W.M., "Chemistry i n the petroleum industry," In d u s t r i a l and engineering chemistry, v o l . 10, p. 485, June, " l y i s , c i t e d i n B a r t l e t t , Research - a national resource, p. 25. f r a t e r n i t y , no chemists trained i n petroleum technology existed i n the United States at t h i s time. I t was soon r e a l i z e d s c i e n t i f i c research would be required to develop new r e f i n i n g techniques and that p r a c t i c a l solutions Would only be achieved after the chemist had f a m i l i a r i z e d himself with the p r a c t i c a l aspects of the petroleum i n d u s t r y . 4 5 .From th i s date forward, and especially .with the development of the int e r n a l combustion engine and coal tar derivatives, the petroleum industry has-been one of the largest employers of highly trained s c i e n t i f i c personnel. PERIOD OF UNORGANIZED RESEARCH IN AMERICAN INDUSTRY It should not be inferred that the fort y years, follow-ing the American C i v i l War were; devoid of s c i e n t i f i c a c t i v i t y and invention. On the other hand, the period was noted for the p r o l i f i c number of inventions which were brought forward by a large number of inventors, most of whom were working independently of one another . Evidence of t h i s a c t i v i t y may be found i n the issuance of patents by the U. S. Patent; Off-i c e between 1860 and 1915 i n c l u s i v e . 4 6 The records of this o f f i c e indicate the "uselessness, i m p r a c t i c a b i l i t y and absurdity" of many of these e f f o r t s , 4 7 but they also reveal the accomplishments of unorganized individuals who produced a stream of discoveries which were to a l t e r the way i n which 45 Loc. c i t . 46 v. Table I, Appendix, t h i s thesis. 47 B a r t l e t t , op. c i t . , p. 2 9 . -32-liuman b e i n g s l i v e and even to c r e a t e a new i n d u s t r i a l econo-my. T h i s was the age o f E l i Whitney and t h e c o t t o n g i n ; Thomas E d i s o n and t h e i n c a n d e s c e n t lamp; McCormick and the r e a p e r ; A l e x a n d e r G. B e l l and the t e l e p h o n e ; A l f r e d H a l l and aluminum; J . W. H y a t t and c e l l u l o i d ; G. C h a r l e s Goodyear and r u b b e r ; Dr. L. H. B a e k e l a n d and b a k e l i t e ; and George Westinghouse and t h e a i r b r a k e . 4 8 T e c h n o l o g i c a l improvements d u r i n g t h i s p e r i o d were the r e s u l t s of many i n v e n t o r s w o r k i n g i n d e p e n d e n t l y and w i t h o u t o r g a n i z e d s u p p o r t from i n d u s t r i a l f i r m s . Some Were p r o l i f i c i n t h e i r o u t p u t ; over 40 i n d i v i d u a l s o b t a i n e d more than 100 p a t e n t s each from t h e Unit e d - S t a t e s p a t e n t O f f i c e between 1872 and 1 9 1 5 . 4 9 The m a j o r i t y of i n v e n t o r s d i d n o t p o s s e s s the f o r m a l t r a i n i n g w h i c h i s now c o n s i d e r e d i n d i s p e n s a b l e f o r the s c i e n t i s t and e n g i n e e r , but p o s s e s s e d the i n t u i t i v e i n s i g h t and t h e p e r s e v e r a n c e to work out t h e i n v e n t i o n d e s p i t e a l l obstacles.5° I n t h e few e x c e p t i o n s where f i r m s p r o v i d e d f a c i l i t i e s f o r i n v e n t i o n , the p a t e n t s t a k e n out i n the names o f i n d i v i d u a l s i n t h o s e i n d u s t r i e s were e s p e c i a l l y numerous, as can be Seen f r o m T a b l e 3 a 5 1 ( a c t u a l l y t h e s e p e r s o n s were b r i l l i a n t l e a d e r s 48 L o c c i t . 49 E p s t e i n , R. C.» " I n d u s t r i a l i n v e n t i o n - h e r o i c o r system-a t i c , " Q u a r t e r l y J o u r n a l of Economics; v o l . 40, p. 239, F e b r u a r y , 1926.. ~~ 50 B a r t l e t t , R e s e a r c h - a n a t i o n a l r e s o u r c e , p. 29 51 Compiled from E p s t e i n , op. c i t . , p. 239. of groups s p e c i a l i z i n g i n research, and discoveries were due to individuals within the group, and patents were taken out i n tne name of the leader.) TABLE 3 a . NUMBER OP PATENTS CREDITED TO SPECIFIED INDIVID-UALS BETWEEN 1877 AND 1915-. Inventor • Edison, Thomas A. Richards, Prances H . Thompson, E l i h u Scribner, Charles E. Westinghouse, George Weston, Edward Industry• E l e c t r i c a l E l e c t r i c a l E l e c t r i c a l and r a i l r o a d E l e c t r i c a l Number of Patents 977 847 617 437 340 299 Inventions during t h i s period were la r g e l y concerned with devices which would improve the flow and physical operations of plant processes. 5 2 ]<j-ew machines and new aids which would reduce the amount of labour i n any operation were speedily adopted by industry. Operations formerly performed by hand were now produced by machine with phenomenal reductions i n time and cost. The following data from the Report of the Commissioner of Labour i n 1898 s t r i k i n g l y reveals how machine operations at t h i s time had reduced costs i n some of the operations i n American i n d u s t r y . 5 3 52 Perazich and F i e l d , I n d u s t r i a l research and changing technology, pp. 40 -1 . 53 United States, Commissioner of Labour, Thirteenth annual  report, 1898, Hand and machine labour, 1899, Washington, Government P r i n t i n g Office, v o l . 1, pp. 24-79 . TABLE 4. COMPARISON OF OPERATIONS PERFORMED. NUMBER OF WORKMEN EMPLOYED. TIME CONSUMED AND LABOUR COST UNDER HAND AND MACHINE METHODS. COMMODITY Item Quantity Different Operations Performed Workmen Employed (Number) Time worked (Hours) Labour Oost H H . M H c « H M Agricultural implements —plows 29 10 11 97 2 52 1180 37.5 54.46 7.90 Bags — cotton ;:39- 50Q 5 6 5 6 11.17 2.4 1.68 .35 Bags — manilla 51 1000 6 6 5 6 5.75 .5 .64 .06 Bookbinding 663 1000 20 18 38 29 261 101 47.10 18.28 Clock movements 202 1000 423 302 38 105 7352.5 886.16 1128.19 177.63 Dairy products 264 500 l b . 7 8 3 7 125 12.5 10.67 1.78 Engraving 269 1 5 6 6 5 635 38.5 121.33 10.56 Iron and steel bolts 379 500 5 13 1 11 43.165 8.25 8.63 1.32 Iron and steel chains 387 100 3 10 2 11 10.80 4.0 3.38 .68 Iron and steel forgings 391 1 9 6 7 10 62.0 15.0 7.40 3.03 Leather goods - purses 421 144 4 5 4 4 11.5 7.5 2.28 1.67 Lumber 433 1000 f t . 7 7 2 10 86.0 10.0 8.60 1.09 (Cont'd page 34A) (Cont'd from page 34) TABLE 4. COMPARISON OF OPERATIONS PERFORMED. NUMBER OF WORKMEN EMPLOYED. TIME CONSUMED AND LABOUR COST UNDER HAND AND MACHINE METHODS. COMMODITY Item Quantity Matches Nails Loading ore Unloading coal 459 468 667 670 H- 200 gr. M- 100 gr. 20,900 100 ton 100 ton Different Operations Performed H 3 1 5 M 10 4 20 3 4 Workmen Employed (Number) H M 24 10 3 83 1 10 12 10 Time worked (Hours Labour Cost (Dol / a r s ) H M H M 259*3 29280 24.44 3.23 236.5 1 . 8 0 20 .24 .29 200 2 . 8 0 40.00 2 . 56 120 10 19 .50 2 .50 H- Hand Pi - Machine Source; United States, Commissioner of Labour, Thirteenth Annual Report. I 8 9 8 , Hand and Machine  Labour, v o l . I, pp. 24—79* -35-With a few exceptions, such as the e l e c t r i c a l and alumini-um industries, none of the technical a c t i v i t y i n t h i s period was directed toward the int e r n a l processes of an i n d u s t r i a l operation. 5 4 That i s , l i t t l e e f f o r t was made to use raw mater-i a l s more economically; to u t i l i z e waste materials; to improve the physical properties of a commodity; to a t t a i n better y i e l d s by substituting d i f f e r e n t raw materials or by a l t e r i n g the physical condition (such as temperature and pressure) of the process. Emphasis was placed on getting more productive machines; less expensive transportation f a c i l i t i e s ; or machines which would reduce the quantity of labour required. The f o l -lowing table depicting the development of the manufacturing industries i n the United States between 1859 and 1919 c l e a r l y indicates the growth i n establishments, wage earners, and ca p i t a l during these years. I t w i l l be noted that the growth i n c a p i t a l exceeded the growth i n the employment of labour and the number of establishments. UNITED STATES, . . TABLE -5. GROWTH OF MANUFACTURES, 1860 - 1919. 0 D Year Number of Wage Earners; Capital Establishments 1859 140,433 1,311,246 f? 1,009,855,715 1869 252,148 2,053,996 1,694,567,015 1879 253,852 2,732,595 2,790,272,606 1889 355,405 4,251,535 6,525,050,759 1899 207,514 4,712,763 8,975*256,496 1909 268,491 6,615,046 18,428,269', 706 1919 214,000 8,998,000 44,466,595,771 54 Perazich and F i e l d , op. c i t . , p. 40-1. 55 Lippincott, Econqmic develo.pment of the United States, •p.1 425. "* " -36-Research i n Steel Industry Of the established industries i n the United States, the f i r s t to show indications of technical a c t i v i t y connected with production processes was the steel industry. The rapid ex-haustion of available ore resources and the consequent deter-i o r a t i o n or change of the quality of the ores found i n other areas exerted a pressure on the industry to adapt i t s pro-cesses to the new sources of raw m a t e r i a l . ^ As early as 1866, a few of the progressive firms commenced to employ trained chemists for the .purpose of studying the metallurgical oper-ations of smelting. By the judicious mixing of high and low grade ores, a high grade pig could be produced at less cost. From the knowledge of t h e i r chemists, the Carnegie in t e r e s t s were able to buy ore at low prices from mines which other fur-56^  nace owners held i n disrepute. They also purchased for -f i f t y cents a ton the flue cinder from heating furnaces and 57 * the r o l l scale from the m i l l s . These were byproducts that competitors were p i l i n g on the r i v e r banks as waste, but when they were mixed with smaller quantities of high grade ore, a better pig iron was produced at reduced cost. At the same time, the Carnegie interests sold t h e i r i n f e r i o r puddle 56 Kuznets, S., "Retardation of i n d u s t r i a l growth," Journal of Economics and Business, v o l . 1, August, 1929, pp. 534 - 560. -56' B a r t l e t t , Research - a national resource, p. 28, 57' lioc. c i t . -37-cinder with high phosphorous content to the same competitors at $1.00 to $1.50 a ton] The firms possessing the technical knowledge were able to achieve great savings i n costs by better smelting methods.^ Although the application of science to steel making commenced early i n the industry, the concept of organized research developed slowly and lagged far behind research i n the steel industries of other countries. Table 6 c l e a r l y indicates that of the 125 contributions to the advancement of i r o n and steel making between 1850 and 1900, the United States was responsible for only 23. After 1900, the research a c t i v i t y of the industry continued to lag behind that-of othe countries, although American production exceeded that of any other country.^ 8 TABLE 6. ADVANCES IN THE IRON AND STEEL INDUSTRY, ^ 1850 - 1900. COUNTRY NUMBER OF CONTRIBUTIONS TO TOTiSL Improvement Fundamental i n processes m e t a l l u r g i c a l and products knowledge England 23 25 48 United States 20 3 23 Germany 14 10 24 ° France 9 14 23 Sweden 1 6 7 Total 125 57 B a r t l e t t , Research - a national resource, pp. 27-8, 58 Phair, W. A., "Iron and s t e e l : world's s t a t i s t i c s , " Encyclopaedia Britannica, 14th ed., 1940, v o l . 12, p. 673. 59 Sisco, F. T., "Research-in the iron and. steel industry, Research - a national resource, Vol. I I . , Industrial, research Washington, United States, Government P r i n t i n g Office, 1940, p. 158. TABLE 7. AMOUNT OF RESEARCH BY THE PRINCIPAL IRON AND STEEL MAKING COUNTRIES, 1900 TO 1930 60 YEAR UNITED STATES GERMANY AND AUSTRIA GREAT BRITAIN FRANCE AND BELGIUM o a 4 3 o o •H TH O 4> 3 © u © O +> O (0 « H O u a) (D ra © a o • H rH rH • H M a 4 1 o o • H -a +> M o +> o co & & o u © u o -p o xi o u (0 CD CQ © « O rH O cn U CQ CD O A P i to & fac O • H O U p • P U © CD CO 6 .g © cn s • H H rH • H cn « g d o o • H ' H 3 § o CQ U CD P t a © r3 fH o 4 a o CO <VH xi o CO © cn 3 1900 24.2 79 3.26 17.7 81 4.57 14.1 69 4.87 6.1 34 5.57 1905 43.7 186 4.25 23.6 184 7.79 15.7 123 7.83 7.6 68 8.90 1910 53.1 121 2.28 32.7 149 4.57 16.9 101 5.94 10.9 44 4.00 1919 66.7 201 3.00 13.9 54 3.86 15.5 86 5.55 5.2 41 7.89 1923 85.3 169 1.98 17.1 97 5.70 15.9 ?77 4.81 14.8 47 3.18 1928 89.7 291 3.23 39.0 280 7.17 15.1 134 8.93 27.2 41 2.98 Average • • • • 3.00 • • • • • • 5.61 • • • • •. 6.32 • • • • • • 5.42 60 Ibid., p. loO. 61 "Research factor" i s obtained by dividing number of papers published by production. The assumption i s that the volume of research i n any one country w i l l be related to the size of the industry, v. Sisco, op. c i t . , p. 159. -39-A number of economic r e a s o n s f o r t h i s l a g i n r e s e a r c h a c t i v i t y may be fo u n d . F i r s t , between 1870 and 1900 the s t e e l i n d u s t r y of t h e United S t a t e s was so busy S u p p l y i n g t n e growing demands of t h e r a i l r o a d and c o n s t r u c t i o n i n d u s -t r i e s , t h a t no economic i n c e n t i v e e x i s t e d f o r a h i g h l e v e l o f r e s e a r c h a c t i v i t y . 6 2 W i t h o u t r e s e a r c h , and w i t h t h e t a r i f f , A merican s t e e l makers were a b l e t o compete a g a i n s t f o r e i g n 62* i n t e r e s t s . Economies of p r o d u c t i o n Were a c h i e v e d t h r o u g h v e r t i c a l i n t e g r a t i o n , s p e c i a l i z a t i o n of l a b o u r , and t h e a p p l i -c a t i o n o f mechanized methods such as b l o w e r s f o r the b l a s t f u r n a c e s , improved r o l l i n g m i l l s , and e f f i c i e n t machines f o r t h e l a r g e s c a l e p r o d u c t i o n o f n a i l s , s p r i n g s and w i r e * 6 3 F i n a l l y , t h e p r i m a r y output o f t h e i n d u s t r y was m i l d s t e e l , w h i c h was produced f o r the r a i l r o a d s by crude r u l e - o f - t h u m b methods w i t h no keen r e g a r d f o r q u a l i t y . Towards t h e c l o s e o f the c e n t u r y , the r a i l r o a d i n d u s t r y i n s i s t e d on s t e e l manu-f a c t u r e d a c c o r d i n g t o d e f i n i t e s p e c i f i c a t i o n s , 6 4 and i n o r d e r t o a c h i e v e u n i f o r m q u a l i t y i n p r o d u c t i o n meih ods, s m a l l num-b e r s of s c i e n t i f i c p e r s o n n e l Were employed by t h e s t e e l m a k e r s f o r t h i s p u rpose. A more i m p e r a t i v e need f o r t e c h n i c a l a s s i s t a n c e d e v e l o p e d when a f t e r 1900, the market f o r m i l d s t e e l began to d e c l i n e and i n i t s p l a c e a r o s e r e q u e s t s by the government f o r tough 62 Siscbf op. c i t . , p. 158 63 L o c - c i t . 6 4 - B a r t l e t t , Research,- a. .Rational, r e s o u r c e * V o l . 11, p. 26. 62' That i s , w i t h i n t h e domestic market. - 4 0 - " and p e n e t r a t i n g s t e e l a l l o y s f o r e x p l o s i v e m i s s i e s , and by t h e a u t o m o b i l e i n d u s t r y f o r l i g h t , h i g h s t r e n g t h s t e e l s f o r a u t o m o b i l e frames. These new demands r e q u i r e d t h e manufac-t u r e o f a l l o y s t e e l s i n w h i c h t h e r e l a t i o n s of t h e elements, s u c h as carbon, manganese, phosphorous, s i l i c o n , chromium* n i c k e l and tungstem had to be p r e c i s e l y c o n t r o l l e d * The s e r v i c e s of t r a i n e d p e r s o n n e l were n e c e s s a r y to a c h i e v e p r o -d u c t i o n c o n t r o l and to d e v e l o p t h e a l l o y s w i t h s p e c i f i c p r o -p e r t i e s . R e s e a r c h i n - t h e R a i l r o a d I n d u s t r y The r a i l r o a d i n d u s t r y was one o f t h e f o r e m o s t of t h e e a r l y exponents o f s c i e n t i f i c m e t h o d s 6 5 and i n d i r e c t l y i n -f l u e n c e d many f i r m s t o employ t e c h n i c a l p e r s o n n e l . As a p u r c h a s e r , t h e r a i l r o a d s f o u n d t h a t a l a r g e degree o f non-u n i f o r m i t y e x i s t e d i n t h e m a t e r i a l s p u r c h a s e d by t h e i n d u s -t r y . To s a f e g u a r d t h e i r i n t e r e s t s , t h e l a r g e r a i l r o a d s em-p l o y e d a co r p s of s c i e n t i s t s and e n g i n e e r s to t e s t i m ' t e r i a l s such as s t e e l r a i l s * l u b r i c a t i n g and i l l u m i n a t i n g o i l s , p a i n t s and o t h e r commodities. S p e c i f i c a t i o n s f o r t h e s e goods were e v e n t u a l l y e s t a b l i s h e d . At f i r s t , , m a n u f a c t u r e r s o b j e c t e d t o t h e s p e c i f i c a t i o n s o f t h e r a i l r o a d companies, but u l t i m a t e l y t h e y were f o r c e d t o produce the commodities as s p e c i f i e d Or l o s e the patronage Of the r a i l w a y s . 65 L o c . c i t . - 4 1 -Research i n other industries Before long, technical personnel were slowly abosrbed by other established industries such as the copper industry* pulp and paper, glass, soap, meat packing, petroleum, and f e r t i l i z e r . In the i n i t i a l stages, the technical group were engaged for routine analysis and production c o n t r o l . 6 6 The immediate need of producing products of uniform quality or of finding new ways of using deteriorating raw materials Was the economic motive which prompted t h e i r employment. As the s c i e n t i f i c group gained a more intimate knowledge of the op-erations of the industry, they Were able to suggest more e f f i c i e n t uses of raw materials, methods of U t i l i z i n g Waste products, and techniques for improVL ng the quality of commod-i t i e s . As entrepreneurs and managers saw the f r u i t s of these suggestions materialize i n lower costs and greater prof-its* they became convinced 1 of the Value of the s c i e n t i f i c approach and gradually organized research groups to work on a f u l l , time basis. The concept of a research group did not materialize at any p a r t i c u l a r time. I t Was a gradual development which evolved from the single s c i e n t i s t . Furthermore, the development of research groups did not occur i n a l l industries at the same time and did not grow at a uniform rate i n a l l i n d u s t r i e s . Although the steel industry was a pioneer i n the application 66 B a r t l e t t , Research - a national resource, v o l . I I . , p. 25. - 4 2 -o f s c i e n c e , t h e i n d u s t r y has "been n o t e d f o r i t s low l e v e l o f r e s e a r c h a c t i v i t y u n t i l a f t e r 1 9 3 0 . 6 7 On t h e o t h e r hand, i n d u s t r i e s such as t h e t e l e p h o n e and t e l e g r a p h , e l e c t r i c a l m achinery and a p p a r a t u s , aluminum, and i n d u s t r i a l c h e m i c a l s C O r a p i d l y d eveloped h i g h l y - i n t e g r a t e d r e s e a r c h d e p artments. ° The n u c l e i of t h e s e departments were i n e v i d e n c e b e f o r e 1900 and were w e l l - o r g a n i z e d b e f o r e t h e b e g i n n i n g o f W o r l d War I . P a r a d o x i c a l as i t may seem, i t has been the o l d e r i n -d u s t r i e s , such as i r o n and s t e e l , t e x t i l e s , and l u m b e r i n g w h i c h have been t h e l a s t to r e c o g n i z e the v a l u e and i m p o r t a n c e o f r e s e a r c h . 6 ^ I t i s t h e r e f o r e n e c e s s a r y t o l o o k t o t h e new i n d u s t r i e s w hich have d e v e l o p e d s i n c e 1860 i n o r d e r t o t r a c e t h e development of o r g a n i z e d r e s e a r c h i n the U n i t e d S t a t e s . Three major r e a s o n s f o r the e a r l y c o n s o l i d a t i o n of r e -s e a r c h i n t h e s e new i n d u s t r i e s were the f o l l o w i n g : (a) To m a i n t a i n cov.ntrol o f and to improve th e o r i g i n a l  d i s c o v e r y w i t h the ob.ject of d e r i v i n g t h e monopoly p r o f i t s f r o m i t s e x p l o i t a t i o n . These new i n d u s t r i e s were founded on t h e b a s i s o f a new p r o c e s s o r a new p r o d u c t which was p r o t e c t e d by a p a t e n t i s s u e d by t h e U n i t e d S t a t e s P a t e n t O f f i c e * W h i l e the p a t e n t o f f e r e d e x c l u s i v e c o n t r o l o f t h e 67 Sisco,, P. T., "Research i n t h e i r o n and s t e e l i n d u s t r y , " R e s e a r c h - a n a t i o n a l r e s o u r c e , V o l . I I . , pp. 157-9. 68 P e r a z i c h and F i e l d , I n d u s t r i a l r e s e a r c h and c h a n g i n g t e c h n o l o g y , pp. 40-3. 69 M e r t o n , R., " F l u c t u a t i o n s i n t h e r a t e o f i n v e n t i o n , " Q u a r t e r l y J o u r n a l of Economics, v o l . 49 , May, 1935, -j>>« 468. d i s c o v e r y f o r a p e r i o d o f seventeen y e a r s , t h e t h r e a t t h a t c o m p e t i t i v e i n t e r e s t s would s e c u r e p a t e n t s on improvements o r a d a p t a t i o n of the o r i g -i n a l i n v e n t i o n always e x i s t e d . By p o s s e s s i n g a corps of s c i e n t i s t s f a m i l i a r w i t h the problems o f the i n d u s t r y , t he f i r m was i n a s t r o n g e r p o s i t i o n to d i s c o v e r the improvements and a d a p t a t i o n s f i r s t . The surge of i n v e n t i o n - i n c e r t a i n i n d u s t r i e s i s i n d i c a t e d i n T a b l e 8, t a b u l a t i n g t h e p a t e n t s i s s u e d d u r i n g f i v e - y e a r i n t e r v a l s between 1860 and 1920 i n the t e l e g r a p h , t e l e p h o n e and a u t o m o b i l e i n d u s t r i e s . UNITED STATES, TABLE 8. NUMBER OP PATENTS ISSUED IN FIVE YEAR 7 0 INTERVALS BETWEEN 1860 and 1920. Automobile Y e a r Telegraph Telepho 1860-64 49 ... 186 5-69 115 ... 1870-74 312 ... 1875-79 296 106 1880-84 577 724 1885-89 499 584 1890-94 300 462 1895-99 183 658 1.900-04 448 923 1905-09 513 1,301 1910-14 363 1,138 1915-19 455 1,676 21 242 494 1.P42 3,087 70 I b i d . , pp. 470-473. V. Ta b l e I I , Appendix, t h i s t h e s i s * -44-(b) To meet the competition of other industries With substitute products or services. A s t r i k i n g i l l u s t r a t i o n of t h i s may be found i n the development of the telegraph and telephone i n d u s t r i e s . 70 " The telegraph was discovered by Samuel Morse i n 1836 7 1 ' and the telephone by Alexander Graham B e l l i n 1876. 'J-In the forty years between 1836 and 1876, improvements i n telegraphy had been made and approximately 673 p a t e n t s 7 1 had been issued i n the telegraphic f i e l d . The rapid development of the telephone, however, forced the telegraphy companies to r e a l i z e that a powerful competitive means of communication was developing. To meet t h i s competition, research groups were organized and a steady stream of improve-ments on existing equipment resulted. Table 8 s t r i k i n g l y shows the p a r a l l e l development i n both these industries. ( c) To develop additional uses for new products or new  services. This economic motive may be i l l u s t r a t e d from the' aluminum industry. The ready demand for aluminum was small; the metal had to compete with the older and accepted metals of copper, t i n , brass, zinc£» and s t e e l , a l l of"'which must be p a r t i a l l y replaced* i f a substantial market were to be developed. In 71 Ib i d . , p. 470. 70' Encyclopaedia Britannica, 14th ed., 1940, v o l . 15, p. 828. 71* B a r t l e t t , Research - a national resource, p. 49. -45-i t s pure form, aluminum had only a l i m i t e d number of applications, and during the early years of development, the metal received a bad name when i t was used i n applications for which i t was not f i t t e d . Early research was therefore concerned with devel-oping -proper methods of using aluminum and with working out suitable alloys for s p e c i f i c uses. I t was soon shown that the working of aluminum required methods different from the empirical rules developed by long experience i n working brass, copper, and s t e e l . 7 2 Before 1900, f i f t y percent of the aluminum production was used for cooking u t e n s i l s , and f i f t y percent as a deoxidizing metal i n the steel industry.'' Table 9 reveals how research d i v e r s i f i e d the Uses of aluminum after the turn of the century. TABLE 9. PERCENT OF ALUMINUM SOLD IN DIFFERENT FORMS IN THE UNITED STATES. 7 4 Form 1893 1903 1912 Ingots 93.0 29.0 35.0 Wire 0.5 37.0 20.0 Sheet 4.5 34.0 ... Other fi n i s h e d forms ... ... 45.0 100.0- 100.0 With the development of the automobile and aeroplane industries after 1900, intensive research Was dir e c t -ed towards the development of aluminum a l l o y s - With copper, zinc, and s t e e l . 72 Wallace, D. H., Market, control i n the,'aluminum., industry* Cambridge, Harvard University Press, 1937, p. 10. "~ 73 Ibid., p. 11. 7 4 I b i d . , p. 21. CHAPTER I I I . THE DEVELOPMENTT OP ORGANIZED RESEARCH BETWEEN 1900 - 1920. CHAPTER I I I THE DEVELOPMENT OP ORGANIZED RESEARCH BETWEEN 1900 - 1920 RESEARCH PRIOR TO WORLD WAR I The concept of an o r g a n i z e d l a b o r a t o r y o f s c i e n t i s t s and e n g i n e e r s working under u n i f i e d d i r e c t i o n o r i g i n a t e d i n Germany 1 As e a r l y as 1870, t h e German dye i n d u s t r y had o r g a n i z e d r e s e a r c h s e c t i o n s " p r o d u c i n g a stream o f new p r o c e s s e s and p r o d u c t s , a l l o f them p r o t e c t e d as c o m p l e t e l y as p o s s i b l e by p a t e n t s . " 2 The s u c c e s s o f t h i s o r g a n i z a t i o n and t h e e x p a n s i o n o f the dye works s e t t h e p a t t e r n f o r o r g a n i z e d r e s e a r c h i n Aire r i c a n i n d u s t r i e s , such as t h e e l e c t r i c a l and c h e m i c a l . The f i r s t l a b o r a t o r y i n the U n i t e d S t a t e s o r g a n i z e d f o r t h e o u t p u t o f p r o f i t a b l e i n v e n t i o n s was p r o b a b l y t h a t of Thomas A. E d i s o n , who, i n 1876, e s t a b l i s h e d a t Menlo P a r k a l a b o r a t o r y f o r t h e purpose o f d e v e l o p i n g t h e i n c a n d e s c e n t l i m p . 3 At Menlo P a r k , E d i s o n had as many as 75 per s o n s engaged i n t h e develop-^ ment, d e s i g n and b u i l d i n g o f e l e c t r i c a l a p p a r a t u s a t a p e r i o d when many i n d u s t r i e s had g i v e n no c o n s i d e r a t i o n t o r e s e a r c h methods. 4 E d i s o n ' s l a b o r a t o r y demonstrated the e f f e c t i v e n e s s of o r g a n i z e d r e s e a r c h . I n 1879, t h r e e y e a r s a f t e r t h e opening o f 1 Mees, C. E. K., The p a t h of s c i e n c e , New Y o r k , John W i l e y , 1946, p. 175. 2 L o c . c i t . 3 B a r t l e t t , R e s e a r c h - a n a t i o n a l r e s o u r c e , V o l . I I , I n d u s t r i a l r e s e a r c h , p. 30. 4 I b i d . , p. 31. -48-Menlo P a r k , E d i s o n was a b l e to g i v e a p u b l i c d e m o n s t r a t i o n o f e l e c t r i c a l i l l u m i n a t i o n i n the s t r e e t s of New Y o r k , d e s p i t e t h e f a c t t h a t c r i t i c s c l a i m e d t h a t he and h i s s t a f f 'Were un-a c q u a i n t e d w i t h t h e fundamental p r i n c i p l e s o f b o t h e l e c t r i c i t y 5 and dynamics." However, Menlo P a r k d i d not remain a permanently e s t a b l i s h ed i n s t i t u t i o n . As o p p o r t u n i t i e s d e v e l o p e d i n the r a p i d l y g r o w i n g e l e c t r i c a l i n d u s t r y , t h e p e r s o n n e l g r a d u a l l y l e f t t o assume new r e s p o n s i b i l i t i e s . I n 1886, when E d i s o n e n t e r e d t h e f i e l d of m a n u f a c t u r i n g e l e c t r i c a l equipment and a p p a r a t u s , a new l a b o r a t o r y was e s t a b l i s h e d f o r t h e development o f improve-ments t o e x i s t i n g p r o d u c t s and f o r t h e c r e a t i o n o f new p r o d u c t s I n t h e p e r i o d . 1890 t o 1910 permanently o r g a n i z e d r e s e a r c h l a b o r a t o r i e s came i n t o prominence i n f o u r American i n d u s t r i e s : (a) e l e c t r i c a l machinery and ap p a r a t u s (b) communications--t e l e p h o n e and t e l e g r a p h ( c ) i n d u s t r i a l c h e m i c a l s and (d) t h e a u t o m o b i l e . F u r t n e r m o r e , t h e l e a d and prominent p o s i t i o n w h i c h t h e s e i n d u s t r i e s a t t a i n e d i n r e s e a r c h a c t i v i t y a t t h i s t i m e has n e v e r been r e l i n q u i s h e d . C o i n c i d e n t w i t h t n e e s t a b l i s h m e n t of t h e r e s e a r c h f a c i l i -t i e s i n t h e s e i n d u s t r i e s v/as the r a p i d growth i n t h e number o f p a t e n t s a c q u i r e d by each i n d u s t r y . 7 F i g u r e 1 i l l u s t r a t e s t h e 5 L o c . c i t . 6 L o c . c i t . I b i d . , pp. 42--75 7 v. appendix, t h i s t h e s i s , T a b l e I I . FIGURE 1. AVERAGE NUMBER OF PATENTS ISSUED QUINQJJENNIALLY IN THE TELEGRAPHf TELEPHONE, ^ AUTOMOBILE AND RADIO INDUSTRIES. 1 8 4 6 — 1 9 3 0 * " °° -49-average number of p a t e n t s a c q u i r e d q u i n q u e n n i a l l y between 1846 and 1930 i n t h e t e l e g r a p h , t e l e p h o n e , and a u t o m o b i l e g r o u p s . The l a r g e number of p a t e n t s a c q u i r e d by i n d i v i d u a l s i n t h e e l e c t r i c a l i n d u s t r y i n d i c a t e s t h a t an i d e n t i c a l development had o a l s o o c c u r r e d i n t h i s i n d u s t r y . E l e c t r i c a l Equipment and Apparatus "In t h e b e g i n n i n g , t h e e l e c t r i c a l m a n u f a c t u r i n g i n d u s t r y was composed of many s m a l l companies formed by i n d i v i d u a l s who d e v e l o p e d t h e p r o d u c t , m a n u f a c t u r e d i t under t h e i r own super-v i s i o n , and promoted i t s s a l e . " 9 As s t r o n g e r companies e v o l v e d ' t h e y absorbed t h e s m a l l e r ones, u n t i l t o-day t h e i n d u s t r y i s dominated by a few l a r g e c o r p o r a t i o n s o f w h i c h the Westinghouse Company, t h e G e n e r a l E l e c t r i c Company, and t h e A l l i s - C h a l m e r s Company a r e t h e l a r g e s t . A number of o t h e r f i r m s s p e c i a l i z e i n a p a r t i c u l a r l i n e o f e l e c t r i c a l p r o d u c t s , such as t r a n s -f o r m e r s , motors, and c o n t r o l i n s t r u m e n t s . 1 ^ -The e l e c t r i c a l i n d u s t r y has been n o t e d f o r i t s c o n s t a n t r e s e a r c h f o r b e t t e r ways of d o i n g t h i n g s and i t s e n g i n e e r i n g development i n b r i n g i n g i t s f i n d i n g s i n t o u s e . 1 1 I n t h e b e g i n n i n g , t h e s e f i n d i n g s and developments were due t o a num-b e r of b r i l l i a n t s c i e n t i s t s and e n g i n e e r s a c q u i r e d by t h e e l e c t r i c a l c o n c e r n s . At t h e t u r n o f t h e c e n t u r y , however, b o t h Westinghouse and G e n e r a l E l e c t r i c r e a l i z e d t h e n e c e s s i t y 8 v. s u p r a , t h i s t h e s i s p. 4 3. 9 G l o v e r , J . G., and C o r n e l l , W. B., ed., The, development" o f American i n d u s t r i e s , London, S i r I s a a c PitmanT 1932, p. 556. 10 L o c . c i t . 11 I b i d . , p. 557. «50-o f o r g a n i z i n g t h e i r r e s e a r c h a c t i v i t i e s , i f the stream o f new p r o d u c t s were t o c o n t i n u e and i f t h e y were to i n c r e a s e t h e use o f e l e c t r i c a l s e r v i c e by t h e p u b l i c and by i n d u s t r y . Ac-c o r d i n g l y , i n 1901, G e n e r a l E l e c t r i c o r g a n i z e d a l a b o r a t o r y to be devoted e x c l u s i v e l y t o o r i g i n a l r e s e a r c h f o r t h e c r e a t i o n o f new p r o d u c t s and t o i n v e s t i g a t e t h e p o s s i b i l i t i e s o f u t i l i z i n g e l e c t r i c i t y beyond immediate e n g i n e e r i n g a p p l i c a t i o n s . 1 2 T h i s l a b o r a t o r y was to f u n c t i o n i n a s s o c i a t i o n w i t h t h e a l r e a d y o r -g a n i z e d s t a f f of e n g i n e e r s i n charge of development and d e s i g n . I n 1902, Westinghouse a l s o o r g a n i z e d a r e s e a r c h department the a c t i v i t i e s of w h i c h were e v e n t u a l l y c e n t r a l i z e d i n 1916 f o r t h e purpose of w o r k i n g on fundamental l o n g - r a n g e problems p e r t a i n i n g t o t h e b u s i n e s s of the f i r m . 1 3 Telephone "The i m p o r t a n c e of s c i e n t i f i c r e s e a r c h i n the development 14 o f t h e t e l e p h o n e e a r l y became a p p a r e n t . " Many tim e s s i n c e t h e o r i g i n a l i n v e n t i o n , " s c i e n t i f i c r e s e a r c h and e n g i n e e r i n g development not o n l y have found t h e way out o f d i f f i c u l t s i t u a t i o n s w h i c h t h r e a t e n e d t o hamper the growth of t e l e p h o n e s e r v i c e , but i n advance of immediate needs, t h e y have o f t e n c r e a t e d new i n s t r u m e n t s w h i c h have l e d to f u r t h e r e x t e n s i o n s and improvements of t h e s e r v i c e r 1 5 The r e s e a r c h and e n g i n - / 12 B a r t l e t t , R e s e a r c h - a n a t i o n a l r e s o u r c e , V o l . I I , I n d u s t r i a l r e s e a r c h , p. 52. 13 I b i d . , p. 54 14 G l o v e r and C o r n e l l , ed., The development o f American i n d u s t r i e s , p. 738. 15 G i f f o r d , W. S.» "Telephone," E n c y c l o p a e d i a Br-U-t.anica, 1 4 t h ed., 1940., v o l . 21, p. 898. J * -51-eering personnel have successively solved problems concerned with cable i n s u l a t i o n and design, transmission e f f i c i e n c y for long-distance communication, and automatic systems. Only the solution to these technical problems permitted the achievement of the present American telephone system which, i n 1934, con-s i s t e d of 16,869,000 telephones and an investment of •1154,750,000, 000. 1 6 The o r i g i n a l Department of Research and Development con-s i s t e d of A. G. B e l l and h i s associate T. A. Watson-1-.61 With the organization of the American Telephone and Telegraph Company, three departments eventually evolved. In 1907, to promote ef-ficency and economy, the three laboratories were combined into a single u n i t , known as the Engineering Department of the 1 7 Western E l e c t r i c Company. In 1925, the laboratory was organ-i z e d as a corporate body, known as the B e l l Telephone Labora-t o r i e s , Inc., and i s responsible to the parent company (AT&T) f o r fundamental research and development and to Western E l e c t r i c Company for development, design, and engineering i n connection •I Q with manufacture of telephone equipment. The B e l l Telephone Laboratories i s the largest i n d u s t r i a l research unit i n the United States today, employing a t o t a l of 4J,600 personnel of which 2,000 are professional research workers. 