Category Archives: Standards

Cold, Calculating Political Economy’: Fixed costs, the Rate of Profit and the Length of the Working Day in the Factory Act Debates, 1832-1847

By Steve Toms (Leeds University Business School)

URL: http://econpapers.repec.org/paper/pramprapa/54408.htm

The paper re-analyses the evidence presented by pro and anti-regulation interests during the debates on factory reform. To do so it considers the interrelationship between fixed costs, the rate of profit and the length of the working day. The interrelationship casts new light on the lobbying positions on either side of the debate. It does so by comparing the evidence presented in the debates before parliament and associated pamphlets with actual figures contained in the business records of implicated firms. As a result the paper identifies the compromise position of the working day length compatible with reasonable rates of profit based on actual cost structures. It is thereby able to reinterpret the validity of the claims of contemporary political economy used to support the cases for and against factory regulation.

Reviewed by Mark J Crowley

This paper was circulated by NEP-HIS on 2014-03-22 and its a follow up to that reviewed by Masayoshi Noguchi in an earlier post on the NEP-HIS blog (click here)

This second paper by Toms draws on a range of archival materials from both government and businesses to explore in detail the implications of legislative changes on British business during the industrial revolution.  It shows how the debates concerning the implementation of stricter working hours were contentious. Outlining the difficulties faced by the government and businesses to uniformly apply these new measures, particularly since businesses were exposed to different pressures according to their contribution to society, it shows how these factors further influencing the implementation and drafting of these measures.   By citing the debates of the anti-regulation bodies in Parliament, and also Parliamentary debates, it exemplifies how the interpretations of profit influenced the debates tabled by the Ten Hours movement – the pressure group created with a view to enshrine, in legislation, a maximum 10 hour working day.   This perspective in itself is new, particularly since it moves away from the traditional approaches adopted by trade union historians such as Alistair Reid and others who have examined the influence of unions in these disputes, but have examined them from the perspective of strikes (Reid, 2005).

 

Summary

Adopting a theoretical approach, especially in its examination of different interpretations of profit in the nineteenth century, this paper scrutinizes the range of factors that determined wages in nineteenth century factories, concluding that the reasons were much more complex than originally assumed.  In claiming that accounting manipulators were used as a major force in setting these wages, Toms shows how the considerations governing the decisions about wages were based on a range of accounting methods, although these methods at this time were not well-developed.  Furthermore, he claims convincingly that accountancy was poorly practiced in the nineteenth century, primarily owing to the apparent paucity of regulations governing the profession.   In adopting this approach, Toms highlights the two sides of the debate suggested by historians so far concerning the role of accountancy, that being: that it did not have an important role at all; or that it played a role that was sufficient to encourage competition.  By doing so, he has lucidly integrated the laissez faire ideology to elucidate the role of accountants in the policymaking process.

Working conditions at factories were often difficult and dangerous, the implications of which are discussed in detail in this paper

Working conditions at factories were often difficult and dangerous, the implications of which are discussed in detail in this paper

Pressures on workers and the arduous hours did result in greater pressure on government to develop measures to regulate working hours

Much of the debates concerning workplace rights have adopted either a policy history perspective (examining the efforts of the government to regulate the economy) or a social history perspective (examining the perceived improvement in rights for workers).  Yet a detailed analysis of the implications of company accounting on government policy decisions has not yet been undertaken.  While economic historians such as Nicholas Crafts have used econometrics as a method to try and explain the causes of the industrial revolution, (Crafts, 2012) little attention has been given to the implications of these changes in terms of workplace legislation on not only the workers themselves, but on the calculations affecting industrial output and their response to government intervention.  Through examining the role of prominent socialists such as Robert Owen, this paper highlights the complex nature of the debates concerning profits, loss and its correlation with productivity to show that while the pro-regulation movement sought to protect the rights of individual workers, the anti-regulation movement created an inextricable link between the reduction of profit and the justification for longer working days. Locating this argument within the debate concerning fixed costs, it demonstrates how the definitions and arbiters of profits, loss and value was a moveable feast.

