Chapter 12
Entrepreneurship in the Antebellum United States
A General Description
WHAT BECAME THE UNITED STATES OF AMERICA was born of entrepreneurship. When independence was gained, American disposable incomes were among the highest in the world, but, early in the colonial period, entrepreneurial failure was as likely as success (Hughes and Cain 2007, 51). Indeed, Jamestown, the first permanent colony, an entrepreneurial venture of the Virginia Company of London, became the first government bailout of a private North American business when it was converted to a crown colony. By independence, agriculture and trade were well established, but manufacturing was still in its infancy.
If, as Schumpeter (1934) thought, entrepreneurs seek to upset equilibrium, it is a fair question whether the colonial economy was ever in equilibrium. The story seems more consistent with Kirzner's (1973) notion that entrepreneurs recognize the profit opportunities in existing disequilibria, thereby moving the economy toward new equilibria. It also requires a broad definition of entrepreneurship such as that provided by Landes:
The entrepreneurs, that is, the decision-makers of the economy, include not only the traditional owner-operators and the newer class of pure managers, but a growing number of government bureaucrats and technicians. (1969, 325–26)
This study of American entrepreneurship begins with American independence, when the former colonies constituted one of the most developed countries in the world. It grew to such status under English rules, but, as a newly independent country, it could write its own.1
As a new nation, the United States had to define an institutional environment in which creative activity could flourish. Entrepreneurial activity requires the conjoining of the creative and the banal; it is often a team effort. The first three sections discuss the innovations made in the law, in finance, and in transportation-communication. All three bring government into the picture to some degree. The first deals with the rules. There was general agreement among the new country's leaders that the national government was not functioning efficiently under the Articles of Confederation, so a constitutional federal system was introduced relatively quickly. It has remained in place ever since and is heralded as one of the underlying causes of the country's growth and development. The second section deals with the financial rules that also date back to the formation of the new nation, though they changed more often over the years. The third section discusses the improvements in transportation and communication that created a market which, before the Civil War, stretched from the Atlantic well past the Mississippi, and reached the Pacific in 1869. The roles of the attorney, banker, and teamster were complementary to that of the entrepreneur. The cost reductions in moving both goods and information enabled entrepreneurs to increase the size of their firms and realize economies of scale.
The final section investigates the goods that dominated antebellum markets and the reasons for their dominance. Where the government remains in the picture, it is in the background. Agricultural goods were the most important exports, and three implements (the cotton gin, the plow, and the reaper) plus the evolving transportation network were responsible for the ability of cotton plantation owners in Texas and grain farmers in Iowa to sell their output in European markets. Manufactured goods were slower to develop, but cotton production in the South contributed to the development of a cotton textile industry in the North. Over time, there was a flowering of industrial production that reached adolescence, if not maturity, in the decade before the Civil War. Europeans called it “the American system.” It performed remarkably well before the Civil War and created a dominant industrial nation thereafter. The roots of that dominance can be found early in the life of the nation. It would not be divided like Europe; the American states were a “common market.” Antebellum American entrepreneurs had to compete on an ever-expanding stage.
Law: A Pertinent Institution Defining the Rules
Entrepreneurs respond to incentives, and the law is one of the first places to look for such incentives. As James Willard Hurst observed, “The 19th century was prepared to treat law as an instrument to be used wherever it looked as if it would be useful.” Further, “What business wanted from law was the provision for ordinary use of an organization through which entrepreneurs could better mobilize and release economic energy” (1978, 111–14). The initial “law of the land” was the Articles of Confederation and Perpetual Union, which loosely tied the thirteen colonies. However, the Confederation proved too weak a foundation for an effective national government. In particular, the power to tax remained the responsibility of the individual states; the national government had to requisition funds from the states. Consequently, because the states could free-ride on this arrangement, “The United States in Congress Assembled” was left in debt following the Revolution.
The Continental Congress had proclaimed that the “common law of England” was the right of all Americans. Several state constitutions explicitly laid claim to the same set of inherited rules. The common law proved workable at the state and local level, but something new was needed at the top. Kenneth Dam (2006) argues that public law, constitutional development, has been as important as private law in promoting economic development and creating an environment in which entrepreneurship can thrive.2
Constitutional law. In 1786, only five years after the Articles were ratified, delegates from six states met at Annapolis, Maryland, and issued a call for a Constitutional Convention. The meeting at Philadelphia the following spring addressed the question whether a strengthened central government would be based on a federal system with considerable state sovereignty or a national system with limited or no state sovereignty. In September 1787, the delegates proposed that the states ratify a document based on a federal system, and, by June 1788, that was accomplished. In March of the following year, Congress declared the Constitution to be in effect. The Beard tradition (1913) characterizes the intent of this exercise as rent-seeking, but it should not be surprising that a democratic republic of entrepreneurs created favorable rules (see also McGuire 2003).
The Constitution introduced sweeping changes that required restrictions on state sovereignty. The representatives of the individual states conscientiously guarded their power and, in Article I, Section 8, relinquished to the federal government only those rights they believed were essential. Article I, Section 10 restricts individual state's dealings with foreign powers and prohibits the creation of state paper money. It includes the famed contract clause that establishes the sanctity of contract, the deliberate protection of property rights, and the equally famed commerce clause that prohibits restrictions on interstate commerce. With this, the United States was ensured of an internal common market; local entrepreneurial ventures could grow to serve a national market with few impediments.
Patent law. While the Articles of Confederation were still in effect, several states passed copyright laws and at least one passed a combined copyright-patent law, but it was recognized that federal legislation would prove necessary. The Constitution gave Congress the power “to promote the progress of science and useful arts by securing for limited times to authors and inventors the exclusive right to their respective writings and discoveries” (Article II, Section 8, paragraph 8). The first patent law was enacted in 1790. Applications were to be reviewed by the attorney general, secretary of state, and secretary of war and, following the common law, were to be awarded based on careful examinations for both novelty and usefulness. By 1793, the large number of applications and the time pressure on cabinet officers caused the procedure to become essentially one of registration.3 By the 1830s, litigation over rights led to reform.4 The 1836 law sought to compromise the interests of inventors, of those who purchased patent rights or to whom patent rights were assigned, and of the consumers of patented goods. It put in place the main features of today's patent system in which a staff of technical experts examine applications for novelty and utility. As Steven Lubar has argued, “Nineteenth-century patent law embodied a delicate balance of monopoly, to encourage invention; the dissemination of new ideas, to encourage the increase of knowledge; and ease of use of patents, to encourage innovation” (1991, 934). Numerous scholars who have used patent data credit this reform with accelerating the rate of change. At the outset, a large number of talented “amateur” inventors, including clergymen and women, received patents. As time passed, invention became a more specialized endeavor.