1 9 16 I b i d . , p. 895. • 17 B a r t l e t t , Research, a national resource, Vol. I I , I n d u s t r i a l research, p. 49. 18 I b i d . , p. 50 19 Loc. c i t . , figures are for the year 1940. \ 16 B a r t l e t t , Research - a national resource, p. 49. -52-Chemical Industries In 1900, the chemical industry consisted of 1,691 estab-lishments employing 46,700 persons- and producing products valued at $202,306,000.20 The f i f t e e n years between 1885 and 1900 witnessed a very rapid development i n t h i s industry es-p e c i a l l y as e l e c t r i c power became p l e n t i f u l for the u t i l i z a t i o n of electro-chemical processes i n the manufacture of aluminium, alundum, calcium cyanamid, and nitrogen. The oldest and most prominent company i n the industry was E. I . Du Pont de Nemours and Company, noted for i t s develop-ments i n explosives and blasting powders. Throughout the nineteenth century chemical developments within the company had been carried on under the leadership of various members of the Du Pont family, a l l of whom were tech n i c a l l y trained men.21' In 1902, s c i e n t i f i c research became a c l e a r l y defined part of company po l i c y with the organization of the Eastern Laboratory i n Gibbstown, N.Y.22 The function of the laboratory was to study chemical operations i n the high explosives plants. In 1903, an Experimental Station was established i n Wilmington, Del aw are. 2 3 20 Glover and Cornell, ed., The development of American ind u s t r i e s , p . 473, 21 I b i d . , p. 463. 22 Reese, C. L., "Developments i n i n d u s t r i a l research," Proceedings, American Society for Testing Materials, v o l . 18, .pt. 2, p. 32, June, 1918. 23 Loc. c i t . 21* B a r t l e t t , Research - a national resource; v o l . I I . , p.43. -53-The rapid development i n research a c t i v i t y i n the company i s provided "by Figures 2 and 3 showing the number of personnel employed and expenditures for research work. The tremendous upswing during the war years i s readily explained by the com-pany's interest i n explosives and entry into the manufacture of dyestuffs. The Du Pont Company has considered i t s research a c t i v i -t i e s a, d i s t i n c t l y p r o f i t a b l e undertaking. During the period, 1912 - 1915 the t o t a l expenditure for research amounted to approximately $1,200,000 and was responsible for a t o t a l 24 savings, direct and i n d i r e c t , of $14,000,000. The Du Pont Company has continued to*, expand and d i v e r s i -fy i t s a c t i v i t i e s . In 1922, a complete reorganization of the Company resulted i n the decentralization of research which i s now carried on by nine operating departments, two controlled subsidiaries, and a chemical,department. Tfee - research work of the operating departments and the subsidiaries are concerned with the problems i n the i r respective in d u s t r i e s . The chemi-cal department has been concerned with fundamental investiga-tions and long range research to develop new products and processes for a l l branches of the company's a c t i v i t i e s . A noteworthy development from t h i s laboratory within the l a s t ten years has been nylon, a synthetic f i b r e . 2 6 24 I b i d . , p. 36. . 25 B a r t l e t t , Research - a national resource, Vol. I I , In d u s t r i a l research, p. 44. 26 Loc. c i t . . F o l l o w i n g page 5 3 FIGURE 2. TOTAL NUMBER CF RESEARCH WORKERS AND TOTAL SALARIES RECEIVED. DU PONT COMPANY. 1908—1918, $100,000 $90,000 $10,000 1908 1910 1912 1914 Year 1916 1918 Source: Reese, C. L., "Developments i n industrial research," Proceedings. American Society for Testing Materials, Philadelphia, June, 1918, v o l . XVIII, pt. II, p. 33. FIGURE 3 . EXPENDITURES ON RESEARCH BY THE DU PONT COMPANY. 1902—1918. $2,000,000 1,600,000 $1,200,000 $ 800,000 $ 400,000 1902 1904 1906 1908 1910 1912 1914 1916 1918 Year Source: Reese, C. L., "Developments i n industrial research," Proceedings. American Society for Testing Materials, Philadelphia, June, 1918, v o l . XVIII, pt. II, p. 34. -54-Economic Factors Promoting Organized Research A c t i v i t y The foregoing descriptions of the i n i t i a l research developments i n leading companies i n the e l e c t r i c a l apparatus, communication and chemical industries reveal certain economic factors which are in d i c a t i v e of the causes for rapid research development i n these industries. F i r s t l y , a l l of the indus-t r i e s were "new11. The telegraph was discovered i n 1836 ( a l -though i t was not f u l l y exploited u n t i l after 1850); 2 7 The telephone i n 1876; the incandescent lamp i n 1879; y the automobile i n 1894;3(-) and the chemical industry was rapidly developing .on the basis of various patents acquired for ex-plosives, paper making, t e x t i l e s , synthetic organic materials; heavy chemicals, pigments, abrasives, lubricants, p l a s t i c s , and f e r t i l i z e r s . Managers i n these industries recognized that the monopoly control acquired i n the o r i g i n a l patent could only be maintained through the control of the s c i e n t i f i c knowledge on which the patent was based. This control could be achieved through research. Secondly, during the years 1890 - 1910 the movement for the combination of firms within an industry v/as at i t s z e n i t h 3 1 With the' integration of production and marketing functions, 27 Carlton, W., "Telegraph," Encyclopaedia B r i t .anica, 14th ed., 1940, v o l . 21, p. 832. 28 B a r t l e t t , qp. cit.., p. 49. 29 Slosson, E. E., "Edison, Thomas Alva," Encyclopaedia B r i t v a n i s a , 14th ed., 1940, v o l . 7, p. 961. 30 Pomeroy, L . H . , "Motor car," Encyclopaedia Britv.annica. 14th ed., 1940, v o l . 15, p. 880, 31 Lippincott, Economic development of the U.S., pp.46 7-70, -55-s c i e n t i f i c a c t i v i t i e s were also organized. The objective i n integrating the production and marketing functions was to a t t a i n e f f i c i e n c y and economies i n cost; the objective i n cen-t r a l i z i n g the research laboratories 'was' the same. Duplication i n research work could be avoided and the a c t i v i t i e s of many groups could be coordinated and directed along channels i n accord with the firm's p o l i c y for i n d u s t r i a l development. Further, the complexity of science with i t s diverse f i e l d s now made i t impossible for a single i n d i v i d u a l to know a complete f i e l d . I n d u s t r i a l problems encompassed many f i e l d s of science and a laboratory staffed with s p e c i a l i s t s i n many s c i e n t i f i c d i s c i p l i n e s was necessary to solve these problems. Thus the " d i v i s i o n of labour" found so p r o f i t a b l e i n production, had become a necessity i n the mental process of research. Further, larger s t a f f s r e s u l t i n g from combination meant the pooling of knowledge and increased the p o s s i b i l i t i e s of more rapid dis-coveries i n the s c i e n t i f i c f i e l d s pertaining to the industry. The integration of research a c t i v i t i e s was more pronounced i n the new industries, because the importance of science i n the development of industry was recognized by the management. Although the combination movement reached i t s height i n o i l and s t e e l , research f a c i l i t i e s were not organized i n these industries to the same degree. Economies i n costs of pro-duction could s t i l l be achieved through expansion and reor-ganization. The smelting and o i l d r i l l i n g methods could not be protected by patents. Organized research developed i n these industries twenty years l a t e r when i t became necessary - 56 -to acquire new products arid to meet demands for d i v e r s i f i e d production. I t i s s i g n i f i c a n t to note that the consolidation of re-search a c t i v i t i e s occurred within a space of a. few years i n a l l the leading corporations i n the f i e l d s of e l e c t r i c a l trans-mission and manufacture, communications, and chemicals. Around 1900, the basic patents on the telephone, incandescent lamp, and e l e c t r i c a l appliances expired and new companies attracted by the monopoly p r o f i t s enjoyed by these industries, immediately entered the f i e l d . E x i s t i n g companies met t h i s competition i n two ways: (a) by achieving economies through the combination and reorganization of business units (b) by organizing research laboratories to ensure a steady stream of ideas which would mean further improvement i n technical pro-cesses and new products. Such improvements were, whenever possible, protected by additional patents i n order to secure a period of monopoly control and the continuation of monopoly p r o f i t s . I f patentable improvements were developed outside the company, these were frequently purchased by the firm i n order to protect i t s investment. In many cases the patents were never u t i l i z e d as the u t i l i z a t i o n would have rendered ex i s t i n g equipment obsolete. Thirdly, during t h i s period, entry into the new industries could be achieved with a r e l a t i v e l y small c a p i t a l investment. 32 Perazich and F i e l d , I n d u s t r i a l research and changing technology, p. 49. - 5 7 -Thus, i f a group possessed a patent for a new product or a new process and could interest investors to u t i l i z e the pa-tent, a new enterprise was underway. Those firms already within the industry would he forced to meet th i s competition or succumb. On the other hand, the steel and o i l industries already controlled raw material sources, transportation f a c i l i t i e s , and the smelting works or r e f i n e r i e s . The large investments required to enter the steel and o i l industries barred the entry of new firms into these industries. Free from the threat of th i s form of competition, the o i l and steel industries had no economic incentive to establish extensive research f a c i l i t i e s . Fourthly, the production processes of the new industries tended to become highly standardized i n the i n i t i a l stages of development. Outstanding examples are the automobile, elec-t r i c a l , and chemical industries. The production of the f i n -ished product v/as accomplished through a series of specified operations, each operation being undertaken by separate work-men who devoted f u l l time to th i s operation. When the d i v i -sion of labour i s carried out to a high degree, i n e f f i c i e n c i e s within a single operation readily become apparent. I f an important process i s then revolutionized by an improvement, the impact i s f e l t on a l l associated operations and pressure i s e.exercised to have these phases improved. Unless these improvements are carried out, the f u l l benefits of the f i r s t improvement cannot be r e a l i z e d . 3 5 I t should also- be noted 3 3 Kuznets, S., "Retardation of i n d u s t r i a l growth," Journal of Economics and Business/ v o l . 1 , no. 4 , p. 5 4 8 , August, i.y<jy* H i s t o r y , -58-that i n the early stages of development, a firm w i l l make changes i n operation frequently i n order to lower costs and better the competition. The loss i n the investment brought' about by scrapping obsolete equipment i s not as great i n th i s early period as i n the l a t e r period when the investment i n a mass production process i s considerable. F i n a l l y , many of the new industries were characterized by the.condition of decreasing costs. This fact p a r t i a l l y accounted for the rapid u n i f i c a t i o n of in d i v i d u a l firms into a few large corporations. As investment was increased and the production of commodities or services expanded, produc-tio n costs were successively reduced. This condition combined with the existence of patents extending monopoly r i g h t s , per-mitted companies with advantages i n management or more highly productive research groups 'to buy out or force out competi-t o r s . Research was responsible for lowering cost schedules and s h i f t i n g demand schedules i n one or a l l of the following ways: : (a) by making production processes more e f f i c i e n t ; for example, i n the chemical industry through the use of ' ' appropriate catalysts, the same quantity of raw ma-t e r i a l could be made to react with r e s u l t i n g higher y i e l d s i n the f i n a l product. (b) by bringing about a r e l a t i v e l y large increase i n production through a correspondingly small increase i n c a p i t a l expenditure. Improvements i n c a p i t a l equipment would result i n better production control, - 5 9 -bringing about larger y i e l d s with a very small increase i n o v e r a l l costs, (c) by improving the product or service so that the market i s widened to include a larger number of purchasers. The outstanding example i s the automo-* b i l e industry. In 1911, when the organization of research laboratories by i n d i v i d u a l firms was rapidly moving forward, the Mellon I n s t i t u t e of I n d u s t r i a l Research v/as established i n Pittsburgh, Pennsylvania, through a generous endowment by the Mellon brothers. 3 3' The policy of the I n s t i t u t e was to provide manufacturers with the services of a s c i e n t i f i c laboratory and trained s t a f f for the investigation of problems a r i s i n g i n t h e i r industry ± In-vestigations could be undertaken at an expenditure which would be less than that required for the establishment of a private laboratory by the firm. To have a problem investigated, man-ufacturers endowed a fellowship to provide the salaries of the investigators and other in c i d e n t a l expenses for a period of one or more years. The Mellon I n s t i t u t e was the f i r s t organization to provide a confidential research service for i n d u s t r y 3 4 It has f i l l e d an important place i n the American research picture by provid-ing an opportunity for the f i r m with modest f i n a n c i a l resources to have research undertaken. U n t i l the establishment of the I n s t i t u t e , organized research could only be sponsored by those 34 Fleming, A . P. M., I n d u s t r i a l research i n the United States of America, 1917, London, Department of S c i e n t i f i c and I n d u s t r i a l Research, p. 29 . 33' B a r t l e t t , Research-a n a t i o n a l r e s o u r c e , v o l . I I . , p. 71. 3 4 ' Mees, Science, p. 214 . -60-f i r m s w i t h the f i n a n c i a l r e s o u r c e s t o e s t a b l i s h l a b o r a t o r i e s and engage p e r s o n n e l . The M e l l o n I n s t i t u t e has pr o v e d e x t r e m e l y s u c c e s s f u l i n i t s f i e l d o f a c t i v i t y . I n i t s f i r s t y e a r o f o p e r a t i o n , 23 f e l l o w s h i p s were e s t a b l i s h e d ? by 1917, 65 f e l l o w s h i p s i n v o l -v i n g an e x p e n d i t u r e o f a p p r o x i m a t e l y $150,000 were i n p r o -g r e s s ; and by 1940, 91 f e l l o w s h i p s were i n o p e r a t i o n w i t h an ann u a l e x p e n d i t u r e of $ 1 ,181,639 . 3 5 Many o f t h e f e l l o w s h i p s have been s u s t a i n e d f o r more t h a n 25 y e a r s ? ^ RESS ARCH DURING WORLD WAR I By 1917, when the U n i t e d S t a t e s e n t e r e d World War I , o n l y a s m a l l s e c t i o n o f American f i r m s had o r g a n i z e d r e s e a r c h g r o u p s . These f i r m s were c o n c e n t r a t e d i n the f o l l o w i n g i n -d u s t r i e s ; e l e c t r i c a l m a chinery and communications; a u t o m o b i l e ; aluminum; i n d u s t r i a l c h e m i c a l s ; p h o t o g r a p h i c m a t e r i a l s ; r a i l -r o a d ; and t o a l i m i t e d e x t e n t , t h e copper, z i n c , and s t e e l i n d u s t r i e s . The m i l i t a r y and i n d u s t r i a l e f f i c i e n c y of Germany, c o u p l e d w i t h the s h o r t a g e s i n many e s s e n t i a l p r o d u c e r and consumer goods, emphasized t h e i m p o r t a n c e of r e s e a r c h t o i n d u s t r y and government i n America. I t V/as sudd e n l y r e a l i z e d t h a t i f t h e U n i t e d S t a t e s was to s u r v i v e t h r o u g h a m i l i t a r y c o n f l i c t and meet the i n d u s t r i a l c o m p e t i t i o n o f f o r e i g n c o u n t r i e s , s c i e n t i f i c r e s e a r c h and e n g i n e e r i n g t e c h n o l o g y 35 I n d u s t r i a l and engineering; chemistry, News e d i t i o n , v o l . 18, no. 7, p. 287, March 25, 1940. 35' L o c . c i t . -61-would have to be essential attributes of management. Realizing t h i s , the Government of the UnitedStates took several important moves to organize s c i e n t i f i c e f f o r t within the country. F i r s t , i n 1916, a special advisory body, the National Research Council, composed of s c i e n t i f i c men from educational and research i n s t i t u t i o n s and i n d u s t r i a l corpor-ations was organized to coordinate and to make available to the government the research resources of nongovernmental i n -s t i t u t i o n s and to focus the a c t i v i t i e s of these resources upon urgent s c i e n t i f i c problems of munitions, m i l i t a r y equip-ment, public health, food and n u t r i t i o n , and a l l other exi-gencies of the emergency.*56 In May, 1918, the National Research Council was orgah-b i z e d as a permanent body under Executive Order 2859 With the continuing purpose: "to promote research i n the mathematical, ph y s i c a l , and b i o l o g i c a l sciences, and i n the application of-these sciences to engineering, agriculture, medicine, and other useful ar t s , with the object of increasing knowledge, of strengthening the national defence, and of contributing i n 37 other ways to the public welfare...." 36 Barrows, A. L.» "The relationship of the Ifatlonal Research Council to i n d u s t r i a l research," Research - a nation** al resource, Vol. I I , I n d u s t r i a l research, p. 365. 37 Loc. c i t . -62-In addition to organi zing-; "the research effort on problems of national importance during the wartime emergency, the Government promoted the establishment of new and required i n -dustries. Under "Trading with the Enemy Act" of 1917, approx-imately 4,500 German chemical patents were acquired by the Government, vested i n the Chemical Foundation, Inc., and i s -sued by the Foundation under a nonexclusive license arrange-ment,for a small fee to persons, firms and corporations wish-ing to p a r t i c i p a t e i n a competitive chemical industry. The policy.of the Chemical Foundation and the govern-ment's exclusion of imports of dyestuffs during the period, 1917 - 1922, permitted the establishment of the dye industry i n the United States. The patents of the Chemical Foundation provided the knowledge for the manufacture of dyes and the embargo on imports meant the American market Was free of foreign competition. The immediate res u l t was that i n 1919, 250 types of dyes and i n 1925, 350 types of dyes were produced by American firms. This production compared with the manufac-ture of 104 types of dyes p r i o r to 1914, almost a l l of "which were made from imported intermediates. In fact , by 1923, production of dyestuffs had increased to the point where 96;.percent of a l l domestic demands were met by American f i r m s . 3 9 With the l i f t i n g of the import r e s t r i c t i o n s i n i922, the 38 B a r t l e t t , Research-- a national, resource,. Vol. .11, I n d u s t r i a l research, p. 36. 39 Howe, H. E.» "Dye, synthetic - United States," Encyclopaedia B r i t t a n n i c a , 14th ed., 1940, Vol. 7, p. 807. dye industry was faced with severe competiton from foreign sources, but, despite t h i s , the industry had made great strides i n developing the quality and number of dyes at prices which have been steadily lowered. An instruments.! factor i n the a b i l i t y of the industry to compete with foreign countries has been the s c i e n t i f i c research carried on by the American firms. Realizing that the embargo on dyes was a wartime measure for a l i m i t e d period, the dye manufacturers established extensive • laboratories and encouraged the tr a i n i n g of suitable personnel through fellowships at educational i n s t i t u t i o n s . 4 ^ The pres-ence of competition after 1922 further stimulated the prosecu-t i o n of research. In 1934, 129 separately organized laborator-i e s , employing 1,350 t e c h n i c a l l y trained persons, were operated by an industry consisting of 43 firms producing more than 1,000 „ 41 types of dyes having a sales value of $64,613,000. Direct results of World War -I on research i n American i n -dustry may be summarized as follows: -( l ) Firms which entered the War with organized research f a c i l i t i e s or with a nucleus of trained s c i e n t i f i c s t a f f , not necessarily grouped under u n i f i e d d i r e c t i o n , consolidated and 'expanded t h e i r s c i e n t i f i c p o s i t i o n . Gains were made through the acquisition of more trained personnel, the i n f i l t r a t i o n of new ideas, knowledge, and s k i l l s , and a clearer comprehension of successful research methods. 40 Loc. c i t . 41 Loc, c i t . -64-(2) Some firms, which pr i o r to the war had not encouraged the s c i e n t i f i c approach, became convinced of the necessity of acquiring s c i e n t i f i c and engineering counsel. During h o s t i l i -t i e s i t was frequently necessary for the Government to assign trained personnel to a p a r t i c u l a r producer of essential mater-i a l i n order to increase production or to develop a new product from an established process. Such firms did not possess the technical st a f f to undertake such a development and the pres-ence of government st a f f demonstrated the p o s s i b i l i t i e s of applied technical knowledge. This condition would apply par-t i c u l a r l y to those firms i n the well established industries • based on techniques established from t r a d i t i o n a l methods. Two types of i n d u s t r i a l development linked with research a c t i v i t y emerged at the close of World War I.-. Some concerns, p a r t i c u l a r l y i n the chemical industry, were greatly oVerexpah-ded and required new markets to u t i l i z e the large capacity which had been developed to meet war demands. The firm's research s t a f f was employed to f i n d new uses for ex i s t i n g pro-ducts or for developing more e f f i c i e n t or different production processes. In this way, Du Pont was able to manufacture Cello-phane from' the constituents of nitro g l y c e r i n e , the Aluminum Company of America was able to enlarge the application of aluminum all o y s , and the Dow Chemical Company revolutionized the process of manufacturing phenol and undertook the produc-42 t i o n of phenol derivatives and byproducts. 42 B a r t l e t t , Besearch__-_ a. national resource, Vol.. II,. I n d u s t r i a l research, p. 4 3 . - 6 5 -In other cases, new industries were organized to further the development of inventions which had come to commercial f r u i t i o n during the war. A noted example of t h i s i s the radio. Through cross-licensing arrangements, V/estinghouse, General E l e c t r i c and the American Telephone and Telegraph embarked oh the commercial development of the radio during the early 1920's. CHAPTER IV. THE iffiVELOFCTT OP RESEARCH ACTIVITY BETWEEN 192Q AND 1940.. CHAPTER IV DEVELOPMENT OP RESEARCH ACTIVITY BETWEEN" 1920 and 1940. INTRODUCTION The n e c e s s i t y and importance of a s t r o n g r e s e a r c h group du r i n g a n a t i o n a l emergency e m p h a t i c a l l y impressed i t s e l f on the Government of the U n i t e d S t a t e s d u r i n g World War I . I t was keenly r e a l i z e d t h a t the presence of such a group w i t h i n the country would "be nec e s s a r y to match the t e c h n i c a l d e v e l -opments of an enemy power and to strengthen t h e i n d u s t r i a l e f f i c i e n c y of the n a t i o n . So t h a t the Government would always have an i n d i c a t i o n o f the s t r e n g t h of the s c i e n t i f i c p e r s onnel w i t h i n the n a t i o n , the N a t i o n a l Research C o u n c i l was a s s i g n e d to make p e r i o d i c surveys of t e c h n i c a l personnel engaged i n i n d u s t r i a l r e s e a r c h and development. As a r e s u l t of these surveys, the growth and development of r e s e a r c h a c t i v i t y i n American i n d u s t r y between 1920 and 1940 may be s t u d i e d . These surveys covered p r i n c i p a l l y manufacturing concerns which maintained l a b o r a t o r i e s , but a l s o i n c l u d e d c o n s u l t i n g and t e s t i n g l a b o r a t o r i e s and t r a d e a s s o c i a t i o n s which were en-gaged i n b a s i c and a p p l i e d r e s e a r c h f o r d i f f e r e n t i n d u s t r i e s . 1 L a b o r a t o r i e s s p e c i f i c a l l y concerned w i t h the r o u t i n e t e s t i n g -of raw m a t e r i a l s and products were not i n c l u d e d . However, the d i s t i n c t i o n between r e s e a r c h and non-research personnel was 1 P e r a z i c h , G. and Field,..P.M., I n d u s t r i a l r e s e a r c h and changing technology, P h i l a d e l p h i a , Wbrk P r o j e c t s A d m i n i s t r a t i o n , N a t i o n a l Research P r o j e c t , Report No. M-4, 1940, p. 2. -68-l e f t to the company answering the q u e s t i o n n a i r e . 2 In some cases t h i s c h o i c e r e s u l t e d i n the i n c l u s i o n of personnel engaged i n t e s t i n g and c o n t r o l , but such p e r s o n n e l are be-l i e v e d to r e p r e s e n t o n l y a sma l l p r o p o r t i o n of the t o t a l . C o - o p e r a t i o n on the surveys was s o l i c i t e d on a V o l u n t a r y b a s i s . In the twenty y e a r s between 1920 and 1940, seven surveys were undertaken. These surveys i n c l u d e d the g a t h e r i n g of I n f o r m a t i o n r e l a t i n g to the number of r e s e a r c h personnel em-p l o y e d by a f i r m , the s p e c i a l i z e d f i e l d s of t r a i n i n g and experience of the pe r s o n n e l , the names of the d i r e c t o r or oth e r o f f i c e r - i n - c h a r g e of r e s e a r c h , and a b r i e f account of the nature of the r e s e a r c h a c t i v i t y c a r r i e d out by the f i r m . Although the N a t i o n a l Research C o u n c i l made a thorough and systematic attempt to secure a l l i n d u s t r i a l l a b o r a t o r i e s i n each survey, c e r t a i n ommissions are r e c o g n i z e d . During t h e two surveys i n 1920 and 1921, i t i s estimated-that the -p e r s o n n e l coverage i s only 80^. 3 Increased experience assured t h a t p r a c t i c a l l y a l l important research organizations i n every i n d u s t r y were i n c l u d e d i n the surveys of 1927 and succeeding y e a r s . 4 For these y e a r s the coverage i s c o n s i d e r e d complete. I n t h i s connection, one exception should be noted. Some i n d u s t r i a l L a b o r a t o r i e s regarded t h e i r a c t i v i t i e s w i t h such secrecy t h a t no i n f o r m a t i o n was made a v a i l a b l e i n answer t o -t h e C o u n c i l ' s q u e s t i o n n a i r e . However, the importance of t h i s 2 I b i d . , p. 52-3. 3 I b i d . , p. 60. 4 I b i d . , p. 52. ommission became l e s s i n the 1930's, as companies came to r e a l -i z e the a d v e r t i s i n g value of r e s e a r c h and r e p o r t e d the i n f o r -mation d e s i r e d by the C o u n c i l . The s u c c e s s i v e surveys of the n a t i o n a l Research C o u n c i l and s t u d i e s by the Works P r o j e c t s A d m i n i s t r a t i o n , N a t i o n a l Research P r o j e c t , i n 1940 and the N a t i o n a l Resources P l a n n i n g Board i n 1940 have p r o v i d e d s t a t i s t i c s on the establishment of new l a b o r a t o r i e s , the growth of e x i s t i n g l a b o r a t o r i e s , and the t r e n d s i n the employment of s c i e n t i f i c p e r s o nnel i n i n d u s t r y . The f o l l o w i n g chapter i s devoted to an a n a l y s i s of these r e s u l t s w i t h an i n d i c a t i o n of the p e r t i n e n t economic f a c t o r s i n v o l v e d . * A A TRENDS IN RESEARCH EMPLOYMENT The data which have been i l l u s t r a t e d i n F i g u r e 4 r e v e a l s t h a t the number of l a b o r a t o r i e s has i n c r e a s e d . f r o m 265 i n 1920 5 to 2,350 i n 1940 6 or an o v e r a l l i n c r e a s e of 786,8^, and t h a t 7 s c i e n t i f i c p ersonnel have i n c r e a s e d from 7,367 i n 1920; to 70,033 i n 1940, 8 or an o v e r a l l i n c r e a s e of 850.6^, The g r e a t -e s t r e l a t i v e r i s e both i n terms of companies and personnel appeared between 1920 and 1927. T h i s i n c r e a s e i s p a r t i a l l y accounted f o r by the s u p e r i o r coverage of the 1927 survey and p a r t i a l l y by the entry of new l a b o r a t o r i e s . 5 I b i d . , p. 65. 8 Cooper, oi>. c i t . , p.165 6 Cooper, F. S., " L o c a t i o n and extent of i n d u s t r i a l research a c t i v i t y i n the U n i t e d S t a t e s , " Research - a n a t i o n a l resource* V o l . l i t I n d u s t r i a l r e s e a r c h , Washington, N a t i o n a l Resources P l a n n i n g Board, U n i t e d S t a t e s Government P r i n t i n g O f f i c e , 1940, p• 185, 7 P e r a z i c h and F i e l d , op. c i t . , p. 65. FIGURE 4. GROWTH IN NUMBER OF RESEARCH LABORATORIES AND EMPLOYMENT OF RESEARCH PERSONNEL IN AMERICAN INDUSTRY. 1920—1940. ** * Identic 575 com al sample p a n i e s . ^ Personnel Laboratories y • 70,000 50,000 30,000 20,000 09 10,000 g 7000 o CQ R 5000 4000 3000 2000 1920 1921 1927 1931 1933 1938 1940 Year Source; Perazich and Field, Industrial research and changing technology. Work Projects Administration, National Research Project, Philadelphia, 1940, Report No. M-4, Table A-3, p. 65. o o w CD to -70-Research a c t i v i t i e s i n an i n d u s t r i a l f i r m o f t e n commence on a p a r t - t i m e b a s i s , u n t i l management i s convinced of the v a l -ue to be d e r i v e d from the work. 9 T e c h n i c a l l y t r a i n e d personnel are i n i t i a l l y engaged f o r r o u t i n e analyses and p r o d u c t i o n con-t r o l . The i n v e s t i g a t i o n of t e c h n i c a l problems connected w i t h the processes or products i s a p a r t - t i m e occupation, secondary i n importance to the r o u t i n e d u t i e s . As the value of the experiments prove p r o f i t a b l e , the personnel -are a s s i g n e d to r e s e a r c h on a f u l l - t i m e b a s i s . In t h i s way, r e s e a r c h develops w i t h i n a f i r m whose management i s u n f a m i l i a r w i t h the f u n c t i o n and p o s s i b i l i t i e s of a r e s e a r c h department. In the 1920's, many i n d u s t r i e s were embarking on r e s e a r c h programs f o r the f i r s t time and expenditures f o r the a c t i v i t y would o n l y be continued and i n c r e a s e d i f f i n a n c i a l r e t u r n s were e v i d e n t . Evidence of the i n c r e a s e d awareness of the v a l u e of r e s e a r c h by management i s i n d i c a t e d i n Table 10 of the percentage d i s t r i b u t i o n of r e s e a r c h p e r s o n n e l by f u l l time and p a r t -time employment between 1921 and 1938.*^ 9 B a r t l e t t , Research - a n a t i o n a l r e s o u r c e , V o l . I I , I n d u s t r i a l r e s e a r c h , p. 25. 10 P e r a z i c h and F i e l d , I n d u s t r i a l r e s e a r c h and, changing technology, Appendix A, p. 65. -71-TABLE 10. PERCENTAGE DISTRIBUTION OP RESEARCH PERSONNEL BY FULL-TIME AND PART-TIME EMPLOYMENT, 1921 - 1938. Yea r F u l l - t i m e P a r t - t i m e 1921 73.6 26.4 1927 74.5 25.5 1931 87.9 12.1 1933 89.7 10.3 1938 97.4 2.6 Ta b l e 10 i n d i c a t e s t h a t w i t h the y e a r s , a l a r g e r propor-t i o n o f the personnel devoted f u l l - t i m e to r e s e a r c h , when t h i s f a c t o r i s taken i n t o c o n s i d e r a t i o n , the growth i n numbers of p e r s o n n e l i n F i g u r e 4 a c t u a l l y p r e s e n t s a more emphatic i n d i -c a t i o n o f the growth i n s c i e n t i f i c a c t i v i t y i n American indus-t r y than would f i r s t appear. As F i g u r e 4 i n d i c a t e s , the growth of r e s e a r c h was i n t e r * * r u p t e d . Between 1931 and 1933, 110 concerns d i s c o n t i n u e d organ-i z e d r e s e a r c h a c t i v i t y . Approximately one-quarter of the de-cre a s e o f 5,263 persons was due to the d i s c o n t i n u e d a c t i v i t i e s o f these 110 f i r m s . The survey r e v e a l s t h a t the r e s e a r c h ac-t i v i t i e s o f the s m a l l e r f i r m s were a f f e c t e d more s e v e r e l y than t h e l a r g e r concerns. Many of the sm a l l e r f i r m s had to abandon r e s e a r c h a l t o g e t h e r , w h i l e the l a r g e r concerns reduced s t a f f 11 and c u r t a i l e d a c t i v i t i e s to more important problems. The o v e r a l l growth of r e s e a r c h p e r s o n n e l s i n c e 1927 i s a t t r i b u t e d t n p a r t to the expansion i n s t a f f s o f e x i s t i n g com-panies and i n p a r t to an i n c r e a s e i n the number of new com-12 pa n i e s r e p o r t i n g r e s e a r c h p e r s o n n e l . The i n f l u e n c e o f the 11 I b i d . , p. 6. 12 I b i d . , p. 7. -72-former has been p a r t i a l l y i s o l a t e d by the N a t i o n a l Research C o u n c i l by t a b u l a t i n g the growth i n r e s e a r c h a c t i v i t y i n a sample of 575 i d e n t i c a l companies between 1927 and 1938. I n F i g u r e 4, the growth i n personnel of these 575 companies and a l l r e p o r t i n g companies i s a l s o compared. In t h i s p e r i o d , t o t a l i n d u s t r i a l l a b o r a t o r y p e r s onnel h a s . i n c r e a s e d by 133$, r e p r e s e n t i n g an annual r a t e of growth of 8.0 p e r c e n t . I n the same p e r i o d the personnel of 575 companies i n c r e a s e d approx-i m a t e l y 75 pe r c e n t which i s e q u i v a l e n t to an annual average r a t e of 5.2 p e r c e n t . "The d i f f e r e n c e may be a t t r i b u t e d to the o r g a n i z a t i o n and growth of new l a b o r a t o r i e s . 1 , 1 3 I t i s s i g n i f i c a n t to note a f t e r 1931 that- the l i n e s of growth are approximately p a r a l l e l . T h i s c o n d i t i o n would i n -d i c a t e the f o l l o w i n g : (a) The development of new l a b o r a t o r i e s was g r e a t e s t between 1927 and 1931. Research p e r s o n n e l i n a i l companies i n c r e a s e d by 72.9 percent, but i n the sample of 575 companies by onl y 44.7 p e r c e n t . The d i f f e r e n c e of 28.2 percent r e f l e c t s a d d i t i o n a l per-sonnel added by the establishment of new l a b o r a t o r -i e s . 