Robert Owen's ideas to reform the system and ensure greater equality were especially influential

Robert Owen’s ideas to reform the system and ensure greater equality were especially influential

This approach to the data has led to a different account of the costs faced by businesses than has hitherto been suggested by historians, and while Toms is careful to claim that this does not resolve the conceptual disputes surrounding the practice of accounting in the nineteenth century, it does provide a platform for further debate and a re-examination of the figures.  For example, in the analysis of the Ashworth accounts, Toms claims that the adoption of a variable approach to costing of volume-based products shows an annual running cost of £2500 per year, £3800 less than Boyson concluded in his 1970 study.  In his analysis of profit, Toms concludes that there could be a 3 hour variable that would not have detrimentally affected the profitability of companies.  Claiming that profitability would be at last 10 percent with 58 hour or 55 hour working week, this challenges previous assumptions those longer working hours would yield greater profits.  However, he highlights that the only significant difference would be that if these figures were compared to the onerous 69 hour week, where the profit margins could be expected to rise by a further 5 percent, although the pro-regulation body, for the purposes of strengthening their argument, presented this variable as high as 15 percent.

The final part of the paper lucidly examines the impact of foreign competition.  Citing the increased costs of British production when compared with European counterparts, with Manchester reported to be 50 percent higher in terms of spinning production costs than Switzerland, Toms shows how superficially the justification for maintaining the British market was now becoming even more difficult.  However, a deeper analysis of the figures reveals a different story, and to illustrate the point, evidence from Mulhausen is juxtaposed with Lancashire to show how wages were on average 18 d per day higher in Lancashire, although their productivity was almost double that of their German counterpart, and concludes that in effect, the overseas threat to the British market was as substantial as originally assumed.

Critique

This paper is extremely ambitious in its scope and development, and has covered significant ground in its analysis.  Its conclusions are convincing and are based on deep theoretical and conceptual understandings of the accountancy process.  My only suggestion is that the final section of the paper examining the ideological theories of profit could be fleshed out more so as to fully contextualise the political, legislative and business developments at this time.  It may also be possible to connect these issues with the contemporary debates concerning ‘thrift’, and the development of commercial banking.  For example, the idea of thrift was widely debated with the growth of friendly societies, and the decision of the government to open a Post Office Savings Bank to enable workers to deposit their savings.  Therefore, was there any connection between contemporary ideas of profit and thrift, and if so, was there a common ideological strand that linked people together in terms of their perceptions of money and its role in the wider society?

 

References

Crafts, NFR., “British Relative Economic Decline Revisited: the Role of Competition”, Explorations in Economic History (2012), 49, 17-29

Reid, Alastair J., United We Stand: A History of Britain’s Trade Unions (London: Penguin, 2005).

 

QWERTY – Kay’s analysis of a non sub-optimal standard

QWERTY and the search for optimality

By: Neil M Kay (University of Strathclyde Business School, Department of Economics)

Abstract: This paper shows how one of the developers of QWERTY continued to use the trade secret that underlay its development to seek further efficiency improvements after its introduction. It provides further evidence that this was the principle used to design QWERTY in the first place and adds further weight to arguments that QWERTY itself was a consequence of creative design and an integral part of a highly efficient system rather than an accident of history. This further serves to raise questions over QWERTY’s forced servitude as “paradigm case” of inferior standard in the path dependence literature. The paper also shows how complementarities in forms of intellectual property rights protection played integral roles in the development of QWERTY and the search for improvements on it, and also helped effectively conceal the source of the efficiency advantages that QWERTY helped deliver

URL: http://econpapers.repec.org/paper/strwpaper/1324.htm

Circulated by NEP-HIS on: 2013-11-22

Review by Anthony Gandy

Overview:

The paper reviewed here is another instalment in Neil Kay’s systematic exploration of the history of the QWERTY typewriter (see also Kay 2013a and 2013b). Through his work Kay questions the QWERTY typewriter as the primary example of how inferior design can become establish and create a path of dependency which will always be sub-optimal. The case Kay makes both in this paper and in earlier ones is that the design was in fact near-optimal for the state of knowledge at the time. In this paper he produces further knowledge that the designer made later efforts to refine the design using principles which show the designers’ advanced understanding of the concepts needed to produce an efficient design given the outcomes required (later definitions of efficiency were based on a different concepts and on different technology capabilities).

Christopher Latham Sholes (1819-1890)

Christopher Latham Sholes (1819-1890)

Kay studies the work of designer Christopher Latham Sholes and how he refined his own design of typewriter designs. In 1872 he and his associates created the familiar QWERTY layout which is so familiar in many Western and English language countries. The design was bought by Remington in 1873 in a deal arranged by Sholes’ business partner James Densmore who also retained a financial stake in the QWERTY keyboard after Remington bought it. Kay shows the deliberate design concepts which lay at the heart of the QWERTY keyboard which then refutes some earlier works (such as David 1985) which claimed the design process for QWERTY and the eventual lock-in created was generated by random events and that the design was effectively accidental and a sub-optimal standard. The path dependency concept based on network externalities (typist unwilling to face conversion to another standard even if it were more efficient) maybe fair, but the design was not at that time accidental or sub-optimal. Kay shows by inference that Sholes work was more deliberate than may have been understood, primarily because Sholes was protecting his trade secret which was his understanding of how to avoid frequent letter pairs from occurring and jamming the early typewriter technology. In this paper he explores two patents issued to Sholes after his death and finds them as evidence that Sholes continued to improve his basic understanding, but continued to protect his knowledge.