Land law. The new United States was largely a nation of farmers, and that was likely to continue as the population migrated to the west. However, there were over-lapping claims to the western lands that the colonists received from the British in 1783. The Articles of Confederation contained a clause to the effect that the national government should not take this land from the states. Land speculators favored the opposite policy, as did some statesmen with purer motives who also wanted the new government to be endowed with public lands. New York, one state whose claims were part of the confusion, offered to relinquish those claims to the national government in 1781, and later that year, when Virginia offered to contribute its enormous claim, the creation of a public domain was assured (see Treat 1962).
The next task was to sell the land to private owners, and it was they who cut the western lands into millions of pieces. The Land Ordinances of 1785 and 1787 created the rules under which public land would be sold, what rights the buyers of that land would have, and how new states would be admitted to the union. The foundation of future American entrepreneurship, private ownership and control of productive resources (even when those resources were on public land), was in place at an early date (Gates 1968; Hughes 1987; Cain 1991).
Business law. Classical economic theory as applied in the United States was based on the principle that the state best encouraged economic growth and development by leaving entrepreneurs alone (Hovenkamp 1988, 1991). The state's primary responsibility was to assure unobstructed investment arteries so that capital would flow toward profitable investments. The acceptance of this policy in the first decades of the nineteenth century dramatically changed the concept of the corporation. Previously, corporations were unique entities created by government for a special purpose. As such, they enjoyed a privileged relationship with the state. The very act of incorporation presumed state involvement. If a business was dependent exclusively on the market, there was no reason to incorporate. As the classical corporation evolved, two propositions remained fundamental. First, the corporate form was not a special privilege; it was one of several alternative ways of organizing a firm. Second, the special feature of the corporate form, the one the law should encourage, was the ability to raise capital more efficiently than the alternative forms.5
Initially, the Supreme Court deemed special franchise corporations to be grants of monopoly, but, with the acceptance of classical economic theory, the Court overturned the ancient conception that a special-franchise charter implied a grant of monopoly. In Charles River Bridge v. Warren Bridge, Chief Justice Taney wrote, “in grants by the public, nothing passes by implication.”6
By 1790, there were forty American corporations. The numbers increased each decade thereafter. In general, each charter was a special act of a state legislature. However, beginning in 1811, the state of New York allowed general rules of incorporation for manufacturing concerns that did not require special legislative charters, but generalized incorporation did not become common until the 1870s.7 Usually, corporate charters stated the nature of the business venture, its purpose, its location, and the amount of capital it could employ, limitations that seemed reasonable at the time.
Since corporations were groups of people who commingled their capital, the law treated a corporation as a legal person.8 The concept of personhood was the Supreme Court's guarantee that the owners of corporately held property received the same constitutional protections as the owners of personal property. This was a vitally important development. The corporation evolved into an entity with the rights of a person, but with limited liability and perpetual life. As Arthur Selwyn Miller describes corporations, they are “feudal entities within the body politic” (1972, 14).
In sum, what can be said generally of the antebellum period is that the law aided the evolution of the main ideas and institutions of developing American capital-ism-economic growth based mainly upon private decision-making regarding the exploitation of privately owned productive resources. Behind these developments was the assumption that most economic life was a private matter-government aided and supported entrepreneurship and relied upon entrepreneurs to produce economic growth.
Finance: A Pertinent Institution Lubricating the System
Since the Continental Congress lacked the authority to levy taxes, and since there was no systematic way to raise money from the states, financing the American Revolution was a “near thing.” As a result, between 1776 and 1780, Congress paid its bills by printing paper money. Too much was printed, and it depreciated badly. Between 1776 and 1782, Congress borrowed about $7.7 million domestically (measured in specie); between 1780 and 1783, it borrowed $7.8 million more internationally, mostly from the French. Beginning in 1783, the Confederation government's fiscal affairs deteriorated badly; it could not tax, and it was forced to borrow from Dutch bankers to stay afloat.
Hamilton's policies. All this changed with the ratification of the Constitution in 1789. Secretary of the Treasury Alexander Hamilton innovated a financial system that gave the new nation and its entrepreneurs the means for managing risk.9 The Constitution established federal finance on a completely different basis, giving Congress the authority to levy taxes, to borrow, to issue money and “regulate” its value, and it implemented these constitutional powers with vigorous policies.10
Richard Sylla (1998) argues that Hamilton's policies, by the standard of their time, gave the United States a “world class” financial system; they ushered in a “financial revolution.” Whether or not one agrees, the development of good financial systems is an important entrepreneurial achievement. In particular, the financial system is an important component of an entrepreneur's ability to accept risk.11 As Sylla notes, “Good finance helped to institutionalize entrepreneurship” (456). He argues there are six important components to a successful financial system: stable public finance and debt management; stable money; a functioning banking system; an effective central bank; active securities markets; and a growing number of businesses, including financial institutions.12 Before Hamilton's tenure, the United States had none; by 1795, it had all six. Though some of the states were doing well, as John Steele Gordon noted, “In the 1780s the United States had been a financial basket case. By 1794 it had the highest credit rating in Europe, and some of its bonds were selling at 10 percent over par” (1997, 38–39).
Stable public finance and debt management. In his first “Report on Public Credit,” sent to Congress in January 1790, Hamilton's proposed three policies that contributed to the evolution of financial stability: the establishment of tariffs and other taxes for federal revenue; the complete refunding (with arrangements for redemption) of the wartime debts of the Continental Congress; and the assumption by the federal government of the states' wartime debts.13 Beginning with the tariff law of 1789, Hamilton's immediate designs were partially realized. The tariff yielded nearly all the federal government's revenues.
Hamilton estimated that the national debt in 1790 was about $54 million, and that the outstanding state war debts totaled about $25 million.14 In 1790 and 1795, provisions were made to refund all this debt with various new issues and ultimately to retire it by setting money aside in a sinking fund. Although the debt was never completely retired, Hamilton's system placed the federal government and the balance of the states on a sound financial basis.
Stable money. The Mint Act of 1792 provided for a Philadelphia mint and specified two monetary metals, gold and silver. Such bimetallic systems are often troublesome because the two metals constantly fluctuate in price against each other.15Hamilton's currency system, first sent to Congress in 1791, called for a ten-dollar gold coin (the Eagle), a silver dollar, and fractional coins. Until the mid-1830s, little American metallic coin was in circulation.16 It made little difference, however, because the new state banks discussed below provided what people used as a medium of exchange-paper. Although the new Constitution forbade the states to issue their own paper money, state-chartered banks supplied the needed amounts.17
A functioning banking system. In 1781, Robert Morris and his colleagues founded the Bank of Pennsylvania to help finance the Revolution; it performed its duties well. Consequently, Morris persuaded Congress to charter the Bank of North America in 1784, a limited-liability corporation that handled the government's finances. In most respects, it did the chores of a central bank, and it has been argued that this bank is the first real U.S. central bank, an appellation usually reserved for the First Bank of the United States (Studenski and Krooss 1952, 31). Two additional banks were chartered in 1784, Hamilton's Bank of New York and the Massachusetts Bank. In 1787 the Bank of North America received a charter from Pennsylvania and became a state bank.
