Principles of Economics by Alfred Marshall (1890)

Book Four: The Agents of Production: Land, Labour, and Capital and Organization

Chapter 10, Industrial Organization Continued. The Concentration of Specialized Industries in Particular Localities

1. In an early stage of civilization every place had to depend on its own resources for most of the heavy wares which it consumed; unless indeed it happened to have special facilities for water carriage. But wants and customs changed slowly: and this made it easy for producers to meet the wants even of consumers with whom they had little communication; and it enabled comparatively poor people to buy a few expensive goods from a distance, in the security that they would add to the pleasure of festivals and holidays during a life-time, or perhaps even during two or three lifetimes. Consequently the lighter and more expensive articles of dress and personal adornment, together with spices and some kinds of metal implements used by all classes, and many other things for the special use of the rich, often came from astonishing distances. Some of these were produced only in a few places, or even only in one place; and they were diffused all over Europe partly by the agency of fairs (1) and professional pedlers, and partly by the producers themselves, who would vary their work by travelling on foot for many thousand miles to sell their goods and see the world. These sturdy travellers took on themselves the risks of their little businesses; they enabled the production of certain classes of goods to be kept on the right track for satisfying the needs of purchasers far away; and they created new wants among consumers, by showing them at fairs or at their own houses new goods from distant lands. An industry concentrated in certain localities is commonly, though perhaps not quite accurately, described as a localized industry. (2)

This elementary localization of industry gradually prepared the way for many of the modern developments of division of labour in the mechanical arts and in the task of business management. Even now we find industries of a primitive fashion localized in retired villages of central Europe, and sending their simple wares even to the busiest haunts of modern industry. In Russia the expansion of a family group into a village has often been the cause of a localized industry; and there are an immense number of villages each of which carries on only one branch of production, or even only a part of one. (3)

2. Many various causes have led to the localization of industries; but the chief causes have been physical conditions; such as the character of the climate and the soil, the existence of mines and quarries in the neighbourhood, or within easy access by land or water. Thus metallic industries have generally been either near mines or in places where fuel was cheap. The iron industries in England first sought those districts in which charcoal was plentiful, and afterwards they went to the neighbourhood of collieries. (4) Staffordshire makes many kinds of pottery, all the materials of which are imported from a long distance; but she has cheap coal and excellent clay for making the heavy "saggars" or boxes in which the pottery is placed while being fired. Straw plaiting has its chief home in Bedfordshire, where straw has just the right proportion of silex to give strength without brittleness; and Buckinghamshire beeches have afforded the material for the Wycombe chairmaking. The Sheffield cutlery trade is due chiefly to the excellent grit of which its grindstones are made.

Another chief cause has been the patronage of a court. The rich folk there assembled make a demand for goods of specially high quality, and this attracts skilled workmen from a distance, and educates those on the spot. When an Eastern potentate changed his residence — and, partly for sanitary reasons, this was constantly done — the deserted town was apt to take refuge in the development of a specialized industry, which had owed its origin to the presence of the court. But very often the rulers deliberately invited artisans from a distance and settled them in a group together. Thus the mechanical faculty of Lancashire is said to be due to the influence of Norman smiths who were settled at Warrington by Hugo de Lupus in William the Conqueror's time. And the greater part of England's manufacturing industry before the era of cotton and steam had its course directed by settlements of Flemish and other artisans; many of which were made under the immediate direction of Plantagenet and Tudor kings. These immigrants taught us how to weave woollen and worsted stuffs, though for a long time we sent our cloths to the Netherlands to be fulled and dyed. They taught us how to cure herrings, how to manufacture silk, how to make lace, glass, and paper, and to provide for many other of our wants. (5)

