The Rise and Fall of the American Textile Industry

Posted by PITHOCRATES - July 2nd, 2013

History 101

Inventions and Innovation gave the United States a Burgeoning Textile Industry

The American textile industry was founded by businessmen.  And inventors and their inventions.  Not by any labor movement.  For before there could be a labor movement there first had to be industry to employ laborers.  And laborers weren’t creating these industries.  They were just selfishly waiting for others to do this so they could get a job in them one day.

We may never know which came first.  The chicken or the egg.  But we do know which came first when it comes to industries and laborers.  The mind came first then the muscle.  Rich people with a keen eye to judge a good investment.  Businessmen and entrepreneurs unafraid to take a risk.  And who will throw their body and soul into their business.  Then the non-risk taking people come along.  The laborers.  Who have no skin in the game.  Who wait until the minds come together to create something in which they can apply their labor.  And get a paycheck.

Samuel Slater built cotton mills in New England (1800ish).  Slatersville Rhode Island, the town he established, bears his name.  Francis Cabot Lowell and Paul Moody created a more efficient power loom and a spinning apparatus (early 1800s).  Elias Howe invented the sewing machine (mid 1800s).  And the lock-stitch.  Throw in a few more inventions, some improvements on past inventions and some innovation and you have a burgeoning U.S. textile industry.

The Luddites went about England smashing the Machines of the Mechanized Textile Industry

Cloth-making used to be a labor-intensive activity of highly skilled artisans.  For those who had the money to afford the costly clothing they made.  Many could not.  And made their own clothing in the home.  Women would spin fiber into yarn.  And weave the yarn into cloth.  Which was very labor intensive.  Allowing only a meager production of clothing for the family to wear.  Which meant a lot of darning for worn out clothing.  Hand-sewing patches to cover holes.  Sewing ripped seams back together.  And sewing together rips and tears.  Until the clothing was so worn that it couldn’t be darned anymore.

It is hard to fathom how important this was during early America.  A time of a mini ice age.  In the north the winters were long and they were cold.  This homemade clothing may not have been pretty.  But it could keep you from dying of exposure in those brutally cold winters.  The mechanization of the textile industry changed all of that.  Smart inventors and business owners used machines to automate the cloth-making process.  Allowing less skilled people to operate smart machines.  Producing more clothes for less.  Bringing the cost of clothing down.  So anyone could afford to buy clothing.

Of course, this did not make everyone happy.  As those machines replaced the need for highly skilled artisans.  Who demanded high prices for their craft.  Allowing only the rich to afford their wares.  They didn’t like these machines cutting into their high wages.  And did something about it.  A group of people called ‘Luddites’ went about England smashing the machines of the mechanized textile industry (1811-1817).  Hoping to force a return to the old ways of making clothing.  By skilled artisan.  Where only the rich could afford to buy clothing.

Unions have Exported Entire Industries to Emerging Economies to Escape Soaring Labor and Regulatory Costs

Just as the textile industry was modernizing and mechanizing two seamstresses formed the first all-women’s labor union in 1825.  The United Tailoresses of New York.  Protesting 16-hour workdays.  And the lack of a living wage.  Strikes followed.  The Lowell, Massachusetts, mill women’s strike in 1834.  The Manayunk, Pennsylvania, textile strike in 1834.  The Paterson, New Jersey, textile strike in 1835.  And the Llowell, Massachusetts, mill women’s strike in 1836.  In 1844 women formed and ran the Lowell Female Labor Reform Association.  Then more strikes.  The Cohoes, New York, cotton mill strike in 1882.  The Fall River, Massachusetts, textile strike in 1884.  The Augusta, Georgia, textile strike in 1886.  The Fall River, Massachusetts, textile strike in 1889.  In 1890 New York garment workers won the right to unionize.  Close their shops to nonunion workers.  And fire any nonunion workers on the payroll.  In 1900 the International Ladies’ Garment Workers Union was founded.  In 1901 the United Textile Workers was founded.  Then came the New York shirtwaist strike in 1909.  Massachusetts passed the first minimum wage law for women and minors in 1912.  Then came the Lawrence, Massachusetts, textile strike in 1912.  Giving us the walking picket line.  Then the Paterson, New Jersey, textile strike in 1913.  The Amalgamated Clothing Workers union was founded in 1914.  Then the Fulton bag and cotton mill strike in 1914.  The Passaic, New Jersey, Textile Strike in 1926.  And so on.