These early banks were part of the development of a system of financial intermediation peculiar to the nation's needs and laws. Before 1838, state-chartered banks were special-franchise corporations whose owners engaged in obvious rentseeking behavior, though they did mobilize capital. Many early New England banks were credit banks whose main business was to discount commercial paper. Naomi Lamoreaux (1994) argues that these banks were extensions of a system of family capitalism, a mix of banking and entrepreneurial ventures. Such banks marketed their shares to outsiders as a way of generating funds to lend to insiders, what Lamoreaux calls “investment clubs.” Robert Wright's (1999) study of New York and Pennsylvania banks finds that banks in those states were more widely owned than Lamoreaux's New England banks. They had a large capitalization that forced their lending practices to be less concentrated; they lent to a wide variety of borrowers including small business and farmers.18
An effective central bank. A great deal has been written about the two “central” banks chartered by Congress in 1791 and in 1816 for twenty-year periods (Holds- worth and Dewey 1910; Catterall 1903; Schlesinger 1945; and Hammond 1947, 1957). There is no question that the Bank of England was the model for both. In his “Report on a National Bank,” Hamilton called for a public-private partnership, an entrepreneurial venture, in which the U.S. Treasury would own one-fifth of the stock and private persons the rest. Like the Bank of England, both the First and Second Banks of the United States were in direct competition with private commercial banks and were expected to turn a profit.19 As a consequence of this competition, the rest of the banking community generally was opposed to them. The idea of joint public- private ownership, embodied in both the First and the Second Bank charters, was entirely suitable to democratic ideas about the partnership between government and business. But, in both cases, the sale of bank stock to foreigners raised hostility to the banks.
The First Bank performed its functions well, but the Jeffersonians simply allowed its charter to expire. The Second Bank also performed well, especially during the presidencies of Langdon Cheves and Nicholas Biddle. Yet, the attempt to recharter the Second Bank was killed in 1832 when Andrew Jackson vetoed the enabling legislation and subsequently withdrew federal funds. Jackson's veto message emphasized that it was a privileged monopoly, its stock largely owned by foreigners and the “rich” (Taylor 1949; see also Schlesinger 1945). Both banks were huge compared to state banks. By using drafts on its branches as money, they were, in fact, creating a uniform currency, a practice much feared by the private bankers.20 Today we believe central banks ought to have a money monopoly, but such was not true in the 1830s.
By 1860, the United States had gone without a central bank for almost three decades. Much has been written about the system during the era of “wildcat banking,” but entrepreneurs may have benefited from an absence of central bank regulation.
Active securities markets. State banks were commercial banks, operating as intermediaries in the world of business and as instruments of commerce. Peter Rousseau and Sylla (2005) attribute much of the growth in securities markets to the First Bank of the United States. To borrow long-term monies and sell equities (shares of ownership), businesses and governments needed organized capital markets. The entrepreneurs behind the new transportation companies and, increasingly, the rising manufacturing firms required a forum.
The New York Stock Exchange Board was formally organized in 1817 after twenty years of less formal existence (Banner 1998; see also Davis and Gallman 2000). It slowly forged ahead of securities markets established in other cities to become the center of the nation's capital markets-just as New York City itself took the lead in commerce and growth. By the 1850s, the major financial centers were linked by telegraph, with the focus on the New York exchange. From the beginning, common stocks (usually those of transportation companies) were sold, as were the bonds of municipal, state, and federal governmental bodies. During the 1830s, preferred shares (with a preferred claim to dividends) appeared, and, later, industrialists followed the lead of governments and began issuing long-term bonds for subscription in the public capital markets.
Other intermediaries also appeared. Mutual savings banks, carefully governed depositories for the savings of the poor, appeared early on the American scene. The first was organized in Philadelphia in 1816 based on an idea imported from England. Emphasis was on the safety of the loans, even if earnings were deliberately low. Life and fire insurance companies were formed in the early nineteenth century, along with burial societies and building societies. All were techniques for mobilizing the funds of a group against disasters that struck individual families. Experimentation was necessary as new needs developed, and the American economy before 1860 was alive with such experiments.21
Before 1860, a special element in the U.S. financial system played an important role in antebellum Southern economic expansion. An intricate system of cotton finance evolved, comprised of agents of British banks, discount houses, and cotton importers located throughout the cotton-growing and cotton-shipping South. The historical tendrils from cotton finance eventually were a primary origin of American investment banking. George Peabody, a Yankee financier, had a long and successful career in London. His firm, Peabody & Company, was an “American house” that, for the most part, dealt in cotton finance. In 1854, he invited a new partner to London, Junius Spencer Morgan, whose son, J. Pierpont, joined his father in London in time to observe the Bank of England's dramatic actions during the panic of 1857. After an apprenticeship in London, J. P. Morgan went to New Orleans in the fall of 1859 to learn the American side of cotton finance. During the Civil War, he moved to New York City, where he became the primary founder of modern American investment banking (Hughes 1986, chap. 9).
Once all the parts were assembled and allowed to grow, what can be said of the U.S. financial system of the antebellum period? The tariff was long the mainstay of federal finance, but Hamilton's internal taxes were less successful. The assumption of Revolutionary debt by the federal government did establish the federal credit. Securities markets became “much deeper and more active,” in spite of the absence of a strong central bank in the years immediately before the Civil War (Snowden 1998, 102). Most importantly, as Sylla argues, “They [the six components of a successful financial system] are at the very core of entrepreneurship and economic development” (2003, 457).
Transportation and Communication: Entrepreneurial Infrastructure That Broadens and Deepens the Market
Throughout the antebellum period, transportation and communication costs declined, broadening the market and raising productivity. Initially, water provided the most efficient mode of transport, but that would change as the nation vigorously pursued transportation improvements. In England, canals and railroads were built by private capitalism almost without government participation. In the United States, canals and railroads were mixed enterprises-part private and part governmental. Carter Goodrich (1960) believed that, given the vast area of the United States, the sheer size of the investment required for improvements like canals and railroads was beyond the capability of private entrepreneurs acting alone.22 The possibility of government involvement, of subsidization, meant that rent-seeking themes were often part of entrepreneurial overtures.