But how did these immigrants learn their skill? Their ancestors had no doubt profited by the traditional arts of earlier civilizations on the shores of the Mediterranean and in the far East: for nearly all important knowledge has long deep roots stretching downwards to distant times; and so widely spread have been these roots, so ready to send up shoots of vigorous life, that there is perhaps no part of the old world in which there might not long ago have flourished many beautiful and highly skilled industries, if their growth had been favoured by the character of the people, and by their social and political institutions. This accident or that may have determined whether any particular industry flourished in any one town; the industrial character of a whole country even may have been largely influenced by the richness of her soil and her mines, and her facilities for commerce. Such natural advantages may themselves have stimulated free industry and enterprise: but it is the existence of these last, by whatever means they may have been promoted, which has been the supreme condition for the growth of noble forms of the arts of life. In stretching the history of free industry and enterprise we have already incidentally traced the outlines of the causes which have localized the industrial leadership of the world now in this country and now in that. We have seen how physical nature acts on man's energies, how he is stimulated by an invigorating climate, and how he is encouraged to bold ventures by the opening out of rich fields for his work: but we have also seen how the use he makes of these advantages depends on his ideals of life, and how inextricably therefore the religious, political and economic threads of the world's history are interwoven; while together they have been bent this way or that by great political events and the influence of the strong personalities of individuals.

The causes which determine the economic progress of nations belong to the study of international trade and therefore lie outside of our present view. But for the present we must turn aside from these broader movements of the localization of industry, and follow the fortunes of groups of skilled workers who are gathered within the narrow boundaries of a manufacturing town or a thickly peopled industrial district.

3. When an industry has thus chosen a locality for itself, it is likely to stay there long: so great are the advantages which people following the same skilled trade get from near neighbourhood to one another. The mysteries of the trade become no mysteries; but are as it were in the air, and children learn many of them unconsciously. Good work is rightly appreciated, inventions and improvements in machinery, in processes and the general organization of the business have their merits promptly discussed: if one man starts a new idea, it is taken up by others and combined with suggestions of their own; and thus it becomes the source of further new ideas. And presently subsidiary trades grow up in the neighbourhood, supplying it with implements and materials, organizing its traffic, and in many ways conducing to the economy of its material.

Again, the economic use of expensive machinery can sometimes be attained in a very high degree in a district in which there is a large aggregate production of the same kind, even though no individual capital employed in the trade be very large. For subsidiary industries devoting themselves each to one small branch of the process of production, and working it for a great many of their neighbours, are able to keep in constant use machinery of the most highly specialized character, and to make it pay its expenses, though its original cost may have been high, and its rate of depreciation very rapid.

Again, in all but the earliest stages of economic development a localized industry gains a great advantage from the fact that it offers a constant market for skill. Employers are apt to resort to any place where they are likely to find a good choice of workers with the special skill which they require; while men seeking employment naturally go to places where there are many employers who need such skill as theirs and where therefore it is likely to find a good market. The owner of an isolated factory, even if he has access to a plentiful supply of general labour, is often put to great shifts for want of some special skilled labour; and a skilled workman, when thrown out of employment in it, has no easy refuge. Social forces here co-operate with economic: there are often strong friendships between employers and employed: but neither side likes to feel that in case of any disagreeable incident happening between them, they must go on rubbing against one another: both sides like to be able easily to break off old associations should they become irksome. These difficulties are still a great obstacle to the success of any business in which special skill is needed, but which is not in the neighbourhood of others like it: they are however being diminished by the railway, the printing-press and the telegraph.

On the other hand a localized industry has some disadvantages as a market for labour if the work done in it is chiefly of one kind, such for instance as can be done only by strong men. In those iron districts in which there are no textile or other factories to give employment to women and children, wages are high and the cost of labour dear to the employer, while the average money earnings of each family are low. But the remedy for this evil is obvious, and is found in the growth in the same neighbourhood of industries of a supplementary character. Thus textile industries are constantly found congregated in the neighbourhood of mining and engineering industries, in some cases having been attracted by almost imperceptible steps; in others, as for instance at Barrow, having been started deliberately on a large scale in order to give variety of employment in a place where previously there had been but little demand for the work of women and children.