1 4 (b) The p a r a l l e l d e c l i n e of the two l i n e s between 1927 and 1931 i n d i c a t e s t h a t the r a t e of decrease i n research 13 L o c . c i t . 14 Percentages d e r i v e d from Ta b l e I I I , Appendix, t h i s t h e s i s . -73-employment f o r a l l companies was equal to t h a t f o r the i d e n t i c a l sample. However, i n 1931, the i d e h t i * c a l sample r e p r e s e n t e d 37.8 per c e n t of a l l companies and accounted f o r 68 per c e n t of a l l r e s e a r c h person-n e l . In 1933, the same sample r e p r e s e n t e d 39.3 per-cent of a l l companies and accounted f o r 69.8 per c e n t o f a l l p e r s o n n e l ; Of the t o t a l d e c l i n e of 5,263 per-sonnel between 1931 and 1933, 3,067 or 58.6 percent was accounted f o r by the 575 i d e n t i c a l companies. T h e r e f o r e , 41.4 percent o f the decrease i n r e s e a r c h personnel was accounted f o r by the f i r m s excluded from the i d e n t i c a l sample, or 60.7 percent of a l l f i r m s i n 1 9 3 3 . 1 5 The companies i n the i d e n t i c a l sample experienced a h e a v i e r l o s s i n r e s e a r c h - p e r -sonnel, r e l a t i v e l y and a b s o l u t e l y , than the other f i r m s , but the i n d e x o f the s e r i o u s n e s s o f the l o s e i s more s h a r p l y determined by comparing the f o l l o w -i n g r a t i o s ) ( i ) D e c l i n e i n personnel i n the sample Average number of pe r s o n n e l accounted f o r by sample ( i i ) D e c l i n e i n personnel i n the remaining companies Average number of personnel acdounted f o r by remaining companies 15 P e r a z i c h a n d P i e l d , I n d u s t r i a l r e s e a r c h and changing  technology, p. 65. A l s o , v. n. 14. In both cases the average i s computed by dividing the aggregate number of personnel i n 1931 and 1933 to$f two. The two r a t i0 8 reveal that the sample of 575 companies had lost 14.8 percent of i t s personnel compared to a loss of 23.1 percent for the remain-ing companies. This result confirms a previous statement that companies with well-established research f a c i l i t i e s suffered re la t ive ly less severe-l y than firms with small research staffs or firms 16 which had just i n i t i a t ed research, (c) The divergence of the l ines between 1933 and 1938 - indicates that the rate of growth i n research per-sonnel resulting from new laboratories and those excluded from the ident ical sample was greater than the rate of increase i n personnel i n the 575 com-panies. Between 1933 and 1938 the increase i n re-search employment i n the sample was 39.9 percent and i n those companies not inoluded i n the sample 108.6 percent. However, 46.6 percent of the to ta l increase was accounted for by the 575 companies. Despite this increase the 575 companies accounted for 60.8 percent of a l l personnel i n 1938 as compared to 69.8 percent i n 1933. 1 7 16 cf . n . 11, p. 71. 17 Perazich and F i e l d , op. c i t . , p . 65. -75-One c r i t i c i s m of F i g u r e 4 should be noted. T h e - i n f r e -quent surveys of the N a t i o n a l Research C o u n c i l have prevented the a c q u i s i t i o n of data f o r the i n t e r m e d i a t e y e a r s . I t should be borne i n mind t h a t the number of r e s e a r c h personnel employed by i n d u s t r y between 1927 and 1938 may have been markedly g r e a t -e r i n 1928, 1929, and 1930 than i n 1931 and very much lower i n 1932 or 1934 than i n d i c a t e d i n 1933. Thus the r e a l f l u c t u a -t i o n i n r e s e a r c h employment cannot be a p p r e c i a t e d from these c h a r t s . N e v e r t h e l e s s , the diagrams p r o v i d e a s i g n i f i c a n t i n -d i c a t i o n of the approximate trends of r e s e a r c h employment dur-i n g t h i s p e r i o d . SIZE OF LABORATORY • A f a c t o r of economic s i g n i f i c a n c e i n the development of i n d u s t r i a l r e s e a r c h i n the U n i t e d S t a t e s has been the number o f l a r g e s c a l e l a b o r a t o r i e s . T h i s f a c t o r i s c l e a r l y i l l u s t r a -t e d i n the f o l l o w i n g frequency d i s t r i b u t i o n of r e s e a r c h person-n e l and companies by s i z e of s t a f f f o r the y e a r s 1921, 1927, and 1 9 3 8 . 1 8 TABLE 11. DISTRIBUTION OF COMPANIES AND PERSONNEL BY SIZE OF RESEARCH STAFF FOR 1921, 1927 AND 1938. Number of 1921 . 1927 1938 persons Comp- Person- Comp- Person- Comp- Person-on s t a f f a n i e s n e l anies n e l anies n e l 1 - 1 0 356 1,709 657 3,252 1,104 5,691 11 - 25 66 997 176 2,792 392 6,361 26 - 50 25 892 49 1,720 106 3,570 51 - 100 6 370 25 1,707 66 4,598 101 - 500 7 1,689 15 3,164 42 9,628 5 0 1 — 2 3,693 4 6,347 12 14,444 T o t a l s 462 9,350 926 18,982 1,722 44,292 18 I b i d . , p. 66. FIGURE 5. DISTRIBUTION OF PERSONNEL BY SIZE OF RESEARCH STAFF. 1 9 2 1 — 1 9 3 8 . F i g u r e 5 i n s e m i - l o g a r i t h m i c s c a l e p o r t r a y s t h e r e l a t i v e g r o w t h f o r each o f t h e s e c l a s s i n t e r v a l s . The l a r g e r s i z e l a b o r a t o r i e s have shown a g r e a t e r i n c r e a s e i n employment t h a n t h e s m a l l e r s i z e l a b o r a t o r i e s . I n o t h e r w o r d s , t h e g r e a t e r p a r t o f t h e e x p a n s i o n i n r e s e a r c h employment i n A m e r i c a n i n -d u s t r y ha s o c c u r r e d i n t h e l a b o r a t o r i e s a l r e a d y e s t a b l i s h e d — p a r t i c u l a r l y t h o s e l a b o r a t o r i e s w i t h more t h a n f i f t y members. TABLE 1 2 . DISTRIBUTION OF INCREASE I N RESEARCH PERSONNEL BETWEEN 1927 AND 1938 C L A S S I F I E D BY S I Z E OF S T A F F . 1 8 a Number o f p e r s o n s on 1927 1938 A . L a r g e s c a l e l a b o r -a t o r i e s (more t h a n 50 members) B. S m a l l s c a l e l a b o r -a t o r i e s ( l e s s t h a n 50 members) 7 ,764 T o t a l s 1 8 , 9 8 2 P e r c e n t a g e i n c r e a s e a c c o u n t e d by A . P e r c e n t a g e i n c r e a s e a c c o u n t e d by B . T o t a l 1 1 , 2 1 8 2 8 , 6 7 0 1 5 , 6 2 2 4 4 , 2 9 2 I n c r e a s e s t a f f 1 - 10 3 , 2 5 2 5 ,691 2 , 4 3 9 11 - 25 2 , 792 6 ,361 3, 569 26 - 50 1 ,720 3 ,570 1 ,850 51 - 100 1 ,707 4 , 5 9 8 2 , 8 9 1 101 - 500 3 ,164 9 , 6 2 8 6, 464 501 - 6 ,347 1 4 , 4 4 4 8 ,097 T o t a l s 1 8 , 9 8 2 4 4 , 2 9 2 2 5 , 310 1 7 , 4 5 2 7 , 8 5 8 2 5 , 3 1 0 6 8 . 5 ^ 100.( I n a c o m p a r i s o n o f d a t a be tween t h e y e a r s 1927 and 1938 , (v. T a b l e 12) t h e l a r g e scale l a b o r a t o r i e s - - t h o s e w i t h more 1 8 a D e r i v e d f r o m T a b l e 1 1 , p . 7 5 , t h i s t h e s i s . -77-than f i f t y members — have accounted f o r 68.5 percent o f the o v e r a l l i n c r e a s e i n r e s e a r c h employment f o r a l l l a b o r a t o r i e s . From t h i s , i t may be deduced that the i n c r e a s e i n r e s e a r c h employment has not been p r i m a r i l y due to the establishment of new l a b o r a t o r i e s , but r a t h e r to the expansion o f estab-l i s h e d l a b o r a t o r i e s a l r e a d y p o s s e s s i n g s t a f f o f a p p r e c i a b l e s i z e . ^ T h i s c o n c l u s i o n may a l s o be confirmed from an a n a l y s i s o f the frequency d i s t r i b u t i o n of companies c l a s s i f i e d by s i z e of s t a f f . I n 1921', 15 companies had a s t a f f of more than f i f t y members and i n 1938, 120 companies had a s t a f f g r e a t e r than f i f t y members. T h i s r e p r e s e n t s an e i g h t f o l d growth as con-t r a s t e d to the t h r e e f o l d expansion f o r those companies possess-i n g l e s s t han eleven persons on t h e i r s t a f f s . 2 0 CONCENTRATION OF RESEARCH TABLE 13. PERCENTAGE DISTRIBUTION OF COMPANIES AND PERSONNEL BY SIZE, OF RESEARCH-STAFF FOR THE YEARS 1921, 1927, AND 1 9 3 8 2 1 Number o f 1921 1927 "1938 persons on Comp- Person- Comp- Person- Comp» Person-s t a f f a n ies n e l a nies n e l a n i es n e l 1 - 1 0 77.05 18.3 70.95 17.1 64.11 12.8 11 - 25 14.29 10.7 19.01 14.7 22.77 14.3 26 - 50 5.41 9.6 5.29 9.1 6.15 8.1 51 - 100 1.30 3.8 2.70 8.9 3.83 10.4 101 - 500 1.52 18.1 l'i.42 16.7 2.44 21.7 501 - .43 39.5 .43 33.5 .70 32.7 100.00 100.0 100.00 100.0 100.00 100.0 19 I b i d . , p. 8. 20 Loc. c i t . 21 Table 13 i s computed from T a b l e 11. -78-In Table 13, the percentage o f companies and pe r s o n n e l to the t o t a l number of companies and personnel r e s p e c t i v e l y has been g i v e n f o r each s i z e group. Prom t h i s t a b l e , i t can be seen t h a t the l a b o r a t o r i e s of l e s s than 11 members accounted f o r 18.3 per c e n t of the r e s e a r c h personnel i n 1921, and onl y 12.8 percent of the personnel i n 1938. On the oth e r hand, l a b -- o r a t o r i e s w i t h more than f i f t y p ersonnel accounted f o r 61.4 percent of a l l personnel i n 1921 and 64.8 percent of a l l per-sonnel i n 1938. The f o r e g o i n g a n a l y s i s would i n d i c a t e t h a t r e s e a r c h i s c e n t r a l i z e d i n r e l a t i v e l y few companies which are ab l e to m a i n t a i n l a r g e s t a f f s . Table 13 shows t h a t t h i s development has p e r s i s t e d throughout the p e r i o d , 1921 to 1938. F u r t h e r * more, T a b l e 13 r e v e a l s t h a t i n 1938, 6.97 per c e n t of the com-panies c o n t r o l l e d 64.8 percent o f the country's r e s e a r c h per-sonnel j a l l of these being i n l a b o r a t o r i e s of more than f i f t y members. To put i t another way, 93.03 percent of the compan-i e s r e p o r t i n g i n the survey possessed o n l y 3o.2 percent o f the p e r s o n n e l ; a l l "being employed i n l a b o r a t o r i e s of l e s s than f i f t y members. Of f u r t h e r s i g n i f i c a n c e i s the f a c t t h a t companies w i t h more than 500 members r e p r e s e n t l e s s than one percent of the sample i n a l l t h r e e surveys, and y e t , these companies employed between 32 and 39.5 percent of the t o t a l r e s e a r c h p e r s o n n e l i n the U n i t e d S t a t e s . : The Work P r o j e c t s A d m i n i s t r a t i o n has a l s o p i c t u r e d t h i s c o n c e n t r a t i o n of r e s e a r c h a c t i v i t y through a comparison of la« -79-b o r a t o r i e s w i t h the l a r g e s t , i n t e r m e d i a t e and s m a l l e s t s t a f f s i n the years 1921, 1927 and 1938. "The t h i r t e e n companies ". ..Vi c o n t r o l the s e r v i c e s of o n e - t h i r d of the i n d u s t r i a l cor-p o r a t i o n s . . . and t h e i r t o t a l employment i s only about a t e n t h of the wage earners engaged i n manufacturing a l o n e . " 2 2 TABLE 14. NUMBER OF COMPANIES ACCOUNTING FOR EACH THIRD OF INDUSTRIAL RESEARCH EMPLOYMENT, BY RELATIVE SIZE OF STAFF, 1921, 1927, AND 1 9 3 8 . 2 3 R e l a t i v e "1921 1927 1928 s i z e Cbmp« Employ- Comp- Employ- Comp- Employ-of s t a f f anies ment anies ment anies ment Large • 1 3,117 4 6,327 13 14,764 Medium 25 3,117 79 6,327 127 14,764 Small 436 3,117 843 6,327 l y 5 8 3 14,764 T o t a l 462 9,350 926 18,982 1,722 44,292 I t w i l l be r e c a l l e d t h a t d u r i n g the l a t t e r p a r t of the n i n e t e e n t h and e a r l y y e a r s of the t w e n t i e t h c e n t u r i e s s m a l l u n i t s combined to form l a r g e c o r p o r a t i o n s to achieve economies i n p r o d u c t i o n , t r a n s p o r t a t i o n , and d i s t r i b u t i o n . B e n e f i t t i n g from the experience of the r e s e a r c h c a r r i e d on by the i n d i v i d -u a l f i r m s b e f o r e combination, these new c o r p o r a t i o n s w i t h t h e i r accumulated f i n a n c i a l r e s o u r c e s were the f i r s t to e s t a b l i s h o r g a n i z e d r e s e a r c h programmes. These circumstances account f o r the e a r l y c o n c e n t r a t i o n of r e s e a r c h . T h i s c o n c e n t r a t i o n has been maintained through a c o n t i n u a l i n c r e a s e i n the s i z e of the i n i t i a l r e s e a r c h groups. 24 22 P e r a z i c h and F i e l d , I n d u s t r i a l r e s e a r c h and changing technology, p. 10. 23 I b i d . , p. 9. 24 I b i d . , p. 11. 70 60 50 40 20 10 2,? 10,000 100,000 1,000,000 10,000,000 TANGIBLE NET WORTH IN DOLLARS OF INDIVIDUAL CORPORATE UNITS FIGURE 6. FREQUENCY POLYGON OF CORPORATE UNITS USING RESEARCH BY TANGIBLE NET WORTH 100,000,000 1,000,000,000 Source: Cooper, F.S., "Location and extent of industrial research a c t i v i t y i n the United States," Research-a-national resource. Vol. I I . , Industrial research, National Resources Planning Board, Washington, 1940, p. 182. 4,000 3,000 2,000 r-i © a 03 j? 1,000 o co © co © « 2,000 10,000 100,000 1,000,000 TANGIBLE NET WORTH IN DOLLARS OF INDIVIDUAL CORPORATE UNITS .10,000,000 100,000,000 Source: FIGURE 7. NUMBER OF RESEARCH WORKERS EMPLOYED BY CORPORATE UNITS OF INCREASING NET WORTH Cooper, F. S., "Location and extent of industrial research ac t i v i t y i n the United States," Research—a national resource. Vol. I I . , Industrial research. National Resources Planning Board, Washington, 1940, p. I 8 3 . The survey of the N a t i o n a l Resources P l a n n i n g Board of 1940 has p r o v i d e d an i n d i c a t i o n of the c o n c e n t r a t i o n of r e s e a r c h ac-t i v i t y i n those c o r p o r a t i o n s w i t h l a r g e f i n a n c i a l r e s o u r c e s . 2 5 F i g u r e 7 i s a frequency polygon of c o r p o r a t e u n i t s engaged i n r e s e a r c h a c c o r d i n g to the t a n g i b l e net worth of the c o r p o r a t i o n , and F i g u r e 8 i l l u s t r a t e s the number of r e s e a r c h workers em-p l o y e d by c o r p o r a t i o n s of v a r y i n g net worth. Owing to the wide range i n the data on net worth, the " F i g u r e s were drawn on s e m i - l o g a r i t h m i c paper. Even so, the pronounced n e g a t i v e skew-ness of the polygons i s i n d i c a t i v e of the c o n c e n t r a t i o n of r e s e a r c h a c t i v i t y i n those f i r m s w i t h l a r g e net worth. I t w i l l be noted t h a t the b u l k of f i r m s sponsoring r e s e a r c h have a t a n g i b l e net w o r t h 2 6 between $50,000 and #25,000,000; below and above the lower and upper l i m i t s r e s p e c t i v e l y , the number of companies sponsoring r e s e a r c h drops s h a r p l y . On the other hand, the b u l k of r e s e a r c h personnel i s employed by those companies w i t h a net worth over $10,000,000. "The small con-t r i b u t i o n to t o t a l r e s e a r c h employment made by the small and 27 middle s i z e d c o r p o r a t i o n s i s immediately apparent." 25 Cooper, F. S., " L o c a t i o n and extent of i n d u s t r i a l r e -search a c t i v i t y i n the U n i t e d S t a t e s , " Research - a n a t i o n a l r e s o u r c e , V o l . I I , I n d u s t r i a l r e s e a r c h , 1940, pp. 182-3. 26 T a n g i b l e net worth r a t i n g s were d e r i v e d from balance sheet data g i v e n i n Moody's I n d u s t r i a l s (1939) and equals net worth ( r e s e r v e s excluded) l e s s i n t a n g i b l e a s s e t s ( p a t e n t s , g o o d w i l l , e t c . ) . (v. Cooper, " L o c a t i o n . . . r e s e a r c h a c t i v i t y , " n. 19, p. 180). 27 Cooper, op. c i t . , p. 182 -81-The study of the N a t i o n a l Resources P l a n n i n g Board a l s o i n d i c a t e d t h a t the average s i z e o f r e s e a r c h s t a f f i n c r e a s e d w i t h the s i z e of the corpor a t e u n i t . However, i n a study of the chemical i n d u s t r y , i t was a l s o determined t h a t the aver-age s i z e of s t a f f v a r i e d widely f o r d i f f e r e n t f i r m s of the same net w o r t h . 2 8 T h i s f a c t would i n d i c a t e t h a t the r e s e a r c h a c t i v i t y of the f i r m as measured i n terms of i t s employment i n s c i e n t i f i c p e r s o n n e l , depended l a r g e l y on the p o l i c y of man-agement i n sponsoring r e s e a r c h . C o n s i d e r a t i o n s such as com-p e t i t i v e c o s t s and c o m p e t i t i v e markets would "be powerful i n -f l u e n c e s on r e s e a r c h a c t i v i t y which would not be brought out by the net worth of the f i r m s . However, although the c o r r e l -a t i o n between net worth and average number o f r e s e a r c h work-ers was not pronounced, a g e n e r a l upward t r e n d i n both the average s i z e o f s t a f f and the amount of net worth d i d e x i s t . TABLE 15. AVERAGE NUMBER OP RESEARCH WORKERS EMPLOYED BY CORPORATIONS OF A SPECIFIED NET WORTH 2 9 T a n g i b l e net worth of Average number of r e s e a r c h c o r p o r a t i o n ( d o l l a r s ) workers per c o r p o r a t e u n i t 1,000 10,000 7.0 100,000 8.0 1,000,000 13.0 10,000,000 38.0 100,000,000 170.0 1,000,000,000 1,250.0 28 I b i d . , pp. 182-5. 29 I b i d . , p. 186. O b v i o u s l y , the t a n g i b l e net worth d a t a are o n l y i n d i c a t i v e trends p o r t r a y i n g i n c r e a s e i n the f i n a n c i a l s t r e n g h t of the f i r m s , and i s not complete enough f o r a s t a t i s t i c a l a n a l y s i s . -82-GROWTH OF RESEARCH IN PARTICULAR INDUSTRIES The establishment of o r g a n i z e d r e s e a r c h l a b o r a t o r i e s d i d n o t proceed at a u n i f o r m pace throughout a l l i n d u s t r i e s i n the U n i t e d S t a t e s between 1920 and 1940. B e f o r e World War I, i n -d u s t r i e s such as the e l e c t r i c a l equipment, communications, and chemicals had l a r g e , w e l l - e s t a b l i s h e d l a b o r a t o r i e s . On the other hand, others l i k e the petroleum and r a d i o manufacturing i n d u s t r i e s w i t h a s m a l l r e s e a r c h s t a f f , commenced to expand t h e i r r e s e a r c h f a c i l i t i e s a f t e r 1918. These developments have been s u b s t a n t i a t e d by s t u d i e s on r e s e a r c h employment by i n d u s t r i a l c l a s s i f i c a t i o n made by the Works P r o j e c t Adminis-t r a t i o n i n 1940. The trends i n r e s e a r c h employment i n i n d u s t r i a l chemicals, motor v e h i c l e s , x r a d i o , petroleum, e l e c t r i c a l machinery and apparatus, communications, rubber products, s t e e l p roducts, and t e x t i l e s have been p l o t t e d i n F i g u r e 8 on a s e m i - l o g a r i t h -mic s c a l e f o r the y e a r s 1920 to 1938. F i g u r e 8 c l e a r l y r e -v e a l s the non-uniform i n c r e a s e s i n r e s e a r c h employment among d i f f e r e n t i n d u s t r i e s . The r a d i o i n d u s t r y , w h i c h f i r s t r e p o r t e d o r g a n i z e d r e s e a r c h i n 1927, has the g r e a t e s t r e l a t i v e i n c r e a s e o f 1600 percent between 1927 and 1938. T h i s i n c r e a s e i n r e -s e a r c h employment should be q u a l i f i e d . T a b l e V, i n the Appen-d i x , i m p l i e s o r g a n i z e d r e s e a r c h d i d not commence i n the indus-t r y u n t i 1927 when f i v e companies r e p o r t e d s i x t y - s i x workers. A c t u a l l y , the Westinghouse Company, the General E l e c t r i c Company, and the B e l l Telephone Company had been c a r r y i n g on r a d i o r e s e a r c h s i n c e World War I and r e s e a r c h employment f i g -FIGURE 8. : TRENDS IN THE EMPLOYMENT OF RESEARCH PERSONNEL BY SELECTED INDUSTRIES. 1920—1938. 1 9 2 0 1 9 2 1 1 9 2 7 „ 1 9 3 1 1 9 3 3 1 9 3 8 Y e a r Source: Perazich and F i e l d , Industrial research and changing technology. Work Projects Administration, National Research Council, Report No. M - 4 , Table A - 1 7 , p. 7 7 . -83-u r e s i n the c l a s s i f i c a t i o n s o f e l e c t r i c a l equipment and commun-i c a t i o n s c o n t a i n an unknown p o r t i o n of per s o n n e l employed on 29' r a d i o r e s e a r c h . A sharp i n c r e a s e i n r e s e a r c h p e r s o n n e l i n the i n d u s t r y c o u l d t h e r e f o r e be expected, although perhaps, not to the extent i n d i c a t e d by the percentage i n c r e a s e s c a l c u l a t e d . Between 1927 and 1938 the petroleum i n d u s t r y had the sec- -ond l a r g e s t i n c r e a s e i n r e s e a r c h employment; namely, 538.7 per-c e n t . The s m a l l e s t i n c r e a s e s i n employment o c c u r r e d i n commun-i c a t i o n s , e l e c t r i c a l equipment, and p u b l i c u t i l i t i e s . The per-centage i n c r e a s e i n the employment of r e s e a r c h p e r s o n n e l by s p e c i f i c i n d u s t r i e s between 1927 and 1938 i s g i v e n i n Tabl e IV i n the Appendix. The r a t e of i n c r e a s e o f employment i n r e s e a r c h p e r s o n n e l i n the i n d u s t r i e s must a l s o be examined i n r e l a t i o n to the r e l a t i v e importance o f the i n d u s t r y to a l l the others as an employer of r e s e a r c h p e r s o n n e l . The percentage o f a l l r e s e a r c h p e r s o n n e l employed by a p a r t i c u l a r i n d u s t r y i s o n l y a v a i l a b l e f o r a l l i n d u s t r i a l c l a s s i f i c a t i o n s i n the ye a r s 1927 and 1938. The same da t a f o r a few i n d u s t r i e s are a v a i l a b l e f o r a l l sur-veys between 1920 and 1938. Table V: i n the Appendix i n d i c a t e s the r e l a t i v e importance of a l l i n d u s t r i a l c l a s s i f i c a t i o n s i n the years 1927 and 1938, and of e l e v e a i n d u s t r i a l c l a s s i f i c a -t i o n s f o r each of the s i x surveys between 1920 and 1938. The e l e c t r i c a l i n d u s t r y was the g r e a t e s t employer of r e -se a r c h personnel d u r i n g the two decades, although t h i s - p o s i t i o n was c h a l l e n g e d by other i n d u s t r i e s i n 1938. The i n d u s t r y accounted f o r 34.4 percent of a l l employees i n 1927 and 21.0 29* Glover and C o r n e l l , ed., The development of American  I n d u s t r i e s , New York, P r e n t i c e - H a l l , 1932, pp. 769—778. -84-30 p e r c e n t i n 1938. The i n d u s t r i a l chemical s e c t i o n a ccounting f o r 21.5 percent of the t o t a l p e r s o nnel i n 1938 was another 30' employer of a l a r g e segment of s c i e n t i f i c p e r s o n n e l . The i n -d u s t r i a l chemical and e l e c t r i c a l i n d u s t r i e s combined, employed between 53.7 percent i n 1920 and 40.3 p e r c e n t i n 1938 of r e -s e a r c h workers i n the U n i t e d S t a t e s . More s i g n i f i c a n t , however, was the s u b s t a n t i a l i n c r e a s e 31 o f 175.5 percent i n the employment of r e s e a r c h personnel i n the i n d u s t r i a l chemical and a l l i e d products s e c t i o n between 1927 and 1938 as c o n t r a s t e d w i t h an i n c r e a s e of 42.7 percent f o r the e l e c t r i c a l i n d u s t r y . T h i s i n c r e a s e i n the chemical i n d u s t r y r e p r e s e n t e d 24 percent and that i n the e l e c t r i c a l i n d u s t r y 11 percent of the t o t a l i n c r e a s e of 25,310 r e s e a r c h 32 workers between 1927 and 1938. Chemical I n d u s t r y Reasons f o r the continued development o f r e s e a r c h a c t i v i t y i n the chemical i n d u s t r y are c l e a r . The sudden shortage of chemicals and d y e - s t u f f s caused by the c e s s a t i o n of f o r e i g n imports d u r i n g World War I r e s u l t e d i n the expansion o f e x i s t -i n g chemical concerns and the establishment of new f i r m s . Fa-voured by a government embargo on the imports of f o r e i g n chem-i c a l s u n t i l 1922, these f i r m s were able to continue o p e r a t i o n s a f t e r the War. With the r e t u r n to peace time c o n d i t i o n s , i t was necessary to reduce c o s t s , to improve products, and to 30 v. Table VI, Appendix, t h i s t h e s i s . 30' L o c . c i t . 31 v. T a b l e IV, Appendix, t h i s t h e s i s . 32 Computed from T a b l e IV, Appendix, t h i s t h e s i s . -85-u t i l i z e overexpanded f a c i l i t i e s which had been developed for war time needs. These factors, combined with a high degree of substitutability between different types of chemical pro-ducts, promoted the employment of research personnel by the industry and the endowment of fellowships in educational in-stitutions to ensure a flow of scientists trained in chemical technology. During the past two decades the research efforts of the chemical industry have been directed toward f u l l e r u t i l i z a t i o n of a l l raw materials entering into the process and the devel-opment of new products. Through the employment of catalysts and different conditions of temperature,and pressure, reac-tions may be speeded up and yields increased with resulting reductions in processing costs. Through the use of special-ized equipment and control apparatus which w i l l insure highly automatic and continuous operations, additional reductions in cost have been achieved. 5 3 End products and waste materials i n a chemical process have been potential starting points for the development of new products which may have new applica-tions or represent a cheaper and better substitute for exist-ing materials. The constant pressure to reduce processing costs and the high degree of substitutability in chemical products are the powerful economic motives stimulating research in this indus-33 Perazich and Field, Industrial research and changing  technology, pp. 29-31. -86-t r y . The t e c h n i c a l complexity of the i n d u s t r y r e q u i r e s t h a t a chemical f i r m employ the s e r v i c e s of h i g h l y - t r a i n e d s c i e n -t i s t s to i n s u r e that the investment of the f i r m s i s not sudden-l y l o s t to a c o m p e t i t o r . 3 4 The p o t e n t i a l t h r e a t to substan-t i a l c a p i t a l investments has r e s u l t e d i n chemical f i r m s enter-i n g i n t o p r i c e agreements and forming c a r t e l s . New products a r e commercially developed o n l y a f t e r the i m p l i c a t i o n s of i t s development on other m a t e r i a l s and e x i s t i n g investments have been f u l l y c o n s i d e r e d . Petroleum I n d u s t r y The petroleum and rubber products i n d u s t r i e s accounted f o r 10 percent of a l l r e s e a r c h personnel i n 1927 and 16.5 p e r c e n t i n 1938. T h i s i n c r e a s e meant t h a t between 1927 and 1938 the employment i n r e s e a r c h personnel i n c r e a s e d by 538.7 perc e n t i n the petroleum i n d u s t r y and 101.8 percent i n the rubber i n d u s t r y . Of the t o t a l i n c r e a s e of 25,310 r e s e a r c h workers between 1927 and 1938, the o i l i n d u s t r y accounted f o r 4,245 or 16.8 percent and the rubber i n d u s t r y f o r 1,135 35 or 4.& p e r c e n t . The expansion of r e s e a r c h a c t i v i t y i n the petroleum and rubber i n d u s t r i e s i s d e f i n i t e l y l i n k e d w i t h the expansion and demands of the automobile i n d u s t r y . Research i n the p e t r o -leum i n d u s t r y has been concerned "with the development and 34 Kreps, T. J.» " J o i n t c o s t s i n the chemical industry,'» Q u a r t e r l y J o u r n a l of Economics, v o l . 44, pp. 416-61, May, 193&. 35 v. Table IV, Appendix, t h i s t h e s i s . -87-commercial a p p l i c a t i o n of the c r a c k i n g p r o c e s s " and "the development of the p o l y m e r i z a t i o n and hydrogenation processes*'* The c r a c k i n g technique has i n c r e a s e d g a s o l i n e y i e l d s from crude petroleum from 10 percent i n 1904 to 44 p e r c e n t - i n 1937, 3 6 and i n 1938 has r e s u l t e d i n u s i n g 51.59 percent l e s s crude o i l than would have been r e q u i r e d without the c r a c k i n g t e c h -n i q u e s . 3 7 The p o l y m e r i z a t i o n p r o c e s s , which r e c l a i m s gaso-l i n e from p r e v i o u s l y wasted r e f i n e r y gases, w i l l e v e n t u a l l y • r e a l i z e a p o t e n t i a l p r o d u c t i o n of n i n e b i l l i o n g a l l o n s 3 " of g a s o l i n e a y e a r or 39.7 p e r c e n t - o f a l l g a s o l i n e s o l d i n the U n i t e d S t a t e s i n 1 9 3 8 , 3 9 Research i n petroleum has a l s o been d i r e c t e d toward improving the q u a l i t y of motor f u e l s and t h e u t i l i z a t i o n of a l l end p r o d u c t s . Through the u t i l i z a t i o n of petroleum d e r i v a t i v e s , o i l companies have advanced from r e f i n i n g o p e r a t i o n s to the manufacture of i n d u s t r i a l chemi-c a l s , l u b r i c a n t s , a s p h a l t and p h a r m a c e u t i c a l s . Rubber I n d u s t r y As the automobile i n d u s t r y expanded, the rubber i n d u s t r y expanded i t s r e s e a r c h f a c i l i t i e s to develop more r a p i d methods o f manufacturing t i r e s and to c r e a t e l o n g e r s e r v i c e t i r e s . Important c o n t r i b u t i o n s i n both d i r e c t i o n s have been made. 36 P e r a z i c h and F i e l d , I n d u s t r i a l r e s e a r c h and changing; technology, p. 31 . - -37 Fanning, L . M., "Petroleum," E n c y c l o p a e d i a Britfo&nnica, 14th ed., 1940, v o l . 17, Table X I I I , p. 669b. 38 P e r a z i c h and F i e l d , op. c i t . , p. 31 39 Motor f u e l s a l e s i n the U n i t e d S t a t e s i n 1938 were 22,909,594,000 g a l l o n s , v., Fanning, op. c i t . , p. 668. -88-Labour p r o d u c t i v i t y - i n t i r e manufacture has i n c r e a s e d by 290 p e r c e n t between 1921 and 1 9 3 6 , 4 0 and the average number of m i l e s to be obtained from a t i r e has i n c r e a s e d from 3,500 miles i n 1914 to 20,000 m i l e s i n 1 9 3 3 . 4 1 In r e c e n t years the a t t e n t i o n of the i n d u s t r y has been d i r e c t e d to hew a p p l i c a -t i o n s f o r rubber and the p r o d u c t i o n of s y n t h e t i c rubber l i k e p r o d u c t s . Other I n d u s t r i e s T a b l e I V , i n the Appendix, a l s o r e v e a l s t h a t the motor v e h i c l e , ; a g r i c u l t u r a l equipment, f o o d products, and i r o n and s t e e l i n d u s t r i e s i n c r e a s e d t h e i r employment of r e s e a r c h personnel by 190.2 percent, 184.7 percent, 255.1 percent and 189.4 percent r e s p e c t i v e l y and at the same time accounted f o r a l a r g e r percentage of the t o t a l personnel employed. Each of these i n d u s t r i e s alone accounted f o r more than 4.0 p e r c e n t o f the t o t a l i n c r e a s e i n r e s e a r c h employment which o c c u r r e d between 1927 and 1938. In the aggregate, these f o u r indus-t r i e s accounted f o r 17.7 p e r c e n t of the t o t a l i n c r e a s e i n r e s e a r c h employment. Other i n d u s t r i e s such as the t e x t i l e s , f o r e s t products, stone, c l a y , and g l a s s products, and non-ferroUs metals a l s o showed i n c r e a s e s i n r e s e a r c h employment but these i n -creases d i d not m a t e r i a l l y change the r e l a t i v e p o s i t i o n of the i n d u s t r y as an employer of p e r s o n n e l . The i n c r e a s e s i n 40 P e r a z i c h and F i e l d , op. c i t . , pp. 33-4, 41 I b i d . , p. 34. -89-employment f o r these i n d u s t r i e s i n the aggregate accounted f o r 7.1 percent of the t o t a l i n c r e a s e . C o n s u l t i n g and t e s t i n g l a b o r a t o r i e s In both 1927 and 1938, 6.0 percent of the t o t a l p e r s o n n e l were employed by c o n s u l t i n g and t e s t i n g l a b o r a t o r i e s , which c a r r i e d out r e s e a r c h f o r the f i r m s unable to support indepen-dent r e s e a r c h f a c i l i t i e s . Between 1927 and 1938 the i n c r e a s e I n personnel employed was 127.0 p e r c e n t which Was e q u i v a l e n t t o 5.8 percent of the e n t i r e i n c r e a s e of 25,310 workers. T h i s i n c r e a s e was due to the expansion of the v a r i o u s t e s t i n g l a -b o r a t o r i e s and the M e l l o n I n s t i t u t e at P i t t s b u r g h coupled w i t h t h e establishment of two independent r e s e a r c h o r g a n i z a t i o n s , t h e B a t t e l l e Memorial I n s t i t u t e at Columbus, Ohio, i n 1929, and the Armour Research Foundation i n Chicago, I l l i n o i s i n 1 9 3 6 . 4 2 The f o r e g o i n g a n a l y s i s of the data on r e s e a r c h employ-ment i n d i c a t e s t h a t d i f f e r e n t i n d u s t r i e s were i n d i f f e r e n t phases of r e s e a r c h a c t i v i t y during the two decades between 1920 and 1938. F i r s t , the e l e c t r i c a l equipment, communica-t i o n s , and p u b l i c u t i l i t i e s had h i g h l y o r g a n i z e d r e s e a r c h f a c i l i t i e s even b e f o r e 1920. During the next twenty y e a r s , i n c r e a s e s were made to the r e s e a r c h s t a f f s of these l a b o r a -t o r i e s but the r e l a t i v e i n c r e a s e was very s m a l l . These i n -d u s t r i e s had reached a h i g h s c i e n t i f i c l e v e l and were p r i -42 B a t t e l l e Memorial I n s t i t u t e , Research i n A c t i o n , p. 2; and Annual Report (1948) Armour Research Foundation, p . 