Automation: Goods
Section II
We start by considering a 19th century innovation in order to illustrate that major innovations frequently require continual technological advances and may take decades or even a hundred years. The first half of the 20th century manufacturing firms expanded from single to multiple products. Manufacturing innovation in the second half of the 20th century based on the advances in information technology has greatly accelerated the automation of the production of goods and services. In one sense, automation using microelectronics and communications advances is simply the continuation of a trend to increase the amount of capital per worker to obtain higher labor productivity. The current innovations are also changing manufacturing strategy from production for inventory to production for final demand. In making genuine advances the manufacturing process generally has to be completely reorganized and the human factors can not be neglected.
In microeconomic production theory we ask how output and input will adjust to changing input and output prices. We do not ask how firms innovation the production function because such a question is mathematically intractable and economists will only consider those aspects of economics that can be formalized in a mathematical model. We first take a clinical look at one of the most important innovations of the 19th century: replaceable parts and one innovation in the first half of the 20th century: multiple products. It is important to note that while economists take the production function as given, firms do not. They are constantly trying to innovate, that is obtain a better production technology. Also, major innovations can have a slow development over decades, even as in the case of replaceable parts over 100 years.
The economics of interchangeable parts have three factors:
1. Feasibility and cost of the machinery to create parts with the required accuracy.
2. Reduction in assembly costs in the assemblers do not have to be skilled artisans making the parts fit.
3. Reduction in repair costs, because skill required to replace a standardized part is much less than having a skilled artisan create a nonstandard part.
Historically some products have had interchangeable parts since before recorded history. The sinewy string of a prehistoric bow was an interchangeable part in other bows and so were arrows. The progress towards replaceable parts in modern manufacturing of products is directly related to the inventive activity in creating machinery to make parts with greater accuracy and the mass production of such machinery to reduce its cost, see Durfee (1893). With the invention of printing type became interchangeable first within one shop and then between shops. In the 18th century mechanics invented machinery to create geared teeth necessary to create clocks. By the end of the 18th century in England inventors had invented various type of machines to work wood. The idea of interchangeable parts in manufacturing may have originated in the 18th century in France where the military viewed it as a desirable goal in building weapons, but at that time machinery with the required accuracy to create the metal parts did not exist at any cost.
One of the first private successful application of the idea of interchangeable parts in the US was done by Eli Terry starting about 1800 in the production of clocks using wooden parts, see Bourne(1995). Wood working machinery of the time was accurate enough and cheap enough to make serviceable clocks from wood with interchangeable parts. Such clocks could be mass produced at much lower cost that artisan created clocks. In 1814 he was mass producing clocks with brass and steel parts. To obtain machines with the required metal working accuracy he had to employ skilled mechanics to improve the metal working machines.
The idea of interchangeable parts is frequently erroneously attributed to Eli Whitney, who in 1798 obtained a US government contract to build 10,000 muskets, Smith (1981). In 1799 in order to gain more time on his contract he proposed constructing the muskets with interchangeable parts and in Eli Whitney contrived a demonstration in 1801 to show that he had succeeded. By 1808 he had set up a factory in Whitneyville and delivered the muskets whose parts were not completely interchangeable. The problem was the machinery making the parts did not have the required accuracy. Eli Whitney spend considerable effort improving the quality of his metal working machinery.
The realization of interchangeable parts in manufacturing muskets was not realized until 1826 in the Harpers Ferry Armory where Hall succeeded based on his own and Simeon North's extensive improvements in metal working machinery. The first successful application of interchangeable parts to a metal product required over 25 years of inventive activity improving the metal working machinery and organizing the production process.
For the concept of replaceable parts to become common manufacturing practice required continual improvements in the accuracy of metal working machinery and a decline in the cost of such machinery do to mass production. The innovation of replaceable parts slowly spread throughout manufacturing industry during the 19th century and became commonplace by the beginning of the 20th century.
In the first half of the 20 century manufacturing firms shifted from producing single product lines to multiple product lines in several industries.
The economics of producing multiple products has been characterized by Chandler as the economics of scope
1. In their research and development efforts firms have economies in producing a range of related products.
2. Firms have economies in selling a variety of related products.
The corporate merger movement at the end of the 19th century was one of vertical and horizontal mergers. Firms moved backward to obtain secure supplies of raw materials, forward into final consumer products and increased the concentration of firms in manufacturing. At the same time, Dupont became one of the first firms in the 20th century to produce a variety of products. The real expansion in multiproduct firms started in the 1920s. As Chandler (1988) points out the these firms were in electrical, chemical, machinery, metals, and rubber, industries that had extensive research and development based on chemistry and physics. After WW II diversification became commonplace.
1. Bourne, R, 1995, Invention in America, (Fulcrum Publishing: Golden)
2. Chandler, Alfred, 1988, The Structure of American Industry in the Twentieth Century: A Historical Overview, in McCraw, Thomas (ed) The Essential Alfred Chandler: Essays toward a Historical Theory of Big Business (Harvard Business School Press: Cambridge)
3. Durfee, W., 1893, The History and Modern Development of the Art of Interchangeable Construction in Mechanism, Transactions of the American Society of Mechanical Engineers Vol XIV, pp1225-1257
53. Smith,M., 1981, Eli Whitney and the American System of Manufacturing, in Pursell, C. (ed), Technology in America, (The MIT Press, Cambridge), pp 45-61