The thirties witnessed the beginning of the merchant-capitalist system in the cities of the East.  But the situation grew most serious during the forties and fifties.  That was a period of the greatest disorganization of industry.  The big underlying cause was the rapid extension of markets outrunning the technical development of industry.  The large market, opened first by canals and then by railroads, stimulated the keenest sort of competition among the merchant-capitalists.  But the industrial equipment at their disposal had made no considerable progress.  Except in the textile industry, machinery had not yet been invented or sufficiently perfected to make its application profitable.  Consequently industrial society was in the position of an antiquated public utility in a community which persistently forces ever lower and lower rates.  It could continue to render service only by cutting down the returns to the factors of production,—­by lowering profits, and especially by pressing down wages.

In the sixties the market became a national one as the effect of the consolidation into trunk lines of the numerous and disconnected railway lines built during the forties and fifties.  Coincident with the nationalized market for goods, production began to change from a handicraft to a machine basis.  The former sweatshop boss having accumulated some capital, or with the aid of credit, now became a small “manufacturer,” owning a small plant and employing from ten to fifty workmen.  Machinery increased the productivity of labor and gave a considerable margin of profits, which enabled him to begin laying a foundation for his future independence of the middleman.  As yet he was, however, far from independent.

The wider areas over which manufactured products were now to be distributed, called more than ever before for the services of the specialist in marketing, namely, the wholesale-jobber.  As the market extended, he sent out his traveling men, established business connections, and advertised the articles which bore his trade mark.  His control of the market opened up credit with the banks, while the manufacturer, who with the exception of his patents possessed only physical capital and no market opportunities, found it difficult to obtain credit.  Moreover, the rapid introduction of machinery tied up all of the manufacturers’ available capital and forced him to turn his products into money as rapidly as possible, with the inevitable result that the merchant was given an enormous bargaining advantage over him.  Had the extension of the market and the introduction of machinery proceeded at a less rapid pace, the manufacturer probably would have been able to obtain greater control over the market opportunities, and the larger credit which this would have given him, combined with the accumulation of his own capital, might have been sufficient to meet his needs.  However, as the situation really developed, the merchant obtained a superior bargaining power and, by playing off the competing manufacturers one against another, produced a cut-throat competition, low prices, low profits, and consequently a steady and insistent pressure upon wages.  This represents the situation in the seventies and eighties.