3. The Optimal Size of Establishments in Manufacturing

The process of manufacture out of raw materials is to a certain extent free from the limitations of space. The working of cotton plantations cannot be concentrated, but the spinning and weaving works may be united. But, here too, it would be rash to derive without further consideration a Law of the Concentration of Establishments from the fact that the larger plant generally proves superior to the smaller.

For in industry too localization is of importance, quite apart from the fact that (other things being equal, i.e. at a given level of the division of labour) the economic superiority of the larger productive unit exists only in so far as the Law of the Optimal Combination of Factors of Production demands it and that consequently no advantage is to be gained by enlarging the establishment beyond the point where the instruments are most efficiently utilized. Each type of production has a natural location, which depends ultimately on the geographical distribution of primary production. The fact that primary production cannot be concentrated must influence the subsequent process of manufacture. The power of this influence varies with the importance attaching to the transport of raw materials and finished products in the separate branches of production.

A Law of the Concentration of Establishments operates therefore only in so far as the division of labour leads to progressive division of production into new branches. This concentration is really nothing more than the reverse side of the division of labour. As a result of the division of labour numerous dissimilar establishments, within which uniformity is the rule, replace numerous similar establishments within which various different processes of production are carried out. It causes the number of similar plants to decrease, whilst the circle of persons, for whose needs they work directly or indirectly, grows. If the production of raw materials was not geographically fixed, a circumstance which acts counter to the process initiated by the division of labour, one single plant only would exist for every branch of production.1

• 1The remaining factors of localization (Afred Weber, Industrielle Standortslehre in the ‘Grundriss der Sozialökonomik’ VI Abt, Tübingen 1914, p. 54 et seq) can be passed over, as the present, or the historically transmitted, distribution of primary production ultimately determines them.