22. -90-m a r i l y concerned w i t h m a i n t a i n i n g t h i s dominant p o s i t i o n . Secondly, the chemical, petroleum, and automobile i n d u s t r i e s were i n the process of r a p i d l y o r g a n i z i n g and expanding t h e i r r e s e a r c h f a c i l i t i e s between 1920 and 1940. Almost 41.0 per-cent of the e n t i r e i n c r e a s e i n r e s e a r c h p e r s o n n e l d u r i n g t h i s p e r i o d was accounted f o r by chemical and petroleum i n d u s t r i e s * Furthermore, both the chemical and petroleum i n d u s t r i e s accounted f o r 33.9 percent of a l l r e s e a r c h personnel i n 1938 as^compared to 22.5 per c e n t i n 1927. In 1938 the chemical and petroleum i n d u s t r i e s had surpassed the e l e c t r i c a l i ndus-t r y as the l a r g e s t employers of s c i e n t i f i c personnel} i n 1938, the e l e c t r i c a l i n d u s t r y employed 21.0 percent of a l l p e r s o n n e l as compared to 34.4 percent i n 1927. At the c l o s e o f World War I, the chemical, petroleum and automobile i n -d u s t r i e s had a n u c l e u s . o f a r e s e a r c h s t a f f and were i n a p o s i t i o n - to promote o r g a n i z e d r e s e a r c h programmes. New f i e l d s i n chemical p r o d u c t s , f a v o u r a b l e government l e g i s l a -t i o n , and the r a p i d expansion of automotive d r i v i n g Were the economic f a c t o r s which c o n t r i b u t e d to the sudden s c i e n t i f i c development i n : these i n d u s t r i e s d u r i n g t h i s p e r i o d . T h i r d l y , the food, stone, c l a y , and g l a s s , a g r i c u l t u r a l implements, and i r o n and s t e e l . i n d u s t r i e s and the c o n s u l t i n g and t e s t i n g l a b o r a t o r i e s experienced an a p p r e c i a b l e i n c r e a s e i n r e s e a r c h employment and accounted f o r 21.9 per c e n t of the 43 t o t a l i n c r e a s e between 1927 and 1938. These i n d u s t r i e s com-menced o r g a n i z e d r e s e a r c h a c t i v i t y i n the l a t e 1920's or i n the e a r l y 1930 fs. 43 P e r a z i c h and F i e l d , op. c i t . , p. 20. -91-ANALYSIS OF INCREASES IN RESEARCH EMPLOYMENT Table VI i n the Appendix p r o v i d e s a breakdown of the t o t a l i n c r e a s e s i n r e s e a r c h employment f o r each i n d u s t r y between 1927 and 1938 under the headings: (a) i n c r e a s e due to new f i r m s r e p o r t i n g f o r the f i r s t time i n 1938 (b) i n c r e a s e due to i d e n t i c a l companies i n the sample of 575 f i r m s and (c) i n c r e a s e due to remaining companies which were not i n -cluded i n sample or which entered the i n d u s t r y between 1927 and 1933. In the o v e r a l l p i c t u r e , i t i s c l e a r l y evident t h a t the major expansion i n r e s e a r c h employment o c c u r r e d i n the f i r m s w i t h e s t a b l i s h e d r e s e a r c h f a c i l i t i e s . Of the t o t a l i n c r e a s e o f 25,301 persons between 1927 and 1938, 11,517 or 45.5 p e r c e n t of the t o t a l were a t t r i b u t a b l e to the sample of 575 companies, 16.4 percent to companies r e p o r t i n g f o r the f i r s t time, and the balance of 32.1 percent to the remaining com-pa n i e s . The extent to which the sample of 575 companies i s r e p r e s e n t a t i v e of the Whole p o p u l a t i o n of r e p o r t i n g companies t i s i n d i c a t e d by the f a c t t h a t i n 1927 the sample accounted f o r 81.3 percent of the t o t a l r e s e a r c h personnel and i n 1936, 60.8 . 44 p e r c e n t . i n the f o l l o w i n g i n d u s t r i e s oVer f i f t y percent of the growth i n r e s e a r c h employment w i t h i n the i n d u s t r y Was due to : the i d e n t i c a l companies r e p o r t i n g i n 1927 and 1938: 44 I b i d . , p. 63. -92-I n d u s t r y Percentage of i n c r e a s e i n i n d u s t r y due to i d e n t i c a l compahies P o r e s t products 61.9 Chemicals and a l l i e d products 61.2 Rubber products 70.7/ Nonferrous metals 69.6 A g r i c u l t u r a l implements 91.6 E l e c t r i c a l machinery, apparatus, 62.2 and s u p p l i e s . . E l e c t r i c a l communication 56,0 P u b l i c u t i l i t i e s 82.4 The f a c t that i n many i n d u s t r i e s over f i f t y percent of the i n c r e a s e i n r e s e a r c h employment has been due to i d e n t i -c a l companies i n both 1927 and 1938 would i n d i c a t e t h a t w i t h i n each i n d u s t r y r e s e a r c h Was concentrated i n a few l a r g e c o r p o r a t i o n s . The f o l l o w i n g t a b l e from the r e p o r t o f t h e Work P r o j e c t s A d m i n i s t r a t i o n of the N a t i o n a l Research P r o j e c t s u b s t a n t i a t e s t h i s vieW. 4^ TABLE 16. PERCENTAGE OP ^WORKERS: EMPLOYED BY 25 PERCENT OP COMPANIES IN SELECTED • • • INDUSTRIES, 1938. i n d u s t r y Research Employees "Number Percent ' B l a s t . f u r n a c e , s t e e l works and r o l l i n g m i l l s 462 59.3 E l e c t r i c a l machinery and s u p p l i e s 2,459 82.2 I n d u s t r i a l chemicals 4,632 88.3 Motor v e h i c l e s 1,737 89.0 Petroleum " - . 4,275 85.0 Radio apparatus 924 82.8 Rubber products 2,022 90.0 T e x t i l es 209 56.9 U t i l i t i e s 785 78.5 A l l i n d u s t r i e s 36,215 81.8 45 I b i d . , p. 10. The f o r e g o i n g t a b l e i n d i c a t e s that i n the e l e c t r i c a l machinery, apparatus, a n d . s u p p l i e s ; i n d u s t r i a l chemicals; motor V e h i c l e s ; petroleum; r a d i o apparatus; rubber p r o d u c t s ; and u t i l i t i e s , t w e n t y - f i v e percent of the companies employ between 78.5 and 90.0 percent of the p e r s o n n e l . With the e x c e p t i o n of the r a d i o i n d u s t r y , over f i f t y p e rcent of the growth i n r e s e a r c h employment between 1927 and 1938 o c c u r r e d i n i d e n t i c a l companies from these same i n d u s t r i e s * The r a d i o i n d u s t r y a c t u a l l y stemmed from f i r m s in- the e l e c t r i c a l group which h e l d the b a s i c p a t e n t s . T h i s f a c t e x p l a i n s the early c o n c e n t r a t i o n of r e s e a r c h i n the r a d i o i h d u s t y * The major percentage i n c r e a s e s i n the employment of r e s e a r c h personnel due to new companies e n t e r i n g an i n d u s t r y were c e n t r e d i n the t e x t i l e s , machinery, "other t r a n s p o r t a t i o n " i n d u s t r i e s , and i n the c o n s u l t i n g l a b o r a t o r i e s and t r a d e a s s o c i a t i o n s . ^ 6 The l a t t e r development would be expected s i n c e f i r m s without the f i n a n c i a l r e s o u r c e s to e s t a b l i s h independent f a c i l i t i e s would have o u t s i d e o r g a n i z a t i o n s pro-v i d e the r e s e a r c h s e r v i c e . The d i s t r i b u t i o n of r e s e a r c h personnel i n companies r e -p o r t i n g f o r the f i r s t time i n 1938 i s g i v e n i n T a b l e 1*7 which i n d i c a t e s t h a t the chemical i n d u s t r y was r e s p o n s i b l e f o r over one-quarter of a l l personnel employed by new f i r m s . ^ 7 46 v. T a b l e VI, Appendix, t h i s t h e s i s . 47 P e r a z i c h and P i e l d , op. c i t . , p. 74. -94-Following i n clojie^pJLace are the consulting* and testing labor- A atories and machinery manufacturers. This table confirms the rapid development i n research ac t iv i t i e s i n the chemical i n -dustry and consulting laboratories. TABLE 17. DISTRIBUTION OF RESEARCH PERSONNEL OP COMPANIES REPORTING POR THE PIRST TIME IN 1938, BY INDUSTRIAL-GROUPS. Industrial group Number of Employees companies Number Percent Pood and kindred products 21 181 4.4 Textiles and their products 13 107 2.6 Forest products 4 16 0.4 Paper and a l l i e d products 9 117 2.8 Chemicals and a l l i e d products 124 1,067 25.8 Petroleum and i t s products 13 161 3.9 Rubber products 4 21 0.5 Leather and i t s manufactures 3 7 0.2 Stone, Clay, and glass products 24 160 3.9 Iron and steel and their prod- 1.2 ucts, not including machinery 6 50 Nonferrous metals and their products 9 91 2.2 Agricul tural implements ( in- 0.0 cluding tractors) 0 0 E l e c t r i c a l machinery, appara-2.7 tus, and supplies 11 113 Radio apparatus and phono- 3.3 graphs 6 135 A l l other machinery 32 389 9.3 Motor vehicles, bodies, and parts 2 7 0.2 A l l other transportation e- 0.4 quipment 1 18 E l e c t r i c a l communication 0 0 0.0 U t i l i t i e s (gas, light* and power) 1 • 5 0.1 Consulting and testing labor-atories 121 947 22.9 Trade associations 12 197 4.'? Miscellaneous 47 351 8.5 Total 463 4,140 100.0 Source: Perazich and F ie ld , Industrial research and chang-ing technology, p. 74. -95-EXPENDITURES ON RESEARCH The expenditures on r e s e a r c h which have been made by i n d u s t r y s i n c e 1920 are d i f f i c u l t to e v a l u a t e s i n c e none of t h e surveys of the N a t i o n a l Research C o u n c i l o b t a i n e d t h i s i n f o r m a t i o n . However, some- attempts have been "made at d i f f -e r e n t times to estimate i n d u s t r i a l expenditures on r e s e a r c h * A survey of 58 f i r m s i n 1932 by H o l l a n d and Sprarageh r e v e a l e d t h a t the average expenditure per r e s e a r c h Worker f o r the f i r m s surveyed Was $3,500. 4 8 These 58 companies employed approximately 3,400 r e s e a r c h Workers or approximately e l e v e n percent of the t o t a l r e s e a r c h personnel employed at t h a t time. In 1937, another survey of 31 companies Was c a r -r i e d out under the a u s p i c e s - o f the N a t i o n a l Resources P l a n n i n g B o a r d . 4 ^ T h i s survey r e p o r t e d an aggregate expenditure of $38,400,969 and the employment of 10,113 p e r s o n n e l . On t h i s b a s i s , an average of $3,797 was expended f o r each r e s e a r c h worker employed. T h i s survey Which accounted f o r almost 23 p e r c e n t of a l l r e s e a r c h Workers at t h a t time a l s o i n d i c a t e d t h e average expenditures per r e s e a r c h Worker v a r i e d appre-c i a b l y r a nging from $2,000 to over $9,000 i n the small Sample which was taken. The survey sample Was too s'malL to a r r i v e at 48 H o l l a n d , M. and Spraragen, W., Research ,in, hard, times, 1933, N a t i o n a l Research C o u n c i l , c i t e d i n P e r a z i c h and F i e l d , I n d u s t r i a l r e s e a r c h and changj,nP t e ^ " " 1 r'g v* P* 14. 49 Sherman, J . V., "Research as a growth f a c t o r i n i n -d u s t r y , Research - a n a t i o n a l r e s o u r c e , Vol.. I I , I n d u s t r i a l r e s e a r c h , 1940, Washington, N a t i o n a l Resources P l a n n i n g Board, pp. 120-3. -96-any d e f i n i t e c o n c l u s i o n s r e g a r d i n g the v a r i a t i o n i n r e s e a r c h expenditures by d i f f e r e n t i n d u s t r i a l groups. Although no d e f i n i t e r e l a t i o n e x i s t e d between the s i z e of the f i r m a n d .the average expenditure per r e s e a r c h Worker, the tendency e x i s t e d f o r l a r g e r average expenditures i n the eases Of the 5 0 s m a l l e r companies. -In 1937, a d e t a i l e d survey of the i r o n and s t e e l ihdUs- ^ t r y by the I r o n and S t e e l i n s t i t u t e 5 1 i n d i c a t e d t h a t $10,000,600 was spent on r e s e a r c h and t h a t '£.,550 s c i e n t i s t s were employed f u l l time and 1,300 others on a p a r t - t i m e b a s i s . Oh t h i s b a s i s $3,922 was being spent f o r each f u l l time Worker; but i f the p a r t - t i m e a s s i s t a n c e Was a l s o c o n s i d e r e d , the average e x p e n d i t u r e Was equal to $3,125 f o r each Worker* As a r e s u l t of these surveys and bh the b a s i s of Con-s i d e r e d o p i n i o n , the N a t i o n a l Resources P l a n n i n g Board e s t i -mated t h a t the average expenditure f o r a l l r e s e a r c h workers i n American i n d u s t r y d u r i n g 1938 Was approximately $4,000» T h i s - f i g u r e has a l s o been confirmed by the I n d u s t r i a l Research I n s t i t u t e , Which i s a f f i l i a t e d w i t h the N a t i o n a l Research C o u n c i l of the U n i t e d S t a t e s * 5 3 However, t h i s average i s 50 I b i d ; , p. 122. : 51 Sfecc, p. T.» "Research i n the i r o n and s t e e l i n d u s t r y , " R e s e a r c h - a n a t i o n a l r e s o u r c e , V o l . I I , I n d u s t r i a l r e s e a r c h , 1940, Washington, N a t i o n a l Resources P l a n n i n g Board, p. 164. 52 Sherman, "Research as a growth f a c t o r i n i n d u s t r y , " op. c i t . , p. 122. 53 I n d u s t r i a l Research I n s t i t u t e , 0 rg.ahi z at i o n p f. t e c h -n i c a l r e s e a r c h i n i n d u s t r y , A monograph, 1945, p. 11. -97- -merely i n d i c a t i v e of average expenditures f o r a l l r e s e a r c h workers and the V a r i a t i o n i n expenditures between i n d u s t r i e s i s a p p r e c i a b l e . The o v e r a l l p i c t u r e of r e s e a r c h expenditures by indus-t r y i n the U n i t e d S t a t e s was r e c e n t l y p u b l i s h e d w i t h the r e s -e r v a t i o n t h a t " s i n c e the s t a t i s t i c a l i n f o r m a t i o n i s necessar-i l y fragmentary and dependent upon a r b i t r a r y d e f i n i t i o n s , most of the estimates were s u b j e c t to a c o n s i d e r a b l e margin of e r r o r . T h e i n d u s t r i a l expenditures on s c i e n t i f i c ^ r e -s earch between 1920 and 1940 have been g i v e n i n Table 18, and i t w i l l be noted t h a t the f i g u r e s f o r 1920, 1921, 1927, ... 1931, 1933, and 1938 correspond almost e x a c t l y w i t h the f i g -u r e s o b t a i n e d by u s i n g the average expenditure of $4,000 and the data on t o t a l r e s e a r c h employment 'reported by the N a t i o n a l Research C o u n c i l f o r those y e a r s . T h i s t a b l e t h e r e f o r e i n v o l v e s t h r e e assumptions; namely, t h a t the aver-age expenditure f o r a r e s e a r c h worker remained constant OVer the twenty y e a r i n t e r v a l ; t h a t the average expenditure f o r a r e s e a r c h worker was i d e n t i c a l i n a l l i n d u s t r i e s ; and t h a t the v a l u e of the d o l l a r d i d not change w i t h i n the p e r i o d . A l l assumptions are untenable, of course, but the t a b l e i s i n -c l u d e d as the data are i n d i c a t i v e of the t r e n d i n i n d u s t r i a l r e s e a r c h expenditures d u r i n g t h i s p e r i o d . 54 Bush, V.» Science, the endless f r o n t i e r , 1945, Washington, U n i t e d S t a t e s Government P r i n t i n g O f f i c e , p. 79. -98-TABLE 18. RESEARCH EXPENDITURES BY AMERICAN INDUSTRY. 1920—1940. YEAR EXPENDITURE 1920 #29,468,000 1921 37,400,000 1922 44,000,000 1923 50,000,000 1924 58,000,000 1925 64,000,000 1926 70,000,000 1927 75,928,000 1928 88,000,000 1929 106,000,000 1930 116,560,000 1931 132,560,000 1932 120,990,000 1933 111,008,000 1934 125,540,000 1935 138,470,000 1936 154,530,000 1937 163,580,000 1938 181,248,000 1939 205,000,000 1940 240,110,000 Source: Bush, V., Science. The endless frontier. United States Government Printing Office, 1945, Table I., p. 8 0 . -99-RESEARCH EXPENDITURES AND RELATION TO VALUE ADDED BY MANUFAC-• TURE - ~: - The "value added by manufacture" t h a t i s , the Value o f products l e s s cost of m a t e r i a l s , c o n t a i n e r s , f u e l , pur-chased e l e c t r i c a l energy, and c o n t r a c t work -- has' been de-termined by government a u t h o r i t i e s f o r v a r i o u s manufacturing i n d u s t r i e s . 5 5 T h i s v a l u e i s the increment c r e a t e d by the man-u f a c t u r i n g o p e r a t i o n s and i n d i c a t e s the importance of the manufacturing process i n the p r o d u c t i o n of the commodities* I n c e r t a i n i n d u s t r i e s , where the manufacturing processes are h i g h l y developed, the r a t i o of the value added to manufacture t o cost of m a t e r i a l s tends to be g r e a t e r than i n i n d u s t r i e s where the manufacturing processes are not so h i g h l y developed. Column I , i n Tabl e 19, i n d i c a t e s the marked v a r i a t i o n i n t h i s r a t i o among d i f f e r e n t i n d u s t r i e s . I n d u s t r i e s which have h i g h l y developed manufacturing pro-cesses would tend to support a h i g h degree o f r e s e a r c h a c t i v - -i t y i n order to reduce c o s t s and to i n c r e a s e revenue. The r a t i o o f r e s e a r c h expenditures to "value added by manufactur e" would tend to be.higher i n those i n d u s t r i e s than i n those l e s s t e c h n o l o g i c a l l y advanced. In Table 19, the r a t i o o f r e s e a r c h expenditures per $100 added by manufacture has been computed i n column I I . With a few exceptions, h i g h r a t i o s i n column I tend to be a s s o c i a t e d w i t h h i g h r a t i o s i n column I I . ... N o t i c e a b l e exceptions are i n t e x t i l e s , f o r e s t p r o d u c t s , and l e a t h e r i n d u s t r i e s and to a i e s s e r degree i n the i r o n and 55 U n i t e d S t a t e s , S t a t i s t i c a l A b s t r a c t s , 1946, p. 815. -100-s t e e l i n d u s t r y . The t e x t i l e s , f o r e s t products, and l e a t h e r goods i n d u s t r i e s employ l a r g e q u a n t i t i e s of u n s k i l l e d and s e m i - s k i l l e d l a b o u r to c a r r y out a v a r i e t y of tasks on a p i e c e -work b a s i s . P r o d u c t i o n methods have been w e l l - e s t a b l i s h e d and mechanization of the processes i n v o l v e d has not m a t e r i a l l y changed s i n c e the I n d u s t r i a l R e v o l u t i o n f o r the t e x t i l e i n -5 5 * d u s t r y and 1850 f o r the l e a t h e r i n d u s t r y . These i n d u s t r i e s have descended d i r e c t l y from the an c i e n t h a n d i c r a f t s and have been concerned w i t h f i l l i n g two of the b a s i c wants of man, c l o t h i n g and hous i n g . The end products of these i n d u s t r i e s do not i n v o l v e a t r a n s f o r m a t i o n or a chemical change i n the b a s i c raw m a t e r i a l although they do i n v o l v e treatment and change i n p h y s i c a l form of the raw m a t e r i a l . . For these reasons, a h i g h degree of t e c h n o l o g i c a l - s k i l l has not been e v i d e n t i n these i n d u s t r i e s . In these i n d u s t r i e s , however, 1 s i n c e the raw product has changed so much i n the pro c e s s , the v a l u e of the end product i s many times g r e a t e r than the raw m a t e r i a l . As i n d u s t r i e s , p r o v i d i n g l e s s h i g h l y manufactured pro-ducts, d i v e r s i f i y p r o d u c t i o n to manufacture products c o n t a i n -i n g a g r e a t e r p r o p o r t i o n of Value added by manufacture or enter i n t o the manufacture of hew products from the raw ma-t e r i a l , the r a t i o of r e s e a r c h expenditures to added Value tends to i n c r e a s e * An i n d i c a t i o n of t h i s i s evident i n the i r o n and s t e e l i n d u s t r y , which i n 1937 Was spending f o r t y - • e i g h t ' p e r c e n t of i t s r e s e a r c h funds oh the development of new 55? Glover and C o r n e l l , ed., The development of American i n d u s t r i e s , New York, P r e n t i c e - H a l l , 1932, pp. 195-219 and pp. 247-268. -101-TABLE 19. RATIO OF VALUE ADDED BY MANUFACTURE AND COST OF MANUFACTURE AND RESEARCH EXPENDITURES PERCENT • VALUE ADDED BY MANUFACTURE Manu f a c t u r i n g i n d u s t r i e s I 5 6 1 1 ^ (percent) (percent) Food and k i n d r e d products 42.53 0*19 T e x t i l e s and k i n d r e d products 72.08 0.05 F o r e s t products 106.38 0.07 Paper and a l l i e d products 71.10 0.39 Chemicals and a l l i e d products 91.45 2.40 Petroleum and i t s products 95.47 1.10 Rubber products 71.71 2.73 L e a t h e r and i t s manufacture 65.82 0.06 Stone, c l a y , and g l a s s products 165.42 0.7l I r o n and s t e e l products, (not i n c l u d i n g machinery) 74.27 0.20 Nonferrous metals and products 43.73 0.63 A g r i c u l t u r a l implements ( i n c l . t r a c t o r s ) 97.29 2.83 E l e c t r i c a l machinery, apparatus, and s u p p l i e s 138.15 1.67 A l l other machinery 148.38 0.45 Motor v e h i c l e s , bodies and p a r t s 42.55 0.55 I -- Value added by manufacture as percentage cost of m a t e r i a l s . I I — Research expenditures as percentage of Value added by manufacture 56 Column* I c a l c u l a t e d from U n i t e d S t a t e s , S t a t i s t i c a l a b s t r a c t s , 1946, Table 932, pp. 815-42. 57 Column I I c a l c u l a t e d from "estimated r e s e a r c h expen-d i t u r e s " i n Sherman, Research - a n a t i o n a l r e s o u r c e , p. 122, and "value added by manufacture" i n St at i s t i cal. abs t r a c t s, 1946, Table 932, pp. 815-42. -102-p r o d u c t s , new uses, and m a r k e t s , 5 8 as compared wi t h 26.5 per-cent i n 1931. " In 1927, the estimated expenditure of the i r o n and s t e e l i n d u s t r y on r e s e a r c h Was $1,000,000 and'the v a l u e added by manufacture f o r t h a t year was $1,219,534,000. 6 0 The r e s e a r c h expenditure per $100 added by manufacture was t h e r e f o r e $.08 i n 1927 as compared-to $.20 f o r 193*7. In the p e r i o d from 1927 onwards, the American s t e e l i n d u s t r y commenced the manufacture of a l l o y s t e e l s p o s s e s s i n g p h y s i c a l p r o p e r t i e s f o r d e f i n i t e a p p l i c a t i o n s . S c i e n t i f i c c o n t r o l to m a i n t a i n the q u a l i t y of p r o d u c t i o n i n a l l stages was a l s o i n s t i t u t e d i n t h i s p e r i o d and p r o d u c t i o n c o s t s were reduced. A l l of these developments were m a n i f e s t a t i o n s of the i n t e n s i v e r e s e a r c h programme i n i t i a t e d by the s t e e l i n d u s t r y a f t e r 1927. RESEARCH EXPENDITURES AND RELATION TO-SALES AND CAPITALIZATION A report- based oh a sample c o n t a i n i n g e i g h t percent of the known, i n d u s t r i a l r e s e a r c h l a b o r a t o r i e s - i n the U n i t e d S t a t e s i n 1940 i n d i c a t e d that the median expenditure of the r e p o r t i n g companies f o r i n d u s t r i a l r e s e a r c h was two' percent of gross ...-s a l e s . 6 2 The percentage Was h i g h e s t i n the chemical and a l l i e d 58 S i s c o , P. T.» "Research i n the i r o n and s t e e l i n d u s t r y , " Research - a n a t i o n a l resource, V o l . I I , I n d u s t r i a l r e s e a r c h * 1940, Washington, N a t i o n a l Resources P l a n n i n g Board, p.,164. 59 P e r a z i c h and P i e l d , I n d u s t r i a l r e s e a r c h and changing technology, Table B - l , p. 80 60 U n i t e d S t a t e s , S t a t i s t i c a l a b s t r a c t s , 1931, p. 831 61 S i s c o , Research;...steel- i n d u s t r y , pp. 108-9. 62 Compton," K. T., " I n d u s t r i a l r e s e a r c h e x p e n d i t u r e s , " R e s e a r c h - a n a t i o n a l resource, V o l . II,..,Indu,8.t£lajL.\.re6 eajr.eji, 1940, Washington, N a t i o n a l Resources P l a n n i n g Board, p. 124. -103-p r o d u c t s i n d u s t r y , a r e s u l t which would c o n f i r m p r e v i o u s f i n d i n g s on r e s e a r c h r e l a t i n g to t h i s i n d u s t r y * Oh the other hand, the petroleum and rubber products i n d u s t r i e s , both noted f o r i n t e n s i v e r e s e a r c h , r e p o r t e d "median expenditures of l e s s than one percent gross s a l e s . T h i s f i n d i n g i s understandable c o n s i d e r i n g " t h e h i g h degree of cor-porate c o n c e n t r a t i o n i n both these i n d u s t r i e s . S i n c e - a small number of f i r m s possess the major share of the a v a i l a b l e mar-ket f o r petroleum and rubber products, a Very small percen-tage of s a l e s w i l l mean t h a t a l a r g e amount i s spent oh r e -s e a r c h by a-few f i r m s . Although the chemical i n d u s t r y has f i r m s of l a r g e c a p i t a l i z a t i o n , the i n d u s t r y a l s o i n c l u d e s many f i r m s w i t h s m a l l e r c a p i t a l investments, Which manufac-t u r e a v a r i e t y of s p e c i a l t y p r o d u c t s . As has been explained* the f i r m s w i t h s p e c i a l t y products based oh complex t e c h n i c a l processes r e q u i r e s c i e n t i f i c s e r v i c e s i n order to e x i s t i n a h i g h l y c o m p e t i t i v e market. In another study, i t Was noted t h a t a tendency e x i s t e d " f o r some companies whose s a l e s and net income are comparatively low to m a i n t a i n a s m a l l l a b o r a -t o r y r e g a r d l e s s of the volume of the b u s i n e s s . T h i s almost c e r t a i n l y does not r e p r e s e n t the average case- f o r companies o f r e s t r i c t e d s a l e s and income. However, i t i s of i n t e r e s t t h a t i n the e x c e p t i o n a l cases where r e s e a r c h i s supported at a l l , the average l a b o r a t o r y s t a f f remains approximately Con-stant at e i g h t to t e n workers, and i t s s i z e i s independent of s a l e s or income." 6 3 63 Cooper, " l o c a t i o n and e x t e n t . . . r e s e a r c h a c t i v i t y i n t h e U n i t e d S t a t e s , " Research - a n a t i o n a l r e s o u r c e . . . . p. 185. -104-The a n a l y s i s of expenditures on r e s e a r c h a c c o r d i n g to c a p i t a l i z a t i o n and i n d u s t r i a l g r o u p i n g - i s g i v e n i n T a b l e s 20 and 21. These data do not l e n d themselves to broad g e n e r a l i z a t i o n s . However, wit h the e x c e p t i o n of the rubber and petroleum i n d u s t r i e s , the r e l a t i o n of expenditures to types of i n d u s t r i e s i s i n accord w i t h the l e v e l of r e s e a r c h a c t i v i t y r e p o r t e d f o r the v a r i o u s i n d u s t r i e s . The d i f f e r e n c e i n the p a r t i c u l a r case has been e x p l a i n e d by the h i g h l e V e l o f c o r p o r a t e c o n c e n t r a t i o n W i t h i n these i n d u s t r i e s . Furthermore, the r e l a t i o n of r e s e a r c h expenditures to c a p i t a l i z a t i o n i s to be expected, on the b a s i s of ah average expenditure of $4,000 f o r each r e s e a r c h Worker, a s t a f f of e i g h t or ten p r e v i o u s l y r e p o r t e d Would r e q u i r e a minimum ex-p e n d i t u r e of $32,000 to $40,000 a n n u a l l y f o r the Small coin* p a n y . 6 4 Firms of lower c a p i t a l i z a t i o n would tend to have a lower volume of s a l e s than firms' of h i g h e r c a p i t a l i z a t i o n * T h e r e f o r e , i n order to have s u f f i c i e n t funds f o r r e s e a r c h , a h i g h e r percentage of s a l e s would be r e q u i r e d . I t i s noted, however, that the range of percentages of gross s a l e s remain f a i r l y constant i n both the lower and h i g h e r c a p i t a l i z a t i o n , groups. T h i s would i n d i c a t e t h a t the a c t u a l percentage of gross s a l e s devoted to r e s e a r c h i s determined by a f i r m not so much on i t s c a p i t a l Value but more on the needs of the f i r m i n having r e s e a r c h groups to lower c o s t s and produce new commodities. 64 v. n. 63. -105-TABLE 20. EXPENDITURES ON INDUSTRIAL RESEARCH ASAA PERCENTAGE OF GROSS SALES: BY CAPITALIZATION. CAPITALIZATION Number of Median Companies Range expenditure dollars i percent 20,000 - 75,000 4 1 - 8 5.0 100,000 - 500,000 27 1 - 1 3 2.5 500,000 - 1,000,000 17 1 - 7 2.5 1,000,000 - 2,000,000 a 1 - 1 1 2.0 2,000,000 - 5,000,000 15 1 - 1 2 1.5 5,000,000 - 10,000,000 10 1 - 4 1.0 10,000,000 - 50,000,000 22 1 - 5 1.0 50,000,000 -100,000,000 8 1 - 9 1.0 Over 100,000,000 7 1 - 6 1.0 TABLE 21. EXPENDITURES ON INDUSTRIAL RESEARCH AS A PERCENTAGE OF GROSS SALES: BY INDUSTRIAL CLASSIFICATION INDUSTRY Number of Median Companies Range expenditure percent Chemicals and a l l i e d products 28 1 - 13 3 - 4 Miscellaneous industries 10 1 - 6 3 Machinery, not including transportation 47 1 - 12 2 Transportation, a i r , land, and water 14 1 - 11 2 Forest products 1 2 2 Paper and a l l i e d products e 1 - 6 1 Printing and publishing 3 1 - 2 1.3 S t o n e c l a y and glass products 20 1 - 5 1.5 Iron and steel and products 26 1 - 5 1 Nonferrous metals and products 5 1 - 6 1 Food and kindred products 6 1 - 3 0.5 Textiles and products 7 1 - 5 0.5 Petroleum and coal 3 1 - 2 0 . 5 Rubber products 2 1 - 2 0.875 Leather and i t s manufacture '1 o.. 3 0.3 Source: Both Tables 20 and 21, Compton, K.T., "Industrial Research Expenditures," Research—A national resource. Vol. I I . , Indus- t r i a l Research. National Resources Planning Board, Washington, 1940, pp. 124-125. CHAPTER V. TECHNOLOGICAL DEVELOPMENTS AND CAPITAL FORMATION. CHAPTER V TECHNOLOGICAL DEVELOPMENTS AND CAPITAL FORMATION TRENDS- IN CAPITAL FORMATION AND PRODUCTIVITY The p r e v i o u s chapters have p r o v i d e d an i n d i c a t i o n of the development and c o n c e n t r a t i o n of- s c i e n t i f i c r e s e a r c h i n v a r i o u s "branches of American i n d u s t r y . The a p p l i c a t i o n of t h e r e s e a r c h f i n d i n g s has i n t u r n brought about changes i n i n d u s t r i a l techniques, m o d i f i c a t i o n s i n e x i s t i n g products, and the i n t r o d u c t i o n of new commodities. These changes i n e i t h e r processes or commodities u s u a l l y demand new items of equip-ment and imply some measure of c a p i t a l f o r m a t i o n . The extent of the o u t l a y i n v o l v e d depends upon the nature of the change, the c h a r a c t e r o f the equipment, and the s c a l e of the change* 1 A number of s t a t i s t i c a l s t u d i e s have been made oh the growth of c a p i t a l equipment i n American i n d u s t r y ahd as a r e -s u l t of these studies, i n d i c e s on the p h y s i c a l volume of pro-d u c t i o n , the c o n c e n t r a t i o n of c a p i t a l , and the p r o d u c t i v i t y o f l a b o u r have been determined. One of the f i r s t of these stud-• i e s was concerned w i t h a comparison of the growth i n equip-ment f o r d i f f e r e n t i n d u s t r i a l c l a s s i f i c a t i o n s -- a g r i c u l t u r e , manufacturing, mining, and e l e c t r i c a l power. T h i s study a l -so r e v e a l e d the growing aaount of equipment used per employee. 1 Weintraub, D., " E f f e c t s of c u r r e n t and p r o s p e c t i v e • t e c h n o l o g i c a l developments upon c a p i t a l f o r m a t i o n , " 1940, Works Progress A d m i n i s t r a t i o n , N a t i o n Research Pro.j ebt, Report no. G-4, p. 1. 2 Daugherty, C.R., "An i n d e x of the i n s t a l l a t i o n of machinery i n the U n i t e d S t a t e s s i n c e 1850," Harvard Business-Review, v o l . 6, pp. 278-92, A p r i l , 1928. -108-In F i g u r e s 9 and 10 some of the i n c r e a s i n g trends i n the use of c a p i t a l equipment have been i n d i c a t e d i n terms of horse-power used. In an exhaustive t r e a t i s e , P r o f e s s o r F. C. M i l l s has a l s o determined the economic tendencies which developed and pre-v a i l e d i n the U n i t e d S t a t e s between 1900 and 1929. In t h i s study the t h i r t y y e a r i n t e r v a l has been d i v i d e d i n t o three p e r i o d s : (a) pre-war, 1900 - 1914; (b) the interregnum, 1914 - 1922; (c) post-war, 1922 - 1929. 3 I n d i c e s computed f o r the pre-war and post-war p e r i o d s are p a r t i c u l a r l y i n d i c a t i v e of the development i n American p r o d u c t i o n which was not influenced^by abnormal wartime c o n d i t i o n s of demand and supply. The Pre-War P e r i o d , 1900 - 1914 During t h i s p e r i o d , "the t r e n d towards i n d u s t r i a l i z a t i o n i s c l e a r l y r e v e a l e d by the c o n t r a s t between the output of goods f o r use i n c a p i t a l equipment and of goods i n t e n d e d f o r 4 d i r e c t human consumption." The p r o d u c t i o n of c a p i t a l goods was i n c r e a s i n g at the r a t e of 5.0 percent a year as compared w i t h the r a t e of 2.6 per c e n t a year f o r goods of immediate 5 consumption. 3 M i l l s , F. C.V Economic tendencies in' the United. S t a t e s , ' Hew York, The N a t i o n a l Bureau of EconomTc ResearchT^lnC., 1932. 4 I b i d . , pp. 43-4. 5 I b i d . , p. 44. --109--FIGUHS 9 f HORSEPOWER EQUIPMENT BY VARIOUS INDUSTRIAL GROUPS (Semi-logarithmic scale) 100,000 80,000 60,000 40,000 / • • / / Materials^ -/ / / / / / / / * » • 1 / / / ^ Transpor tation 2 / / E l e c t r i c / notorsk ^Manufactu r 20,000 in a m 7-1 O 3 JO,000 <- 8,000 u a 6,ooo I $ 4,000 2,000 1,000 1849 1859 1869 1879 1889 Year 1899 1909 1 9 1 9 1929 SOURCE: Daugherty, C. R., "An index ...of machinery in the United States since I850," Harvard Business  Review, vol. 6, 1928, p. 289. 1 Includes mines, quarries, agriculture, and irr i g a t i o n 2 Does not include pleasure automobiles 3 Includes manufactures and electric central stations, less equipment of the latter used i n mines, quarries, agriculture, and electric railroads 4 Includes horsepower equipment i n electric central stations and electric railroads, plus ownedelectric equipment of manufactures and mines. u I CD 03 I 100 1879 1889 Y e a r FIGURE 1 0 . HORSEPOWER EQUIPMENT PER EMPLOYEE FOR VARIOUS INDUSTRIAL GROUPS. 1919 1923 o H H O i Ocj o to Source: Daugherty, G. R., "An index ...of machinery i n the United States since 1850," Harvard Business fieview, v o l . 6, 1928, p. 290. TABLE 22. INDEX NUMBERS ON THE GROWTH OF MANUFACTURING IN THE UNITED STATES, 1900—1914* l 1 2 1 1 2 Tear Physical volume1' Number of •> Output per Number of Output per Number of workers of production wage earners watge earner establishments establishment per establishment 1899 100.0 100.0 100.0 100.0 100.0 . 100.0 1904 120.2 108.1 111.2 98.1 122.6 110.3 1909 154.5 130.0 118.9 118.4 130.5 109.8 1914 176.3 136.1 129.6 113.0 156.0 120.4 Average annual rate of « increase 3.9 2.2 1.7 1.1 2.8 1.1 TABLE 23.. INDEX NUMBERS ON THE GROWTH OF MANUFACTURING IN THE UNITED STATES, 1922—1929. 1923 100.0 100.0 100.0 100.0 100.0 100.0 1925 102.4 95.4 107.3 93.0 110.1 102.5 1927 104.2 92.3 113.0 88.7 117.4 104.0 1929 113.0 92.6 122.0 93.8 120.5 98.7 Average annual rate of increase 2.0 -1.3 3«3 -1«2 3.1 -0.1 r Source: M i l l s , F.C., Economic Tendencies i n the United States, New York, National Bureau of Economic Research, Inc., 1932. I p.36&nd p.299j 2 p. 38 and -P304; 3 P»26 and 290. M O I 1 - i l i -The i n d i c e s i n Table 22 r e f l e c t the growing i n d u s t r i a i -i z a t i o n of the U n i t e d S t a t e s ahd the c o n c e n t r a t i o n of' l a b o u r and c a p i t a l i n fewer e s t a b l i s h m e n t s . T a b l e 22 i n d i c a t e s t h a t the p h y s i c a l volume of p r o d u c t i o n of the manufacturing indus-t r i e s i n c r e a s e d at ah annual average r a t e of 3,9 p e r c e n t , w h i l e the number of Wage earners and establishments i n c r e a s e d at the lowefc annual r a t e of 2.2 percent and 1.1 percent respec-t i v e l y . Consequently, the p r o d u c t i v i t y of l a b o u r and the but-put per establishment i n c r e a s e d d u r i n g t h i s p e r i o d * F a c t o r s r e s p o n s i b l e were the a p p l i c a t i o n of t e c h n i c a l developments (the f r u i t s of r e s e a r c h and i n v e n t i v e i n g e n u i t y ) and the 6r* g a n i z a t i o n a l s k i l l of i n d u s t r i a l managers. During t h i s p e r i o d , i t was noted t h a t a wide degree of d i v e r g e n c e e x i s t e d between the r a t e s of growth i n the p h y s i -c a l volume of p r o d u c t i o n f o r the Various manufacturing indus-t r i e s . 6 In a s e l e c t e d sample ;of t h i r t y - f i v e i n d u s t r i e s , these p r o d u c t i o n trends ranged from 4- 36.8 percent f o r the automo-b i l e i n d u s t r y to -4.1 percent f o r hat manufacturing. T h i s wide V a r i a t i o n has been a t t r i b u t e d to the emergence of hew i n d u s t r i e s pushing ahead with e x c e p t i o n a l p r o g r e s s , while others experienced a growth i n keeping w i t h the expanding p o p u l a t i o n , and s t i l l o t h e rs dropped behind w i t h d e c l i n i n g o u t p u t . 7 6 I b i d . , p. 30. 7 I b i d . , p. 46. -112-The Post-War P e r i o d , 1922 - 1929 The f l o w of p r o d u c t i o n i n t o c a p i t a l goods equipment i n c r e a s e d from an average annual increment of 5.0 perc e n t i n the pre-war p e r i o d to 6,4 percent d u r i n g the post-War p e r i o d . F o r the post-war p e r i o d the elements comprising c a p i t a l equip*, ment have been segregated and the average r a t e s of change in the p h y s i c a l volume of p r o d u c t i o n f o r these elements have been computed.