168 STRUCTURE AND CHANGE IN ECONOMIC HISTORY

system spans more than three centuries; the key to explaining the
transformation is growth in the size of the market and problems
of quality control (that is, measurement of the characteristics of
the good). In the course of the transformation in economic organization wage
labor developed, the metering of inputs and outputs sharply changed, and the
incentives for technical change increased.

The putting-out system which developed in Tudor and Stuart

England was a response to the expanding market demand of
those centuries. It was characterized by raw materials being put
out to geographically spread locations and wages (predominantly piecerate)
being paid for each step in the manufacturing
process from raw material to finished good. In contrast to handicraft
manufacturing, putting out was marked by growing separation of tasksa classic
example of Smithian growth in the size
of the market inducing specialization. While its initial main focus
was in textiles, it gradually spread to newer branches of textiles,
leather goods, small metal wares. Clapham maintained that this
system still predominated manufacturing in Britain as late as the
18205. While escape from the urban guilds and a cheap labor
supply as a byproduct of part-time agriculture explain the dispersion of
manufacturing, they do not explain the form that it took.
Why not simply a series of market transactions rather than a central
merchant-manufacturer employing wage labor? The most
convincing answer is that the costs to the merchant of ensuring
quality control were less by the latter form of organization than
by the former. A major argument of chapter 4 is that where
quality was costly to measure, hierarchical organization would
replace market transactions; the putting-out system was in effect
a primitive rm in which the merchant-manufacturer attempted
to enforce constant quality standards at each step in the manufacturing
process. By retaining ownership of the materials throughout the manufacturing
process, the merchant-manufacturer was
able to exercise this quality control at a cost lower than the cost
of simply selling and buying at successive stages of the production process. The
gradual move toward central workshops was a
further step in efforts at greater quality control and presaged the
development of the factory system that was in effect the direct
supervision of quality throughout the production process.