Would-be entrepreneurs and those who would benefit from lower transportation costs hoped their new federal government would play a major role in promoting economic development. By 1806 work was under way to build a national road from Cumberland, Maryland, westward to Illinois. Also by 1806, some members of Congress were proposing federal aid for canal building with the thought that the revenue from the sale of public lands could be used to fund such projects. In 1807, the Senate asked Secretary of the Treasury Albert Gallatin to prepare “a plan for the application of such means as are within the power of Congress, to the purposes of opening roads and making canals” (Goodrich 1960, 27). Gallatin's plan, submitted in April 1808, emphasized “the extent of territory compared to the population” and the lack of sufficient private capital to exploit potential opportunities. In addition to the east-west National Road, he proposed north-south “tidewater inland navigation” from Massachusetts to Georgia; major east-west links such as one between the Hudson River and Lake Champlain; and connecting road links such as one between the Monongahela and Potomac Rivers. Gallatin estimated his plan would cost the federal government $20 million ($2 million per year for ten years). Once the projects generated sufficient revenues, they could be sold to private companies and the proceeds used to promote further internal improvements.
Presidents Madison and Monroe favored federal participation in internal improvement projects such as turnpikes, but they believed that federal action within a state was unconstitutional.23 When President Jackson vetoed the Maysville Road bill in 1830, federal financing faded. Nevertheless, between 1824 and 1828, about $2 million of federal funds was spent on canals, and another $7 million was spent on the National Road (Hughes 1991, 68–76). As Goodrich notes, in the absence of substantial federal support, states and private entrepreneurs ultimately completed most of the Gallatin Plan (1960, 34–35).
Roads. The first major improvements were turnpikes, intercity toll roads. Intracity roads were adequate, but intercity roads appeared to benefit others more than the residents of specific cities. By offering more dependable road surfaces that enabled greater speed, private entrepreneurs as well as state governments hoped to attract sufficient long- and middle-distance traffic to make a turnpike viable. In the first decades of the nineteenth century, more than $25 million of private capital was invested by several hundred turnpike companies.24 These companies were often special-franchise corporations that tied entrepreneurs to state governments. Since tolls were regulated, and since the charters restricted the company's activities to road operations, profits were disappointing.25 By the 1830s, most turnpikes had been overtaken by canals, then by railroads, and were subsequently abandoned.
Steamboats. Robert Fulton's steam-powered paddlewheel freed the bottleneck of traveling upriver; flatboats and keelboats had given farmers a way to move their crops downriver. The introduction of the steamboat, however, depended on both Fulton and his partner, Robert Livingston. Fulton went to England in 1787 to study portraiture, but he also studied canal construction before moving to Paris in mid- 1797. Livingston, Jefferson's minister to France, who arrived in the summer of 1802, held exclusive rights to operate steamboats in New York, but he lacked a steamboat. The partnership was formed in October 1802. Fulton proffered his engineering talent as a way to improve upon what others had tried.26 In 1804, in the midst of the Napoleonic War, Fulton left Paris for England in the hope of obtaining a Boulton and Watt steam engine, a good whose export was prohibited, especially to France.
Fulton returned to the United States in December 1806 with such a steam engine, and, in August 1807, his North River Steam Boat (later referred to as the Clermont) made a successful trial run between New York City and Albany.27 A second boat was added in 1809 and soon the Fulton-Livingston partnership was at the center of a network of companies operating steam vessels on the Hudson, Delaware, Potomac, James, Ohio, and Mississippi Rivers, in Chesapeake Bay, and in New York harbor. The partnership's success created challenges to the monopolies that they had been granted in the states of New York and Louisiana.28 Since one of the challengers was Livingston's brother-in-law, Fulton hesitated to obtain a patent, but ultimately did so to safeguard the monopoly and to hinder the competition. His 1809 and 1811 applications claim that his “scientific principles” and “mathematical proportions” were original, as was the use of side waterwheels. After the patents were granted, opposition to the partnership, which included the superintendent of the Patent Office, was energized. In the 1824 case of Gibbons v. Ogden, it was determined the state monopolies granted to the partnership, and to others, were unconstitutional. Thus, Fulton is remembered both for introducing steam navigation to the world and, albeit unwittingly, for removing a barrier to entrepreneurial competition. Livingston's equally important role has been forgotten, but in this case, as in others, the entrepreneurs were a team. The desire to exploit a monopoly position played an important role in steamboat development.
The steamboat had its greatest impact on the western river system (e.g., the Ohio, Missouri, and Mississippi rivers) that drains half of the country. Between 1815 and 1860, Mak and Walton argue, the steamboat transformed this area into an agricultural heartland (1972, 620). The boats were not cheap; the capital embedded in the least expensive vessel was equal to the price of an average farm and greater than what was invested in 85 percent of manufacturing firms (Atack 1999, 5). Before 1860 the average working life of a river steamboat was only about 5.5 years. There were numerous accidents, including a high risk that an engine would explode (Haites and Mak 1973, 28). The financial risk was not the only one these entrepreneurs accepted.
By the end of the 1850s roughly 800 steamboats serviced the interior rivers of the United States. Transit and turnaround times fell dramatically. Freight rates fell by 90 percent in real terms between 1815 and 1860 for the upstream trip and by nearly 40 percent downstream. Steamboats, and the technology associated with them, drastically cut transit and turnaround times.29
Canals. The American canal-building era arrived with the end of the War of 1812 and departed in the wake of the Panic of 1837. Although canal construction continued in the west after the Panic, completing canals previously begun, attention turned to railroads. As noted, like turnpikes before and railroads after them, canals were mixed enterprises.30 Although there were a few private canals (e.g., South Carolina's Santee Canal and Massachusetts's Middlesex Canal), it was New York's Erie Canal (publicly financed and completed by the state in 1825) that pointed to a promising future. The person whose entrepreneurial energy was most responsible for seeing the canal through to completion was Governor DeWitt Clinton. It was he who convinced the New York legislature to pass the laws necessary for building the 363-mile long canal after President Madison vetoed an 1817 bill that would have provided $1.5 million of federal money. As Landes suggested, some entrepreneurs operated in the public sector, and Clinton was one who made a difference. When the canal was completed, the cost of shipping a ton of wheat from Buffalo to New York City fell from $100 per ton to $10. Shipping times fell to one-third of what they had been. The canal shifted settlement in the Northwest Territory north from the Ohio and Mississippi Rivers to the Great Lakes. New York became the nation's largest city.