® TABLE 24. AVERAGE ANNUAL RATES OF CHANGE IN PHYSICAL VOLUME - r- -OF PRODUCTION OF ELEMENTS OF CAPITAL- EQUIPMENT, , 1922-1929. Element of c a p i t a l Annual r a t e of change (Percent) Machinery + 7,3 T r a n s p o r t a t i o n equipment - 1,1 I n d u s t r i a l c o n s t r u c t i o n + 8 . 9 Commercial c o n s t r u c t i o n +• 7,0 P u b l i c works and u t i l i t i e s +10,5 In t h i s p e r i o d i t w i l l be noted t h a t , next to p u b l i c works, machinery and i n d u s t r i a l c o n s t r u c t i o n experienced the h i g h e s t r a t e s of expansion. The- tendency i n the post-war p e r i o d towards i n c r e a s e d p r o d u c t i v i t y of the wage earner and output per establishment and the f u r t h e r c o n c e n t r a t i o n of i n d u s t r y i s confirmed by the i n d i c e s i n Table 23, (v. page 110) 8 I b i d . , p. 277. -113-Again, a wide divergence i n the r a t e s of i n c r e a s e i n the p h y s i c a l Volume of p r o d u c t i o n e x i s t e d f o r manufacturing indus-t r i e s . 9 However, the degree of divergence among manufactured goods was l e s s i n the post-war p e r i o d than i n the pre-war i n -t e r v a l . T h i s Was probably accounted f o r by the f a c t t h a t be-f o r e the war a number of the i n d u s t r i e s were i n the expansion stage and a f t e r the war were expanding at' a normal r a t e of i n c r e a s e . The i n d i c e s i n Table 23 i n d i c a t e the i n c r e a s i n g . c o n c e n t r a t i o n of c a p i t a l equipment and the subordination' of l a b o u r i n the p r o d u c t i v e p r o c e s s . T h i s i n i t s e l f r e f l e c t s the dominating i n f l u e n c e of t e c h n i c a l and o r g a n i z a t i o n a l e l e -ments on the expansion of p r o d u c t i o n by i n d u s t r y . More r e c e n t l y , P r o f e s s o r Simon Kuznets i n h i s s t u d i e s on n a t i o n a l income1*-1 has p r e s e n t e d evidence of the d i s t r i b u t i o n of n a t i o n a l income between consumer goods and net c a p i t a l forma-t i o n and the i n d u s t r i a l d i s t r i b u t i o n o f i n c r e a s e s i n Value of ri e a l zestate improvement and "equipment. ; i n h i s s t u d i e s , P r o f e s s o r KUznets p o i n t e d out the f o l l o w -i n g i n d i c a t i o n s : (a) The share of c u r r e n t income devoted to net c a p i t a l f o r m a t i o n was g r e a t e r b e f o r e 1900 than at p r e s e n t . At a l l times, however, not more than f i f t e e n p e r c e n t of the n a t i o n a l income has' been c h a n n e l l e d i n t o cap-i t a l f o r m a t i o n . 1 1 9 I b i d . , p. 277. 10 Kuznets* S., N a t i o n a l income,,, a summary of findings* New York, 1946, N a t i o n a l Bureau of Economic Research, i n c . , 11 I b i d . , p. 52-3. (b) E x c l u d i n g the i n f l u e n c e of the de p r e s s i o n , the de-c l i n e i n the share of the n a t i o n a l income devoted to net c a p i t a l f o r m a t i o n has averaged around f i f t e e n percent i n the e a r l y p e r i o d from 1869 - 1913, and has been s l i g h t l y more than twelve percent i n the l a t e r p e r i o d from 1913 - 1928. I n c l u d i n g the i n -f l u e n c e of the de p r e s s i o n , approximately 8.4 percent o f the c u r r e n t n a t i o n a l income was devoted to net 12 c a p i t a l formation between 1910 - 1938. (c) The percentage i n c r e a s e i n r e a l e s t a t e improvements and equipment i n p r i v a t e i n d u s t r y between 1880 and 1939 was 441.4 p e r c e n t . T h i s i n c r e a s e was analyzed by twenty year i n t e r v a l s from 1880 to 1939, and i n Table 25 the d e c l i n e i n the percentage r a t e o f accumulation i n the l a t e r p e r i o d s i s p a r t i c u l a r l y n o t i c e a b l e . T h i s t r e n d i s to be expected. As the growth i n p o p u l a t i o n r e t a r d s and as the country be-comes ' i n d u s t r i a l i z e d and b u i l d s up i t s b a s i c c a p i t a l s t r u c t u r e , the share of c o n s t r u c t i o n i n net c a p i t a l f o r m a t i o n d e c l i n e s . 1 3 However, t h i s d e c l i n e does not n e c e s s a r i l y mean a d e c l i n e i n the r a t e of i n c r e a s e i n the p r o d u c t i v e s e r v i c e s of the c a p i t a l , i n f a c t , i n d i c e s on p r o d u c t i v i t y h&ve i n d i c a t e d t h a t the r e v e r s e e x i s t s and t h a t new c a p i t a l a c q u i s i t i o n s are more e f f i c i e n t and more p r o d u c t i v e . 12 I b i d . , p. 53. 13 I b i d . , p. 55. -115-TABLE 25. PERCENTAGE INCREASE IN REAL ESTATE IMPROVEMENTS ' AND EQUIPMENT, 1880 - 1 9 3 9 . 1 4 a June 1,1880 June 1,1900 Jan. 1919 June 1880 June 1,1900 Jan. 1,1919 Jan. 1939 Jan. 1939 P r i v a t e i n d u s t r y 166.2 97.2 8.2 441.4 P u b l i c u t i l i t i e s 172.2 65.4 34.6 484.7 R e s i d e n t i a l 183.5 58.9 20.0 422.9 T o t a l p r i v a t e 172.7 76.3 19.3 451.0 Tax exempt 259.7 95.0 114.7 1,336.6 Average of above 177.5 77.6 26.8 499.9 I t should not be construed t h a t i n c r e a s e d p r o d u c t i v i t y , r e f l e c t e d by the i n d i c e s of output per wage earner and per i n d u s t r i a l establishment, are s o l e l y due to t e c h n o l o g i c a l pro-g r e s s . Changes i n p r o d u c t i v i t y are a t a l l times the r e s u l t of the a c t i o n of a host of complex and i n t e r r e l a t e d f o r c e s , Research, the o r g a n i z a t i o n a l s k i l l of management, the economic and t e c h n o l o g i c a l s t a t u s of an i n d u s t r y a l l c o n t r i b u t e toward changes i n p r o d u c t i v i t y . 1 4 N e v e r t h e l e s s , i t i s r e c o g n i z e d t h a t t e c h n o l o g i c a l changes have o c c u r r e d d u r i n g the pas t f i f t y y e a r s , and the r e s u l t i n g growth i n amount of c a p i t a l equips ment has been l a r g e l y p o s s i b l e as a r e s u l t of the a p p l i c a t i o n o f r e s e a r c h and engineering s k i l l . Coupled w i t h t h i s f a c t , has been the economic c o n d i t i o n s which have f a v o u r e d the i n - , s t a l l a t i o n of new and more e f f i c i e n t p r o d u c t i v e u n i t s . The major developments i n c a p i t a l f o r m a t i o n p r i o r to World War I have a l r e a d y been i n d i c a t e d i n p r e v i o u s c h a p t e r s . T h i s p e r i o d witnessed the expansion i n r a i l w a y t r a n s p o r t a t i o n and s h i p p i n g , the r i s e of the s t e e l i n d u s t r y , the development 14a Kuzents, N a t i o n a l income, p. 57. 14 Weintraub, C a p i t a l formation, p. 2. - 1 1 6 -o f e l e c t r i c a l power* the wide-spread mechanization of l o a d i n g and conveying o p e r a t i o n s , and the i n t r o d u c t i o n of the mass p r o d u c t i o n assembly l i n e . S ince World War 1 these develop-ments have become more f i r m l y e s t a b l i s h e d ; but i n a d d i t i o n , c e r t a i n g e n e r a l t e c h n o l o g i c a l trends have a l s o been observed as major f a c t o r s i n a V a r i e t y of i n d u s t r i e s . These develop-ments a c t u a l l y m a n i f e s t e d themselves i n some i n d u s t r i e s be-f o r e World War-I; but a f t e r the War, the trends became more c l e a r l y e s t a b l i s h e d , and were i n d i c a t i v e of the t e c h n o l o g i c a l developments t a k i n g p l a c e i n American i n d u s t r y . Large C a p a c i t y Equipment F o l l o w i n g World War I, i n d u s t r y tended towards the " u t i l -i z a t i o n of l a r g e r - c a p a c i t y equipment and p r o d u c t i v e p r o c e s s e s T h i s t r e n d i s a d i r e c t r e f l e c t i o n of the continued i n t e g r a -t i o n of i n d u s t r y which f o l l o w e d World War I . Equipment and processes were c e n t r a l i z e d i n fewer and l a r g e r p l a n t s * L a r g e r c a p a c i t y u n i t s achieved lower o p e r a t i n g c o s t s per u n i t of ca-p a c i t y i n the form of savings i n . f u e l , raw m a t e r i a l s , and l a -bour used; i n s t a l l a t i o n c o s t s , and space requirements, i n other words, o p e r a t i n g expenses d i d hot i n c r e a s e p r o p o r t i o n -a t e l y w i t h i n c r e a s e d volume of p r o d u c t i o n made p o s s i b l e through the l a r g e r - c a p a c i t y u n i t s . F u r t h e r , the o r i g i n a l investment per u n i t c a p a c i t y was s m a l l e r f o r l a r g e r items of equipment and p r o c e s s i n g machinery than f o r s m a l l e r u n i t s . T h i s was p a r t i c -u l a r l y t r u e i n power g e n e r a t i n g apparatus, such as steam power 15 Ibid.., p. 3. -117-u n i t s , D i e s e l p l a n t s , and e l e c t r i c motors and g e n e r a t o r s . Even i n a g r i c u l t u r e , which i s c h a r a c t e r i z e d by small s c a l e e n t e r p r i s e * there Was a tendency towards l a r g e r - s i z e d imple-ments- and m a c h i n e s . 1 6 T h i s development i n a g r i c u l t u r e was f o s t e r e d by the expanding r e s e a r c h and e n g i n e e r i n g s e c t i o n i n the a g r i c u l t u r e implement i n d u s t r y . Instrumentation " . . . a s s o c i a t e d w i t h the i n c r e a s i n g use of l a r g e r equip-ment u n i t s has been the growing importance of automatic meas-u r i n g , r e c o r d i n g , and c o n t r o l l i n g i n s t r u m e n t s . " 1 7 Instruments p e r m i t t e d the manufacturer to keep h i s processes under p r e c i s e c o n t r o l and to promote the e f f i c i e n t u t i l i z a t i o n of h i s e a p i -t a l investment. I n s t r u m e n t a t i o n has achieved both economies i n o p e r a t i o n and i n the use of c a p i t a l equipment. Operating economies have been a t t a i n e d through the a c c e l e r a t i o n of pro-d u c t i v e p r o c e s s e s ; the c o n t r o l of waste i n raw m a t e r i a l s , f u e l , power, and s p o i l a g e of f i n i s h e d p r o d u c t s . The p o s s i b i l -i t y of breakdowns has been reduced and the c a r r y i n g out of Con-t i n u o u s p r o d u c t i o n over l o n g e r time i n t e r v a l s has been p o s s i -b l e . I n s t r u m e n t a tion has t h e r e f o r e p e r m i t t e d manufacturers to i n c r e a s e output and reduce o p e r a t i n g c o s t s without i n c r e a s -i n g the c a p i t a l investment, except f o r the cost O f purchasing and i n s t a l l i n g the i n struments. Since i n s t r u m e n t a t i o n tends to safeguard machinery i n m i n i m i z i n g breakdowns and r e d u c i n g e x c e s s i v e wear and t e a r , i t r e t a r d s the r a t e of obsolescence 17 Weihtraub, C a p i t a l formation, p. 6 . -118-of capital equipment and extends the economic life of the 18 capital investment* The enhanced importance of instruments in modern industry-is demonstrated by the comparison in Figure 12 of the rise in industrial instrument sales with the output of all industrial machinery and equipment. Figure 11 indicates that the ratio of expenditures for instruments to expenditures for machinery has increased it inslily from $3.79 per $1,000 value of machinery 19 in 1919 to $15.63 per $1,000 value of machinery in 1933* Three factors have been responsible for this rapid rise in instrumentation:20 (a) Instruments were frequently installed on existing equipment already in use. (b) Hew equipment has besh designed with increased pre-cision and this development has involved the wider installation of instruments within the equipment. (c) Increased efficiency in operation, achieved by the installation of instruments on existing equipment, was often sufficient to supply increased production and eliminated the necessity of major replacements of existing equipment. 18 Perazich, Schimmel and Rosenberg, Industrial instru-ments and changing technology, 1938, Philadelphia, Works Pro-gress Administration, National Research Project, Report no. M-l, pp. 68-9.2-19 Ibid., p. 33. 20 Loc. cit. FIGURE 11. VALUE OF INDUSTRIAL INSTRUMENTS PER $1.000 OF MACHINERY (Semi-logarithmic scale) 1919 1921 1923 1925 1927 1929 1931 1933 1935 Source: Perazich, Schimmel, and Rosenberg, Industrial instruments and changing;technology. Works Progress Administration, Philadelphia, 1938, Report No. M-l, p. 32-33. ra u CO O CO a o I m CD H CO co •p •p cn 40 30 20 10 9 7 6 5 1919 FIGURE 1 2 . VALUE OF INDUSTRIAL INSTRUMENTS AND. INDUSTRIAL MACHINERY (Serai-logarithmic scale) Machinery-Instrument; i • 1921 1923 1925 Year 1927 1929 1931 1933 Source: Perazich, Schimmel, and Rosenberg, Industrial instruments and changing technology. Works Progress Administration, Philadelphia, 1938, Report No. M-l, p. 32-33* 4,000 3,000 o fcJ CD 2,000 3 1,000 900 700 600 500 1935 400 8? CD m s co a o co CQ o H M O =» ' »->• Ot} •cl P> oca CD M 03" -119-Th e adoption of instruments by an i n d u s t r y or f i r m i s dependent upon a number of f a c t o r s . F i r s t l y , the c h a r a c t e r of the i n d u s t r i a l p r o c e s s i t s e l f determines i n s t r u m e n t a t i o n . 2 1 In the newly developed i n d u s t r i e s , such as e l e c t r i c pbWer, petroleum r e f i n i n g , and automobile manufacturing many of the processes i n v o l v e d c o u l d not be c a r r i e d out e c o n o m i c a l l y or e f f e c t i v e l y without the use of measuring and c o n t r o l l i n g de-v i c e s . The automatic c o n t r o l l i n g of temperatures and p r e s s -ures i n a chemical process and the r e g u l a t i o n of the mass man-u f a c t u r e of s t a n d a r d i z e d p a r t s can be e f f e c t i v e l y c o n t r o l l e d through i n s t r u m e n t a t i o n . For t h i s reason, new i n d u s t r i e s haVe tended to employ i n s t r u m e n t a t i o n more e x t e n s i v e l y than o t h e r s . I n the o l d e r e s t a b l i s h e d i n d u s t r i e s , the b a s i c processes Were evolved b e f o r e instruments were known as a i d s to p r o d u c t i o n . However, as these b a s i c i n d u s t r i e s , ( f o r example, the s t e e l i n d u s t r y ) have enlarged t h e i r s c a l e of o p e r a t i o n s , i n c r e a s i n g degrees of i n s t r u m e n t a t i o n have been adopted. I t has been observed that hew i n d u s t r i e s have been more forward i n o r g a n i z i n g r e s e a r c h groups.'- • The extent to which instruments are employed depends on the i n t e n s i t y of the r e -search, e n g i n e e r i n g and" p l a n n i n g a c t i v i t i e s i n p a r t i c u l a r 22 i n d u s t r i e s and f i r m s . Instrumentation i s d i r e c t l y connected w i t h the s c i e n t i s t s * d e s i r e to haVe p r e c i s e and t i m e l y i n f o r m a t i o n on the v a r i a b l e s i n v o l v e d i h an i n d u s t r i a l process. IndustriesiftWith w e l l - o r g a n i z e d l a b o r a t o r i e s w i l l tend to p r e — 21 I b i d . , p. 68 22 I b i d . , p . 69 -120-dominate i n the i n s t a l l a t i o n of c o n t r o l l i n g d e v i c e s * Secondly* as l a r g e r c a p a c i t y items of C a p i t a l equipment have been employed, i n s t r u m e n t a t i o n has been e f f e c t i v e i n reg-u l a t i n g o p e r a t i n g c o n d i t i o n s and p r e v e n t i n g c o s t l y breakdowns. Furthermore, savings achieved i n the use of raW m a t e r i a l s * are p r o p o r t i o n a t e l y g r e a t e r i n l a r g e s c a l e processes than i n sm a l l e r u n i t s . I t has been p o i n t e d out th a t "a r e d u c t i o n of as l i t t l e as one percent i n f u e l consumption i n a l a r g e - c a p a -c i t y b o i l e r capable of producing 1*000,000 pounds of steam per hour may rep r e s e n t an annual s a v i n g of approximately $10,OOO. 2 3 A' s i m i l a r saving of one percent i n a b o i l e r p l a n t producing between 25,000 and 50,000 pounds of steam per hour would e f f e c t an annual saving of only three to f i v e hundred d o l l a r s . 2 4 The former case would warrant i n s t r u m e n t a t i o n but the l a t t e r case c o u l d not j u s t i f y the cos t s of i n s t a l l i n g i n s t r u m e n t s . F i n a l l y , the p r e v a i l i n g s o c i a l and economic c o n d i t i o n s i n which an i n d u s t r y or f i rm i s o p e r a t i n g W i l l determine the-25 r a t e at which instruments w i l l be i n t r o d u c e d . I f wages of s k i l l e d l a b o u r are h i g h and the supply of l a b o u r i s IbW, i n -strumentation w i l l be a c c e l e r a t e d , indus tr i e s and f i r m s which compete keenly oh a cost and q u a l i t y b a s i s W i l l be induced to Use instruments r a t h e r than r e l y on l a b o u r . 23 Ibid.., p. 68. 24 I b i d . , p. 69. 25 L o c . c i t . -121-Accessory Equipment A s s o c i a t e d a l s o w i t h the development of l a r g e r C a p a c i t y u n i t s and i n s t r u m e n t a t i o n * has "been the development of a t t a c h -ments to i n c r e a s e the V e r s a t i l i t y and output of equipment* Such a u x i l i a r y items i n v o l v e a u n i t of o p e r a t i o n cost "which i s p r o p o r t i o n a t e l y l e s s than the a d d i t i o n a l revenue to be o b t a i n -ed from the i n c r e a s e d p r o d u c t i o n . With -such equipment* "saV-i n g s of c a p i t a l are p a r t i c u l a r l y marked when the i n c r e a s e d c a p a c i t y r e s u l t i n g from the i n s t a l l a t i o n of the a u x i l i a r y equipment i s s u f f i c i e n t to meet demands f o r i n c r e a s e d produc-t i o n . " 2 6 High Speed-Cutting Tools A p a r t i c u l a r l y s i g n i f i c a n t development i n the l a t e 1926*8 was the i n t r o d u c t i o n of h i g h speed c u t t i n g t o o l s , f i r s t i n t h e form of tungsten carbide, and l a t e r i n the form of tungsten and tantalum c a r b i d e s . These t o o l s have p e r m i t t e d i n o r e a s e d speed i n o p e r a t i o n and a l o n g e r l i f e between sharpening, w i t h the r e s u l t t h a t the p r o d u c t i v i t y and the e f f e c t i v e C a p a c i t y of the machines haVe been i n c r e a s e d . Hew Processes i n Equipment Manufacture Manufacturers of c a p i t a l equipment have a l s o employed r e s e a r c h techniques to produce u n i t s of h i g h e r q u a l i t y , w i t h a l o n g e r p h y s i c a l l i f e , and g r e a t e r p r o d u c t i v e c a p a c i t y . HeW 26 Weintraub, -Capital, formation, p. 13. 27 I b i d . , p. 8. -122-techniques i n welding have superseded expensive c a s t i n g methods. New metal a l l o y s ; c o n t r o l l e d methods of heat t r e a t i n g ; the i n s t i t u t i o n of r o l l e r bearings and e s p e c i a l l y r e s i s t a n t c o a t i n g s have r e s u l t e d i n c a p i t a l equipment of lower cost and l o n g e r l i f e . 2 8 M a n a g e r i a l o r g a n i z a t i o n • F i n a l l y , the e f f e c t i v e c a p a c i t y of hew developments i n • c a p i t a l equipment has 1 been i n c r e a s e d by management i n i t s r e o r g a n i z a t i o n of a l l f a c t o r s of p r o d u c t i o n l a n d , l a b o u r , and c a p i t a l -- in> order to maximize the net r e t u r n to the f i r m . The c o n c e n t r a t i o n of p r o d u c t i v e u n i t s i n fewer p l a n t s * the, rearrangement of the p r o d u c t i v e u n i t s w i t h i n the p l a n t i n order to " s t r e a m l i n e " p r o d u c t i o n , and the s u b s t i t u t i o n o f c a p i t a l f o r l a b o u r or v i c e Versa depending on the economies, have a l l p l a y e d a s i g n i f i c a n t p a r t i n r e d u c i n g c o s t s and i n c r e a s i n g p r o d u c t i v i t y . . RESEARCH AND DEMAND FOR CAPITAL EQUIPMENT The t e c h n o l o g i c a l changes i n d i c a t e d i n the f o r e g o i n g pages do not r e p r e s e n t a complete i n v e n t o r y of technological improvements. However, they are s u f f i c i e n t l y i n d i c a t i v e of the f a c t t h a t t e c h n i c a l progress has r e s u l t e d i n c a p i t a l equipment of l o n g e r p h y s i c a l l i f e and of g r e a t e r p r o d u c t i v e c a p a c i t y . These developments have r e s u l t e d i n r e l a t i v e l y s m a l l e r c a p i t a l o u t l a y s f o r the replacement of- o b s o l e t e equip-29 ment i n order to secure the Same or i n c r e a s e d volume of output. 28 I b i d . , pp. 9-11. 29 i b i d . , p. 16. - 1 2 3 -The economic i m p l i c a t i o n s i n v o l v e d i n these developments have "been s t a t e d as f o l l o w s : 5 ' . . . t e c h n o l o g i c a l progress c o n t i n u a l l y aims at i n c r e a s -i n g the p r o d u c t i v i t y of both c a p i t a l and l a b o r and t h a t one d i f f e r e n c e between the e f f e c t s of t e c h n o l o g i c a l change on c a p i t a l and on l a b o r i n a p a r t i c u l a r indus-t r y i s t h a t l a b o r requirements per u n i t of product tend to decrease c o n t i n u o u s l y w h i l e c a p i t a l requirements per u n i t of product are at f i r s t i n c r e a s e d , as manual oper-a t i o n s are p r o g r e s s i v e l y mechanized, and then tend to decrease when d e t a i l improvements are made on the hewly e s t a b l i s h e d b a s i c p r o c e s s e s . ' 3 0 When an i n d u s t r y undergoes a b a s i c t r a n s f o r m a t i o n of i t s p r o c e s s e s and the d r a s t i c downward r e v i s i o n i n c o s t s i m p l i e d by the t r a n s f o r m a t i o n , the r a p i d expansion of i t s markets and growth of p r o d u c t i o n c r e a t e s a demand f o r c a p i t a l to i h -s t a l p r o d u c t i v e u n i t s . Once t h i s r e v o l u t i o n a r y phase has passed, improvements, of a d e t a i l nature may be s u f f i c i e n t to reduce c o s t s and p o s i t i v e l y s h i f t the demand f o r the products o f the i n d u s t r y . However, as the demand f o r the commodities ; becomes l e s s e l a s t i c , the response to cost r e d u c t i o n s w i l i , d e c l i n e ; the r a t e of expansion of the i n d u s t r y w i l l r e t a r d ; 0 and the " o u t l a y f o r c a p i t a l goods w i l l serve i n c r e a s i n g l y f o r replacement r a t h e r than the expansion of p h y s i c a l p l a n t of the i n d u s t r y . " 3 1 However, the demand f o r replacements i s f u r t h e r condi-t i o n e d by t e c h n o l o g i c a l p r o g r e s s , which makes f o r equipment o f g r e a t e r d u r a b i l i t y and p r o v i d e s a c c e s s o r y equipment and instruments which delay major replacements. Thus the s i t u a -t i o n d e s c r i b e d by P r o f e s s o r Kuznets a r i s e s ; namely, net a d d i -30 L o c . c i t ; 31 I b i d . , p. 17. -124-t i o n s to c a p i t a l d e c l i n e as soon as the b a s i c s t r u c t u r e has 32 developed. Research s t a f f s are maintained by the entrepreneurs of i n d u s t r y to safeguard and improve the investments of the i n -33 d u s t r y . ° I t i s t h e r e f o r e l o g i c a l t h a t r e s e a r c h has been d i r e c t e d toward improving p r o d u c t i o n u n i t s , l e n g t h e n i n g the economic l i f e of c a p i t a l equipment, and a f f o r d i n g the more economical u t i l i z a t i o n of raw m a t e r i a l s and labour'. On the other hand, new demands f o r c a p i t a l goods are c r e a t e d through t e c h n o l o g i c a l p r o g r e s s i n e i t h e r of the f o l l o w i n g ways. When a new product i s c r e a t e d and developed, a new i n d u s t r y may r e s u l t and r e q u i r e l a r g e amounts of c a p i -t a l equipment. The development of rayon and n y l o n are exam-p l e s . Secondly, a new development i n the p r o d u c t i v e process o f an o l d - e s t a b l i s h e d i n d u s t r y may a l s o c r e a t e an expansion i n p h y s i c a l p l a n t . Such was the case w i t h the development of the c r a c k i n g process i n the o i l i n d u s t r y and the i n s t a l l a t i o n o f a continuous s t r i p m i l l s i n the s t e e l i n d u s t r y . DETERMINING THE ECONOMIC LIFE OF CAPITAL EQUIPMENT •• S c i e n t i f i c r e s e a r c h and e n g i n e e r i n g development have been r e s p o n s i b l e f o r the t e c h n i c a l advances i n equipment and ma-c h i n e r y . During the past f i f t y y e a rs these advances have been so r a p i d t hat p r o d u c t i v e u n i t s are d e c l a r e d o b s o l e t e l o n g b e f o r e they have outworn t h e i r u s e f u l n e s s . Under these circumstances, entrepreneurs have found i t necessary to d i s -32 Kuznets, N a t i o n a l income, p. 55. 33 Weintraub, op. c i t . , p. 18. -125-c a r d e x i s t i n g u n i t s and r e p l a c e them w i t h new equipment having a g r e a t e r c a p a c i t y and o p e r a t i n g a t • a lower cost per u n i t o f output. . In other words, the economic l i f e of the machine has ended long b e f o r e i t s p o t e n t i a l p h y s i c a l l i f e . With the t o o l s of economic a n a l y s i s , i t i s now proposed to suggest some of the f a c t o r s i n f l u e n c i n g the entrepreneur to scrap e x i s t i n g p r o d u c t i v e u n i t s i n favour of replacements, d e s p i t e the f a c t t h at the e x i s t i n g u n i t may s t i l l possess a h i g h 34 c a p i t a l investment. A major reason f o r scrapping e x i s t i n g equipment, s t i l l i n s a t i s f a c t o r y o p e r a t i n g c o n d i t i o n , i s obsolescence. The p r i n c i p a l causes of obsolescence are: (a) A n e g a t i v e s h i f t i n the demand schedule of the pro-duct, which renders o b s o l e t e the p l a n t and equipment employed i n the manufacture of the product, u n l e s s the p l a n t can be put to a l t e r n a t i v e uses. Thus, the automobile f a c t o r i e s and garages supplanted c a r r i a g e makers and b l a c k s m i t h s . (b) A new item of equipment or machinery which has a lower per u n i t cost of p r o d u c t i o n . I t i s w i t h t h i s second development that the a n a l y s i s w i l l be extended. 34 The subsequent a n a l y s i s i n t h i s s e c t i o n has been d e r i v e d from Bain,- J . S., "The r e l a t i o n of the economic l i f e o f equipment to reinvestment c y c l e s , " Review of Economic S t a t i s t i c s , V o l . 21, pp. 79-88, May, 1939. 35 T r o x e l , C. E., "Economic i n f l u e n c e s of obsolesence," American Economic Review, v o l . 26, pp. 280-90, June, 1936. -126-The d e c i s i o n as to whether a manufacturer w i l l continue u s i n g an e x i s t i n g item of equipment or r e p l a c e the e x i s t i n g , equipment with a new item can he determined by a mathematical approach, which., l a t e r i s a u s e f u l framework f o r the economic a n a l y s i s . In the a n a l y s i s , i t i s assumed t h a t the entre-preneur w i l l a t ; - a l l times f o l l o w a replacement p o l i c y which w i l l maximize h i s r e t u r n s ; that i s , the entrepreneur w i l l choose t h a t schedule of outputs where the marginal cost of t h e output of the f i r m i s equal to the marginal revenue from the t o t a l product. L e t S]_, S2» ...S a, ...S n be a s e r i e s of outputs i n s e r v i c e u n i t s of an e x i s t i n g i t e m of equipment i n a f i r m , over the v a r i o u s time i n t e r v a l s i n the economic l i f e of the equipment. The s u b s c r i p t s i n d i c a t e the time i n t e r v a l s i n -v o l v e d . T h i s s e r i e s i s a f o r e c a s t of expected outputs oh the b a s i s that the designated output at any time w i l l y i e l d the maximum revenue to the f i r m . In a c t u a l p r a c t i c e , such data would be estimated from the knowledge of the cost s t r u c t u r e of the f i r m and the p r i c e to be r e c e i v e d f o r the product i n i n the market. L e t 0]_, 0 2» •••0a» •••°n ^ e t n e corresponding s e r i e s of o p e r a t i n g and maintenance c o s t s c o r r e l a t i v e - w i t h the f o r e g o -i n g S s e r i e s . T h i s s e r i e s has a l s o been e s t a b l i s h e d on a f o r e c a s t b a s i s . L e t R n be the scrap value of the equipment at the end of i t s economic l i f e -- which i s the n t h i n t e r v a l o f time from the present i n s t a n t , designated as t 0 . L e t Si» Sg, ...Sa» .. . % b e a s e r i e s of s e r v i c e output -127-u n i t s from the most economical replacement a v a i l a b l e over the economic l i f e of the replacement i n s t a l l e d at the time t 0 . T h i s s e r i e s has a l s o been determined on a f o r e c a s t b a s i s . I f the output streams are determined by the instantaneous maxi-m i z a t i o n of the e n t e r p r i s e value (where marginal cost equals m a r g i n a l revenue), then the s e r i e s from e x i s t i n g equipment and the s e r i e s from the most economical replacement w i l l be i d e n t i c a l i n so f a r as the two s e r i e s o v e r l a p or cover the same y e a r s . L e t 0]_, Og, .. .0*a» •••On ^ e ^he s e r i e s of o p e r a t i n g and maintenance c o s t s corresponding to the S s e r i e s . T h i s s e r i e s w i l l not n e c e s s a r i l y be i d e n t i c a l w i t h the cost s e r i e s of the e x i s t i n g equipment, s i n c e i t would be expected t h a t the oper-a t i n g and maintenance c o s t s on the new equipment would be l e s s than on e x i s t i n g equipment.-L e t Rg be the scrap value of the replacement; t? 0 the i n i t i a l c o st of the replacement at time t 0 ; i the cu r r e n t r a t e of i n t e r e s t which the manufacturer can borrow funds to f i n a n c e c a p i t a l improvements; n the l a s t time i n t e r v a l of the economic l i f e of the replacement when i n s t a l l e d at t 0 ; and V 0 the v a l u a t i o n of the equipment i n use at time t 0 . On the b a s i s of the f o r e g o i n g , the cost per /service , u n i t of output f o r a g i v e n schedule of outputs, i n c l u d i n g the purchase and o p e r a t i o n of the replacement equipment from time t 0 i s s (1) Co + f i + i yg. - 128-Th e magnitude of U depends on the value of n -•- the es-tim a t e of the economic l i f e of the relacemeht. The Value of n presupposes on the p a r t of the entrepreneur ah appre-c i a t i o n of replacement a l t e r n a t i v e s i n the f u t u r e and the nat u r e of f u t u r e o p e r a t i n g c o s t s * In a c t u a l i t y * t h i s i n f o r -mation i s never known p r e c i s e l y , , and f o r the purpose Of t h i s a n a l y s i s , l e t us assume n i s chosen so that tf i s a 'minimum* With t h i s assumption (which would imply t h a t economic c o n d i -t i o n s remain s t a t i o n a r y i n the f u t u r e ) , the V a l u a t i o n of the equipment i n use : (2). Vn = V.y S a - y 0 a Rn v ( r T i 7 a • ( r T n a T T T " i ) n I n t e r p r e t e d , t h i s formula means th a t the present Value o f the e x i s t i n g equipment at t 0 i s equal to i t s scrap v a l u e a t t'Qt p l u s the present value of the cost of producing outputs on the e x i s t i n g equipment at a per u n i t cost determined from the most economical replacement, l e s s the present Value Of the o p e r a t i n g Costs of the e x i s t i n g equipment. In (2), h i s d e f i n e d as the l a s t p e r i o d when f o r a g i v e n schedule of out-p u t s , the v a l u a t i o n of the equipment i s l e s s than the scrap v a l u e of the equipment, v i z ; (3) R, > < F . S n On. V _ In other words, as soon as the cost of o p e r a t i n g the e x i s t i n g equipment i s g r e a t e r than the cost of producing the -129-same output on the replacement, then the manufacturer w i l l • r e p l a c e the e x i s t i n g equipment. Thus, as long as the V 0, the v a l u a t i o n of equipment i n use, i s g r e a t e r than the Current scrap value the manufacturer w i l l operate the equipment i n use and thereby minimize p r o d u c t i o n c o s t s f o r the giVeh s c h e d u l e of outputs. When V 0 f a l l s below the c u r r e n t scrap v a l u e , i t w i l l be advantageous to i h s t a l the replacement. The f o r e g o i n g a n a l y s i s has been i l l u s t r a t e d i n F i g u r e 13 where OC i s the i n i t i a l o u t l a y f o r the replacement and STS* i s the curve of v a r i a b l e o u t l a y , namely wages, raw mater-i a l s and maintenance c o s t s . With time, these c o s t s Would tend to i n c r e a s e as maintenance and o p e r a t i n g 'costs Would c e r t a i n l y i n c r e a s e . The value of n, or the time When U W i l l w i l l be l e a s t , w i l l occur when the sum of the d i s c o u n t e d v a l u e s of the i n p u t s i s l e a s t . That time i s reached when SS* touches one of the system of growth curves as at T. At t h i s date, the sum of the di s c o u n t e d v a l u e s of i n p u t s i s l e a s t , ( O R ) . 3 6 T h i s value d i v i d e d by the d i s c o u n t e d output i n se r -v i c e u n i t s would y i e l d U as a minimum. The f o r e g o i n g i s a r i g i d mathematical d e t e r m i n a t i o n of a replacement p o l i c y f o r p r o d u c t i v e u n i t s . T h i s p o l i c y should now be reviewed i n the the l i g h t of the v a r i a t i o n s which can a f f e c t the v a r i a b l e s i n the v a r i o u s equations. 