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II

THE REAL PROBLEM

   AS I see it, the real problem may be stated as follows:

   Why is it that the ratio of distribution costs to production costs is constantly rising? Why is it that in spite of increasing efficiency in transportation, warehousing, banking, credit, accounting, selling, and advertising, the share of the consumer's dollar paid for production is constantly growing smaller and the share paid for distribution larger?

   It is not unreasonable for us to expect that the invention of better machines for performing every mechanical step in distribution, and the greater sub-division of the labor of those engaged in distribution, should reduce distribution costs year by year. Progress should lower distribution costs just as progress lowers production costs.

   Bigger freight cars and locomotives ought to lower transportation costs, but they do not seem to do so.

   Speedy delivery cars and powerful five-ton auto trucks ought to lower drayage costs, but they do not seem to do so.

   Larger grain elevators, more efficient cold storage warehouses, better terminal facilities; a better currency and a better banking system; typewriters, adding machines, bookkeeping machines, cash registers--automatic machines for even such trifling operations as stamping and sealing envelopes--all ought to lower the cost of distribution. But they do not seem to do so!

   Instead of a lower cost of distribution, we have actually a rising cost of distribution.

   Before, however, we try to find out why this is so, we ought to satisfy ourselves first about whether it is actually true that distribution costs have risen out of proportion to production costs. If this problem is to be given serious consideration we ought not to accept as proved what might after all be merely a general delusion. In so important a matter, it is not enough to start with the premise that where there is so much smoke, there must be some fire. It is necessary, first of all, to establish upon very solid ground the facts concerning our premise. We must produce proof as near to demonstration as is possible, that distribution costs really have risen out of proportion to production costs.

   But in order to establish the facts--above all, in order to eliminate non-essential facts--it is necessary to define distribution. Pick a group of a dozen intelligent men at random, and no two of them will be likely to have the same conception of distribution. Yet if we are to determine whether distribution costs have risen disproportionately, and intelligently seek for causes and propose remedies suitable to the real difficulties, it is essential that we define distribution. We must make it possible to distinguish between the cost of distribution and the cost of production.

   Having established the truth as to whether the cost of distribution has risen, and also determined just what constitutes the cost of distribution, we shall then be ready to seek the causes of the rise in its cost.

   That we shall find not one cause, but a considerable number of causes, each of which contributes more or less to the total rise in distribution costs is, of course, certain. It will then be necessary to determine the relative importance of the various causes and to select from among them for first consideration those which are most important and which contribute most to the rise in costs.

   Then, and only then, shall we be ready to consider possible remedies.

   Over a quarter of a century of exceptional experience in business--experience which has given me unusual opportunities for observing and studying nearly every phase of our distribution machinery--makes me say that such a line of study will prove:

   1. That distribution costs in this country, both for physical distribution and for marketing, have risen out of proportion to production costs;

   2. That high freight rates and cross hauling and unnecessary transportation are principally responsible for the rise in the cost of physical distribution;

   3. That one of the most important factors in causing the rise in the cost of marketing, as distinguished from the rise in the cost of physical distribution, is "high pressure" selling, "high pressure" advertising, "high pressure" marketing generally;

   4. That manufacturers engaged in mass production and mass selling have been the active factors in the development of extravagant marketing and unnecessary transportation-that they are responsible for the breaking down of that skillful and skeptical buying by retailers and consumers which tends to raise standards and to lower costs;

   5. Finally, that the wastes of "high pressure" marketing could be eliminated and the cost of distribution lowered if the retailers and wholesalers of the country would, first, accept full responsibility for the task of furnishing to the consumers of the nation the products of our farms and factories; second, buy according to established grades and standards in order to make production subservient to consumption; and, third, promote consumer education as to merchandise.


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