The advantages of variety of employment are combined with those of localized industries in some of our manufacturing towns, and this is a chief cause of their continued growth. But on the other hand the value which the central sites of a large town have for trading purposes, enables them to command much higher ground-rents than the situations are worth for factories, even when account is taKen of this combination of advantages: and there is a similar competition for dwelling space between the employees of the trading houses and the factory workers. The result is that factories now congregate in the outskirts of large towns and in manufacturing districts in their neighbourhood rather than in the towns themselves. (6)

A district which is dependent chiefly on one industry is liable to extreme depression, in case of a falling-off in the demand for its produce, or of a failure in the supply of the raw material which it uses. This evil again is in a great measure avoided by those large towns or large industrial districts in which several distinct industries are strongly developed. If one of them fails for a time, the others are likely to support it indirectly; and they enable local shopkeepers to continue their assistance to workpeople in it.

So far we have discussed localization from the point of view of the economy of production. But there is also the convenience of the customer to be considered. He will go to the nearest shop for a trifling purchase; but for an important purchase he will take the trouble of visiting any part of the town where he knows that there are specially good shops for his purpose. Consequently shops which deal in expensive and choice objects tend to congregate together; and those which supply ordinary domestic needs do not. (7)

4. Every cheapening of the means of communication, every new facility for the free interchange of ideas between distant places alters the action of the forces which tend to localize industries. Speaking generally we must say that a lowering of tariffs, or of freights for the transport of goods, tends to make each locality buy more largely from a distance what it requires; and thus tends to concentrate particular industries in special localities: but on the other hand everything that increases people's readiness to migrate from one place to another tends to bring skilled artisans to ply their crafts near to the consumers who will purchase their wares. These two opposing tendencies are well illustrated by the recent history of the English people.

On the one hand the steady cheapening of freights, the opening of railways from the agricultural districts of America and India to the sea-board, and the adoption by England of a free-trade policy, have led to a great increase in her importation of raw produce. But on the other hand the growing cheapness, rapidity and comfort of foreign travel, are inducing her trained business men and her skilled artisans to pioneer the way for new industries in other lands, and to help them to manufacture for themselves goods which they have been wont to buy from England. English mechanics have taught people in almost every part of the world how to use English machinery, and even how to make similar machinery; and English miners have opened out mines of ore which have diminished the foreign demand for many of England's products.

One of the most striking movements towards the specialization of a country's industries, which history records, is the rapid increase of the non-agricultural population of England in recent times. The exact nature of this change is however liable to be misunderstood; and its interest is so great, both for its own sake, and on account of the illustrations it affords of the general principles which we have been discussing in the preceding chapter and in this, that we may with advantage pause here to consider it a little.

In the first place, the real diminution of England's agricultural industries is not so great as at first sight appears. It is true that in the Middle Ages three-fourths of the people were reckoned as agriculturists; that only one in nine was returned to the last census as engaged in agriculture, and that perhaps not more than one in twelve will be so returned at the next census. But it must be remembered that the so-called agricultural population of the Middle Ages were not exclusively occupied with agriculture; they did for themselves a great part of the work that is now done by brewers and bakers, by spinners and weavers, by bricklayers and carpenters, by dressmakers and tailors and by many other trades. These self-sufficing habits died slowly; but most of them had nearly disappeared by the beginning of the last century; and it is probable that the labour spent on the land at this time was not a much less part of the whole industry of the country than in the Middle Ages: for, in spite of her ceasing to export wool and wheat, there was so great an increase in the produce forced from her soil, that the rapid improvement in the arts of her agriculturists scarcely availed to hold in check the action of the law of diminishing return. But gradually a great deal of labour has been diverted from the fields to making expensive machinery for agricultural purposes. This change did not exert its full influence upon the numbers of those who were reckoned as agriculturists so long as the machinery was drawn by horses: for the work of tending them and supplying them with food was regarded as agricultural. But in recent years a rapid growth of the use of steam power in the fields has coincided with the increased importation of farm produce. The coal-miners who supply these steam-engines with fuel, and the mechanics who make them and manage them in the fields are not reckoned as occupied on the land, though the ultimate aim of their labour is to promote its cultivation. The real diminution then of England's agriculture is not so great as at first sight appears; but there has been a change in its distribution. Many tasks which used once to be performed by agricultural labourers are now done by specialized workers who are classed as in the building, or road-making industries, as carriers and so on. And, partly for this reason the number of people who reside in purely agricultural districts has seldom diminished fast; and has often increased, even though the number of those engaged in agriculture has been diminishing rapidly.