The Luddites hated the machinery of the modern textile industry.  As they didn’t like the idea of replacing many highly skilled and well-paid artisans with automated machinery operated by fewer low-skilled laborers.  So they tried to smash the automated machinery.  To try and save their jobs.  Which the labor movement was happy to see go away.  For they would rather pack as many low-skilled laborers into those Dickensian factories as possible.  For the more members they had in their unions the more powerful they were.  And the more they could demand from the business owners.  They demanded a lot, too.  Higher wages, shorter hours and better working conditions.  So much so that the cost of labor rose while productivity fell.  Throwing the door open to foreign competition.

The big labor movements used their friends in government to protect their generous union contracts.  By passing pro-union legislation.  And placing tariffs on imported textile goods.  Keeping clothing prices high.  So business could earn enough to pay those generous union pay and benefits.  But this left these businesses uncompetitive in the world’s markets.  Which they wanted to sell in.  For it wasn’t only Americans that wore clothes.  Those union contracts increased labor costs so much that businesses found it hard to remain in business let alone remain profitable.  So they started leaving the United States during the 20th century.  Which is why today there is no U.S. textile industry.  Because of the high cost of labor.  And costly regulatory policies.  Where is the textile industry today?  In the emerging economies.  Where labor and regulatory costs are lower than in America.  While the standard of living for those employed in these factories are often higher than their fellow countrymen.  Which is what unions have often done in the United States.  Create good jobs in emerging economies.  By exporting entire industries from the United States to these emerging economies.  Where they can escape soaring labor and regulatory costs.

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Labor Theory of Value and Prices

Posted by PITHOCRATES - May 13th, 2013

Economics 101

“Do you know how many men you and that machine are putting out of a job?”

Ditch digging is back-breaking work.  Often under a blistering sun.  Where laborers swing picks into the hard soil.  Breaking the compacted soil and rock into loose chunks.  Then another laborer thrusts his shovel into the loosened soil.  Scoops up a load and transfers it to a large bucket.  When full other laborers topside heave the bucket up from the trench.  And empties it onto a cart.  Then returns the bucket to the bottom of the trench.  Then laborers swing their picks.  And scoop up more soil.

A ditch digger may hate his job.  The immense physical requirements wearing him down.  Working in unbearable heat.  And the monotony.  Just dig, dig, dig.  Pausing to wipe the sweat rolling off his face with his shirt sleeve.  To grab a deep breath.  Or a swig of water.  Then back to the pick.  Or shovel.  Calloused hands gripping a splintered handle.  As his burning muscles drive it back into the earth.  All the while thinking that there must be a better way.

Then the day comes when a truck pulls onto site.  Pulling a trailer.  And on that trailer is the future.  A mechanical excavator.  With a 44″-wide bucket on it that can move more soil with one swipe than a laborer can dig in a day.  A machine that would revolutionize ditch digging.  As one machine and a crew of a few men could do the work of 100 ditch diggers in far less time.  As the machine operator prepares to drive the mechanical excavator off the trailer a grizzled ditch digger walks up to him and says, “Do you know how many men you and that machine are putting out of a job?”

Something is Worth what Someone is Willing to Pay for it Regardless of the Quantity of Labor

The labor theory of value would say this ditch is very valuable.  Before the future arrived on that trailer.  For this theory states that value is proportional to the quantity of labor it takes to make or do something.  The more labor hours required the more valuable it is.  It’s not the market that determines value via the laws of supply and demand.  As happens under capitalism.  No.  It’s labor that determines value.  A theory championed by labor movements.  And Karl Marx.  The father of communism.  The greatest anti-capitalist of them all.  Which reveals the true motive behind the labor theory of value.  To give more political power to labor.  While having nothing to do with economics.

To illustrate this let’s look at ditch digging.  The way it was.  And the way it is.  For this exercise let’s consider a ditch for a 60″ storm drain.  Which requires a deep, long trench.  Let’s say it takes a crew of 100 laborers to hand-dig the trench in 6 weeks.  While a crew of 10 laborers and a machine can do the job in 1 week.  Each laborer has $25 worth of tools.  And the mechanical excavator costs $25,000 to rent for one week.  Now let’s assume two construction companies put a bid together for this work.  One bases their estimate on the way it was.  Men digging by hand.  The other bases their estimate on the way it is.  Using a machine.  The value of this trench is the cost of their estimates.  That is, the value of the trench is the cost to dig it.  Which is the price someone must pay to have this ditch.  We summarize these two estimates in the following table.