36'Boulding, K. E., Economic a n a l y s i s , 1941, Harper, New York, p. 727. F o l l o w i n g page 129. X Time FIGURE 13. DETERMINATION OF THE POINT n WHEN DISCOUNTED VALUE OF REPLACEMENT AND OPERATING COSTS ARE A MINIMUM. Source: D S r i r e d from B o u l d i n g , K.E., Economic A n a l y s i 8 , New York, Harper & B r o t h e r s , 1941, f i g . I l l , p. 727. F I G U R E 14. E F F E C T O F I N C R E A S E D O U T P U T O N A V E R A G E F I X E D C O S T ; A V E R A G E V A R I A B L E C O S T , A N D A V E R A G E T O T A L U N I T C O S T . -130-At any g i v e n i n s t a n t of time, an entrepreneur knows the o r i g i n a l c ost of the replacement; the magnitude of the opera-t i n g and maintenance coste f o r the e x i s t i n g equipment and re-;. ^ placement f o r any g i v e n output; and the i n t e r e s t r a t e at which he-has access to funds. However, an entrepreneur can o n l y estimate the shape and s i z e of the s e r v i c e streams of output, the corresponding s e r i e s of o p e r a t i n g and maintenance, c o s t s , and the r a t e of f u t u r e obsolescence. Thus an entre-preneur only knows a p o r t i o n of the f a c t o r s comprising the val u e of U i n ( l ) ; In r e a l i t y t h e r e f o r e , U i s an estimated u n i t c o s t of p r o d u c t i o n . The v a l u e . o f U depends s i g n i f i c a n t -l y on the bre a d t h and volume of the stream of s e r v i c e out-p u t s . I f , ; f o r reasons of d e p r e s s i o n or a sudden downward s h i f t i n the demand curve, the estimated S s e r i e s had to be c u r t a i l -ed, i t would immediately r e f l e c t i t s e l f i n h i g h per u n i t c o s t s , s i n c e the o r i g i n a l investment C 0 would have to be spread oVer a s m a l l e r number of u n i t s of output. The extent to which U would r i s e i s dependent on two f a c t o r s . In a d e p r e s s i o n p e r i o d , C 0 would probably d e c l i n e but not to an extent which would n u l l i f y the e f f e c t s of reduced number of s e r v i c e outputs* As a g e n e r a l r u l e , demand schedules f o r c a p i t a l equipment are r e l a t i v e l y i n e l a s t i c and p r i c e s tend to remain i n f l e x i b l e and to l a g behind p r i c e changes i n consumer goods. The ser-i e s of o p e r a t i n g and maintenance c o s t s would also tend to d e c l i n e during a p e r i o d of f a l l i n g p r i c e s , but the d e c l i n e would not be p r o p o r t i o n a l to the d e c l i n e i n the output of -131-s e r v i c e u n i t s . Thus i n p e r i o d s of d e c l i n e U would tend to r i s e r a t h e r than f a l l ; and i n p e r i o d s of r e c o v e r y U would tend t o f a l l s i n c e the stream of s e r v i c e outputs would i n c r e a s e r e l a t i v e l y f a s t e r than C 0 and the corresponding s e r i e s of s e r v i c e and maintenance c o s t s . The f a c t o r which l a r g e l y determines the economic l i f e o f ment w i l l he continued i n o p e r a t i o n i n so f a r as i t s per u n i t o p e r a t i n g c o s t s f o r a g i v e n schedule of outputs are s u f f i c i e n t -equipment. A r e d u c t i o n i n output would not have a c o r r e s -ponding e f f e c t on the u n i t c o s t s of o p e r a t i o n of the e x i s t i n g equipment, as on U, s i n c e the u n i t c o s t s of o p e r a t i o n of ex-i s t i n g equipment v a r i e s as output v a r i e s , w h i l e U i s i n f l u e n c e d by the spreading of the o r i g i n a l cost of the replacement over •fewer u n i t s of output. Thus, i t would be expected t h a t i n p e r i o d s of d e c l i n e , the c o s t s of o p e r a t i o n of the e x i s t i n g equipment would d e c l i n e r e l a t i v e l y more than U. An o f f s e t t i n g f a c t o r , however, i s the r e l a t i v e l y g r e a t e r i n c r e a s e i n 0, „ Uhan Cs - over time w i t h the l e n g t h e n i n g X . . .n J. . . .11 of. the p h y s i c a l l i f e of the equipment. The r i s e i n o p e r a t i n g and maintenance c o s t s over time w i l l e v e n t u a l l y make i t cheap-e r to scrap the equipment and i n s t a l a replacement. I f the c o s t s e r i e s of the e x i s t i n g equipment r i s e s c o n t i n u o u s l y at a slow r e g u l a r r a t e , a dEop i n estimated output may not r e s u l t i n a sharp r i s e i n the per u n i t c o s t s of o p e r a t i o n i n compari-son w i t h the l a r g e r r i s e i n U. Under such c o n d i t i o n s , the e x i s t i n g equipment i s i t s o p e r a t i n g c o s t l y below the u n i t c o s t s of o p e r a t i o n and replacement f o r new -132-economic l i f e of e x i s t i n g equipment may be extended appreciabiy. On the other hand, i f the cost s e r i e s of the e x i s t i n g equip-ment r i s e s a b r u p t l y over time, the i n c r e a s e i n u n i t c o s t s of o p e r a t i o n may more than o f f s e t any i n c r e a s e i n U brought about by a r e d u c t i o n i n p r o d u c t i o n , or due to the f a c t t h at U i n -c l u d e s the o r i g i n a l cost of the replacement. I t should a l s o be borne i n mind t h a t the 0 ] _ # > > n s e r i e s as w e l l as i n c r e a s i n g over time may a l s o i n c r e a s e at v a r y i n g r a t e s depending Upon the l e v e l of output. Thus, i f a p r o d u c t i v e u n i t i s "pushed" to secure a l a r g e r output, o p e r a t i n g and maintenance c o s t s i n v a r i a b l y i n c r e a s e at a g r e a t e r r a t e than i f p r o d u c t i o n Were on a lower s c a l e . Under c o n d i t i o n s of l a r g e output the econom-i c l i f e may be shortened. The primary f a c t o r s i n f l u e n c i n g the economic l i f e of a p r o d u c t i v e u n i t are t h e r e f o r e the schedule of expected outputs and the o r i g i n a l cost of the replacement. The schedule of outputs i s determined at the p o i n t where marginal cost i s equal to marginal revenue. The f l u c t u a t i o n i n the schedule of outputs and the i n f l e x i b l e p r i c e s f o r c a p i t a l equipment r e -s u l t i n a c o n d i t i o n where i n p e r i o d s of d e c l i n e the economic l i f e of equipment may be prolonged and i n p e r i o d s of r e c o v e r y a b r u p t l y terminated. No account has y e t been taken of the i n f l u e n c e of i and t e c h n o l o g i c a l obsolescence on the replacement p o l i c y of e x i s t i n g equipment. S t a t i e economic theory claims a f a l l i n the i n t e r e s t r a t e induces expansion of c a p i t a l equipment and a r i s e i n the i n t e r e s t r a t e induces a r e d u c t i o n i n the expah--133-37 s i o n of c a p i t a l equipment. I t can be seen t h a t a f a l l ( r i s e ) i n the i n t e r e s t r a t e would r e s u l t i n a f a l l ( r i s e ) i n the -v a l u e of U, and c o r r e s p o n d i n g l y an i n c r e a s e (decrease) i n the v a l u a t i o n o f the e x i s t i n g equipment. However, the q u a n t i t a -t i v e e f f e c t of the i n t e r e s t r a t e on c a p i t a l equipment u s e d . i n manufacturing i n d u s t r i e s i s probably s m a l l , as, i n g e n e r a l , the equipment has a s h o r t l i f e , e s p e c i a l l y when the f a c t o r of obsolescence i s taken i n t o account. A f a l l i n the i n t e r e s t r a t e of as much as two p e r c e n t i n a p e r i o d of f i v e y e a r s would have l i t t l e e f f e c t on the v a l u e of U. However, the i n f l u e n c e of i on U would be more s i g n i f i c a n t i n the case of c a p i t a l equipment of l o n g e r economic l i f e . Examples are power gener-a t i n g and r a i l w a y stock equipment where the i n t e r e s t r a t e s on the investment are c a r e f u l l y c o n s i d e r e d by management. In manufacturing i n d u s t r i e s , a sudden upward change i n output may more than c o u n t e r a c t the i n f l u e n c e of a r i s i n g i n t e r e s t r a t e . The e f f e c t of changes i n a n t i c i p a t i o n s about the b r e a d t h of the output stream and the p r i c e of the output are l i k e l y i n the case of sho r t l i v e d machines to be much more potent f o r c e s than changes i n the i n t e r e s t r a t e . "The e f f e c t of t e c h n o l o g i c a l obsolescence, however, may 38 be somewhat more important." The e f f e c t of t e c h n o l o g i c a l improvements i s to widen the gaps between the c o s t of c a p i t a l goods and the c a p i t a l i z e d revenue imputable to them, or to 37 L u t z , E.A., " I n t e r e s t r a t e and investment i n a dynam-i c economy," American Economic Review, v o l . 35, pp. 814-824. 38 B a i n , "Economic l i f e of equipment," Review o f Econ-omic S t a t i s t i c s , v o l . 21, p. 86, May, 1939. -134-c r d a t e such, gaps where none e x i s t e d b e f o r e . 3 9 F o r example, i f technology r e s u l t s i n r e d u c i n g the o p e r a t i n g c o s t s f o r a g i v e n output,.* the . e f f e c t i s a r e d u c t i o n i n U. S i m i l a r l y , a r e d u c t i o n i n U may be achieved i f as a r e s u l t of technolog-i c a l development C 0 has been markedly reduced. Thus, i f te c h -n o l o g i c a l development progresses at a steady r a t e , b r i n g i n g f o r t h a stream of new equipment having low o p e r a t i n g and maintenance c o s t s , the r e s u l t i s the r e d u c t i o n i n the poten-t i a l v alues of the economic l i f e of equipment i n use and i t s replacements. ECONOMIC IMPLICATIONS OP LARGE CAPITAL INVESTMENTS During the y e a r s , the tendency has been f o r an i n c r e a s -i n g investment i n c a p i t a l e q u i p m e n t 3 9 ' i n p a r t , t h i s r e s u l t , has been p r e d i c a t e d by the r a p i d obsolescence of e x i s t i n g equipment and i t s replacement by new p r o d u c t i v e u n i t s i n v o l v -i n g a g r e a t e r investment i n funds. Although the new equip-ment has a g r e a t e r p r o d u c t i v e c a p a c i t y and s m a l l e r o p e r a t i n g c o s t s , the i n c r e a s e d investment i n v o l v e d has posed a d d i t i o n a l problems f o r the manufacturer. T h i s t r e n d has r e s u l t e d i n h i g h e r f i x e d c o s t s without a p r o p o r t i o n a l i n c r e a s e i n the v a r i a b l e c o s t s . When these h i g h f i x e d c o s t s are spread over a l a r g e r output an i n c r e a s e i n the t o t a l output has bean o b t a i n e d at a decrease i n the per u n i t c o s t . In p e r i o d s when i n t e r e s t r a t e s are low or when wage 39 L u t z . , op. c i t . , p. 811-830. 39' Logan and Inman, A s o c i a l approach to economics, Toronto, The U n i v e r s i t y of Toronto P r e s s , 1939, p. 100. - -135-r a t e s are r e l a t i v e l y h i g h an entrepreneur w i l l be more l i k e l y to i n v e s t i n l a b o u r saving p r o d u c t i v e u n i t s i n order to r e -duce h i s per u n i t c o s t s by s u b s t i t u t i n g h i s V a r i a b l e c o s t s f o r a d e f i n i t e f i x e d c o s t . Thus i n p e r i o d s of r e c o v e r y or pros-p e r i t y when wage r a t e s are r i s i n g an entrepreneur w i l l be more i n c l i n e d to i n c r e a s e h i s investment i n p r o d u c t i v e u n i t s . I n such p e r i o d s , entrepreneurs w i t h f i x e d investments i n pro-d u c t i v e u n i t s which are a b l e i n i n c r e a s e p r o d u c t i v i t y Without p r o p o r t i o n a l i n c r e a s e s i n c o s t s , are able to achieve i n c r e a s e d p r o d u c t i v i t y at lower u n i t c o s t s than the entrepreneurs w i t h s m a l l e r investments who have to i n c r e a s e p r o d u c t i o n through t h e employment of a d d i t i o n a l l a b o u r , an item o f V a r i a b l e Cost. L i k e w i s e i n good times, entrepreneurs w i t h heavy f i x e d c o s t s i n t e c h n i c a l p r o d u c t i v e u n i t s and low v a r i a b l e c o s t s , may r e a l i z e a lower per u n i t c o s t . S i m i l a r l y , the p l a n t With a r e l a t i v e l y lower f i x e d investment and h i g h e r v a r i a b l e c o s t s w i l l operate at a h i g h e r u n i t c o s t , assuming, of course, equal amounts of production.. The converse, of course, w i l l be t r u e d u r i n g p e r i o d s of d e p r e s s i o n . During such a p e r i o d , a p l a n t c o n s i s t i n g of a heavy investment i n l a b o u r s a v i n g equipment, w i l l have to spread the f i x e d c o s t s over a s m a l l e r number of u n i t s of out-put and thereby the per u n i t c o s t s are i n c r e a s e d , u n l e s s of , course the d e c l i n e i n v a r i a b l e c o s t s more than o f f s e t the i n c r e a s e i n per u n i t f i x e d c o s t s . C o n t r a s t e d to t h i s , i s t h e p l a n t w i t h low f i x e d c o s t s and a h i g h e r p r o p o r t i o n of v a r i a b l e c o s t s . This' p l a n t may reduce p r o d u c t i o n , reduce - 1 3 6 -v a r i a b l e c o s t s by l a y i n g o f f l a b o u r and thereby decrease per u n i t c o s t s . In the f o r e g o i n g , i t i s assumed t h a t the i n c r e a s e i n per u n i t f i x e d c o s t s brought about by the reduced produc-t i o n i s r e l a t i v e l y s m a l l e r than the d e c l i n e i n u n i t v a r i a b l e c o s t s and t h e r e f o r e average t o t a l u n i t c o s t s d e c l i n e . The e f f i c i e n c y of p r o d u c t i v e u n i t s i n so f a r as a c h i e v i n g c o s t r e d u c t i o n s i s o f t e n determined by the s c a l e o f ou t p u t s . Should an entrepreneur f e a r a d e c l i n e i n the demand schedule f o r the product manufactured, or should he f e e l t h a t V a r i a b l e c o s t s may f a l l , the i n s t a l l a t i o n o f c a p i t a l improvements may be delayed, although at the c u r r e n t moment, replacement would be warranted. On the other hand, should the entrepreneur f e e l the t h a t / p r e s e n t l e v e l of outputs w i l l be main t a i n e d f o r a period o f time s u f f i c i e n t to al l o w him to amortize a new investment or should wage r a t e s tend to remain at a h i g h l e v e l , the en-tr e p r e n e u r w i l l be i n c l i n e d to reduce per u n i t c o s t s w i t h the i n s t a l l a t i o n of more e f f i c i e n t p r o d u c t i v e u n i t s . F r e q u e n t l y , i n c r e a s e i n p r o d u c t i o n can be achieved through the i n s t a l l a t i o n of instruments or acce s s o r y equipment which r e a l i z e a sharp r e d u c t i o n i n v a r i a b l e c o s t s f o r a r e l a -t i v e l y small i n c r e a s e i n f i x e d c o s t s . Labour requirements are reduced, waste of raw m a t e r i a l s i s decreased, and maintenance and o p e r a t i n g c o s t s are minimized through such i n s t a l l a t i o n s . The spread of g r e a t l y i n c r e a s e d output over a r e l a t i v e l y s m a l l a d d i t i o n a l f i x e d investment has meant corresponding r e d u c t i o n s i n per u n i t c o s t s , s i n c e the p r o p o r t i o n of v a r i a b l e c o s t s e l i m i n a t e d has been r e l a t i v e l y l a r g e . Whenever a p p l i c a b l e , -137-the use of instruments and accessory equipment has been to i n -crease the economic l i f e o f e x i s t i n g equipment and to achieve p r o d u c t i v i t y and e f f i c i e n c y e q u i v a l e n t to that o b t a i n a b l e i n a replacement of a more expensive p r o d u c t i v e u n i t . T h i s ex-p l a i n s the d e f i n i t e t r e n d i n i n c r e a s e d i n s t r u m e n t a t i o n i n American i n d u s t r y d u r i n g the past t w e n t y - f i v e y e a r s . P a r t i c -u l a r l y i n p e r i o d s of economic de p r e s s i o n , have entrepreneurs r e s o r t e d to i n s t r u m e n t a t i o n as d u r i n g such p e r i o d s the necess-i t y of l o w e r i n g c o s t s i s paramount. The s i t u a t i o n may a r i s e where the demand curve f o r the product has s h i f t e d so that p r i c e i s l e s s than average t o t a l u n i t c o s t . In such a s i t u a t i o n , an entrepreneur W o u l d con-t i n u e i n p r o d u c t i o n as long as p r i c e was- s u f f i c i e n t to meet the average u n i t v a r i a b l e c o s t s . The output of the entre-preneur w o u l d be at t h e p o i n t where marginal cost e q u a l l e d marginal r e v e n u e , as a t t h a t p o i n t , l o s s e s would be a m i n i -mum. P r o d u c t i o n would be continued, because i f o p e r a t i o n s were suspended, the entrepreneur would s t i l l have to meet the f u l l f i x e d c o s t s . I f o p e r a t i o n s were continued, and the v a r i a b l e c o s t s and p o s s i b l y some of the f i x e d c o s t s are met, the l o s s to the entrepreneur would be l e s s than i f o p e r a t i o n s were d i s c o n t i n u e d . P r o d u c t i o n at t h i s - l e v e l W o u l d not con-t i n u e i n d e f i n i t e l y , however, as the c a p i t a l a s s e t s are being used without any prospect of replacement. P r o d u c t i o n would be continued w i t h the hope t h a t demand and/or cost schedules would s h i f t so t hat normal r e t u r n s or a monopoly p r o f i t again r e t u r n to the entrepreneur. C H A P T E R V I THE EFFECT OF TECHNOLOGICAL PROGRESS ON THE COST AND  DEMAND SCHEDULES OF A FIRM' AND INDUSTRY. CHAPTER VI THE EFFECT OF TECHNOLOGICAL PROGRESS ON THE COST AND >DEMAND SCHEDULES OF A FIRM AND INDUSTRY In the f o l l o w i n g chapter i t i s proposed to employ the t o o l s of e q u i l i b r i u m a n a l y s i s developed by Joan R o b i n s o n 1 and P r o f e s s o r Edward Chamberlin" 1 to examine the changes i n c o s t and demand schedules o f a f i r m e x p e r i e n c i n g a techno-l o g i c a l advancement. The techniques advanced f o r analyzing economic e q u i l i b r i a of a f i r m or i n d u s t r y take no account of the e f f e c t s of the passage of time. I t i s assumed t h a t dur-i n g the p e r i o d of time considered, no fundamental changes o c c u r i n demand and s u p p l y . 3 The cost curves' employed are n o t h i s t o r i c a l curves which show at what c o s t s a c t u a l outputs a r e produced; the curves show the e f f e c t upon c o s t s o f an a l -t e r a t i o n i n output, a l l other c o n d i t i o n s remaining unchanged. Furthermore "changes i n the technique of p r o d u c t i o n e n t a i l e d by a change i n the s c a l e of output are admitted, but changes i n technique which a r i s e from i n v e n t i o n or the a p p l i c a t i o n o f new methods which might e q u a l l y w e l l have been a p p l i e d to a d i f f e r e n t s c a l e o f p r o d u c t i o n are not an element i n the c o s t curve, but a l t e r the p o s i t i o n of the whole c u r v e . " 4 1 Robinson, J . , The economics of imperfect, competition, M a c M l l l a n , London, 1933. 2 Chamberlin, E . H.» The theory of m o n o p o l i s t i c competi-t i o n , Harvard U n i v e r s i t y P r e s s , Cambridge, 1942. 3 Logan and Inman, A s o c i a l approach to" economics, U n i v e r s i t y of Toronto P r e s s , Toronto, 1939, p. 213. 4 Robinson, Imperfect competition, p. 22. -140-Th e f o r e g o i n g l i m i t a t i o n s of time and changes i n t echnique do not mean that the t o o l s developed by Robinson and Chamber-l i n are u s e l e s s , but merely t h a t a d i f f e r e n t approach be adopt-ed. One approach has been suggested by P r o f e s s o r K e i r s t e a d , 5 who p l a c e s p r i c e or cost as a f u n c t i o n of output and time, r a t h e r than output alone. Such an approach r e q u i r e s an a n a l -y s i s on a t h r e e - d i m e n s i o n a l plane, r a t h e r than the two-dimen-s i o n a l plane employed i n the c o n v e n t i o n a l a n a l y s i s . T h i s approach r e c o g n i z e s t h a t a t e c h n i c a l advance i n a f i r m takes p l a c e over time and^ the l a p s e of time can be i n d i c a t e d on one o f the axes of the plane.. F u r t h e r , the approach permits a g r a p h i c p o r t r a y a l i n the s h i f t of the p o s i t i o n and the change i n the shape of the cost and demand curves. A n a l y s i s of Cost Schedules The e f f e c t s of a t e c h n i c a l advance on the cost s t r u c t u r e o f a s i n g l e f i r m w i l l be examined. Such an advance has i n -v o l v e d the scrapping of o b s o l e t e p r o d u c t i o n methods and the e x t e n s i o n of investment i n f i x e d c a p i t a l . I t i s f u r t h e r assumed t h a t the t e c h n o l o g i c a l p r o g r e s s i o n s are made over time* though not n e c e s s a r i l y at a constant r a t e , and t h a t each ad-vance i n v o l v e s a change i n the p r o d u c t i v e process i n the form o f new equipment or the replacement of e x i s t i n g equipment w i t h more e f f i c i e n t u n i t s . Such a d d i t i o n s or replacements i n v o l v e i n c r e a s e d o u t l a y s of f i x e d investments, and consequent^ 5 K e i r s t e a d , B. S., " T e c h n i c a l advance and economic e q u i l i b r i a , " The Canadian J o u r n a l of Economics and P o l i t i c a l S c i e n c e , v o l . 9, pp. 55-68, February, 1943. y l FIGURE 15. EFFECT OF TECHNOLOGICAL PROGRESS ON AVERAGE COST AND MARGINAL COST CURVES OF A FIRM OVER TIME. V " " " " • • ~ Source: Derired from Keirstead, B.S., "Technical Advance and Economic Equilibria," The Canadian Journal of Economics and P o l i t i c a l Science, v o l . IX, No. 1, p. 56, February, 1943* -141- -l y add "to the f i x e d c o s t s of the f i r m . 6 In F i g u r e 15, t x , tg» and t3» repr e s e n t p e r i o d s . i n time d u r i n g which the tech-n i c a l advance occurs; AC^» AC 2» and AC 3 are the average c o s t curves of the three s e l e c t e d moments-in time, and MCi» MCg* and MC3 are the three corresponding marginal c o s t curves. The e f f e c t o f the i n c r e a s e d f i x e d c o s t s has been to i n c r e a s e the average u n i t c o s t s i n the lower output range and to decrease* the average u n i t c o s t s i n the h i g h e r output range. The p o i n t o f minimum average u n i t cost has been s h i f t e d f u r t h e r to the r i g h t along the x a x i s ; t h a t i s , lower u n i t c o s t s have been ach i e v e d at a g r e a t e r output. I m p l i c i t i n t h i s a n a l y s i s , i s the reasonable assumption t h a t v a r i a b l e c o s t s have not i n c r e a s e d p r o p o r t i o n a t e l y a n d that w i t h the t e c h n i c a l advance the r a t i o of f i x e d to v a r i a -b l e c o s t s has i n c r e a s e d . Such an assumption i s l o g i c a l s i n c e a t e c h n i c a l advance i n the form of new p r o d u c t i v e u n i t s usu-a l l y means l e s s l a b o u r , m a t e r i a l s , and maintenance are r e -q u i r e d f o r e q u i v a l e n t or g r e a t e r outputs- than w i t h the o l d e r p r o d u c t i v e p r o c e s s . A p o s s i b l e but u n l i k e l y e x c e p t i o n to such a r e s u l t i n the cost s t r u c t u r e would occur i f t h e r e was some r e d u c t i o n i n the e f f i c i e n c y of i n c r e a s e i n the p r i c e o f the v a r i a b l e f a c t o r s , so t h a t the v a r i a b l e u n i t c o s t s 7 were i n c r e a s e d f o r a l l outputs. 6 I b i d . , pp. 55-7v 7 I b i d . , p. 57. -142-The g e n e r a l r e s u l t of a t e c h n o l o g i c a l advance i n v o l v i n g i n c r e a s e d f i x e d investment has been to extend the p o i n t of minimum average u n i t c o s t s to a l a r g e r output. A more r a p i d d e c l i n e i n the cost curve r e s u l t s i f the a d d i t i o n a l f i x e d c o s t s are sm a l l , and the savings i n the v a r i a b l e costs are g r e a t . Such a c o n d i t i o n i s p o s s i b l e w i t h the i n s t a l l a t i o n of instruments and accessory equipment which permit the e l i m i n a -t i o n of n i g h - p r i c e d s k i l l e d l a b o u r , the r e d u c t i o n of waste, and the minimum of maintenance and r e p a i r charges f o r a cor-r e s p o n d i n g l y low f i x e d investment. In such cases, the cont in-u a t i o n o f the low u n i t f i x e d c o s t s and the r e d u c t i o n i n the v a r i a b l e u n i t c o s t s r e s u l t i n the average u n i t c o s t curve e x p e r i e n c i n g a sharp drop and a gradual d e c l i n e to an even g r e a t e r d i s t a n c e along the x - a x i s . The f a c t t h a t d r a s t i c s a v i n g s i n c o s t s can o f t e n be achieved at lower outputs w i t h e f f e c t i v e i n s t r u m e n t a t i o n e x p l a i n s why many manufacturers have a p p l i e d these techniques; most e x t e n s i v e l y . E f f e c t o f Product V a r i a t i o n - . So_ f a r , c o n s i d e r a t i o n has only been g i v e n to r e s u l t s of t e c h n i c a l improvements i n reducing p r o d u c t i o n c o s t s . Frequent-l y , as a r e s u l t of r e s e a r c h , a f i r m i s ab l e to manufacture an "improved" product. Due to changes.'in the product, the co s t of p r o d u c t i o n curve i s a l s o changed. The q u a l i t a t i v e changes a l s o r e s u l t i n a change i n the demand schedule. Under such c o n d i t i o n s , an entrepreneur i s f a c e d with the d e c i s i o n of s e l e c t i n g the product whose cost and demand schedules a l l o w -143-the l a r g e s t t o t a l p r o f i t , p r i c e b e i n g e s t a b l i s h e d by t r a d i -8 t i o n or customer p r e f e r e n c e . For s i m p l i c i t y , the case of two s u b s t i t u t e products i s ; examined i n F i g u r e 16. Product A i s the o r i g i n a l w i t h a lower cost schedule than Product B, the "improved" commodity. Due to the improvements, i n B, which can be claimed i n a d v e r t i s i n g , the demand schedule f o r B i s to the r i g h t of the demand schedule f o r A. Both-pro-ducts are s o l d at the same p r i c e , f o r reasons g i v e n above. As can be seen from the diagram the p r o f i t from B exceeds that from A. Under such c o n d i t i o n s , a manufacturer.would drop Product A and concentrate p r o d u c t i o n on Product B. I t should be noted that t h i s w i l l occur although the p r o d u c t i o n c o s t s of A are l e s s than B. A manufacturer would not producS B however, j u s t because the product had the g r e a t e s t demand; c o s t s of p r o d u c t i o n would a l s o have to be c o n s i d e r e d . At a l l times the entrepreneur w i l l produce the product which w i l l y i e l d the g r e a t e s t i*efcoreven«e. -. t . Assuming f a v o u r a b l e s h i f t s i n the demand schedule f o r the new product, i t i s l i k e l y t h a t l a r g e r netorevenues __vi, w i l l be made i n the i n i t i a l p e r i o d . As s u b s t i t u t e s from competitors appear on the market, p r i c e s w i l l be lowered or c o s t s i n c r e a s e d (from a d v e r t i s i n g ) u n t i l rnet revenue — has becomes r e s t r i c t e d or/disappeared. I f , as a r e s u l t of i n t e n s i v e competitioner ice' l i n e should f a l l below the average u n i t 8 Chamberlin, M o n o p o l i s t i c competition, p. 78. Source: Chamberlin, E.H., The Theory of M o n o p o l i s t i c Compe- t i t i o n , Cambridge, The Harvard U n i v e r s i t y P r e s s , 1942, p. 79. - 1 4 4 -cost schedule, p r o d u c t i o n would be continued f o r a l i m i t e d time 9 as long as average v a r i a b l e c osts were covered. Due to the r e c e s s i v e f o r c e s of c o m p e t i t i v e s u b s t i t u t e s on the demand schedule of a f i r m producing products d i f f e r -e n t i a t e d through s u b t l e improvements, entrepreneurs of such f i r m s w i l l u t i l i z e r e s e a r c h and t e c h n i c a l development to ensure a stream of improved products over time. Such pro-ducts tend to o f f s e t r e c e s s i o n s i n demand and to p r e s e r v e monopoly p r o f i t s f o r the f i r m . An o u t s t a n d i n g example of such p r a c t i c e s may be found i n f i r m s s e l l i n g automobiles, vacuum c l e a n e r s , r a d i o s , and r e f r i g e r a t o r s . . Each year, products possess some new f e a t u r e which immediately c l a s s i - . f i e s p r e v i o u s models as "out of date," and at the same time d i f f e r e n t i a t e s the product i n the buyer's mind from s i m i l a r commodities o f f e r e d by competitors. A n a l y s i s of the Demand Schedule The e f f e c t of a t e c h n i c a l advance on the s e l l i n g p r i c e f o r a commodity w i l l depend on whether t h e r e has been a s h i f t i n the demand curve over time and oh whether t h e r e has been a s h i f t i n the marginal cost schedule over time. P r i c e i s r e l a t e d to marginal cost through the f o l l o w i n g r e l a t i o n -s h i p : 1 0 P • AR a MC e e - 1 where MC i s marginal c o s t , P i s the p r i c e of the commodity, 9 Logan and Inman, S o c i a l approach to economics, p. 246. 10 Robinson, Imperfect competition, p. 60. - 1 4 5 -AR i s average revenue, and e i s the e l a s t i c i t y of the demand schedule at the p r i c e P. With s u c c e s s i v e t e c h n i c a l advances, m a r g i n a l costs g e n e r a l l y would tend to d e c l i n e , s i n c e margin-a l cost i s not determined by f i x e d c o s t s , but'by t o t a l v a r i -a b l e c o s t s , which under the assumptions tend to d e c l i n e w i t h the adoption of advanced t e c h n o l o g i c a l p r o c e s s e s . T h i s con-d i t i o n i s s u b s t a n t i a t e d by the f a c t t h a t the marginal c o s t schedule i n t e r s e c t s the average u n i t cost schedule at the minimum p o i n t of the l a t t e r . The minimum p o i n t of average u n i t cost i s lower and f a r t h e r along on the x - a x i s or s c a l e o f outputs. The output produced by a f i r m i s determined at any one time by the i n t e r s e c t i o n of i t s m a r g i n a l cost and marginal revenue curves, as at t h i s p o i n t , revenue i s a max-imum {or l o s s i s a minimum.) I f the demand schedule s h i f t s p o s i t i v e l y , so t h a t i t s e l a s t i c i t y at the o l d p r i c e i s unchanged, and i f mar g i n a l c o s t s are lower the p r i c e w i l l f a l l . I f , w i t h the s h i f t i n demand, the e l a s t i c i t y i s l e s s on the new schedule at the o l d p r i c e , the p r i c e may be h i g h e r , remain the same, or be lower depending upon the extent of the f a l l i n marginal c o s t . I f t h e decrease i n e l a s t i c i t y of the second demand schedule i s s u f f i c i e n t to e q u a l i z e the f a l l i n marginal c o s t , p r i c e w i l l remain the same; i f the d e c l i n e i n e l a s t i c i t y i s l e s s than t h e d e c l i n e i n marginal c o s t , p r i c e w i l l f a l l ; on the other hand, i f e l a s t i c i t y has decreased to an extent s u f f i c i e n t to o f f s e t the d e c l i n e i n marginal c o s t , p r i c e w i l l r i s e . I f the new demand schedule has h i g h e r e l a s t i c i t y at the former p r i c e , - 1 4 6 -the p r i c e w i l l f a l l i f marginal c o s t s have decreased. In a l l cases however, output would i n c r e a s e , the new s c a l e of outputs b e i n g determined by. the e q u a l i t y of marginal cost and marginal revenue. I f the demand schedule should s h i f t to the l e f t , and i n the s h i f t , e l a s t i c i t y of the new schedule remains unchanged, p r i c e would be lower i f the m a r g i n a l cost i s lower; and the same, i f marginal cost remained unchanged. The output of course, would be reduced. A n e g a t i v e s h i f t i n the demand schedule accompanied by a decrease i n e l a s t i c i t y would r e -s u l t i n the f o l l o w i n g : (a) a s t a t i o n a r y p r i c e of the decrease i n e l a s t i c i t y was s u f f i c i e n t to e q u a l i z e the lower m a r g i n a l c o s t s . (b) a h i g h e r p r i c e , i f the decrease i n e l a s t i c i t y was more than enough to compensate f o r the d e c l i n e i n m a r g i n a l c o s t s . (c) a lower p r i c e , i f the d e c l i n e i n marginal c o s t s was g r e a t e r than the decrease i n e l a s t i c i t y . EQUILIBRIUM WITHIN AN INDUSTRY Pure and P e r f e c t Competition Under c o n d i t i o n s of pure and p e r f e c t c o m petition, the average revenue curve and p r i c e c o i n c i d e and are a s t r a i g h t l i n e p a r a l l e l to the x - a x i s . The e l a s t i c i t y of the demand curve i s i n f i n i t e . Under such assumptions, the p r o d u c t i o n of any s u p p l i e r i s not s u f f i c i e n t to a f f e c t p r i c e and a l l f i r m s i n the i n d u s t r y w i l l be producing at optimum s i z e where p r i c e i s - equal to minimum average u n i t cost and marginal c o s t . - 1 4 7 -Under such h y p o t h e t i c a l c o n d i t i o n s a t e c h n i c a l advance r e s u l t i n g i n a r e d u c t i o n i n average u n i t c o s t s a c q u i r e d by any p a r t i c u l a r l i n n would immediately become a v a i l a b l e to a l l competing f i r m s . Each f i r m would i n c r e a s e p r o d u c t i o n u n t i l m arginal c o s t s were equal to p r i c e . P r o d u c t i o n would i n c r e a s e and new f i r m s would be a t t r a c t e d i n t o the i n d u s t r y by the ex-i s t e n c e of g r e a t e r than normal p r o f i t s . The i n c r e a s e i n pro-d u c t i o n from the e x i s t i n g and new f i r m s would e v e n t u a l l y r e s t o r e e q u i l i b r i u m at a new p r i c e where a l l f i r m s were again p r o d u c i n g at the p o i n t of minimum average u n i t c o s t s . Under such c o n d i t i o n s the p r o f i t s of a l l f i r m s i n the i n d u s t r y would again be normal. Pure Competition However, t e c h n i c a l advances achieved by one f i r m are not f r e e l y made a v a i l a b l e to c o m p e t i t i v e f i r m s i n an i n d u s t r y . The advance Is r e t a i n e d i n secrecy or p r o t e c t e d w i t h a p a t e n t . I f the assumption of pure c o m p e t i t i o n i s r e t a i n e d , the c o s t r e d u c t i o n s achieved by a s i n g l e f i r m w i l l permit t h a t f i r m to expand i t s p r o d u c t i o n u n t i l m arginal c o s t s are equal to p r i c e . The e x t r a revenue achieved would be an economic r e n t earned by the t e c h n i c a l advance. I f t h i s r e n t i s c o n s i d e r e d as p a r t of the p r o d u c t i o n c o s t s , the f i r m would s t i l l be producing at the p o i n t of minimum average u n i t c o s t s , and would be, i n t h i s sense, at optimum s i z e . However, marginal f i r m s which do not have the b e n e f i t of cost r e d u c i n g t e c h n i -c a l advances, would a l s o produce up to the p o i n t of minimum average u n i t c o s t s . These f i r m s might or might not a c q u i r e -148.* an economic r e n t depending on whether they possessed s c a r c e f a c t o r s of p r o d u c t i o n . Rent a c q u i r e d through a t e c h n i c a l .quasi-advance may be regarded as t h e / r e n t achieved by entrepren-eurs of s p e c i a l managerial' c a p a c i t y , as the a b i l i t y of these entrepreneurs to u t i l i z e r e s e a r c h to lower c o s t s i s the sca r c e f a c t o r . A f i r m which has lowered i t s schedule of average u n i t c o s t s through r e s e a r c h w i l l expand i t s output u n t i l m a r g i n a l c o s t s are equal to p r i c e (assuming the average revenue curve i s p e r f e c t l y e l a s t i c . ) T h i s expansion would absorb a p o r t i o n o f the markets of competing f i r m s i n the i n d u s t r y , and, i f accompanied by no p o s i t i v e s h i f t i n the demand schedule, might r e s u l t i n i n c r e a s i n g the average u n i t c o s t s of the competing f i r m s and e v e n t u a l l y f o r c e f i r m s to l e a v e the i n d u s t r y . "The e f f e c t of a t e c h n i c a l advance t h e r e f o r e i s to i n c r e a s e the degree of t r u s t i f i c a t i o n ; " 1 1 weaker f i r m s , not p o s s e s s i n g t h e t e c h n o l o g i c a l "know-how," w i l l be f o r c e d from the i n d u s t r y and other f i r m s w i l l have a str o n g i n c e n t i v e to combine and achieve economies of p r o d u c t i o n through the e l i m i n a t i o n of unnecessary f u n c t i o n s . M o n o p o l i s t i c Competition I t i s now proposed to analyze the e f f e c t of t e c h n i c a l advance on a f i r m and i n d u s t r y o p e r a t i n g under im p e r f e c t com-11 K e i r s t e a d , " T e c h n i c a l advance and economic e q u i l i b r i a , " p . 