One of the first post-Revolution graduates of Columbia University, Clinton was appointed a U.S. senator in 1802. He resigned the following year to become mayor of New York City, a position he held for most of the next twelve years. Unlike many members of the (National) Republican party, Clinton favored canal construction. He became a canal commissioner in 1810, and the major canal bill passed the legislature in 1817, his first year as governor. In 1825, at the official opening in New York City, Clinton poured water from Lake Erie into the Atlantic Ocean (the “Wedding of the Waters”) to symbolize connecting the two bodies. The completed canal cost $7 million; the bill was paid with a combination of earmarked taxes, borrowing on state credit, and toll collection as sections of the canal opened. Citizens of New York purchased the initial issues of Erie bonds, but, once the success of the canal became evident, large investors and foreign buyers entered the market.31
The canal produced two significant externalities that could have justified federal involvement. First, as symbolized by Clinton's pouring of the water, it tied together parts of the country that effectively had been separated by the Appalachian Mountains. As early as 1775, George Washington worried about losing the land west of the mountains to France or Canada unless the mountain barrier could be over- come.32 Second, the canal trained a large number of engineers who ultimately would help to build the nation's canals, railroads, and sanitation systems.
The three engineers assigned responsibility for constructing the Erie Canal were all surveyors.33 Benjamin Wright was hired in 1816. He was in his mid-twenties when he learned surveying (and the law) from an uncle. In 1808, following his election to the New York legislature, he introduced a bill jointly with Joshua Forman calling for a survey of a canal route between the Hudson River and Lake Erie.34James Geddes's surveying and engineering skills were a result of learning by doing. Following his election to the New York legislature, Geddes was asked by Simeon De Witt, surveyor general of New York, to conduct the survey required in the 1808 Forman-Wright bill. Geddes conducted the survey successfully without the benefit of technical training. His report was the first to argue that a continuous canal from Lake Erie to the Hudson River was feasible (Bernstein 2005, 136).
The contributions of Geddes's surveying assistant, Canvass White, proved crucial. White became friendly with DeWitt Clinton, and it was Clinton who urged White to travel to England to learn about modern canal construction. White's detailed knowledge and drawings, and the modern surveying equipment he purchased in England, led to his promotion to Wright's primary assistant. It was White who was responsible for the design and construction of the locks and of the first canal boat. And it was White who was responsible for the development of an improved hydraulic cement, which he patented in 1820, that is estimated to have reduced the Erie's cost by about 10 percent.35
John Jervis is the final notable member of the Erie engineering corps. He began as Wright's apprentice, but became a resident engineer within a few years.36 As chief engineer for the Delaware & Hudson Canal Company in 1827, Jervis designed the railway that carried coal to the canal. In 1829, he introduced America to the railway locomotive, the “Stourbridge Lion” imported from England.37 When that engine proved too heavy for American track, Jervis designed his own locomotive (the 4–2-0 type better known as the Jervis type) that proved an immediate success. In 1836, he was appointed the chief engineer of the Croton Dam and Aqueduct project to supply New York City with water. Jervis is the embodiment of the transition in American engineering from the talented amateurs responsible for the Erie Canal to the professional engineers that, by midcentury, were responsible for the nation's public works (Larkin 1990).
The success of the Erie Canal brought expansion and emulation; it brought competition among the entrepreneurial merchants in the port cities. In 1826 the Pennsylvania legislature voted to build the 359-mile long Main Line Canal with state funds.38 It would prove a complicated project involving transfers of cargo to surface transport (later to rail links) at several points because of the Appalachian Mountains' height and width. It was completed in 1835 and cost approximately $12 million. While it was a technological marvel, it was a financial disaster; the Erie always maintained a competitive advantage.39 In the mid-Atlantic and Midwest, where natural waterways offered the opportunity for canals, states actively became involved in canal building. While these canals fostered a manufacturing sector serving agriculture, a major portion of this manufacturing was the processing of agricultural output for export out of the regions served by the new canals (Ransom 1964; Niemi 1970, 1972; Ransom 1971). None had the impact of the Erie Canal.
Railroads. In the popular imagination, railroads symbolize the spirit of the antebellum period. They further reduced transportation costs and opened the country. As Alfred Chandler (1965) emphasized, the railroads were the nation's first giant enterprises. Their management problems and methods proved instructive to all U.S. industrial entrepreneurs. Their securities dominated commodity trading in the growing U.S. capital markets for some time.40
Robert Fogel (1964) and Albert Fishlow (1965) attempted to assess the contribution of the railroads by asking the counterfactual question of how the United States might have developed had there been no railroads.41 They argued the contribution of the railroad can be determined by what was termed the social saving, the difference between how much it would have cost to haul an equivalent amount of freight on the least expensive, alternative transportation route and the actual cost of using the railroads. With respect to freight, rates by water were lower than rates by rail, but the advantage was lost when all costs were included (e.g., additional wagon hauling, transshipment, cargo lost in transit, a reduced season of navigation, and the need to carry additional inventory because deliveries were slower). With respect to passengers, the calculation emphasized the time saved by taking the railroad. Both Fishlow and Fogel found that the railroad's social saving was on the order of 4–5 percent of GNP. This is a large percentage for a single industry; no single industry in this country today accounts for anything like that proportion of total output. However, the crucial conclusion was that the railroad was not indispensable; no single innovation created American economic growth.
The railroad is an important example of technology transfer. The first U.S. railroad, the Baltimore and Ohio, began operations in 1830, five years after the Stockton and Darlington began operating in England. American entrepreneurs adapted British technology to local conditions, initially building railroads as spokes out of a city.42 By the Civil War, U.S. mileage exceeded that of railroads in the United Kingdom, France, and the German states combined. Total investment in railroads then was more than $1 billion.43 Nevertheless, the value of output of railroad equipment in 1859 was only a quarter of the market value of all transportation equipment produced; railroads accounted for a mere 6 percent of machinery output.
The encroachment railroads made on river and canal traffic was based upon the savings in transport costs for shippers. Railroads offered year-round service, while the main canals faced ice-bound conditions during the weeks of hard winter. In addition, railroads offered more contact points for producers, cutting down the costs of wagon haulage, unloading, and reloading. They tended to be built along river routes where the terrain was flat, so that, to a large extent, they ran parallel to water routes. By the Civil War, waterways, including coastal shipping, still carried far more freight than did the new railroads, but the handwriting was on the wall.
In 1850 the federal government, at the urging of Illinois's Senator Stephen Douglas, made a huge, 3.75 million-acre land grant to Illinois, Alabama, and Mississippi to finance the building of the Illinois Central Railroad.44 The road initially was projected to follow the eastern bank of the Mississippi River the length of Illinois. Douglas advocated extending the road south to New Orleans and building a branch to Chicago. This was not the first land grant for internal improvements, but it was by far the largest to date and a harbinger of things to come. Land grants helped subsidize construction of transportation improvements that increased the value of the land, including the alternate sections the government retained. They also created an incentive to engage in rent-seeking behavior that afflicted several roads. Shortly after his election, Douglas moved to Chicago and became active in real estate.