Attention has already been called to the influence which the importation of agricultural produce exerts in altering the relative values of different soils: those falling most in value which depended chiefly on their wheat crops, and which were not naturally fertile, though they were capable of being made to yield fairly good crops by expensive methods of cultivation. Districts in which such soils predominate, have contributed more than their share to the crowds of agricultural labourers who have migrated to the large towns; and thus the geographical distribution of industries within the country has been still further altered. A striking instance of the influence of the new means of transport is seen in those pastoral districts in the remoter parts of the United Kingdom, which send dairy products by special express trains to London and other large towns, meanwhile drawing their own supplies of wheat from the further shores of the Atlantic or even the Pacific Ocean.

But next, the changes of recent years have not, as would at first sight appear probable, increased the proportion of the English people who are occupied in manufactures. The output of England's manufactures is certainly many times as great now as it was at the middle of the last century; but those occupied in manufacture of every kind were as large a percentage of the population in 1851 as in 1901; although those who make the machinery and implements which do a great part of the work of English agriculture, swell the numbers of the manufacturers.

The chief explanation of this result lies in the wonderful increase in recent years of the power of machinery. This has enabled us to produce ever increasing supplies of manufactures of almost every kind both for our own use and for exportation without requiring any considerable increase in the number of people who tend the machines. And therefore we have been able to devote the labour set free from agriculture chiefly to supplying those wants in regard to which the improvements of machinery help us but little: the efficiency of machinery has prevented the industries localized in England from becoming as exclusively mechanical as they otherwise would. Prominent among the occupations which have increased rapidly since 1851 in England at the expense of agriculture are the service of Government, central and local; education of all grades; medical service; musical, theatrical and other entertainments, besides mining, building, dealing and transport by road and railway. In none of these is very much direct help got from new inventions: man's labour is not much more efficient in them now than it was a century ago: and therefore if the wants for which they make provision increase in proportion to our general wealth, it is only to be expected that they should absorb a constantly growing proportion of the industrial population. Domestic servants increased rapidly for some years; and the total amount of work which used to fall to them is now increasing faster than ever. But much of it is now done, often with the aid of machinery, by persons in the employment of clothiers of all kinds, of hotel proprietors, confectioners, and even by various messengers from grocers, fishmongers and others who call for orders, unless they are sent by telephone. These changes have tended to increase the specialization and the localization of industries.

Passing away from this illustration of the action of modern forces on the geographical distribution of industries, we will resume our inquiry as to how far the full economies of division of labour can be obtained by the concentration of large numbers of small businesses of a similar kind in the same locality; and how far they are attainable only by the aggregation of a large part of the business of the country into the hands of a comparatively small number of rich and powerful firms, or, as is commonly said, by production on a large scale; or, in other words, how far the economies of production on a large scale must needs be internal, and how far they can be external. (8)


1. Thus in the records of the Stourbridge Fair held near Cambridge we find an endless variety of light and precious goods from the older seats of civilization in the East and on the Mediterranean; some having been brought in Italian ships, and others having travelled by land as far as the shores of the North Sea.

