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11. We must now descend from the consideration of the Industry and the Market, or group of related businesses, to examine the character and structure of the unit of industry—the Business.

      In a study of the composition or co-operation of labour and capital in a Business before the era of machine-production there are five points of dominant importance—(1) The ownership of the material; (2) the ownership of the tools; (3) the ownership of the productive power; (4) the relations subsisting between the individual units of labour; (5) the work-place.

      From this primitive form which required no commerce and no industrial organisation we may trace the growth of various forms of higher industrial development, many of which co-existed in eighteenth century England.

      Following as the central point the ownership of the requisites of production, we find in the next stage that the ownership of the material has passed from the workman into the hands of the organising merchant or middleman, who usurps the title "manufacturer." The workman, however, still retains the ownership of the implements of his craft and works in his own house. The condition of the worsted trade later in the century, about 1770, well illustrates this industrial form.

      § 12. Two further steps remained to be taken in the transition from the "domestic" to the "factory" system, the one relating to the ownership of "power," the other to the work-place, (a) The substitution of extra-human power owned by the employer for the physical power of the worker; (b) the withdrawal of the workers from their homes, and the concentration of them in factories and work-places owned by the capitalists.

      Although these steps were not completely taken until the age of steam had well set in, before the middle of the eighteenth century there were found examples of the factory, complete in its essential character, side by side and in actual competition with the earlier shapes of domestic industry.

      Capitalist ownership of extra-human industrial "power" was of course narrowly restricted before the age of steam. Water-power, horse-power, and to a much smaller extent, wind-power, were utilised. But the most important services water rendered to industry prior to the great inventions were in facilitating the transport of goods, and in certain subsidiary processes of manufacture such as dyeing. Though a considerable number of water-mills existed early in the century, they played no large part in manufacture. A natural force so strictly confined in quantity and in local application, and subject to such great waste from the backward condition of mechanical art, was not able to serve to any great extent as a substitute for or aid to the muscular activity of man.