The first president of the Union Pacific Railroad, William Ogden, is representative of many entrepreneurs associated with railroads and canals whose business and political interests were conjoined, but who generally avoided conflicts of interest. His entrepreneurial skills were tapped for the first time in 1821 when, at age sixteen, he was forced to forego his studies to take charge of his father's business affairs.45 In 1834, still in his twenties, he was elected to the New York legislature. In a speech to the legislature advocating the construction of the New York & Erie Railroad, Ogden envisioned “continuous railways from New York to Lake Erie…through Ohio, Indiana, and Illinois, to the waters of the Mississippi, and connecting with railroads running to Cincinnati and Louisville in Kentucky, and Nashville in Tennessee, and to New Orleans.” It would be, he argued, “the most splendid system of internal communication ever yet devised by man” (quoted in Downard 1982, 50). Ogden believed the position New York occupied as a result of the Erie Canal would be threatened if it did not embrace the newer technology. While this might be construed as replicative rather than innovative, Ogden's entrepreneurial vision encompassed more than the railroad.
In 1835, Ogden's brother-in-law and associates acting as the American Land Company paid $100,000 for 182 acres on Chicago's north side that had been purchased the previous year for $20,000. Ogden was sent to manage the property. The plot was covered with oak and brush and was muddy from a recent rain; it was not clear to him why it was worth the purchase price. Nevertheless, Ogden established a loan and trust agency just as government land sales brought Easterners to the Midwest. Ogden held an auction at which he sold roughly a third of the property for more than $100,000. After wintering in the East, Ogden moved to Chicago in 1836. He became an advocate of the Illinois & Michigan Canal and helped promote its construction at the same time that he was promoting Chicago's first railroad, the Galena & Chicago Union. The canal was completed in 1848, the same year the first trip was made on a completed section of the railroad.
Ogden's vision extended well beyond transportation; he had a model of urban development that he actively pursued. He recognized the need for additional entrepreneurs to develop business in the city. Thus, in 1847, at Ogden's urging, Cyrus McCormick moved his reaper works to Chicago to take advantage of Chicago's location and transportation relative to the emerging wheat-growing region. Another reason was the presence of people such as Ogden who had foreseen the value of McCormick's firm to the city and offered to help finance the move (Cain 1998). Although the term wasn't fashionable at the time, Ogden was Chicago's first “venture capitalist.”
Ogden also recognized the need for other forms of urban infrastructure. He was the first mayor of Chicago and later served in the state legislature. He was the first president of Rush Medical College, president of the Chicago Branch of the State Bank of Illinois, president of Chicago's board of sewerage commissioners, and president of the board of trustees of the (first) University of Chicago. And that is just a small sampling of his involvement (Andreas 1884, 617). Colleagues such as
J. Young Scammon, the financial manager behind many of Ogden's enterprises, were also actively immersed in the city's development. Scammon was president of both the Chicago Marine & Fire Insurance Company and the Marine Bank, founder of the Inter-Ocean newspaper, and chair of the director's committee of the Galena & Chicago Union Railroad. Ogden and his associates saw from the first that the city's institutional and transportation infrastructure was a necessary complement to entrepreneurship.
With the driving of the golden spike, the railroads traversed the continent, and William Ogden was part of each step of that evolution. His speech to the New York legislature was about a road that would connect New York and the west. His Galena & Chicago Union Railroad reached westward from Chicago, while, as president of the Union Pacific Railroad, he helped complete coast-to-coast connections. His adopted city, Chicago, grew in part because it became the western terminus of many important eastern railroads and the eastern terminus of many important western railroads. The railroads made it possible for passengers and goods to reach all corners of the common American market, promoted urbanization, and enabled firms capable of serving a national market to realize scale economies.
Communication. The handwritten letter remained the common form of business communication throughout the antebellum period. The Post Office Act of 1792 set relatively high rates in an attempt to make the service self-supporting. By 1840, that approach had changed; rates were lowered and the number of post offices increased. From 75 post offices in 1790, the number grew to almost 13,500 in 1840; the population served per post office declined from over 43,000 in 1790 to just over 1,000 in 1840.46 Further, as the new modes of transport reduced travel times, delivery times fell commensurately. In addition, as Richard John (1995) notes, the lower rates encouraged the growth of the press. Thanks in part to postal subsidization, the number of newspapers grew from 100 in 1790 to over 1,400 in 1840. A specialized business press evolved that provided more timely information, facilitating transactions, and, therefore, an increase in trade.
The most dramatic fall in communication time came as a result of Samuel Morse's telegraph (see Hindle 1981). Morse, a Yale graduate, initially pursued a career in art, but, following a series of frustrations, turned to other pursuits. In 1834 while working as an unpaid art professor at what would become New York University, Morse began working seriously on the telegraph. His first telegraph could send messages only a few feet, but, by 1837, with the help of chemistry professor Leonard Gale, Morse increased the distance to ten miles. He considered this to be practical because, at ten-mile intervals, relay switches could convey sequences of short (dots) and long (dashes) pulses over as long a distance as needed. In early January 1838, Morse completed a dictionary of words translated in dots and dashes for trials. By late January, the dots and dashes had become individual letters, and, in 1844 the letter system was altered to become the familiar Morse code.
In May 1844, the message “What hath God wrought” traveled the forty miles from Washington to Baltimore and back. Entrepreneurs such as Amos Kendall and Ezra Cornell helped Morse establish a New York-Washington line whose success firmly established the telegraph. Morse retreated from day-to-day operations, content to collect his portion of the fees for licensing the use of his patent. By 1860, the telegraph network stretched over 60,000 miles, and it reached the West Coast the following year. The vast majority of telegraph messages were commercial messages. News of interest rate movements, news that goods were shipped, moved across telegraph lines, usually constructed adjacent to rail lines, as fast as the operators could push the key (Bodenhorn and Rockoff 1992).
Thus, by the end of the antebellum period transportation and communication facilities had expanded to create a national market. The cost of reaching that market had fallen substantially, and would continue to fall. Entrepreneurs who once served local markets could now serve a national one.
Manufactured Goods: The Gestation of Industrialization
When the first census was taken in 1790, 95 percent of the population was involved in agricultural production. Farmers had occupied the land and brought it into production. By 1850, farmers were still almost 60 percent of the labor force and were responsible for a good deal of nonagricultural production as well. In his “Report on Manufactures,” Alexander Hamilton estimated that between two-thirds and four- fifths of the population's clothing was homemade. Towns contained artisans who made tools, shoes, hats, pots, and pans by hand. Lumber mills on the edges of rivers like the Merrimac resembled small factories, as did the Du Pont powder works on the Brandywine.