Remington No 7 – an improved version of the Sholes design

Remington No 7 – an improved version of the Sholes design. Source: http://machinesoflovinggrace.com/large/remstandard703.jpg

Like Kay’s earlier work this paper is highly detailed, looking at the available evidence, and analyzing the likely approaches used. It considers how, after Sholes sold his rights to the QWERTY typewriter, he continued to use his principles to develop an improved “perfect” typewriter, and how this was evidence that he knew more about the underlying principles than others have given credit to.
The real challenge at the time was typebars jamming. Using a keyboard layout of ABCDE, it was known that too often there would be pairs of letters used which would jam the typewriter. The goal was to reduce these pairs to reduce jamming risk.
Kay shows (2013a) that when typing the book Life of the Mississippi by Mark Twain, the Sholes Qwerty typewriter would have created 146 events where letters next to each other in the “typebasket” would have occurred and jammed. Others have argued (David 1985) that later designs of typewriter such, as the 1936 design by August Dvorak, were more efficient because they were faster. However, Kay shows that in the Life of the Mississippi test, the Dvorak design would create 2358 conflicting pairs. Kay points out that the comparison needs to be in era context. While later development was based on ten figure typing and efficiency focused on speed out output, Sholes’ era was one where two fingers of each hand was seen as optimal (and the reviewer here is certainly in this camp!!!) and the real challenge was one of the mechanical jamming or letter pairs.

This paper extends Kay’s research to the period after the Remington company purchased Sholes’ design and when he then went on to try to develop the “perfect” typewrite. Frankly, these are detailed and intricate discussions. Kay studies two patents issued after Sholes’ death to show he was working further with infrequency principles for his improved QV typewriter, the ultimate version of which would have reduced the incidents of jamming pairs by 97.7% compared to the QWERTY design. It is the evidence presented by the “jigsaw” of the two patents supporting the QV typewriter which is the core the Kay paper, combining them to show Sholes had an advanced knowledge of the processes required to reduce conflict between letters. Kay believes Sholes split the patents into two separate ones so as to protect his trade secret as to how to prevent conflict through infrequency principles, a concept which in itself could not be protected under copyright.

Brief discussion:

While the paper is maybe too detailed for most, and on occasion difficult to read without prior understanding of the issues, it serves as an interesting discussion paper on both how intellectual property was protect, even when the underlying principles could not be copyrighted and a lesson not to infer the efficacy of a technological solutions in the light of later technological capability. While the case for path dependency has been well made over the years and clearly make a great deal of sense, paths which have been founded on technology that is at its origin less than optimal are rare, maybe this is the reason the QWERTY keyboard has been so popular as an example as the thesis that its development was less than deliberate suggests it may have always been less than optimal. Kay’s forensic disputes this very. Kay generates evidence of a deliberate process by Sholes and his associates and while clearly the design could be refined (as Sholes tried) or replaced (as advocates of the Dvorak would argue for), it was nevertheless close to the optimal design at the time of development.

For those interested in what has been a very long running debate about QWERTY, optimality and lock-in, a more in depth review of Kay’s work and the prior debate has been produced by Jean-Philippe Vergne (2013) in the journal Research Policy which certainly seems to have dedicated its existence to discussion the QWERTY typewriter!!!

Additional References

Kay’s other QWERTY Papers

Kay, N. M. (2013a) “Rerun the tape of history and QWERTY always wins” Research Policy, 42:1175-85.

Kay, N. M. (2013b) “Lock in, path dependence, and the internationalization of QWERTY. Strathclyde Discussion Papers in Economics, no 13-10, http://www.strath.ac.uk/media/departments/economics/researchdiscussionpapers/2013/13-10FINAL.pdf (accessed 14 April 2014).

Jean-Philippe Vergne’s excellent review can be found in Research Policy:

Vergne, J. P. (2013) “QWERTY Is Dead, Long Live Path Dependence!” Research Policy, 42: 1191-1194. See also http://www.academia.edu/3495369/QWERTY_Is_Dead_Long_Live_Path_Dependence_