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who, to quote in the slang of today, “was up against the real thing," said, in referring to this article, that the writer evidently had in mind a friendly war or, perchance, a peaceful hell. Present day competition is the same in kind that it always has been though it is different in degree. It is no holiday entertainment, — competition is sharp now but it is going to be infinitely sharper, and we shall not forget that competition is industrial war, and that ignorant, unrestricted competition, carried to its logical conclusion, means death to some of the combatants and injury for all. The law of war is that the strong and well equipped will succeed and the weak or poorly equipped will fail, – but size does not always indicate strength and efficiency.
The theory of some economic writers and teachers appears to be that combinations and consolidations are all wrong and live by wrong doing, but it does not follow that this theory is correct and there is an evident change in the thought of some in this respect. The principle of consolidation is right, but the practice of consolidation can be and sometimes is, wrong. The progress of the world has been the result of combination and consolidation; it is the working out of that principle which separates civilized man from the barbarian. It is the broad highway over which the human race has made progress to its present condition which, notwithstanding the great inequalities which still exist in human conditions is, we believe, the best the world has ever known.
There is only one way in which a consolidation can for any length of time be successful or in a degree eliminate competition, and no new principle is called into being to bring success. It is the same principle whether it be a consolidation of corporation, a single firm, a man or a boy. They must each render exceptional service if they would succeed. The consolidation must share the profit with the consumer by lowering the price. If it does not it will fail, and it deserves to fail if its policy is to create a fictitious value for its product, and to practically say to the public, "Stand and deliver."
The correct theory underlying modern industrial consolidation is greater economy in production, - a larger return of efficiency for effort expended, and not an artificial and uneconomic price for product. By a comparison of methods the management determines which is the best and most economical of all the several processes of manufacture, and then having found the best method, the effort is made to bring all the different branches or divisions up to the highest standard of efficiency.
Too many consolidations have been managed not in the interests of the stockholders, the consuming public, or employees (all of which have rights which must be respected), but in the interests of the stock speculators, and the industry is often ruined because more thought is put on the stock ticker than upon the business itself; the policy of the business often being determined, not by what would be the best for the industry, but by what would be best to “
bull” or “bear ” the stock market. There are two distinct and separate propositions in the consolidation or so-called trust question. One is the stock or speculative side of the question; the other is the industry itself. Most of that which has been written has dealt with the first question, and next to nothing has been written as regards the effect of consolidated management on industry, and yet this is the all-important part of the question, for, let stock quotations fluctuate as they will, that which gives intrinsic value to, or takes value from, the securities of the company is the management of the industry.
We need to remember that the men who are the actual managers in productive industry, who are devoting their best energies to the development of machinery and men ; who are giving their best thought to the development of efficiency in the working force and of intelligence in the managnent of the commercial side of business, are not as a general proposition, interested in speculative doings of the Wall Street manufacturers, whose finished product has been called “securities,” if they can be designated by that name without doing violence to the truth.
The consolidation of industrials has made it possible to ascertain how business has been conducted by competing firms, and the methods, or lack of methods, of some have been a revelation.
It has been my pleasure to form the acquaintance of the managers of quite a number of consolidations in different industries, and the experience of one is the experience of all. In some of the companies consolidated they had never known the cost of manufacturing their goods; there had never been an intelligent attempt to learn the cost. The principle upon which they appear have acted was this: If one manufaturer quoted for an article a dollar, they knew they could make it for less than he, and so quoted ninety cents. There was an absolute lack of system in everything, save in one particular—their system of price cutting without regard to cost was perfect.
Consolidation also developed the fact that some plants were simply museums of antiquity, filled with machinery fit only for the scrap heap. Dead and dying concerns without money enough in the treasury to pay funeral expenses, and that is the only reason why they were still on earth, and the management, or rather, mis-management, might properly have been called “organized incompetence.”
Permit me now to give you a chapter of ancient history. It is years behind us now so we can afford to laugh at it, but it was a mighty serious problem in 1898 when we were trying to see “where we were at.”
When the company, of which I have been the general manager for almost ten years, was organized, our first business was to learn, if possible, what the costs of production were at the several constituent companies. Some of them could give us absolutely no data whatever, and if we had based our figures of cost on the information furnished us by some of them, we would have been in the hands of a receiver at the end of the first year. Some of the figures of cost furnished us were more than 100 per cent. out of the way, in other words, they could not manufacture their goods for more than twice what they claimed they could. When the actual costs of manufacture (exclusive of paper which is our raw material) were finally determined, the fact was developed that the two companies which claimed the lowest cost of production, were the highest and were not entered in the same class with the other companies, and failure would have been the next step if the consolidation had not been brought about, but these firms made the prices at which some of the other manufacturers were forced to do business.
During the past ten years we have acted as undertaker and have cared for the remains of a number of companies, and we have had opportunities to acquire other companies, all of which has given us an opportunity to see behind the scenes and so learn how they did their business, and I would blush for the industry to put on record the ignorance developed. A firm doing business on the basis outlined is completely at the mercy of the unscrupulous buyer. There are a few such, we have all met them, and if some of us were to put on record some of their sayings and doings in the contest for highest honors, the late lamented ANANIAS would not receive even honorable mention.
One of the largest steadying qualities which consolidation will bring to industry will be the facts of business through a scientific system of accounting. The costs of production must be applied in industry by as correct a set of principles as are applied by the engineer in the construction of a bridge or building, and it is just as easy to work out a correct system that will definitely determine costs of production as it is to plan out the working parts of a machine, but this work must be done by an expert.
This is not the time or place to go into detail, but it is the time and place to make the suggestion, and I can conceive of no greater service which this organization can render to the industry with which you are all connected, than to have wrought out a scientific system of accounting by which the costs of production will be not only accurately determined, but properly apportioned on the product. In those letters of the self made merchant to his
son, “Old Gorgan Graham,” sets forth a good many homely truths, and in one of his illustrations, comparing present conditions with those existing when he started in business, he says, “ We all started in: a mighty different world. We were all ignorant together and we didn't have to know fractions to figure our profits, but now to see profits you have to be well up in astronomy, and when with a powerful glass you do finally locate them, they are away out at the five point decimal place." Never were truer words spoken. This is the day when we think in large units, but there never was a time when the decimal counted for so much.
No man gifted with ordinary business sense, in building a house, would give the contract to a builder without first having had an architect prepare the plans and specifications by which the builder could intelligently work and on which to figure costs; nor would he turn over the construction of a machine to a force of mechanics, however efficient, without first having had the draftsman with great care and often at great cost, produce the working drawings. And yet, in the conduct of a great business where decimals are to determine whether there shall be a profit or loss, success or failure, the work of bookkeeping (it cannot be called accounting) is often in the care of clerks absolutely incompetent to give to the management any intelligent detail on which to base their judgment for the proper conduct of the business.
In general I believe it to be true that the mechanical departments of business are away ahead of the business management, looked at from the office end of the business. Business men learned years ago that to do work intelligently and economically in the mechanical departments, work must be standardized and systematized and to do this they used the best brains they could hire.
Accounting is not simply to make a record of what has been done, but it is to classify and tabulate the facts so that the management can intelligently decide what it is best to do for the future. More and more the accountant is to be a prime factor in the development of industrial efficiency. More and more