Ditch Digging

The bottom line in the table is the value of the dug trench.  Which you will notice has two different values.  Even though both methods result in an identical thing.  A trench the same length, width and depth.  Yet if dug by hand the price is $1.8 million.  But if we dig it with a machine the price is $55,250.  How can this be?  How can two identical things have two different prices?  Well, they can’t.  What we have is two prices.  But only one price someone will pay.  The low price.  Because that’s all the trench is worth.  The price someone is willing to pay.  Regardless of the quantity of labor used to dig it.

The Labor Theory of Value is a Flawed Economic Theory used more to Attack Capitalism

So Karl Marx was wrong.  As are those in the labor movement.  While the capitalists were/are right.  Labor does NOT determine value.  The market does.  Something is only worth what someone is willing to pay for it.  Based on the laws of supply and demand.

For example, a lot of labor hours go into building a caboose.  The last car on a train before FRED (flashing rear-end device).  The steel wheels, the brakes, the enclosure, the wood burning stove for the brakeman to warm up by, etc.  Which gives it great value based on the labor theory of value.  And a high selling price.  But trains today don’t use cabooses.  For they have no brakemen running along the top of moving trains to turn the brake wheels to stop the train.  Thanks to George Westinghouse and his air brake.  So there is very little if any demand for cabooses by today’s railroads.  Making it all but worthless.  Despite the high price tag based on the quantity of labor used to build it.

Again, supply and demand determine prices.  Not the quantity of labor.  And you can see this anywhere you look.  Another good example is housing.  You can build identical houses in two different locations and they can sell for two different prices.  Despite being built with the exact same amount of labor.  That house on the beach in Malibu will have a far higher price than the same house in Detroit.  For when it comes to real estate three things determine the price of a house.  Location, location and location.  Regardless of the quantity of labor used to build it.  Whether 100 workers build it using nothing but hand tools.  Or a crew of 10 using the latest in power tools and equipment.  It will cost more to pay 100 men to build it using nothing but hand tools.  But it won’t sell for any more than the one built by the crew of 10 using the latest in power tools and equipment.  Because the labor theory of value is a flawed economic theory.  Used more to attack capitalism.  To transfer power from the capitalists to the labor movement.  And the unions that represent them.  As well as the government officials that protect the unions in exchange for campaign contributions.

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The Struggle in Wisconsin is Similar to the French Revolution

Posted by PITHOCRATES - March 5th, 2011

 Technology Kills Jobs and Unions

Here’s something that probably won’t bother a lot of people.  We may have fewer lawyers in the not so distant future.  Why?  Because technology is replacing them (see Technology Eats Lawyers by Douglas French posted 3/5/2011 on Ludwig von Mises Institute).

In 1900 America only had 100,000 lawyers, now there are somewhere around 1.2 million. However, lawyers are now the ones in the cross-hairs of technology’s death ray. Artificial intelligence has advanced to the point where “e-discovery” software can analyze documents faster and cheaper than humans.

“From a legal staffing viewpoint, it means that a lot of people who used to be allocated to conduct document review are no longer able to be billed out,” said Bill Herr, who as a lawyer at a major chemical company used to muster auditoriums of lawyers to read documents for weeks on end. “People get bored, people get headaches. Computers don’t.”

This new legal software is clever, allowing lawyers to determine the internal goings on within companies upon analyzing emails and other internal documents.

A computer replaces a lawyer?  Is that even possible?  A computer reads and interprets human language?  Nuance and slang?  Well, yeah.  Just ask Brad Rutter.  Or Ken Jennings.  Two of the biggest Jeopardy champions of all time.  Who lost to Watson.  A computer.

Technology marches on.  Always.  And it changes things.  Changes the world.

Back in 1900 over 40 percent of the America’s workforce was employed in agriculture. One hundred years later the percentage had fallen to less than two percent. What happened was technology. Tractors, balers and fertilizer meant that yours truly despite growing up in farm country didn’t get stuck down on the farm.

It’s happened to industry after industry and progress marches on. Any job that is mindless and repetitive, over time it’s likely going away. Some machine or technology will do it better and faster. And this is a great thing. Imagine what America would be like if almost half of us had to work on the farm producing food. Most of what we take for granted each day wouldn’t have even been thought of if half of us were slopping hogs and mending fences.

