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A FINANCIAL HISTORY OF THE AMERICAN AUTOMOBILE INDUSTRY A STUDY OF THE WAYS IN WHICH THE LEADING AMERICAN PRODUCERS OF AUTOMOBILES HAVE MET THEIR CAPITAL REQUIREMENTS BY LAWRENCE H. SELTZER, PH.D. Associate Professor of Economics and Sociology in the College of the City of Detroit BOSTON AND NEW YORK HOUGHTON MIFFLIN COMPANY irbeitiberfsibeVraz Cambribge 1928 COPYRIGHT, 1928, BY HART, SCHAFFNER & MARX TO ALL RIGHTS RESERVED FRED M. TAYLOR THIS BOOK IS AFFECTIONATELY DEDICATED I the Ribersabe Press CAMBRIDGE • MASSACHUSETTS PRINTED IN THE U.S.A. PREFACE THIS series of books owes its existence to the generosity of Messrs. Hart, Schaffner & Marx, of Chicago, who have shown a special interest in trying to draw the attention of American youth to the study of economic and commercial subjects. For this purpose they have delegated to the un- dersigned committee the task of selecting or approving of topics, making announcements, and awarding prizes an- nually for those who wish to compete. For the year 1926 there were offered: In Class A, which included any American without re- striction, a first prize of $1000, and a second prize of $500. In Class B, which included any who were at the time undergraduates of an American college, a first prize of $3oo, and a second prize of $200. Any essay submitted in Class B, if deemed of sufficient merit, could receive a prize in Class A. The present volume, submitted in Class A, was awarded First Prize. J. LAURENCE LAUGHLIN, Chairman University of Chicago JOHN B. CLARK Columbia University EDWIN F. GAY Harvard University THEODORE E. BURTON Washington, D.C. WESLEY C. MITCHELL Columbia University AUTHOR'S PREFACE OUR knowledge of the economic processes, long summarized in a valuable body of `principles' or 'laws,' has experienced the promise of much enrichment in recent years as the result of a host of inductive studies of concrete economic phenom- ena. Such studies need not aim at new large generalizations. Apart from their value in special fields, their worth is amply established if they but serve to refine, to clarify, or to enrich by specific illustration, the body of economic theory that has thus far been the fruit of a priori reasoning most largely. The aim of the present study is to take a place with countless other empirical investigations, the joint product of which, it is hoped, will be an expansion of our knowledge of the eco- nomic processes. One of the outstanding characteristics of contemporary industry is the striking mobility of economic resources. The enormous advances of the past century in the means of com- munication and in the arts and sciences have greatly ac- celerated the rate of economic change. New products and new methods of production appear almost daily; older lines change rapidly in importance. Consumption habits and industrial practices, alike, display a remarkable flexibility, ready ever to stimulate and to accommodate the new and to modify relations among the old. Changes in industry appear to take place spontaneously, for they are brought about by thousands of individuals and groups, each acting more or less independently of others, and each motivated and guided by the hope of profits. Initiative in business is controlled by no central institution, but is open to all who can command the necessary productive resources. This initiative, and hence, the resources, are attracted to all lines of enterprise that offer relatively large returns. The existence of different and changing rates of profits in differ- x AUTHOR'S PREFACE AUTHOR'S PREFACE xi ent fields operates constantly to regulate the employment of The availability of capital for new or expanding industries productive resources by causing them to be diverted from may be said to depend, in general, upon the rate at which the less to more profitable channels. In consequence, the prevail- supply of capital is increased and upon the efficiency of the ing distribution of productive agents among the various in- institutions and practices that bring together owners of dustries, products, and services is always tentative, and is capital and entrepreneurs. These broad conditions depend achieved by a process of constant readjustment. in turn upon many other factors, some of which are fre- While changes in industry are motivated chiefly by profits, quently ignored. Many writers, for example, are content to they are largely conditioned by the actual readiness of land, discuss the processes of capital mobility solely in terms of the labor, capital, and business initiative to shift from one em- liquid funds marshalled and directed by the organized ployment to another. Perfect mobility in these agents is an financial markets and by business men. In so doing, they important postulate of traditional economic theory; and