Throughout the antebellum period, in spite of an abundance of land, farmers applied scientific principles to agriculture, particularly in the search for improved plants and livestock. They widely adopted crop rotation, improved fertilizers, and techniques to minimize soil erosion. Agricultural societies disseminated information about these changes through fairs and a growing body of agricultural publications. By the 1850s, several states opened agricultural schools and colleges. Congress passed the Morrill Act (the land-grant college act) in 1862 providing land grants to each state still in the union to establish agricultural colleges. However, the most impressive improvements took place in farm machinery and tools. As a result of these improvements, family farms in the North could thrive without a dependence upon a large supply of hired labor; on average, each farm had an estimated one-half hired male worker. Southern farmers also quickly innovated and adopted productivity- enhancing machinery. By the end of the antebellum period, industrialization had proceeded to where the industries producing these machines purchased inputs from a separate machine-tool industry.
In the early years of the period, American manufacturers found it difficult to compete with the British. Although significant domestic production began in the years just prior to the War of 1812, the vast majority of American establishments were relatively small scale (less than ten employees; a relatively large firm had between thirty-five and forty employees) and used time-honored processes; the textile industry was the notable exception. Such firms could be replicated quickly when trade with Britain was suspended. Many of these firms could be traced back to merchants who, over time, became increasingly specialized with respect to function, products, and geographical areas. As late as 1820, the vast majority of manufacturing was concentrated in the Northeast. Using the surviving patent records, Kenneth Sokoloff finds there were some scale economies in the expansion of shop size from the “artisan” enterprise to a prefactory specialized workshop employing ten to fifteen workers: “These new types of firms were frequently marked by a minute division of labor that reduced the share of the work force with general skills, greater supervision and attention to maintaining an intense work regime, and a concern for standardization of product” (1984, 357).
According to Sokoloff, before the Civil War, technological change in manufacturing advanced in two phases. The first phase, which occupied most of the period, was characterized by the spread of factories from textiles to other industries. The second phase, which began around 1850, was defined by the adoption of inanimate power sources. Sokoloff and Zorina Khan (1990) stress the increased importance of investment in “invention-generating capital.” The initial expansion of markets broadened the number and type of people who participated in the process; for example, housewives and clergymen held patents. Over time, however, specialization developed in inventing, as in other economic activities. The move toward specialization in inventive activity is evident in their data. So, too, is the move toward cities where more resources were available.
The Industrial Revolution began in England, and the United States materially benefited from British out-migration. The brothers Schofield, who arrived in the early 1790s from Yorkshire, built wool-carding machinery driven by waterpower; among their American apprentices was Paul Moody, who would play a major role in the development of the American textile industry. The Scots engineer Henry Burden, who was responsible for crucial innovations in that “cradle of American technology” the Springfield (Massachusetts) Armory, followed a policy of bringing over immigrant mechanics to work there. David Thomas, a Welsh immigrant, first introduced anthracite iron smelting into the Pennsylvania iron industry in 1840.
The primary conduit of technology transfer was the Yankee merchant. Never wanting to allow money to sit idle, he invested his profits in a variety of pursuits. Nathan Trotter, a Philadelphia merchant, was the driving force behind the Lancaster Turnpike. Stephen Girard used funds generated in trade with China and the West Indies to open a bank. Many were involved in importing industrialization from Britain, and it was they who created America's textile industry. On the other hand, much of the work done to improve agricultural implements was homegrown, as was the work in many other industries. In what follows, the focus is on a few of the many entrepreneurs active in the American economy during the antebellum years.
Agricultural Implements
In conjunction with their farming operations, farmers and plantation owners might operate sawmills, tanneries, blacksmiths' shops, flour mills, and dairies. A closer look at three critical agricultural implements helps capture the period's dynamism.
The cotton gin. After the American Revolution, cotton textile production expanded first in old England, then in New England, leading to an increased demand for cotton. The key to the growth and geographic expansion of American cotton production was Eli Whitney's “invention” of 1793, the cotton gin.47 Devices that separated cottonseeds from fiber were in existence for centuries before Whitney's, and their evolution didn't end with him.
After graduating from Yale, Whitney moved to Georgia, where he had accepted a tutor position, a position secured for him by Phineas Miller. On the way, he stopped in Savannah to see Miller, who was managing the cotton plantation of Catherine Greene, widow of General Nathanael Greene. When it appeared that Whitney's tutoring job offer was not firm, as Hughes comments, “Whitney took the easy, and the more intelligent, way out. He lingered a year or so with Catherine Greene and her gay companions-by invitation” (1986, 129).
It was Mrs. Greene who inspired Whitney to design a machine to clean the tight- clinging green seeds from short-staple cotton. Within a few days, Whitney's gin came into being. It used wire teeth embedded in a wooden roller to pull fibers through a grate mesh that was too fine for the seeds to pass. The idea was incredibly simple; Whitney's gin was easy to build and to operate. Anyone who saw it could quickly copy it, and Hughes notes that Mrs. Greene showed it to “virtually all of her aficionados” (1986, 130).
Whitney returned to New Haven to build works to manufacture gins and to apply for a patent, which was granted in March 1794. The initial business plan was that planters would bring their cotton to a gin site; Whitney and Miller would return one pound of clean cotton to the planter for every five pounds of raw cotton delivered to their gins; roughly two-thirds of a pound of clean cotton would be kept as their fee. When it became clear the New Haven plant would be unable to produce sufficient gins quickly enough for their proposed strategy to work, a new plan was adopted-production of gins would be licensed, a common way to disseminate technology, as will become clear. Then, in 1795, the New Haven works burned to the ground. Two years after the fire, Hughes estimates, there were 300 illegal copies of Whitney's gin, and ‘improved' models in operation (132). Whitney turned to the courts for redress, but the patent law was worded in such a way that such suits were not possible. This changed in 1800, and Whitney ultimately received some relief on a state-by-state basis.48
The cotton gin was aimed at the bottleneck of cotton production, harvesting the crop. By resolving that bottleneck, it increased labor productivity. As McClelland (1997) notes, much of the productivity differential between North and South at the time of the Civil War is attributable to the fact that no implement shaped northern agriculture as the cotton gin had southern agriculture. The gin itself was a tremendous success; cotton became king.
