Cost of Small-Scale vs. Large-Scale Manufacturing
"Ralph Borsodi, writing in the 1920s and 1930s, argued that the overall cost of manufacturing most light goods like food, textiles, and furniture in one's home was actually lower than in the factory. The reason was that the electric motor put small-scale production machinery in the home on the same footing as large machinery in the factory. Although economies of large-scale machine production exist, most of the economies of machine production are captured with the bare adoption of the machinery itself, even on a household scale. After that, the downward production cost curve is rather shallow, while the upward distribution cost curve is steep.
Borsodi started with an assessment of the comparative cost of growing and canning tomatoes at home versus buying canned tomatoes from the grocer, and found that when all costs were accounted for (including canning supplies, electricity, labor, amortization on the kitchen range, etc.) the home product was actually a third cheaper than storebought. The reason? The home product, produced at the point of consumption, had zero distribution cost. The modest additional unit cost savings from large-scale machinery were insufficient to offset the enormous cost of distribution and marketing.
He went on to experiment with home clothing production with loom and sewing machine, and building furniture in the home workshop.
- "I discovered that more than two-thirds of the things which the average family now buys could be produced more economically at home than they could be bought factory made;
--that the average man and woman could earn more by producing at home than by working for money in an office or factory and that, therefore, the less time they spent working away from home and the more time they spent working at home, the better off they would be;
--finally, that the home itself was still capable of being made into a productive and creative institution and that an investment in a homestead equipped with efficient domestic machinery would yield larger returns per dollar of investment than investments in insurance, in mortgages, in stocks and bonds....
These discoveries led to our experimenting year after year with domestic appliances and machines. We began to experiment with the problem of bringing back into the home, and thus under our own direct control, the various machines which the textile-mill, the cannery and packing house, the flour-mill, the clothing and garment factory, had taken over from the home during the past two hundred years....
In the main the economies of factory production, which are so obvious and which have led economists so far astray, consist of three things:
(1) quantity buying of materials and supplies;
(2) the division of labor with each worker in industry confined to the performance of a single operation; and
(3) the use of power to eliminate labor and permit the operation of automatic machinery.
Of these, the use of power is unquestionably the most important. Today, however, power is something which the home can use to reduce costs of production just as well as can the factory. The situation which prevailed in the days when water power and steam-engines furnished the only forms of power is at an end. As long as the only available form of power was centralized power, the transfer of machinery and production from the home and the individual, to the factory and the group, was inevitable. But with the development of the gas-engine and the electric motor, power became available in decentralized forms. The home, so far as power was concerned, had been put in position to compete with the factory.
With this advantage of the factory nullified, its other advantages are in themselves insufficient to offset the burden of distribution costs on most products...."
The average factory, no doubt, does produce food and clothing cheaper than we produce them even with our power-driven machinery on the Borsodi homestead. But factory costs, because of the problem of distribution, are only first costs. They cannot, therefore, be compared with home costs, which are final costs. The final cost of factory products, after distribution costs have been added, make the great bulk of consumer goods actually more expensive than home-made products of the same quality." (http://c4ss.org/wp-content/uploads/2009/01/industrialpolicycarson0109.pdf)
Of the Borsodi quotation:
(Ralph Borsodi, Flight From the City: An Experiment in Creative Living on the Land (New York, Evanston, San Francisco, London: Harper & Row, 1933, 1972), pp. 10-15.