A century earlier most of us were farmers.  That’s why unions weren’t a significant political force around 1800.  Most were farming land they owned.  As the Industrial Revolution transformed America, cities grew.  People left farms to work in factories.  Following World War II, when Europe’s industries were in shambles, American industry exploded.  As did the power of unions.  It was the sweet-spot of the labor movement.  We rebuilt war-torn economies around the world.  Our factories were humming.  And they were organized.  The sky was the limit.  Because there was nowhere else to go.  So wage and benefit packages were very generous.  Then something happened.  The world’s economies recovered sometime in the 1960s.  All of a sudden, you could go somewhere else.  Not pay those high American prices.  And people did.

The unions grew strong when they could.  When there was no competition.  But when competition returned, the unions lost their power.  Because there was a limit to what they could demand.  You see, unlike before, businesses could not pass on higher and higher union costs to the consumer.  Companies that tried saw losses in market share.  So they had a choice.  Go out of business.  Replace people with robots.  Or outsource.  And they did all three.

Union membership in the private sector has declined since the ‘sweet-spot’ of organized labor.   From approximately 35% to less than 10%.  Interesting, though, this is not the case with public sector unions.  During the seventies, public sector workers belonging to a union jumped above 35%.  And has stayed there ever since.

Public Sector Unions:  Stealing from the Poor to Give to the Rich

So what’s the difference between the private sector and public sector that accounts for this divergence in union membership?  In a word, competition.  Where there is competition, union membership has declined.  Where there isn’t competition, union membership has grown and held steady.  Why?  Because of taxes.  States and municipalities have the power to tax.  And when they need more money for those generous salaries, health care and pension benefits, they go to the taxpayer. 

But there’s a problem.  You can’t keep raising taxes.  Especially when the people paying for the benefits have to sacrifice their own retirement and health care in the process.  And when we’re all living longer now (see How to fix the public sector pension system by Michael Johnson posted 3/5/2011 on the UK’s Telegraph).

There are two aspects to consider; affordability and fairness. A DB [defined benefit] pension provides the retiree with certainty of income until they die but, as the private sector has discovered, the cost of providing such certainty is now prohibitive, primarily because people are living longer in retirement. Indeed, the Government expects more than ten million people in the UK today to live to see their 100th birthday.

Private sector occupational pension provision has almost become a DB desert, replaced by defined contribution (DC) schemes, in which pensioners assume their own longevity risk. At retirement, unless a lifetime annuity is purchased (increasingly expensive), pensioners’ subsequent income is uncertain because they do not know how long they will live, nor how their assets will perform.

Conversely, public sector workers have access to valuable, state-provided longevity protection, care of their DB schemes (as well as no investment risk concerns). Their income is assured, irrespective of how long they live, but even after the introduction of higher employee contributions, tax-paying private sector workers would still be funding the bulk of the cost. It is unreasonable to expect them to assume, and pay for, the longevity risk of others, whilst not being able to enjoy a similar facility themselves. Furthermore, because our population is ageing, the number of workers supporting each pensioner is declining. Consequently, the tax burden is likely to rise, leaving our private sector workers with less to save for their own retirement…

Were such a DC framework for the public sector not to materialise, the Government would be tacitly signalling its acceptance that the quality of pension provision in the (wealth-creating) private sector is to remain second class.

And this is what the debate in Wisconsin is really about.  The ‘right’ for public sector unions to collective bargain isn’t about their salaries.  They are more than willing to give up some of that money.  It’s the benefits they’re worried about.  And what their ‘right’ of collective bargaining has given them.  That bargaining power has passed all those benefit costs onto the taxpayer.  Without the taxpayer’s consent.

This is indeed a class war.  Like there was in circa 1790 France.  Only the sans-culottes are the taxpayers.  And the ‘knee-breeches wearing’ aristocracy oppressing them are the public sector workers.  This development reminds me of a Monty Python’s Flying Circus sketch.  When Dennis Moore steals from the rich to give to the poor.  First stealing lupines.  Then valuables.  After awhile, though, the rich become poor.  And the poor become rich.  This verse near the end of the sketch says it best in song.

Dennis Moore, Dennis Moore
Riding through the land
Dennis Moore, Dennis Moore
Without a merry band
He steals from the poor
And gives to the rich
Stupid bitch

After this verse a confused Moore is struck with the realization of what he’s done and says, “Blimey this redistribution of wealth is trickier than I thought.”

Yes it is.  Indeed.  And the taxpayers get poorer while the public sector gets richer.  Thanks to collective bargaining against the taxpayers.  Public sector unions.  Just like Dennis Moore.  That stupid bitch.

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