2. Not very long ago travellers in western Tyrol could find a strange and characteristic relic of this habit in a village called Imst. The villagers had somehow acquired a special art in breeding canaries: and their young men started for a tour to distant parts of Europe each with about fifty small cages hung from a pole over his shoulder, and walked on till they had sold all.

3. There are for instance over 500 villages devoted to various branches of woodwork; one village makes nothing but spokes for the wheels of vehicles, another nothing but the bodies and so on; and indications of a like state of things are found in the histories of oriental civilizations and in the chronicles of medieval Europe. Thus for instance we read (Rogers' Six Centuries of Work and Wages, ch. IV) of a lawyer's handy book written about 1250, which makes note of scarlet at Lincoln; blanket at Bligh; burnet at Beverley; russet at Colchester; linen fabrics at Shaftesbury, Lewes, and Aylsham; cord at Warwick and Bridport; knives at Marstead; needles at Wilton; razors at Leicester; soap at Coventry; horse girths at Doncaster; skins and furs at Chester and Shrewsbury and so on.

The localization of trades in England at the beginning of the eighteenth century is well described by Defoe, Plan of English Commerce, 85-7; English Tradesman, II, 282-3.

4. The later wanderings of the iron industry from Wales, Staffordshire and Shropshire to Scotland and the North of England are well shown in the tables submitted by Sir Lowthian Bell to the recent Commission on the Depression of Trade and Industry. See their Second Report, Part I, p. 320.

5. Fuller says that Flemings started manufactures of cloths and fustians in Norwich, of baizes in Sudbury, of serges in Colchester and Taunton, of cloths in Kent, Gloucestershire, Worcestershire, Westmorland, Yorkshire, Hants, Berks and Sussex, of kerseys in Devonshire and of Levant cottons in Lancashire. Smiles' Huguenots in England and Ireland, p. 109. See also Lecky's History of England in the eighteenth century, ch. II.

6. The movement has been specially conspicuous in the case of the textile manufacturers. Manchester, Leeds and Lyons are still chief centres of the trade in cotton, woollen and silk stuffs, but they do not now themselves produce any great part of the goods to which they owe their chief fame. On the other hand London and Paris retain their positions as the two largest manufacturing towns of the world, Philadelphia coming third. The mutual influences of the localization of industry, the growth of towns and habits of town life, and the development of machinery are well discussed in Hobson's Evolution of Capitalism.

7. Comp. Hobson, l. c. p. 114.

8. The percentage of the population occupied in the textile industries in the United Kingdom fell from 3.13 in 1881 to 2.43 in 1901; partly because much of the work done by them has been rendered so simple by semi-automatic machinery that it can be done fairly well by peoples that are in a relatively backward industrial condition; and partly because the chief textile goods retain nearly the same simple character as they had thirty or even three thousand years ago. On the other hand manufactures of iron and steel (including shipbuilding) have increased so greatly in complexity as well as in volume of output, that the percentage of the population occupied in them rose from 2.39 in 1881 to 3.01 in 1901; although much greater advance has been meanwhile made in the machinery and methods employed in them than in the textile group. The remaining manufacturing industries employed about the same percentage of the people in 1901 as in 1881. In the same time the tonnage of British shipping cleared from British ports increased by one half; and the number of dock labourers doubled, but that of seamen has slightly diminished. These facts are to be explained partly by vast improvements in the construction of ships and all appliances connected with them, and partly by the transference to dock labourers of nearly all tasks connected with handling the cargo some of which were even recently performed by the crew. Another marked change is the increased aggregate occupation of women in manufactures, though that of married women appears to have diminished, and that of children has certainly diminished greatly.

The Summary Tables of the Census of 1911, published in 1915, show so many changes in classification since 1991 that no general view of recent developments can be safely made. But Table 64 of that Report and Prof. D. Caradog Jones' paper read before the Royal Statistical Society in December 1914 show that the developments of 1901-11 differ from their predecessors in detail rather than in general character.

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