the suggest a simplicity and directness that are not easily ob- practical limitations upon such mobility are responsible for servable in the facts of industry. Capital in the form of various apparent anomalies in the world of competitive money is, indeed, capital par excellence, for in this form it is business, such as continuing discrepancies in the compara- synonymous with the power to employ virtually all kinds of tive prices, wages, profits, and interest rates of different economic resources in 'roundabout," time-consuming ' countries, sections, trades, and industries. In modern in- methods. At any given moment, however, the bulk of a com- dustry, important changes are peculiarly conditioned by the munity's capital is not to be found in the form of money, but mobility of capital. The large-scale industrial technique of in the form of concrete capital goods. How capital so em- our times requires the employment of enormous quantities of bodied is constantly redistributed to meet the changing needs resources for mediate uses — for tools, machines, buildings, of industry, and the factors that variously influence this products in process, reserves against fluctuations, etc. The mobility, constitutes a set of processes that transcend the commercial production of an important new good, the auto- operations of the money markets. mobile, for example, is conditioned, therefore, by the avail- The purpose of the present study is to illustrate several ability of free economic resources to be employed for such aspects of these processes by reference to the history of the mediate uses in its connection ; is conditioned, in other American automobile industry. Stated more broadly, it is words, by the availability of free capital. purposed to answer, for a single industry and within re- The nature of capital as an economic category has been stricted scope, the following question: Given the existing somewhat variously conceived and far more variously articu- organization of industry, and given a new important product, lated ; but the purposes of the present study do not require an just how have the producers of this product come to com- extended examination of the theoretical content of this con- mand the economic resources required for its extensive pro- cept. In accordance with a prevailing view, it is sufficient to duction? say that capital in general is best conceived as consisting of In confining our attention to the American automobile economic resources devoted to mediate or instrumental uses, industry, we do not presume that its development has been as contrasted with resources employed for current consump- perfectly typical of that of all new industries. The auto- tion; and that, for some purposes, capital may be regarded as mobile industry, nevertheless, lends itself peculiarly well to a fund of economic goods permanently dedicated to mediate the purposes of this study. In the first place, the industry is employment. scarcely thirty years old. Its birth and development, there- xii AUTHOR'S PREFACE AUTHOR'S PREFACE xiii fore, have taken place under the most modern conditions of the most generous treatment at the hands of the leading financial and industrial practice. In the second place, the officials of the companies included in this study. It is due to industry has attained a position of great importance. Where- their aid in allowing me access to various original or official as, prior to 1899, its operations were too insignificant to re- records that this study has achieved such measure of ade- ceive separate notice in the Census of Manufactures, in 1925 quacy as it may be judged to have attained. Special mention it ranked first in value of products among all American manu- is due to Messrs. Pierre S. Du Pont, Meyer L. Prentis, facturing industries. Finally, unlike the characteristic financ- Thomas S. Merrill, Frank F. Kolbe, A. B. C. Hardy, A. P. ing of other large-scale developments of recent years, such as Warriner, and Howard Chapin, of the General Motors public utility enterprises, the growth of the American auto- Corporation; W. H. Alford and the late James J. Storrow, of mobile industry has taken place without great reliance upon the Nash Motors Company; Roy D. Chapin, A. Barit, and capital derived from the public sale of securities. A study of E. W. Sheldrick, of the Hudson Motor Car Company; Alvan the means whereby its expanding capital requirements have Macauley, M. A. Cudlip, and A. C. Bennett, of the Packard been met should direct attention, therefore, to the less overt Motor Car Company; and Ransom E. Olds and George L. and less recognized processes of capital mobility. Brown, of the Reo Motor Car Company, among others, for Our attention will be limited largely to a consideration of such courtesies.

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