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The gradual move to central work places cannot be explained

by a central power source. Space in factories could be and was
rented out to individual entrepreneurs before as well as after the
development of central power sources. Rather, the impetus for
the factory system was monitoring of the production process by a
supervisor. With the development of direct supervision and monitoring, the costs
of devising technical improvements are reduced because the role of the monitor
is to rationalize each step
in the production and this process consists of devising means to
measure the output of each input unit and of creating more productive
combinations. Team production played no signicant role
in the putting-out system; but once the workers were gathered in
a central place, the productivity gains from team production
were evident. With the better measurement of individual contributions came
reductions in the cost of devising machines to
replace mens and womens hands.

The Industrial Revolution came about as a result of organizational changes to

improve the monitoring of workers. This factory
discipline was itself a step in quality control but had the additional
consequence of suggesting to entrepreneurs new productive
combinations and specically machines to replace human hands
in the production process.

The emphasis in much of the literature on the Industrial Revolution goes the
wrong waythat is, from technological change to
the factory system; rather than from central workplace, to supervision, to
greater specialization, to better measurement of input
contributions, to technical change. Transaction costs and technology are of
course inextricably intertwined: it was increased
specialization which induced organizational innovations, which
induced the technical change, which in turn required further organizational
innovation to realize the potential of the new technology.

In terms of the theoretical framework of this study, one additional point must
be raised. In chapter 4 I argued that the measurement costs of constraining
behavior in the absence of effective ideological constraints would he so high as
to make the new organizational forms nonviable. Both the political and the
economic changes described above created impersonal factor and product markets
and broke down old ideological loyalties. Factory discipline (that is, rules and
penalties to enforce behavior) had to be supplemented by investment in
legitimating the new organizational forms. The Industrial Revolution was
characterized by sustained efforts to develop new social and ethical norms.
Peter Mathias described this effort as follows: A set of social
norms, embodied in emergent social institutions, did develop in
response to these new needs, however imperfectly they were practised. The
virtues of hard workthe gospel of work preached
by Samuel Smilessaving, thrift, sobriety became the new social
imperatives dinned into the heads of the working classes by their
social betters by every known means of communication. They
were enshrined in nonconformist and evangelical doctrine. In
Sunday schools; pulpits, the mechanics institutes after 1824
and all forms of literature in the hands of middle-class publicists were
preached the golden rules as they attempted to diffuse the bourgeois virtues
down the social scale (1969:208). I shall have more to say about this issue in
examining the implications of the Second Economic Revolution.