5 9 . -149-p e t i t i o n . Imperfect c o m p e t i t i o n has been d e f i n e d to cover 1 2 t h r e e cases: (a) m o n o p o l i s t i c competiton -- when many f i r m s produce heterogeneous products, the products being s i m i l a r but not i d e n t i c a l with the product of other f i r m s i n the same i n d u s t r y . (b) p e r f e c t ologopoly, when a few f i r m s are s e l l i n g a homogeneous product. (c) i mperfect o l o g o p o l y -- when a few f i r m s are s e l l i n g heterogeneous p r o d u c t s . Under m o n o p o l i s t i c c o m p e t i t i o n each f i r m w i l l be s e l l i n g p r o d u c t s which, although s i m i l a r , w i l l be d i f f e r e n t i a t e d i n the buyer's mind. Product d i f f e r e n t i a t i o n w i l l be achieved through patented f e a t u r e s , t r a d e marks, and other p e c u l i a r -i t i e s of s e r v i c e , packaging, design and the l i k e . The demand schedule f o r a d i f f e r e n t i a t e d product i s l e s s than i n f i n i t e l y e l a s t i c . E q u i l i b r i u m f o r the f i r m producing the product i s ac h i e v e d at the p o i n t where marginal cost i s equal to mar g i n a l revenue. At t h i s p o i n t , the entrepreneur would r e c e i v e a maximum net revenue. A t e c h n i c a l advance developed by a manufacturer may a f f e c t h i s c o st schedules i n two ways. F i r s t , i f the t e c h n i c a l ad-vance r e s u l t s i n a process i n v o l v i n g lower c o s t s , the average t o t a l c o st schedule of the f i r m w i l l be lowered and the p o i n t o f minimum average u n i t c o s t s s h i f t e d to the r i g h t . M a r g i n a l 12 B o u l d i n g , Economic a n a l y s i s , p. 596. -150-c o s t s w i l l a l s o be lowered and i n t e r s e c t the average u n i t c o s t s f u r t h e r to the r i g h t . Secondly, i f the t e c h n i c a l advance i s i n the form of an "improved" product (a "product v a r i a t i o n " ) (though not n e c e s s a r i l y ) the cost schedule w i l l be s h i f t e d upwards and p o s s i b l y / t h e p o i n t of average minimum co s t s w i l l be' s h i f t e d to the l e f t . r e s u l t i n g from The new p r i c e and output <fZ the t e c h n i c a l advance under e i t h e r c o n d i t i o n w i l l depend on the s h i f t i n the demand and marginal revenue curves. Under the assumption t h a t demand schedule does not change, lower marginal c o s t s w i l l mean t h a t the entrepreneur w i l l maximize h i s va&% reyenue. by s e l l i n g a l a r g e r s c a l e of outputs. P r i c e w i l l d e c l i n e i n accordance w i t h the f o r m u l a P a MC e e - 1 The monopoly p r o f i t s may or may not be g r e a t e r than p r e v i o u s l y . I f the d e c l i n e i n p r i c e i s g r e a t e r than the d e c l i n e i n u n i t c o s t , monopoly p r o f i t s would be l e s s . Heedless to say, i f an entrepreneur c o u l d a n t i c i p a t e t h a t an improved process would lower p r o d u c t i o n c o s t s l e s s than enough to o f f s e t a p o s s i b l e d e c l i n e i n p r i c e , the t e c h n i c a l advance would be w i t h h e l d . ( I t i s assumed the t e c h n i c a l advance does not r e -s u l t i n a change or s h i f t i n the demand schedule.) The d e c l i n e i n the p r i c e and the i n c r e a s e d output of the f i r m would immediately r e f l e c t i t s e l f on the demand sched-u l e s of other f i r m s i n the i n d u s t r y , P i r s t , the f i r m w i t h the t e c h n i c a l advance would absorb some, but not a l l , of i t s co m p e t i t o r s ' s a l e s . To meet the lower p r i c e s of the f i r m w i t h the t e c h n i c a l advance, the others would attempt to reduce -151-c o s t s by expanding p r o d u c t i o n or by s e c u r i n g improvements i n p r o d u c t i o n methods. The i n c r e a s e i n p r o d u c t i o n which can be achieved by the f i r m w i t h the t e c h n i c a l advance would n e g a t i v e -l y s h i f t the demand schedules of competing f i r m s i n the indus-t r y , w i t h the i n e v i t a b l e r e s u l t t h a t h i g h e r cost f i r m s would be f o r c e d to leav e the i n d u s t r y , e i t h e r through bankruptcy or amalgamation w i t h more e f f i c i e n t f i r m s . 12' The p o s s i b i l i t y of " t r u s t i f i c a t i o r i ' through t e c h n i c a l advances i s heightened when an improved process r e s u l t s i n lower c o s t s and permits an entrepreneur to expand the s c a l e o f the firmte o p e r a t i o n s . T h i s i s e s p e c i a l l y t r u e i f the advance means a f i r m i s o p e r a t i n g under c o n d i t i o n s of decreas-i n g c o s t s and by advancing the s c a l e of o p e r a t i o n s , i t can s t i l l secure lower c o s t s . So f a r , the assumption has been that a decrease i n c o s t schedules has been accompanied by no change i n the demand schedules. However, changes i n the demand schedules w i l l i n -e v i t a b l y occur as a r e s u l t of one or a l l of the f o l l o w i n g r e a s o n s : 1 3 (a) Lower c o s t s of p r o d u c t i o n through r e s e a r c h w i l l per-mit the entrepreneur to compete i n markets p r e v i o u s l y i n a c c e s s a b l e . In such cases the demand schedule f o r the f i r m u s u a l l y s h i f t s to the r i g h t . (b) The disappearance of competing f i r m s from the i n d u s t r y , w i l l o f t e n r e s u l t i n a demand curve becoming more i n - " e l a s t i c . 12' K e i r s t e a d , on. c i t . , p. 59. 13 Robinson, Imperfect competition, pp. 70-1. -152-(c) An i n c r e a s e i n t h e wealth of buyers may cause the • i n d i v i d u a l demand curve of the buyer to becomes l e s s e l a s t i c . A p o s i t i v e s h i f t i n the demand curve, accompanied by no change i n marginal cost and no change i n the e l a s t i c i t y of the new demand curve at the o l d p r i c e , w i l l mean that the en t r e -preneur w i l l be able to produce a g r e a t e r output w i t h no r e -d u c t i o n i n p r i c e . Under such c o n d i t i o n s , monopoly p r o f i t s t o the entrepreneur w i l l be i n c r e a s e d . I f the s h i f t i n demand r e s u l t s i n a l e s s e l a s t i c demand schedule and i s accompanied by no d e c l i n e i n mar g i n a l c o s t s , the r e s u l t i s h i g h e r p r i c e s and i n c r e a s e d monopoly p r o f i t s . I f marginal c o s t s are lower and i f e l a s t i c i t y of the new de-mand schedule at the o r i g i n a l p r i c e should decrease, s u f f i c i e n t -l y to o f f s e t the d e c l i n e i n marginal c o s t s , p r i c e would be h i g h e r at a l a r g e r output. Monopoly p r o f i t s would be l a r g e r as the average u n i t c o s t s would have decreased by the i n s t i -t u t i o n of the t e c h n i c a l advance. The disappearance of f i r m s from an i n d u s t r y f r e q u e n t l y r e s u l t s i n the demand schedules of the remaining f i r m s be-coming more i n e l a s t i c . 1 4 T h e r e f o r e , as a more e f f i c i e n t f i r m expands o p e r a t i o n s and absorbs the output of competitors, i t i n c r e a s e s i t s output and r e c e i v e s a h i g h e r p r i c e f o r i t s pro-d u c t s . The i n c r e a s e d monopoly p r o f i t s are gains achieved -from e f f i c i e n c y i n t e c h n i c a l i n v e n t i o n or the g a i n s of i n r f o v a t i o n . 14 Robinson, Imperfect competition, p. 71. -153-I f the t e c h n i c a l i n v e n t i o n s r e q u i r e l a r g e c a p i t a l investments i n order to apply them, the p o s s i b i l i t i e s of f i r m s e n t e r i n g the i n d u s t r y to a c q u i r e some of the monopoly gains i s c o n s i d -e r a b l y reduced. Thus monopoly p r o f i t s a r i s i n g out of t e c h n i -c a l i n n o v a t i o n s may accrue f o r a long time to a f i r m possess-i n g the advance. T h i s e x p l a i n s the continuous d r i v e of f i r m s competing under m o n o p o l i s t i c methods f o r improved p r o d u c t i o n p r o c e s s e s . The burden of obsolescence of the o l d process i s f o r c e d on the c o m p e t i t o r s . 1 5 The l a r g e r the monopoly p r o f i t , the stronger the f i r m ' s c o m p e t i t i v e p o s i t i o n i n the i n d u s t r y . As l o n g as the f i r m i s able to a c q u i r e normal p r o f i t s , where average t o t a l cost i s tangent to the demand curve, the f i r m w i l l s t a y i n the i n d u s t r y . A f i r m may be able to s h i f t the demand schedule by f i n d -i n g new uses f o r i t s product. For t h i s reason, r e s e a r c h i s d i r e c t e d towards t h i s o b j e c t i v e w i t h as much emphasis as towards t h a t of r e d u c i n g p r o d u c t i o n c o s t s . In many i n d u s t r i e s , t h e ease of a c q u i r i n g new o u t l e t s f o r a commodity may i n v o l v e l e s s expense than determining a reduced method of p r o d u c t i o n . Widened markets tend to i n c r e a s e the e l a s t i c i t y of the demand schedule w i t h the r e s u l t t h a t r e l a t i v e l y l a r g e r q u a n t i t i e s o f the good are s o l d f o r s m a l l e r p r i c e d e c l i n e s . Thus, assum-i n g no change i n marginal c o s t , a f i r m maybe able to s e l l .an i n c r e a s e d output at a lower p r i c e and d e r i v e g r e a t e r monopoly p r o f i t s . In such cases, the consumer b e n e f i t s from i n c r e a s e d 15 I b i d . , p. 169. -154-p r o d u c t i o n at lower p r i c e s and the f i r m b e n e f i t s from i n c r e a s e d p r o f i t s . The s h i f t i n g of the demand schedule to the r i g h t r e s u l t s i n the marginal revenue curve i n t e r s e c t i n g a marginal cost curve at a h i g h e r p o i n t than would be the case, i f nov s h i f t i n the demand schedule o c c u r r e d . Thus, marginal c o s t does not tend to. become l e s s , i f r e d u c t i o n s i n c o s t s are accompan-i e d by p o s i t i v e s h i f t s i n the demand schedule. Any change i n p r i c e w i l l t h e r e f o r e depend on the e l a s t i c i t y o f the new de-mand schedule at the o l d p r i c e . Monopoly p r o f i t s , however, w i l l be i n c r e a s e d because average u n i t c o s t s are lower and output i s g r e a t e r . For these reasons, f i r m s o p e r a t i n g under m o n o p o l i s t i c c o m p e t i t i o n push r e s e a r c h along the l i n e s of new uses f o r e x i s t i n g products and processes h a v i n g lower opera-t i n g c o s t s . Both l i n e s of r e s e a r c h perm-it expansion and the a c q u i s i t i o n of g r e a t e r p r o f i t s . Under such c o n d i t i o n s , f i r m s slow i n the adoption of t e c h n o l o g i c a l improvements soon f i n d t h e i r markets absorbed and are unable to compete i n p r i c e . Two s o l u t i o n s are open to them; (a) l e a v e the i n d u s t r y or amalgamate w i t h the more e f f i -c i e n t competitor. (b) through r e s e a r c h d i f f e r e n t i a t e the product so t h a t i t has an e x c l u s i v e appeal i n a r e s t r i c t e d market where i t can be s o l d at a h i g h e r p r i c e . Thus, we f i n d the emergence of many f i r m s w i t h a h i g h l e V e l of t e c h n o l -ogy* producing s p e c i a l i z e d p r o d u c t s . Monopoly p r o f i t s are achieved through the development of demand sched--155-u l e s i n s p e c i a l i z e d markets -- o f t e n small i n s c a l e --which are not open to the c o m p e t i t i o n of other f i r m s producing ; a s i m i l a r product at a lower p r i c e . P r i c e s i n these markets are h i g h e r than i n the g e n e r a l mar-ket f o r the product. T h i s f a c t permits the f i r m s to operate w i t h h i g h e r u n i t c o s t s . In summary, then "under the stimulus of a t e c h n i c a l ad-vance f i r m s tend to grow l a r g e r , t o t a l output i s increased,"... i n the i n d u s t r y , s m a l l e r f i r m s tend to disappear e i t h e r from "bankruptcy, or, more l i k e l y , , "by merger, the optimum p r o d u c t i o n p e r p l a n t grows l a r g e r - and the i n d u s t r i a l tendency i s towards i m p e r f e c t c o m p e t i t i o n and ownership integration."-'- 6 Gains from a T e c h n i c a l Advance "...the gains of a t e c h n i c a l advance would be s o c i a l l y 17 unevenly d i s t r i b u t e d . 1 1 ' The consumer would g a i n i n the form o f g r e a t e r outputs, and, on the assumption of no change i n demand, would b e n e f i t from a reduced s e l l i n g p r i c e . However, a p o s i t i v e s h i f t i n the demand would i n c r e a s e "the q u a n t i t i e s a v a i l a b l e but might l e s s e n the b e n e f i t i n lower p r i c e s . La-bour i f h i g h l y o r g a n i z e d and i n e l a s t i c i n supply, would be able t o - d e r i v e some advantages from the t e c h n i c a l advance. E n t r e -preneurs of the f i r m s w i t h the t e c h n i c a l advance would c e r t a i n -l y b e n e f i t from the added monopoly p r o f i t s . F u r t h e r b e n e f i t s 16 K e i r s t e a d , " T e c h n i c a l advance and economic e q u i l i b r i a , " p . 62. 17 L o c . c i t . -156-would be a c q u i r e d by the entrepreneur's a b i l i t y to command a more dominant p o s i t i o n i n the i n d u s t r y and to secure a g r e a t e r degree of monopoly c o n t r o l . The i n t e n s i v e c o r p o r a t e i n t e -g r a t i o n and the formation of c a r t e l s , which are a s s o c i a t e d w i t h modern t e c h n o l o g i c a l p r o g r e s s , m e a n that the community w i l l r e c e i v e l e s s than the f u l l share of the gains a c t u a l l y 18 a v a i l a b l e from a t e c h n i c a l advance. 18 I b i d . , p. 63. CHAPTER VII PATENTS AND MONOPOLY CONTROL. CHAPTER V I I . PATENTS AND MONOPOLY CONTROL -The p r e v i o u s chapters have p i c t u r e d the development of s c i e n t i f i c r e s e a r c h i n American i n d u s t r y d u r i n g the p a s t f i f t y y e a r s . The primary economic motive f o r t h i s develop-ment was the monopoly p r o f i t which accrued to those f i r m s w i t h i n n o v a t i o n s i n products and p r o c e s s e s . The monopoly p r o f i t was r e a l i z e d as a r e s u l t of -lower p r o d u c t i o n c o s t s , a s h i f t i n the demand schedule, or a combination of both. While monopoly p r o f i t s were c r e a t e d by o r g a n i z e d r e s e a r c h producing a stream of i n n o v a t i o n s , they were perpetuated by the patent which prevented c o m p e t i t i v e f i r m s from u s i n g an i n n o v a t i o n u n t i l a f i x e d p e r i o d of time had elapsed. The p r o g r e s s of s c i e n t i f i c r e s e a r c h i n i n d u s t r y i s t h e r e f o r e c l o s e l y a s s o c i a t e d w i t h the patent and i t s u t i l i z a t i o n by i n d u s t r y as an instrument of monopoly c o n t r o l . "A patent i s i n substance a c o n t r a c t between the Govern-ment, r e p r e s e n t i n g the p u b l i c , and the i n v e n t o r , under which the i n v e n t o r d i s c l o s e s to the p u b l i c by an adequate s p e c i f i -c a t i o n an i n v e n t i o n . . . s o that the p u b l i c may b e n e f i t by the d i s c l o s u r e and f r e e l y use the i n v e n t i o n a f t e r the patent has e x p i r e d . " 1 In r e t u r n , the Government grants a seventeen year monopoly to the i n v e n t o r . 2 "Patents are granted f o r new and u s e f u l d i s c o v e r i e s , new and u s e f u l improvements £on these d i s c o v e r i e s j and f o r new, o r i g i n a l and ornamental designs f o r an a r t i c l e of manufacture." An i n v e n t i o n or d i s c o v e r y , to 1 Parker-Smith, A., "Patents," E n c y c l o p a e d i a B r i t a n n i c a , 14th ed., 1940, v o l . 17, p. 372. 2 Loc. c i t . 3 L o c . c i t . -159-be p a t e n t a b l e , must be an a r t , a machine, a manufacture, or a composition of matter. "Patents are monopolies." 4 Under the American system, the patentee i s czar;, "he does not have to manufacture h i s i n v e n t i o n i n order to s u s t a i n h i s patent; he may r e f u s e to e x p l o i t h i s patent; he may p r a c t i s e i t or grant l i c e n c e s f o r i t s use; he may " s e c r e t e " the patent and h i s i n v e n t i o n and [may] r e f u s e e i t h e r to manufacture or to permit others to manufacture without i n any way endangering the v a l i d i t y o f the patent.' 5 The patent i s t h e r e f o r e a l e g a l p r o p e r t y r i g h t of the h o l d e r , and the i n v e n t o r i s e n t i t l e d to r e c e i v i n g the patent as a reward f o r " i n v e n t i v e i n g e n u i t y " ; a " f l a s h of genius"; or f o r the f r u i t s of h i s e f f o r t , a f t e r years and expense of p a t i e n t r e s e a r c h and the a p p l i c a t i o n of l e a r n i n g and s c i e n t i f i c knowledge. 6 Since the patent has the l e g a l concept of p r i v a t e proper.ty, the p u b l i c i s powerless to abrogate the patentee's d e s i r e s r e g a r d i n g the use of the patent, except to await the e x p i r a t i o n of the term of the p a t e n t . ^ With the p r o p e r t y and monopoly r i g h t s v e s t e d i n l e t t e r s o f patent, i t can be a p p r e c i a t e d how "patents have been used by c o r p o r a t i o n s to f u r t h e r the r e s t r a i n t of trade and the c r e a t i o n of i n d u s t r i a l monopolies." 8 Under the g u i s e of 4 Pox, H.G., Monopolies and p a t e n t s , Toronto, The U n i -v e r s i t y of Toronto P r e s s , 1947, p. 204. 5 I b i d . , p. 195. 6 I b i d . , p. 205. 7 Ibod., p. 195. -160-l e g a l immunity, patents have been used to defeat the pur-pose of the a n t i - t r u s t laws through the c r e a t i o n o f p o o l s , patent c o r p o r a t i o n s , and the i n s t i t u t i o n of r e s t r a i n t s and c o n t r o l on the a c t i v i t i e s of competing f i r m s . A l l t h r e e of these developments w i l l now be d i s c u s s e d . P at ent p o o l s " A patent p o o l i s an arrangement by which former com-p e t i t o r s partake of the p r i v e l e g e s c o n f e r r e d by one or more pate n t s a c c o r d i n g to some prearranged b a s i s designed to r e s t r a i n t r a d e . " T h i s r e s t r a i n t may be imposed by one or a l l of the f o l l o w i n g c o n d i t i o n s : (a) t h a t a c e r t a i n p r i c e i s maintained f o r the product being manufactured (b) t h a t a s p e c i f i c volume of p r o d u c t i o n i s under-taken (c) t h a t a p l a n t of s p e c i f i e d c a p a c i t y i s c o n s t r u c t e d to manufacture the product 1^ 1 8 Vaughan, P.L., "Tne-Relation of p'atents to indus-t r i a l monopolies, 1' Annals of the American Academy of P o l i -t i c a l and S o c i a l Science, v o l . 147, p. 40, January, 1930. 9 L o c . c i t . 10 "Drummond, G.P., I n t e r n a t i o n a l Trade, mimeographed copy, chapter 20, p. 7. -161-[ •'} (d) t h a t any a c c e s s o r y items, whether p a t e n t a b l e or not, to be used w i t h the main p a t e n t a b l e product must be purchased from the p a t e n t e e . 1 . The form of the pool v a r i e d , depending on whether i s was composed of owners or assignees; i n d i v i d u a l s or companies; manufacturers or possessors of p a t e n t s . Arrange-ments a l s o v a r i e d . In some i n s t a n c e s an assignee c o n t r o l l e d the p a t e n t s ; i n o t h e r s , the owners of the p a t e n t s . What-ever the arrangement, however, the obj ect of the patent p o o l was to attempt to e l i m i n a t e c o m p e t i t i o n . L e g a l a c t i o n i n connection w i t h the o p e r a t i o n s of the patent pools has been brought b e f o r e the American c o u r t s s i n c e 1900. As a r e s u l t of these c o u r t a c t i o n s , the e x i s t e n c e of patent p o o l s has been r e v e a l e d i n c o n n e c t i o n w i t h the motion p i c t u r e i n d u s t r y , the " c r a c k i n g processes f o r making g a s o l i n e , r a d i o manufacture, enameled i r o n ware, b i c y c l e and motorcycle c o a s t e r brakes, a g r i c u l t u r a l imple-ments, c i g a r e t t e manufacture, and rubber t i r e s . 1 2 Even-t u a l l y , government a c t i o n based on the a n t i - t r u s t laws was "brought a g a i n s t a number of the e x i s t i n g patent p o o l s . P a t e n t C o r p o r a t i o n s or T r u s t s "The i n s t a b i l i t y and i l l e g a l i t y of patent pools i n -d i c a t e d the n e c e s s i t y of other forms of o r g a n i z a t i o n . " 1 3 11 Vaughan, op. c i t . , p. 48. 12 I b i d . , pp. :41--44. 13 I b i d . , p. 44. -162-Two methods f o r e f f e c t i n g the o u t r i g h t ownership of a l l patent r i g h t s p e r t a i n i n g to a p a r t i c u l a r i n d u s t r y were evolved. "The f i r s t c o n s i s t e d of the c o n s o l i d a t i o n of former c o m p e t i t o r s . " 1 ^ Under t h i s system the p l a n t s , processes, and patents of a competitor were a c q u i r e d . Under such a c t i o n , c o m p e t i t i o n from other sources c o u l d not r e a d i l y appear, because a complete l i n e of i n v e n t i o n s , as w e l l as a l a r g e supply of c a p i t a l , would be n e c e s s a r y . ^ 5 The second method was to purchase only the patent r i g h t s wfthout any attempt to a c q u i r e the p l a n t s of c o m p e t i t o r s . 1 6 T h i s l a t t e r method was adopted by concerns a l r e a d y occu-p y i n g a prominent p o s i t i o n i n the i n d u s t r y . Often, the second method was a l o g i c a l sequel to the f i r s t ; a f t e r a c q u i r i n g the patents and p r o d u c t i v e f a c i l i t i e s of a com-p e t i t o r , i t was f r e q u e n t l y necessary to purchase r e l e v a n t p a t e n t s from m i s c e l l a n e o u s sources i n order to c o n s o l i d a t e and perpetuate the m o n o p o l i s t i c power.I 7-The economic reasons m o t i v a t i n g t h i s a c t i o n are the f o l l o w i n g ! to secure and p e r p e t u a t e . a monopoly and the p r o f i t s a s s o c i a t e d w i t h the p o s i t i o n ; to prevent the d i s - . c a r d i n g of e x i s t i n g investments i n equipment and p r o c e s s e s ; to p e r f e c t e x i s t i n g machines and p r o c e s s e s through the a c q u i s i t i o n of a d d i t i o n a l and a s s o c i a t e d p a t e n t s ; to a v o i d c o s t l y l i t i g a t i o n over the v a l i d i t y of p a t e n t s . 1 8 14 L o c . c i t . 15 L o c . c i t . 16 L o c . c i t . 17 LLoc. c i t . . 18 L o c . c i t . -163-C o n t r o l of S c i e n t i f i c Resources In American i n d u s t r y the c o n t r o l of patents and t h e i r u t i l i z a t i o n i s v e s t e d i n the c o r p o r a t i o n s which have access to the necessary funds to e x p l o i t the d i s c o v e r i e s covered by the p a t e n t s . Inventors and s c i e n t i s t s no l o n g e r have c o n t r o l over t h e i r i n v e n t i o n s and i t i s very d i f f i c u l t f o r an i n v e n t o r to o b t a i n outsL de c a p i t a l to e x p l o i t h i s i n -19 v e n t i o n . "Large c o r p o r a t i o n s . . . h a v e succeeded i n domin-a t i n g e n t i r e i n d u s t r i e s , and the only market to which an i n v e n t o r of improvements upon...machines may o f f e r h i s patents f a r s a l e i s to such c o r p o r a t i o n s . F u r t h e r , the t h r e a t of infringement s u i t s , t e d i o u s l y l o n g and e x c e e d i n g l y expensive, have a l s o thwarted the independent i n v e n t o r from e x p l o i t i n g h i s d i s c o v e r y and have enhanced the domin-a t i n g p o s i t i o n of the c o r p o r a t i o n s w i t h the f i n a n c i a l r e s o u r c e s to undertake patent l i t i g a t i o n . The e f f e c t of the f e a r of i n f r i n g e m e n t proceedings i s demonstrated by the experience of the Wright b r o t h e r s - - d i s c o v e r e r s of the aero-plane--who concealed the developments of t h e i r machine f o r f i v e 19 S t e r n , B.J., " R e s t r a i n t s upon the u t i l i z a t i o n of i n v e n t i o n s , " Annals of the American Academy of P o l i t i c a l  and S o c i a l S c i e n c e , " v o l . 200, p. 21, November, 1938. 20 C i t e d ' i n S t e r n , B . J., " R e s t r a i n t s . . . i n v e n t i o n s , " Annals, p. 21. -164-year s a f t e r the f i r s t , s u c c e s s f u l f l i g h t , i n order to a c q u i r e $200,000 to f i g h t patent s u i t s i n the c o u r t s . 2 1 Thomas A. E d i s o n has s t a t e d : The l o n g delays and the enormous c o s t s i n c i d e n t to the procedure of the c o u r t s have been s e i z e d upon by c a p i t a l i s t s to enable them to a c q u i r e i n v e n t i o n s f o r nominal sums t h a t are e n t i r e l y inadequate to encourage r e a l l y v a l u a b l e i n v e n -t i o n s . The i n v e n t o r i s now dependent, a h i r e d person to the c o r p o r a t i o n . Inventors, s c i e n t i s t s , and engineers have t h e r e -f o r e tended to become co n c e n t r a t e d i n the l a r g e l a b o r a -t o r i e s of the g r e a t c o r p o r a t i o n s . S t a t i s t i c a l evidence of t h i s t r e n d has al ready been presented. As workers i n these l a b o r a t o r i e s , the modern s c i e n t i s t , through a l e g a l agree-ment, a s s i g n s a l l i n v e n t i o n s and d i s c o v e r i e s and any patent r i g h t s which he may achieve d u r i n g h i s employment to the f i r m which has employed h i m . 2 3 F u r t h e r , the s c i e n t i s t ' s work i s d i r e c t e d along those l i n e s which w i l l p erpetuate the p r o f i t and extend the c o n t r o l of the markets of the f i r m . The e x p l o i t a t i o n of a s c i e n t i s t ' s d i s c o v e r i e s w i l l t h e r e f o r e be determined by the f i r m and w i l l be governed by whether such a c t i o n w i l l i n no way j e a p o r d i z e e x i s t i n g investments i n p r o d u c t i o n f a c i l i t i e s and markets. 21 I b i d . , - p . 22 22 C i t e d i n Stern, " R e s t r a i n t s . . . i n v e n t i o n s , " Annals, p. 22. 23 L o c . c i t . -165-Suppression of Patents The s u p p r e s s i o n of patents and d i s c o v e r i e s "by corpor-a t i o n s i s now admitted and has been r e c o g n i z e d by the c o u r t s i n the U n i t e d S t a t e s . 2 4 "The American B e l l Telephone Com--pany r e p o r t e d i n December, 1934, t h a t the B e l l System owned and c o n t r o l l e d 9,234 pa t e n t s , of which 4,225 or 45.7 percent were i n u s e . " 2 5 F a i l u r e to use the remaining patents was e x p l a i n e d as f o l l o w s : 2 6 Development~incomplete 608 P r a c t i c a l a p p l i c a t i o n depends upon oth e r developments 237 Awaiting the d e t e r m i n a t i o n of commercial a p p l i c a t i o n 660 S u p e r i o r a l t e r n a t i v e s a v a i l a b l e 2,126 No p u b l i c n e c e s s i t y 1,307 Of the l a t t e r g r o u p — " n o p u b l i c n e c e s s i t y " - - T h e F e d e r a l Communications Commission has f l a t l y d e c l a r e d t h a t the w i t h o l d i n g of the patents has been f o r the purpose of s u p p r e s s i n g c o m p e t i t i o n . 2 ' The p o l i c y of f i r m s to suppress patents and to d i r e c t the a c t i v i t i e s of t h e i r r e s e a r c h s t a f f s to improve e x i s t i n g f a c i l i t i e s has been to m a i n t a i n . i n t a c t c u r r e n t investments. T h i s o b j e c t i v e i s achieved a number of ways. S u c c e s s i v e patents on improvements or v a r i a t i o n s on e x i s t i n g p rocesses and products perpetuate the u s e f u l n e s s of the b a s i c p a t e n t . 24 S t e r n , " R e s t r a i n t s . . . i n v e n t i o n s , " Annals, p. 17. 25 I b i d . , p. 19. 26 L o c . c i t . 27 L o c . c i t . -166-"Patents t h e r e f o r e become i l l i m i t a b l e i n time and i n f i n i t e i n s p a c e . " 2 8 P a t e n t s of t h i s type may a l s o be a c q u i r e d and used to o b s t r u c t or circumvent the b a s i c patents of a competitor. The competitor f i n d s i t d i f f i c u l t to p e r f e c t and market h i s product without the r i s k of infr i n g e m e n t proceedings and i s f o r c e d to b a r g a i n - - f r e q u e n t l y a t a d i s -advantage- -w i t h s t r o n g e r c o m p e t i t o r s . Secondly, the p o s s i b i l i t y of r a d i c a l i n n o v a t i o n s which w i l l r e s u l t i n the scr a p p i n g of e x t e n s i v e i n s t a l l a t i o n s i s d e f i n i t e l y reduced. "The i n s t a n c e s of b a s i c i n v e n t i o n s opening up new l i n e s and founding e n t i r e l y new i n d u s t r i e s are r e l a t i v e l y r a r e w i t h i n the l a r g e r c o r p o r a t i o n s . " 2 9 T h i s r e s t r a i n e d r e c e p t i v i t y of c o r p o r a t i o n s to i n n o v a t i o n s i s a l s o due to the t e c h n o l o g i c a l r i g i d i t y of the f i r m and the r e l u c t a n c e to make the adjustments i n r o u t i n e ; r e a l i g n -ments of a u t h o r i t y ; and to take the r i s k s a s s o c i a t e d w i t h new developments. The h i g h p r o p o r t i o n of f i x e d c o s t s to v a r i a b l e costs i n any new developments i s a l s o a d e t e r r e n t ; "28 Drummond, G.P., I n t e r n a t i o n a l Trade, chapter 20, p. 5. . -29 Gfosvenor, W.M., "Seeds o f P r o g r e s s , " Chemical • Markets, p.'25, January, 1929, c i t e d i n Ster n , B. J . , " R e s t r a i n t s . . . i n v e n t i o n s , " Annals, v o l . 200, p. 23, November, 1938. -16 7-although an i n n o v a t i o n may d r a s t i c a l l y reduce o p e r a t i n g Costs, the h i g h f i x e d c o s t s w i l l render the process t e m p o r a r i l y uneconomic, and i n the event of a busi n e s s r e c e s s i o n , i t might mean the d i f f e r e n c e between o p e r a t i n g at a p r o f i t o r a l o s s . I n t e r n a t i o n a l monopolies i n patents Since 1920 pa t e n t monopolies have extended beyond n a t i o n a l boundaries. Arrangements f o r h o l d i n g p a t e n t s and c o n t r o l l i n g p r o d u c t i o n have been used on the i n t e r n a t i o n a l s c a l e between c a r t e l s i n v a r i o u s c o u n t r i e s . Through "the continuous cross-exchange of patent r i g h t s , the demarca-t i o n and a l l o c a t i o n of e x c l u s i v e t e r r i t o r i e s f o r s a l e s or f o r manufacture, and the j o i n t e x p l o i t a t i o n of common know-ledge and d i s c o v e r i e s , " . c a r t e l s i n the U n i t e d S t a t e s , Ger-many, and Great B r i t a i n have e f f e c t i v e l y c o n t r o l l e d the s a l e and manufacture of b a s i c raw m a t e r i a l s i n food s t u f f s , dyes, 3 0 r i n d u s t r i a l chemicals, and machinery. "The de v i c e of p o o l i n g p a t e n t s and processes and of c r o s s - l i c e n s i n g them has become the most powerful monopoly t o o l of our time." Hearings b e f o r e a Sub-Committee of the Committee on M i l i t a r y A f f a i r s 3 2 o f the U n i t e d S t a t e s Senate have r e v e a l e d t h a t even c o n s i d -e r a t i o n s of n a t i o n a l defence would have been i g n o r e d i n the i n t e r e s t of the patent ©aftel. I n t e r n a t i o n a l monopolies have t h e r e f o r e extended beyond n a t i o n a l j u r i s d i c t i o n s and c o n t r o l w i l l have to stem from a d m i n i s t r a t i o n on the i n t e r 30 Drummond, G.F., I n t e r n a t i o n a l Trade, chapter 20, p.7. 31 I b i d . , p. 15 32 H e l d pursuant to Senate r e s o l u t i o n 107 and on B i l l S 702, P a r t 4, June 4, 1943. , A " . n o b 3 0 T Drummond, I n t e r n a t i o n a l Trade, chapter 20, pp. ±-d<i. -168-n a t i o n a l l e v e l , such as through the o f f i c e s of the U n i t e d N a t i o n s . Through i n t e r n a t i o n a l monopoly c o n t r o l , the development of p rocesses and products i n one country has been prevented by a c a r t e l i n another. The l o n g range e f f e c t s of such p o l i c i e s are obvious. Through the s k i l l f u l s e l e c t i o n , c o n t r o l , and s u p p r e s s i o n of key p a t e n t s , a c a r t e l i n one country--(and i n c o l l a b o r a t i o n w i t h the government of t h a t c o u n t r y ) - - c o u l d r e t a r d the t e c h n i c a l e f f i c i e n c y and i n d u s t r i a l development i n another country. Evidence of t h i s p o l i c y was a l s o i n d i c a t e d i n the h e a r i n g s of the 32' Committee on M i l i t a r y A f f a i r s . The i n t e r n a t i o n a l agreements of the l a r g e c o r p o r a t i o n s w i t h o r g a n i z e d r e s e a r c h f a c i l i -t i e s i n the U n i t e d S t a t e s has probably been a major reason f o r the American Government's l a r g e c o n t r i b u t i o n s to r e s e a r c h a f t e r World War I I . I n 1944, the F e d e r a l and S t a t e governments i n the U n i t e d S t a t e s expended $719,813,000 on r e s e a r c h as compared w i t h $16G>700,000 by i n d u s t r y . 3 3 The Government has chosen to sponsor and d i r e c t r e s e a r c h along the l i n e s of n a t i o n a l importance without r e l y i n g on the r e s e a r c h p o l i c i e s of the c o r p o r a t i o n s w i t h o r g a n i z e d r e s e a r c h f a c i l i t i e s . A new e r a i n o r g a n i z e d r e s e a r c h has t h e r e f o r e commenced i n the U n i t e d S t a t e s of America. 32' v. n. 32. 