When the United States and Great Britain began fighting in what we know as the War of 1812, Simeon North, a Berlin, CT farmer and pistol manufacturer, had a novel suggestion for government contracts: “require interchangeable parts.”
His [16 April] 1813 contract for 20,000 pistols is the first evidence anywhere of such a provision. It stipulated that “component parts of the [flintlock] pistols are to correspond so exactly that any limb or part of one pistol may be fitted to any other pistol of the 20,000.”
North is generally acknowledged as the inventor of the earliest primitive milling machine. The mechanism replaced hand-filing in the shaping of metal parts and made interchangeability a practical goal…
His Connecticut factory got a contract in 1828 to produce 5,000 rifles whose parts would be interchangeable not only with one another, but with rifles manufactured at Harper’s Ferry.
Precision equipment such as that designed by North meant that “large numbers of identical parts could be produced at low cost and with a small workforce.”
One of the primary purposes of advertising is to convince buyers of the differences between interchangeable products.
Take Coke and Pepsi. They are each carbonated water, flavorings and sugar. When served cold, they each equally quench thirst. Advertising is designed to convince us that one is preferable to the other.
Coke and Pepsi are substitutable but not perfectly: the flavorings differ.
When products are perfectly substitutable, that market is perfectly competitive. This structure is important because the more closely a market resembles it, the more efficiently the invisible hand will allocate society’s resources.*
Neo-classical economic theory details the necessary conditions for a market to be considered perfectly competitive (truly free markets). One of those conditions is substitutability; that is, products are identical regardless of which firm produces them.
Society may decide that products or components should be substitutable and establish functional standards. For example, electrical standards mean that we can trust that a computer or dryer will work, without catching on fire, when we plug it into an AC socket.
Or a contract may mandate that requirement.
With his contract suggestion and the substitution it enabled, North set the stage for 20th century manufacturing.
* “Firms are said to be in perfect competition when the following conditions occur: (1) many firms produce identical products; (2) many buyers are available to buy the product, and many sellers are available to sell the product; (3) sellers and buyers have all relevant information to make rational decisions about the product being bought and sold; and (4) firms can enter and leave the market without any restrictions—in other words, there is free entry and exit into and out of the market.”
Perfect Competition and Why It Matters, BCcampus Open Ed
Ideally, the market should resemble as closely as possible the model of perfect competition. Theory can show that a perfectly competitive market can result in the most efficient allocation of resources. From the narrow viewpoint of economic theory this can be termed the optimal result for society, or the socially optimal outcome. This theoretical result applies both to a single market and to all the markets in an economy if all could be perfectly competitive. Thus, if markets work badly, according to this theoretical model the government has a duty to individuals and to society to correct this, ie governments should intervene to correct market failure.
An Introduction to Environmental Economics & Economic Concepts, SOAS University of London