The next phase in the evolution of the market rendered the separation of the journeymen into a class by themselves even sharper as well as more permanent.  The market had grown to such dimensions that only a specialist in marketing and credit could succeed in business, namely, the “merchant-capitalist.”  The latter now interposed himself permanently between “producer” and consumer and by his control of the market assumed a commanding position.  The merchant-capitalist ran his business upon the principle of a large turn-over and a small profit per unit of product, which, of course, made his income highly speculative.  He was accordingly interested primarily in low production and labor costs.  To depress the wage levels he tapped new and cheaper sources of labor supply, in prison labor, low wage country-town labor, woman and child labor; and set them up as competitive menaces to the workers in the trade.  The merchant-capitalist system forced still another disadvantage upon the wage earner by splitting up crafts into separate operations and tapping lower levels of skill.  In the merchant-capitalist period we find the “team work” and “task” system.  The “team” was composed of several workers:  a highly skilled journeyman was in charge, but the other members possessed varying degrees of skill down to the practically unskilled “finisher.”  The team was generally paid a lump wage, which was divided by an understanding among the members.  With all that the merchant-capitalist took no appreciable part in the productive process.  His equipment consisted of a warehouse where the raw material was cut up and given out to be worked up by small contractors, to be worked up in small shops with a few journeymen and apprentices, or else by the journeyman at his home,—­all being paid by the piece.  This was the notorious “sweatshop system.”

The contractor or sweatshop boss was a mere labor broker deriving his income from the margin between the piece rate he received from the merchant-capitalist and the rate he paid in wages.  As any workman could easily become a contractor with the aid of small savings out of wages, or with the aid of money advanced by the merchant-capitalist, the competition between contractors was of necessity of the cut-throat kind.  The industrial class struggle was now a three-cornered one, the contractor aligning himself here with the journeymen, whom he was forced to exploit, there with the merchant-capitalist, but more often with the latter.  Also, owing to the precariousness of the position of both contractor and journeyman, the class struggle now reached a new pitch of intensity hitherto unheard of.  It is important to note, however, that as yet the tools of production had not undergone any appreciable change, remaining hand tools as before, and also that the journeyman still owned them.  So that the beginning of class struggles had nothing to do with machine technique and a capitalist ownership of the tools of production.  The capitalist, however, had placed himself across the outlets to the market and dominated by using all the available competitive menaces to both contractor and wage earner.  Hence the bitter class struggle.