33 Bush, V., Science, the endless f r o n t i e r , U n i t e d S t a t e s Government P r i n t i n g O f f i c e , Washington, 1945, p. 80. SU1MARY AND C O N C L U S I O N S . SXJMETAHY AND CONCLUSIONS. The p a s t f i f t y y e a r s have witnessed the development o f s c i e n t i f i c r e s e a r c h i n American i n d u s t r y . T h i s development has grown from the random e f f o r t s of a few independent i n -v e n t o r s to an o r g a n i z e d a c t i v i t y of over 70,000 h i g h l y t r a i n e d s c i e n t i s t s and e n g i n e e r s . The o r i g i n of t h i s r a p i d advancement i n o r g a n i z e d r e s e a r c h "by i n d u s t r y was i n the i n d u s t r i a l and e d u c a t i o n a l developments which o c c u r r e d i n the U n i t e d S t a t e s f o l l o w i n g 1860, The i n c r e a s e d mechan-i z a t i o n of i n d u s t r y , the a d o p t i o n of r e v o l u t i o n a r y d i s c o v -e r i e s i n s t e e l making and r a i l r o a d i n g , and the appearance of important i n v e n t i o n s i n t e l e g r a p h y , e l e c t r i c i t y , and e l e c t r o - c h e m i s t r y i n s t i t u t e d a new i n d u s t r i a l e r a . P r e v i o u s l y , i t had "been p o s s i b l e f o r a few independent i n v e n t o r s to a c q u i r e the s k i l l s and knowledge e s s e n t i a l f o r the under-standing of i n d u s t r i a l o p e r a t i o n s , "but the developments i n i n d u s t r y , combined w i t h the r a p i d advancements i n the p h y s i c a l s c i e n c e s d u r i n g t h i s p e r i o d , soon i n d i c a t e d t h a t i n d u s t r y c o u l d no l o n g e r r e l y on random d i s c o v e r i e s . 1 I t would be necessary to ensure an o r g a n i z e d system f o r the accumulation and f l o w of new knowledge r e l a t i n g to i n d u s t r i a l p r o c e s s e s and p r o d u c t s . Organized r e s e a r c h commenced around 1900 i n the "new" i n d u s t r i e s — t e l e g r a p h , telephone, e l e c t r i c a l apparatus and power, and i n d u s t r i a l chemicals. Firms i n these i n d u s t r i e s possessed patents which extended a seventeen year monopoly 1 P e r a z i c h and F i e l d , I n d u s t r i a l r e s e a r c h and changing  technology, p. 41. -171-on a product or a p r o c e s s . Research was commenced e a r l y i n these i n d u s t r i e s i n order to develop improvements extending the o r i g i n a l p a tent o r to develop new uses --- a d d i t i o n a l m arkets--for the product. The o b j e c t i v e was t w o f o l d : (a) to e l i m i n a t e or minimize the t h r e a t of c o m p e t i t i o n and (b) to perpetuate and i n c r e a s e the monopoly p r o f i t s d e r i v e d from a t e c h n i c a l i n n o v a t i o n . World War I served to c o n s o l i d a t e r e s e a r c h i n those i n d u s t r i e s where i t was a l r e a d y e s t a b l i s h e d and to i n d i c a t e the b e n e f i t s to o t h e r i n d u s t r i e s , such as the petroleum, rubber products, and automobile. World War I a l s o marked the f i r s t time t h a t the Government of the U n i t e d S t a t e s took an a c t i v e p a r t i n promoting r e s e a r c h and c o - o r d i n a t i n g s c i e n t i f i c a c t i v i t i e s to s o l v e t e c h n i c a l problems connected w i t h the War. The s t a t i s t i c a l evidence on the development of indus-. t r i a l r e s e a r c h between 1920 and 1940 i n d i c a t e d the f o l l o w i n g t e n d e n c i e s : (1) The m a j o r i t y of r e s e a r c h personnel were employed i n the l a r g e - s i z e l a b o r a t o r i e s . Throughout the the e n t i r e p e r i o d over f i f t y p e r c e n t of the per-sonnel were employed by l e s s than seven p e r c e n t of the companies. In 1938, f o r example, 64.8 per-cent of the r e s e a r c h workers were c o n c e n t r a t e d i n 6.9Y%f T%n re tcompanies, a l l of which had l a b o r a t o r i e s l a r g e r than f i f t y persons. -172-Increases i n r e s e a r c h employment were c e n t r e d i n the l a b o r a t o r i e s w i t h l a r g e r s t a f f s . Between 1927 and 1938, 68.5 per c e n t of the t o t a l i n c r e a s e i n r e s e a r c h employment was accounted f o r by l a b -o r a t o r i e s w i t h more than f i f t y members. The l a r g e s t i n c r e a s e s i n r e s e a r c h employment o c c u r r e d i n the chemical and petroleum indus-t r i e s . Of the new i n d u s t r i e s , r a d i o apparatus and phonographs showed a phenomenal i n c r e a s e of 1600 p e r c e n t . I n 1920, the e l e c t r i c a l i n d u s t r y was the major employer of r e s e a r c h p e r s o n n e l , employing approx-i m a t e l y 37 pe r c e n t of a l l p e r s o n n e l ; i n 1938, the i n d u s t r y accounted far 21 per c e n t of a l l p e r s o n n e l . In the same p e r i o d between 1920 and 1938, the r e l a t i v e importance of the chemical and petroleum i n d u s t r i e s i n c r e a s e d from 24.9 percent to 32.9 per-c ent. During t h i s p e r i o d s i g n i f i c a n t i n c r e a s e s i n r e s e a r c h employment were a l s o evident i n rubber products, f o o d products, a g r i c u l t u r a l implements, i r o n and s t e e l , and c o n s u l t i n g and t e s t i n g l a b o r a t o r i e s . The bulk of r e s e a r c h p e r s o n n e l were employed by f i r m s c a p i t a l i z e d at more than $10*000,000. On the average, h i g h e r percentages Qf gross s a l e s were devoted to r e s e a r c h by f i r m s of lower c a p i t a l --173-(7) i z a t i o n , although the range of percentages o f gross s a l e s a l l o c a t e d to r e s e a r c h d i d not vary a p p r e c i a b l y from i n d u s t r y to i n d u s t r y or between f i r m s w i t h low or h i g h c a p i t a l i z a t i o n . The important f e a t u r e which c h a r a c t e r i z e s i n d u s t r i a l r e s e a r c h i n contemporary i n d u s t r y i s t h a t i t r e p r e s e n t s a planned e f f o r t to achieve a s o l u t i o n o f V a r i o u s i n d u s t r i a l problems. The problems to be i n v e s t i g a t e d and the o b j e c t -i v e s o f the i n v e s t i g a t i o n are determined by the economic p o l i c i e s of the f i r m and the i n d u s t r y . T h i s means t h a t the t e c h n o l o g i c a l developments a r i s i n g out o f an i n d u s t r i a l r e s e a r c h l a b o r a t o r y w i l l be c o n t r o l l e d by management. Furthermore* management w i l l be governed by one primary o b j e c t i v e ; namely, to p r o t e c t e x i s t i n g investments and to m a i n t a i n or i n c r e a s e the monopoly p r o f i t s a l r e a d y being achieved by the f i r m . T h i s o b j e c t i v e may be accomplished by developing improvements i n the process which w i l l lower p r o d u c t i o n c o s t s or by developing improvements i n the pro-duct which w i l l s h i f t or expand the demand. Research d i s c o v e r i e s w i l l t h e r e f o r e be u t i l i z e d , o n l y i f they f u l f i l t h i s o b j e c t i v e . S i n c e o r g a n i z e d research i s co n c e n t r a t e d i n a r e l a t i v e l y s m a l l number of f i r m s , the f l o w o f i n d u s t r i a l l y a p p l i c a b l e d i s c o v e r i e s w i l l be c h a n n e l l e d along the l i n e s o f i n t e r e s t to these f i r m s . Furthermore, these f i r m s , through t h e i r o r g a n i z e d l a b o r a t o r i e s , are able to b u i l d up a r e s e r v o i r of ~174-knowledge and techniques which w i l l enable them to i n s t a l improvements a t the a p p r o p r i a t e , economic time and to main-t a i n e x i s t i n g investments i n p r o d u c t i v e u n i t s although the u n i t s c o u l d be surpassed i n e f f i c i e n c y by new p r o c e s s e s . Such processes, however, cannot be i n s t a l l e d because the f i r m h o l d s the r i g h t s to the p r o c e s s , or, because the c a p i t a l o u t l a y i n v o l v e d may be so g r e a t t h a t i n s t a l l a t i o n i s pro-h i b i t i v e except to the f i r m s a l r e a d y e s t a b l i s h e d i n the i n -d u s t r y . R a d i c a l l y new d i s c o v e r i e s , t h e r e f o r e , do not tend to o appear i n the w e l l - e s t a b l i s h e d i n d u s t r i e s . By c o n c e n t r a t i n g r e s e a r c h under t h e i r c o n t r o l , f i r m s are a b l e to reduce the t h r e a t of r e v o l u t i o n a r y i n v e n t i o n s a r i s i n g o u t s i d e t h e i r j u r i s d i c t i o n to a c o n s i d e r a b l e e x t e n t . The c o n c e n t r a t i o n of l a r g e numbers of r e s e a r c h personnel i n a r e l a t i v e l y small number of f i r m s has been p a r t of the i n t e g r a t i o n of i n d u s t r y . This c o n c e n t r a t i o n has assured the c o n t i n u a l and c o n t r o l l e d f l o w of knowledge, so t h a t the management of these f i r m s c o u l d make d e c i s i o n s r e g a r d i n g f u t u r e i n d u s t r i a l development. P a t e n t s a c q u i r e d by the p e r s o n n e l have been assig n e d by agreement to the f i r m and have been u t i l i z e d or suppressed i n accordance w i t h the p o l i c i e s of management. Si n c e the patent i s a l e g a l monopoly and i s v e s t e d w i t h p r o p e r t y r i g h t s , i t has been used to ex-tend and a c q u i r e monopoly c o n t r o l on e x i s t i n g p rocesses and products and on new d i s c o v e r i e s which are c o m p e t i t i v e and 2 S t e r n , B.J., " R e s t r a i n t s upon the u t i l i z a t i o n of i n -v e n t i o n s , " Annals of the American Academy of P o l i t i c a l and S o c i a l S c i e n c e , " v o l . 200, p. 21, November, 1938. -175-f o r economic reasons of advantage to the f i r m should be sup-p r e s s e d . On an i n t e r n a t i o n a l l e v e l c a r t e l s have employed such p r a c t i c e s to r e t a r d t h e i n d u s t r i a l e f f i c i e n c y o f a n a t i o n . In view of the important r o l e of r e s e a r c h i n the indus-t r i a l development of a n a t i o n , the c o n c e n t r a t i o n of r e s e a r c h i n American i n d u s t r y i s a s i g n i f i c a n t f a c t o r . I t has meant th a t a r e l a t i v e l y small group of f i r m s have been able to u t i l i z e s c i e n t i f i c advances i n t h e i r own i n t e r e s t s . F u r t h e r -more, the c o n t r o l of l a r g e s e c t i o n s of the s c i e n t i f i c p e r s o nnel has imposed r e s t r i c t i o n s both on the f i e l d s of i n q u i r y and the u t i l i z a t i o n of the r e s u l t s . Consequently, economic and t e c h n i c a l advantages between the l a r g e f i r m s w i t h t e c h n i c a l f a c i l i t i e s and those f i r m s without s c i e n t i f i c a i d s have widened. Firms without the s c i e n t i f i c p e r s o n n e l have been f o r c e d from the i n d u s t r y and those w i t h the f a c i l i t i e s have c o n s o l i d a t e d t h e i r economic p o s i t i o n . Research has t h e r e f o r e been an important element i n the i n t e g r a t i o n of i n d u s t r y . This con-e l u s i o n i s f u r t h e r s u b s t a n t i a t e d through an economic a n a l y s i s of the e f f e c t o f t e c h n o l o g i c a l p r o g r e s s on the c o s t and demand schedules of a f i r m . Organized r e s e a r c h has r e s u l t e d i n improved processes and products, and the development of new i n d u s t r i e s . These developments i n t u r n have r e s u l t e d i n advances i n the l i v i n g standards of the community. However, when f i r m s c o n t r o l the sources of knowledge r e s p o n s i b l e f o r these developments and can decide when and to what extent the developments may -176-be i n t r o d u c e d , a d e f i n i t e p o s s i b i l i t y e x i s t s t h a t the f u l l b e n e f i t s of any advancement may not be shared by the com-munity. The a p p l i c a t i o n of r e s e a r c h r e s u l t s has t h e r e f o r e p l a c e d an a d d i t i o n a l r e s p o n s i b i l i t y on i n d u s t r i a l manage-ment. F i r s t l y , the investments and c o n f i d e n c e of the i n v e s t o r s who have famished the c a p i t a l f o r p r o d u c t i v e processes must be r e s p e c t e d and maintained. Secondly,! advantages from a t e c h n i c a l advancement should be passed on to the community i n the form of lower p r i c e s , lower c o s t s , or b e t t e r p r o d u c t s . t APPENDIX. TABLE I i STATEMENT OP TOTAL NUMBER OP PATENTS ISSUED IN THE • • UNITED STATES PROM 1850 - 1920. Year Number of Pa t e n t s Y e a r Number of Patents 1850 884 1885 23,'.331 51 757 86 21,797 52 890 87 20,429 53 846 88 19,585 54 1,759 89 23,360 1855 1,892 1890 25,322 56 2,315 91 22,328 57 2,686 92 22,661 58 3,467 93 22, 768 59 4,165 94 19,895 1860 4,363 1895 20,883 61 3,040 96 21,867 62 3,221 97 22,098 63 3,781 98 20,404 64 4,638 99 23,296 1865 6,099 1900 24,660 66 8,874 01 25, 558 67 12,301 02 27,136 68 12,544 03 31,046 69 12,957 04 30,267 1870 12,157 1905 29,784 71 11,687 06 31,181 72 12,200 07 35,880 73 11,616 08 32,757 74 12,230 09 36,574 1875 13,291 1910 35,168 76 14,172 11 32,917 77 12,920 12 36,231 •78 12,345 13 33,941 79 12,123 14 39,945 1880 • 12,926 1915 43,207 81 15,548 16 43,970 82 18,135 17 41,069 83 21,196 18 38,569 84 19,147 19 36,872 20 37,164 Sourcet U n i t e d S t a t e s , Commissioner of Pa t e n t s , Annual Report and Y e a r l y Index of. P a t e n t s and Patentees, Washington, Government P r i n t i n g O f f i c e , 1925, p. x. i i TABLE I I . AHNUALI NUMBER Off PATENTS ISSUED IN FOUR INDUSTRIES . i n the UNITED STATES. 1846 — 1930. Telephone Automobile Radio Year Telegraphy 1846 1 47 1 48 3 49 2 1850 5 51 4 52 2 53 2 54 5 1855 1 56 1? 57 2 58 31 59 10 1860 122 : . 61 10 62 10 63 8 64 9 1865 11 66 21 67 26 68 28 69 29 1870 26 71 , 55 72 105 73 68 74 58 1875 82 76 75 77 59 78 42 79 38 1880 80 81 130 82 127 83 127 84 113 2 3 36 65 114 130 156 158 166 i i i TABLE I I . ANNUAL NUMBER OF PATENTS ISSUED IN FOUR INDUSTRIES ' i n the UNITED STATESf 1846 — 1930. Year Telegraphy Telephone Automobile Rad 1885 155 150 86 105 165 87 93 120 88 70 86 89 76 63 1890 92 91 91 64 -.. 57 92 58 91 93 56 104 94 30 119 1895 53 135 96 41 195 2 97 35 112 6 98 23 84 6 : 99 31 132 7 1900 52 176 40 01: 777 191 52 02 95 114 46 03 99 188 49 04 125 254 55 1905 130 229 63 06 90 315 67 07 94 290 118 08 106 213 115 09; 93 254 131 1910 84 263 141 11 79 200 181 12 50 237 209 . 13 61 169 216 14 •'89 269 295 1915 84 336 428 2 16 83 342 624 6 17 77 390 650 6 18 46 358 720 4 19 64 250 665 16 1920 1 46 290 635 18 21 51 217 755 36 22 36 162 794 30 23 36 196 801 58 24 33 303 746 122 TABLE I I . ANNUAL NUMBER OF PATENTS ISSUED IN FOUR INDUSTRIES in the UNITED STATEST 1846 — 1930. Year Telegraphy Telephone Automobile Radio 1925 111 438 707 197 26 49 270 622 210 27 80 289 482 221 28 53 247 210 2243 29 52 226 154 224 1930 54 316 121 163 Source: Merton, R. K., " F l u c t u a t i o n s i n the r a t e of indus-t r i a l i n v e n t i o n , " Q u a r t e r l y J o u r n a l of Econ-omics, v o l . 49, pp. 470-473, May, 1935. TABLE I I I . Item ALL COMPANIES Number of companies Number of employees 575 IDENTICAL COMPANIES Number of employees Percent of total employees NUMBER OF RESEARCH LABORATORIES A OF ALL REPORTING COMPANIES AND 57 1920 — 1938. 1920 1921 1927 265 462 926 7,367 9,350 18,982 15,439 81.3 > RESEARCH PERSONNEL  IDENTICAL COMPANIES; 1931 1933 1938 1,520 1,462 1,722 32,830 27,567 44,292 22,342 19,255 26,956 68.0 69.8 60.8 Source: Perazich, G-. and Fie l d , P. M., Industrial research and changing technology. Work Projects Administration, 1940, Philadelphia, Report No. M-4, Table A-3, p. 65. TABLE IV. DISTRIBUTION OF RESEARCH PERSONNEL AND GROWTH OF RESEARCH PERSONNEL. BY INDUSTRIAL GROUPS. 1927 — 1938. INDUSTRY 1 9 2 7 1 9 : J 8 Increase Percentage Percent Number Percent Number Percent 1927—38 Increase total increase Food and kindred products 401 2.1 1,424 3.2 1,023 255.1 4.0 Textiles and their products 104 0.5 367 0.8 263 -?52.9 1.1 Forest products 66 0.3 192 0.4 126 190.9 0.5 Paper and a l l i e d products 271 1.5 752 1.7 481 177.5 1.9 Chemicals and a l l i e d products 3,463 18.3 9,542 21.5 6,079 175.5 24.1 Petroleum and i t s products 788 4.2 5,033 11.4 4,245 538.7 16.8 Rubber products 1,115 5.9 2,250 5.1 1,135 101.8 4.5 Leather and i t s manufacture 31 0.1 78 0.2 47 151.6 0.1 <j Stone, clay, and glass products 527 2.8 1,404 3.2 877 166.4 3.5 H' Iron and steel products, not including machinery 529 2.8 1,531 3.5 1,002 189.4 4.0 Nonferrous metals and products 693 3.7 1,197 2.7 504 72.7 2.0 Agricultural implements (including tractors) 634 3-3 1,805 4.1 1,171 184.7 4.6 E l e c t r i c a l machinery, apparatus, 58.1 and supplies 1,893 10.0 2,992 6.8 1,099 4.3 Radio apparatus and phonographs 66 0.3 1,122 2.5 1,056 1,600.0 4.2 A l l other machinery 995 5.2 2,320 5.2 1,325 133.2 5.2 Motor vehicles, bodies, and parts 673 3.5 1,953 4.4 1,280 190.2 5.1 An other transportation equipment 112 0.6 131 0.3 19 17.0 0.1 E l e c t r i c a l communication 4,052 21.3 4,202 9.5 150 3.7 0.6 U t i l i t i e s — g a s , l i g h t , and power 528 2.8 1,000 2.2 472 89.4 1.8 Consulting and testing laboratories!,173 6.1 2,663 6.0 1,490 127.0 5.8 Trade associations 290 1.5 571 1.3 281 96.9 1.1 Miscellaneous 578 3.2 1,763 4.0 1,185 205.0 4.7 TOTALS 18,982 100.0 44,292 100.0 25,310 100.0 Source: Perazich and Field, Industrial Research and changing technology, Report No. M-4, p. 73. TABLE V, DISTRIBUTION OP RE SEARCH PERSONNEL BY INDUSTRIAL GROUPS, 1920»*>1938. 19 2 0 1 9 2 1 19 2 7 1 9 3 1 1 9 3 3 1 9 3 8 Number Percent Number Percent Number Percent Number Percent Number Percent Number Percent Agricultural implements 0 0.0 0 0.0 634 3-3 720 2.2 .786 2.9 1,805 4.1 Iron and steel products 117 1.6 151 1.6 529 2.8 352 1.1 563 2.0 1,531 3.5 E l e c t r i c a l machinery and 6.8 apparatus 810 11.0 691 7.4 1,893 10.0 2,981 9.1 2,258 8.2 2,992 Radio apparatus 0 0.0 0 0.0 66 0.3 860 2.6 413 1.5 1,122 2.5 E l e c t r i c a l communication 1,850 25.1 3,150 33.7 4,052 21.3 6,142 19.7 4,132 15.0 4,202 9.5 Chemicals and a l l i e d products 1,690 22.9 1,178 12.6 3,463 18.3 3,257 9.9 2,929 10.7 9,542 21.5 Motor vehicles 74 1.0 497 5.3 673 3.5 1,015 3.1 920 3.3 1,953 4.4 Petroleum and i t s products 145 2.0 167 1.8 788 4.2 2,957 9.0 2,724 9.9 5,033 11.4 Rubber products 590 8.0 495 5.3 1,115 5.9 1,561 4.8 1,939 7.0 2,250 5.1 Textiles and their products 17 0.2 24 0.2 104 0.5 262 0.8 205 0.7 367 0.8 U t i l i t i e s — g a s , l i g h t , power 34 0.5 63 0.7 528 2.8 795 2.4 754 2.7 1,000 2.2 Sub-total 5,327 72.3 6,416 68.6 13,845 72.9 20,902 63.7 17,623 63.9 31,797 71.8 Food and kindred products 401 2.1 1,424 3.2 Forest products 337 1.8 944 2.1 Stone, clay and glass products 527 2.8 Details not given f o r 1,404 3.2 Nonferrous metals Details not given for 693 3.7 these industries i n 1,197 2.7 Other machinery these industries i n 995 5.2 these years 2,320 5.2 Other transportation equipment these years 112 0.6 131 0.3 Consulting and trade assoic 3,234 7.3 iations combined 1,463 7-7 Miscellaneous 23.7 6®9 3.2 1,841 4.2 Sub-total 2,040 2,934 "31*4 5,137 27.1 11,928 36.3 9,944 36.1 12,495 28.2 GRAND TOTAL 7,367 110.0 9,350 100.0 18,982 100.0 32,830 100.0 27,567 100.0 44,292 100.0 Source: Perazich and Fi e l d , Industrial research and changing technology. Philadelphia, 1940, Work Projects Administration, National Research Project, Report No. M-4, pp. 77 and 73. ' TABLE 71. ANALYSIS OF INCREASES IN RESEARCH EMPLOYMENT FOR INDUSTRIAL GROUPS BETWEEN 1927 and 1938. INCREASE : IN EMPLOYMENT Percentage PoTI 1 PoTI New firms Sample of A l l other Total increase 575 firms a l l o-575 firms firms increase new firms firms Food and kindred products 181 386 456 1,023 17 .7 37 .7 44 .6 Textiles and their products 107 4 152 263 40 .7 1.5 57.8 Forest products 16 78 32 126 12 .7 61.9 25 .4 Paper and a l l i e d products 117 162 202 481 24 .3 33.7 42 .0 Chemicals and a l l i e d products 1,067 3,721 4 , 2 9 1 6,079 17 .6 61.2 21 .2 Petroleum and i t s products 161 1,491 2 ,593 4,245 3.8 32.8 36.6 Rubber products 21 1,005 109 1,135 1.8 70 .7 27 .5 Leather and i t s manufacture 7 7 33 47 14.9 14 .9 70 .2 Stone, clay and glass products 160 347 370 877 18.2 39.6 42 .2 Iron and steel products, not including machinery 50 441 511 1,002 4 .9 44 .0 51.1 Nonferrous metals 91 351 62 504 18.1 69 .6 12 .3 Agricultural implements 8 .4 (including tractors) 0 1,073 98 1,171 0 .0 91 .6 E l e c t r i c a l machinery, apparatus and supplies 113 686 - 300 Radio apparatus and phonographs 135 173 748 A l l other transportation equipment 18 6 — 5 Motor vehicles, bodies, and parts 7 479 794 A l l other machinery 389 72 864 Sleetrioal communciation 0 84 66 U t i l i t i e s — g a s , l i g h t , power 5 389 78 Consulting and testing laboratories 947 169 374 Trade associations 197 38 46 Miscellaneous : ,351 355 479 TOTALS 4 ,140 11,517 1,099 1,056 19 1,280 1,325 . 150 472 1,490 281 1,185 25,310 10 .3 12.8 94 .7 0.7 29 .3 0 .0 1.1 63.6 70 .1 29 .6 62.2 16 .4 31.6 37 .4 5.4 56.O 82 .4 1 1 . 3 ' 13 .5 30.O 27 .5 70.8 —26.3 61.9 65.3 44 .0 16.5 25.1 16 .4 40.4 1 PoTI — Percentage of total increase; percentage columns show relative importance of three types of increases. Source: Derived from Perazich and Field, Tables A -14 , A - l 6 , and A -13 , pp. 73-76 . i x TABLE VII. UNITED STATES. HORSEPOWER EQUIPMENT BY BROAD  INDUSTRIAL GROUPINGS. 1849~1923. Date Manufactures Materials Transportation E l e c t r i c a l (less automo- Motors bile pleasure) 1849 1,100 6,647 2,319 1859 1,600 9,805 4,388 I869 2,346 9,938 6,863 1879 3,411 14,419 10,990 I889 5,970 21,168 20,559 1899 10,720 26,507 26,934 2,577 1909 20,894 36,076 55,936 11,878 1919 30,243 51,262 100,202 27,839 1923 34,344 56,220 148,612 34,922 TABLE VIII. UNITED STATESf HORSEPOWER EQUIPMENT PER EMPLOYEE  BY BROAD INDUSTRIAL GROUPMGS, 1849—1923. Date Employees Manufactures Agriculture Electric Snips a l l Mines central industry % i a r r i e s stations 1849 1.44 0.92 0.61 1.32 7.0 1859 1.50 1.07 0.95 1.72 11.2 1869 1.53 1.14 2.11 1.63 12.1 1879 1.56 1.25 2.61 1.80 12.5 1889 2.05 1.40 3.36 2.32 25.95 18.8 1899 2.21 1.90 4.63 2.29 56.18 24.3 1909 2.96 2.82 4.77 2.52 109.87 25.8 1919 4.25 3.26 6.17 4.10 148.9 38.1 1923 5.31 3.76 6.52 4.74 179.25 51.3 Source: Both Tables from Daugherty, CR., "An index of the installation of machinery i n the United States since 1850," Harvard Business Review, v o l . 6, p. 289-290, X p r i l , 1928. BIBLIOGRAPHY. X BIBLIOGRAPHY I . GOVERNMENT DOCUMENTS. - • . ' Bush, V., Science, The endless f r o n t i e r , Washington^ 1945, U n i t e d S t a t e s Government-Printing O f f i c e . Canada, Department of R e c o n s t r u c t i o n and Supply, Research and s c i e n t i f i c a c t i v i t y Canadian F e d e r a l expenditures 1938--1946, Ottawa, Edmond C l o u t i e r , K i ng's P r i n t e r and C o n t r o l l e r of S t a t i o n e r y , 1947. Magdoff, H., S i e g e l , H. I . , and Davis, M.B., P r o d u c t i o n , employment, and p r o d u c t i v i t y i n 59 manufacturing  i n d u s t r i e s , ' 1919--36, P h i l a d e l p h i a , 1939, Works Pro g r e s s A d m i n i s t r a t i o n , N a t i o n a l Research P r o j e c t , Report No. S - l , P a r t 3. P e r a z i c h , G. and F i e l d , P.M., I n d u s t r i a l r e s e a r c h and  changing technology, P h i l a d e l p h i a , 1940, Work P r o j e c t s A d m i n i s t r a t i o n , N a t i o n a l Research P r o j e c t , Report No. M-^ 4. P e r a z i c h , G.» Schimmel, H., and Rosenberg, B., Indus- t r i a l instruments and changing technology, P h i l a d e l p h i a , 1938, Works Pr o g r e s s A d m i n i s t r a t i o n , N a t i o n a l Research P r o j e c t , Report No. M - l . U n i t e d S t a t e s , Commissioner of Labour, T h i r t e e n t h  Annual Report, 1898, Hand and Machine Labour, v o l . 1, Washington, Government P r i n t i n g O f f i c e , 1899. U n i t e d S t a t e s , Committee on N a t u r a l Resources, Tech- n o l o g i c a l trends and n a t i o n a l p o l i c y , Washington, U n i t e d S t a t e s Government P r i n t i n g O f f i c e , 1937. U n i t e d S t a t e s , N a t i o n a l Resources. Committee, Research --A, n a t i o n a l r e s o u r c e , v o l . I . , R e l a t i o n of the F e d e r a l Government to r e s e a r c h , Washington, U n i t e d States Government P r i n t i n g O f f i c e , 1938. U n i t e d S t a t e s , N a t i o n a l Resources P l a n n i n g Board, R e s e a r c h — A n a t i o n a l r e s o u r c e , v o l . I I . , Indus- t r i a l r e s e a r c h , Washington, U n i t e d S t a t e s Govern-ment P r i n t i n g O f f i c e , December, 1940. Weintraub, D., E f f e c t s of c u r r e n t and p r o s p e c t i v e t e c h n o l o g i c a l developments upon c a p i t a l formation, P h i l a d e l p h i a , 1939, Works Progress A d m i n i s t r a t i o n , N a t i o n a l Research P r o j e c t , Report No. G-4. - x i -I . GOVERNMENT DOCUMENTS (Cont'd) Weintraub, D. and Posner, H.L., Unemployment and i n -c r e a s i n g p r o d u c t i v i t y , P h i l a d e l p h i a , 1937, pre-pared f o r tne N a t i o n a l Resources Committee, Works Progress A d m i n i s t r a t i o n , N a t i o n a l Research P r o j e c t . I I . PERIODICALS Ba i n , J.S., "The r e l a t i o n of the economic l i f e o f equipment to reinvestment c y c l e s ^ " Review of  Economic S t a t i s t i c s , v o l . 21, pp. 79-88, May, 1939. Daugherty, C.R., "An index of the i n s t a l l a t i o n of machinery i n the U n i t e d States - s i n c e 1850," Harvard B u s i n e s s Review, v o l . 6, pp. 278-292, A p r i l , 1928. Davis, S.C., " E f f e c t of i n d u s t r i a l and t e c h n o l o g i c a l developments upon the demand f o r c a p i t a l , 11 Amer- i c a n Economic Review, Proceedings, v o l , 29, pp. 46-47, March, 1939, E p s t e i n , R.C., " I n d u s t r i a l i n v e n t i o n : h e r o i c or system-a t i c ? " Q u a r t e r l y J o u r n a l of Economics, v o l . 40, pp. 232-272, February, 1926. Hamor, W.A., Glazebrook, R.T., and Coulson, T., "Research, I n d u s t r i a l , " E n c y c l o p a e d i a B r i t a n n i c a , 14th ed., 1940, v o l . 19, pp. 205--207B. Hansen, A.H., "The theory of t e c h n o l o g i c a l p r o g r e s s and the d i s l o c a t i o n of employment;" American  Economic Review, Proceedings, v o l . 22, pp. 25-31,' March, 1932. Hild e b r a n d , G.H., "Monopolization and the d e c l i n e of investment o p p o r t u n i t y , " American Economic Revi ew, v o l . 33, pp. 591-601, September, 1943. K a h l e r , A., "The problem of v e r i f y i n g the theory o f t e c h n o l o g i c a l unemployment," S o c i a l Research, v o l . 2, pp. 439.-461, November, i y 3 b . K i l l e f f e r , D.H., "Chemist l o o k s at busi n e s s c y c l e s , " S c i e n t i f i c American, v o l . 145, pp. 366-369, December, 1931. - x i i -I I . PERIODICALS (Cont'd) K e i r B t e a d , B.S., " T e c h n i c a l advance and economic e q u i l i b r i a , " The Canadian J o u r n a l ' o f Economics  and P o l i t i c a l Science, v o l . 9, pp. 55-68, February, 1943. K e t t e r i n g , C.F.,"Research and i n d u s t r y , " S c i e n t i f i c  American, v o l . -156, pp. 285-288, May, 1937. Kreps, T. J . , " J o i n t c o s t s i n the chemical i n d u s t r y , " Q u a r t e r l y ' J o u r n a l of Economics, v o l . 44, pp. 416-461, May, 1930. Kuznets, S., " R e t a r d a t i o n of i n d u s t r i a l growth," J o u r n a l of Economics and Bu s i n e s s H i s t o r y , v o l . 1, pp. 534--560, August, 1929. L i t t l e , A.D., "The c o n t r i b u t i o n of s c i e n c e to rnanu-f a c t u r i n g , " Annals of the American Academy of  P o l i t i c a l and S o c i a l Science, v o l . 119, pp. 1-9, May, 1925. L i t t l e , A.D., " O r g a n i z a t i o n of i n d u s t r i a l r e s e a r c h , " Proceedings, American S o c i e t y f o r T e s t i n g M a t e r i a l s , v o l . 18, p t . 2, pp. 22-31, June, 1918.. L u t z , F.A., "The i n t e r e s t r a t e and investment i n a dynamic economy," American Economic Review, v o l . 35, pp. 811^830, December, 1945. Merton, R.K., " F l u c t u a t i o n s i n the r a t e of i n d u s t r i a l i n v e n t i o n , " Q u a r t e r l y J o u r n a l of Economics, v o l . 49, pp. 454-474, May, 1935. Moonitz, M.» "Risk of obsolescence and the importance of the r a t e of i n t e r e s t , " J o u r n a l of P o l i t i c a l  Economy, v o l . 51, pp. 348-355, August, 1943. McLaughlin, G.E. and Watkins, R. >J., "The problem of i n d u s t r i a l growth i n a mature economy," Amer-i c a n Economic Review, v o l . 29, Supplement, pp. 1-14, March, 1939. P l a n t , A., "The economic theory concerning p a t e n t s f o r i n v e n t i o n s , " Economica, v o l . 1, pp. 30-51, February, 1934. P r e i n r e i c h , G.A.D., "Economic l i f e of i n d u s t r i a l equipment," Econometrica, v o l . 8, pp. 12-44, January, 1940. - x i i i -13. PERIODICALS (Cont'd) Reese, C.L., "Developments i n i n d u s t r i a l r e s e a r c h , " Proceeding s, American S o c i e t y f o r T e s t i n g M a t e r i a l s , v o l . 18, p t . 2, pp. 32-39, June, 1918. S l i c h t e r , S.H., "The changing c h a r a c t e r of American i n d u s t r i a l r e l a t i o n s , "~ 'American Economic Review, Proceedings, v o l . 29, pp. 121-137, March, 1939. Snyder, C.,', "The c a p i t a l supply and n a t i o n a l w e l l b e i n g , " American Economic Revi ew, v o l . 26, pp. 195-224, June, 1936. Ste r n , B.J., " R e s t r a i n t s upon t h e u t i l i z a t i o n of i n v e n t i o n s , " Annals of the American Academy of  P o l i t i c a l and S o c i a l Science, v o l . 200, pp. 13-37, November, 1938. Thomas, W., "The economic s i g n i f i c a n c e of the i n c r e a s e d e f f i c i e n c y ' of American i n d u s t r y , " Ameri can  Economic Revi ew. Supplement, v o l . 18, pp. 122-138, March, 1928 T r o x e l , C.E., "Economic i n f l u e n c e s ' o f "obsolescence,"'., American Economic Revi ew, v o l . 26, pp. 280-290, J-une, 1936. Vaughan, E.L., " R e l a t i o n o f p a t e n t s - t o i n d u s t r i a l monopolies," Annals of the American Academy of P o l i t i c a l and S o c i a l Science, v o l . 147, pp. 40-47, May, 1929. V i l l a r d , H.H., "The s i g n i f i c a n c e of obsolescence and d e p r e c i a t i o n upon c a p i t a l f o r m a t i o n , " American  Economic Review, Proceedings, v o l . 29, pp. 47-49, March, 1939. We i d l e i n , E.R. and Hamor, W.A., ®industrial-researchi, " Chemical and M e t a l l u r g i c a l E n g i n e e r i n g , v o l . 42, pp. 185-188, A p r i l , 1935. White, A.H., " S c i e n t i f i c f oundations of t h e American chemical i n d u s t r y , " I n d u s t r i a l and e n g i n e e r i n g  chemistry, v o l . 27, pp. 498-500, May, 1935. Whitney, W.R., " I n d u s t r i a l p r o g r e s s made through r e s e a r c h and i t s economic importance," General  E l e c t r i c Revi ew, v o l . 32, pp. 586-589, November, 1929. - x i v -I I . PERIODICALS (Cont'd) Whitney, W.R., "Technology and m a t e r i a l p r o g r e s s , " Science, v o l . 73, pp. 483-486, May, 1931. . I I I . GENERAL WORKS Boul d i n g , "E".E., Economic A n a l y s i s , New York, Harper, 1941. Chamberlin, E.H., The theory of m o n o p o l i s t i c compe- t i t i o n , Cambridge, Harvard U n i v e r s i t y P r e s s , 1942. P r a s e r , C.E. and D o r i o t , G.P., A n a l y z i n g our indus-t r i e s , New York, McGraw-Hill, 1932. Glove r , J.G. and C o r n e l l , W. B., ed., The development  of American i n d u s t r i e s , New York, P r e n t i c e - "~ H a l l , 1932. Jerome, H., Me c h a n i z a t i o n i n i n d u s t r y , New York, N a t i o n a l Bureau of Economic Research, Inc., 1934. Kuznets, S., N a t i o n a l income a summary of f i n d i n g s , New York, - N a t i o n a l Bureau o f Economic Research, Inc., 1946. L i p p i n c o t t , I . , Economic development of the U n i t e d  S t a t e s , New York, D. Appleton, 1933. M i l l s , P . C , Economic tendencies i n the U n i t e d S t a t e s , New'York, N a t i o n a l Bureau o f Economic Research, Inc., 1932. Robinson, Joan, The economics of im p e r f e c t competition, London, Macmillan, 1933. Tau s s i g , P.W., Some aspects o f the t a r i f f q u e s t i o n , Cambridge, Harvard U n i v e r s i t y Press-, 1915. Wallace, D.H., Market c o n t r o l i n the aluminum i n d u s t r y , Cambridge, Harvard U n i v e r s i t y P r e s s , 1937. IV. SPECIAL WORKS B a t t e l l e Memorial I n s t i t u t e , Research i n A c t i o n , 1944, pamphlet. - X V -•IV. SPECIAL WORKS (Cont'd) F e d e r a t i o n of B r i t i s h I n d u s t r i e s , I n d u s t r y and r e s e a r c h , London, Pitman, 1946. Fleming, A.P.M., I n d u s t r i a l r e s e a r c h i n the U n i t e d  S t a t e s of America, London, Department of S c i e n t i f i c and I n d u s t r i a l Research, Number 1, H i s Majesty's S t a t i o n e r y O f f i c e , 1917. Fox, H.G., Monopolies and pate n t s , Toronto, The U n i v e r s i t y of Toronto P r e s s , 1947. I n d u s t r i a l Research I n s t i t u t e , O r g a n i z a t i o n of  t e c h n i c a l r e s e a r c h i n i n d u s t r y , New York, March, 1945, a monograph. Mees, C.E.K., The path of s c i e n c e , New York, Wiley, 1946. Redman, L.V. and Mory, A.V.H., The Romance of Research, B a l t i m o r e , The W i l l i a m s and W i l k i n s Company, 1938. Standard O i l Development Company, The Future of I n d u s t r i a l Research, papers and d i s c u s s i o n s , New York, Standard O i l Development Company, 1945. V o o r h i e s , D.H., The C o - o r d i n a t i o n of motive, men  and money i n i n d u s t r i a l r e s e a r c h , Standard O i l Company of C a l i f o r n i a , 1946. W e i d l e i n , E.R. and Hamor, W.A., Glances'at i n d u s t r i a l  r e s e a r c h , New York, Reinhold, 1936. 

Cite

Citation Scheme:

        

Citations by CSL (citeproc-js)

Usage Statistics

Share

Embed

Customize your widget with the following options, then copy and paste the code below into the HTML of your page to embed this item in your website.
                        
                            <div id="ubcOpenCollectionsWidgetDisplay">
                            <script id="ubcOpenCollectionsWidget"
                            src="{[{embed.src}]}"
                            data-item="{[{embed.item}]}"
                            data-collection="{[{embed.collection}]}"
                            data-metadata="{[{embed.showMetadata}]}"
                            data-width="{[{embed.width}]}"
                            async >
                            </script>
                            </div>
                        
                    
IIIF logo Our image viewer uses the IIIF 2.0 standard. To load this item in other compatible viewers, use this url:
http://iiif.library.ubc.ca/presentation/dsp.831.1-0106884/manifest

Comment

Related Items