A Turn of the Wheel

I have been reading, well listening as an Audiobook, Thomas Sowell’s “Basic Economics.”

Just finished a very interesting section.  Back in the 19th century, bulk shipping of goods was expensive.  As a result, it was difficult (read expensive) for stores close enough to enough to be accessible to customers for whom the height of personal transportation was a horse-drawn buggy to keep in stock all the things their customers might want.  To fill this void the mail order giant Montgomery Ward arose.  Sears followed suit.  People could look through their extensive catalogs of everything from petticoats to shotguns and have them shipped to them.

These two merchantile giants thrived for a long time on that model.  But times changed.  The urbanization started changing the face of the American economic landscape.

Enter James Cash Penney.  Working as a store clerk in a dry goods store called Golden Rule.  In 1902, he joined a partnership with the owners of Golden Rule to start his own store under his own name.  He soon had two more stores and bought out his erstwhile partners in 1907.  By 1912 he had 34 stores in the Rocky Mountain States.

In addition to urbanization, other innovations were changing the American economic landscape:  the affordable automobile.  The Model T went into production in 1908.  With the automobile it became more convenient for people to buy from a local store–which need not be so close as it had to be when one is limited to a horse and buggy–and so each store could serve a greater area.  More widespread bulk transportation in the form of burgeoning railroads made it cheaper to keep inventory in those stores.  This became more attractive to many people than paging through a catalog, making an order, and waiting for the product to be shipped to them.

Thus began the spread of the “Department Store”.  First Sears, then Montgomery Ward were forced to open their own department stores to keep up. (And both merchants, over the years, have had their struggles with Montgomery Ward closing its stores in 2000.) During this time other department stores such as KMart got their start and grew–and some fell.  Along the way, a clerk in a J. C. Penney store by the name of Sam Walton went into business for himself and…

One of the keys of all this was that each step of the way it was the consumers that benefited.  Given the difficulties of travel and transportation combined with relatively low population densities local stores could only serve a relatively small population.  With such a small customer base, the cost of providing everything those customers, who could have widely different desires, might want would be prohibitive.  It was a lot cheaper for Montgomery Ward and Sears to keep all those varied products in one big warehouse and simply provide paper catalogs to their customers.

Then, as population grew.  Larger cities became more common.  More people had motorized transportation meaning they could venture farther for their shopping.  Individual stores could reach more customers.  And with more customers per store, the stores sold more making keeping a larger and more varied inventory practical.  And, so, instead of having to look something up in a catalog, send an order across the country and wait for the product to make its slow way back to them, customers could drive to the nearby store and pick up what they want right there.  More goods available to them at prices every bit as good as the catalogs available immediately.

But, again, things were changing in the background.  A huge Interstate road system was developed.  Air travel became ubiquitous.  Travel by jet aircraft, once the province of the very rich (dubbed the “jet set”) became the default mode of long distance travel.  These same, or related, aircraft carried cargo to the point where the massive effort of the Berlin Airlift would be a drop compared to the business of any large airport.  Courier services arose promising to deliver packages anywhere in the United States overnight.  Promising and delivering.

And so at the approaching dawn of the 21st century, a vendor started selling books online.  People would browse an online catalog, select books, and have the books shipped to their homes or businesses.  The business rapidly expanded including other products until eventually the selection dwarfed the old Sears and Montgomery Ward catalogs.  Only instead of the slow delivery times provided by 19th and early 20th century transportation, products are delivered within a few days, sometimes even the same day.  Other vendors–Target and Walmart as example and perhaps mindful of the struggles and difficulties old vendors such as Sears and Montgomery Ward faced–set up their own online shopping services.  Indeed, Montgomery Ward, which closed its stores in 2000, relaunched as an online vendor in 2004.

And once again, the consumers benefit.  Enormous selection of products to meet the many and varied desires of the populace delivered quickly at low prices.  And while Amazon remains the giant in that field, as JCPenney was in its and Montgomery Ward in its,  they will remain so only until someone comes up with a new model dealing with changing conditions.  When that happens, perhaps Amazon will adapt quickly and continue, or perhaps not.

Regardless, when the next change happens, provided its allowed to happen and not stifled by excessive government restriction, the consumers will be the ones who benefit.