The plow. The creation of a new family farm required clearing land and constructing fences and buildings.49 In the five to ten years it took to build a modest frontier farm, the ratio of investment to total activity was extraordinarily high. Once improved farm machinery appeared, such family farms began to grow in both number and size, albeit slowly. The plow was one such implement, and the soils found as the frontier moved westward created problems for the plows used in the East.
Holland Thompson argued that “Roman ploughs were probably superior to those in general use in America eighteen centuries later” (1921, 111). A common plow in use at the time of the Revolution (and in Illinois until the War of 1812) was essentially a small tree limb with a crooked end on which a piece of iron was attached with rawhide. Such plows could do little more than scratch the ground. Country blacksmiths made to order heavier plows that could turn a furrow, a small tree trunk shaped with a hatchet to which a wrought-iron plowshare was attached. If the ground were soft, perhaps one man and two oxen could use such a plow, but harder ground required more men and more oxen.
The first practicable plow is attributed to Charles Newbold, a New Jersey blacksmith, who patented a cast-iron plow in June 1797. He spent an estimated $30,000, a large sum for the day, developing his plow.50 Farmers were reluctant to use it; they believed the iron “poisoned the soil,” but that fear abated as competition forced farmers to adopt the superior technology. A bigger problem was that, when rust inevitably claimed one part, the entire plow had to be replaced. Among the many other cast-iron plow patents, the one issued in 1807 to David Peacock, also of New Jersey, was for a plow with separate parts; broken parts could be replaced.51 However, the person most associated with a standardized three-piece plow with replaceable parts was Jethro Wood of New York who received patents in 1814 and 1819. Wood's design improved upon others by allowing the parts most exposed to wear to be replaced in the field. This plow proved popular, in part because of Wood's marketing ability. When a steel tip was added to the share, the plow cut Eastern soils more easily and required less sharpening than its cast-iron competitors.52
In the Midwest, prairie sod rendered a wooden plow with a wrought-iron share useless. At first, Midwestern pioneers stayed away from the prairies, preferring lands in or near stands of timber because they acquired building materials and fuel as natural by-products of clearing. Farmers who settled on the prairies typically used a breaking plow (prairie breaker), a metal plow with a moldboard that weighed as much as 125 pounds.53 Steel appeared to be the answer, and, some time around 1833, John Lane, an Illinois blacksmith, plated a wooden moldboard with steel strips he took from an old saw. The Lane plow performed better on prairie soil than any other, but steel was expensive before the Bessemer process lowered its cost. Nevertheless, others followed up on Lane's success, the most important being John Deere of Illinois, who first produced an all-steel plow in 1837.
Deere developed an excellent reputation as a blacksmith in his native Vermont.54He later moved to Grand Detour, Illinois, a community established by fellow Vermonters that was in need of a blacksmith. It was there he designed a plow with a polished steel moldboard that successfully “scoured” itself as it moved through the soil. It would become “the plow that broke the plains.” R. Douglas Hurt notes, “If Deere's plow was an overnight success from a design standpoint, as a businessman he faced an uphill battle” (1994, 138). Given the price of steel, it did not make economic sense until the mid-1850s to produce all-steel plows in volume. Initially, just the plowshare would be made from steel. After moving to Moline, Illinois, in 1848 to take advantage of a Mississippi River location, Deere manufactured a great variety of plows, many under license from others-a practice that Newbold, Wood, and Peacock among others had used to increase the production of their inventions (Danhof 1972, 88).
From the outset, Deere was a more aggressive marketer than his competitors, and this was critical to his firm's success. Marketing the plows was not easy; most sales had to be on credit, given the primitive nature of the area's banking system and the scarcity of currency. Through his “travelers,” Deere developed a network of wholesalers and retailers throughout North America. To help advertise his wares, he bought print advertising, entered his plows in plowing contests, and displayed at fairs throughout the country. The reputation for excellence the Deere Company earned and retained is based on more than just production.
The reaper. In 1833, Obed Hussey of Maryland patented a reaper and began selling it immediately, although it remained unimproved and never worked as well as intended. One year later, Cyrus Hall McCormick of Virginia patented his reaper; however, he did little with it for several years.55 It was not until 1840 that McCormick believed his reaper was sufficiently improved to offer for sale. Hussey's design proved far better for mowing grass than reaping grain; McCormick's was just the opposite.
In 1845, McCormick moved from Virginia to a production facility in Cincinnati because he realized that the demand for his reapers would be much greater in the west than in Virginia. Two years later, he responded to the incentives offered by William Ogden and moved his operations to Chicago.56 The move would benefit the city, the McCormick firm, and Ogden's railroad. Hussey remained in the east.
The McCormick firm adopted a number of business practices that make it appear more like a modern firm than many other nineteenth-century firms. For example, the firm established agency relationships with local businessmen whose job it was to promote the use of reapers. It was one of the first manufacturing enterprises to offer a written guarantee on every machine, and it offered a free trial period during which dissatisfied customers could get a refund of the stated purchase price. In contrast to the normal selling procedure in which the seller and buyer haggled over price, McCormick widely advertised the price in farm journals, newspapers, and other print media. A typical ad, which was intended to be “educational” in nature, included a picture, testimonials, the terms of sale (including credit), and an order blank (see Cronon 1991, 313–18; Miller 1996, 103–6). It can be argued that, as was true of Deere, it was McCormick's ability to mass-produce and market his machines, not just his skills as an inventor, that underlay his success.
By 1860, there were perhaps 100 companies selling reapers, but McCormick was by far the largest. The explanation for this rapid growth seems to be that mechanical reaping was more efficient where the terrain was flat, and it was adopted as Midwestern agriculture was brought into production (David 1975, 89). The reaper removed a major bottleneck to production. Given grain's perishability, a family farm could only plant as much as the family could harvest. The reaper made it possible to do in one day what previously had occupied the harvest season.
Many agricultural implements, particularly the reaper, were shared, rented, jointly owned, or otherwise acquired. This was especially true as the cash outlay for implements increased. The rapidly growing number of implements allowed a family to farm more acres and thus to expand output. Adoption of machinery conserved labor, and the addition of plentiful land inputs raised the productivity of both capital and labor. Agricultural implements, which were much more widely disseminated in the North, became to northern farmers what slaves were to southern farmers.
Cotton Textiles
In spite of state and local government subsidies, several attempts to form textile mills in the late eighteenth century failed; most from a lack of efficient machinery. Moses Brown and his three brothers, merchants of Providence, Rhode Island, broke from that pattern (Hedges 1952 and 1968; Perkins 1975; Ware 1931). In 1789, Moses Brown helped finance William Almy (his son-in-law) and Smith Brown (his nephew). The firm of Almy and Brown purchased a spinning jenny and a carding machine, but these replicas of Arkwright's English machinery soon proved inoperative. What made their story different was the entrance of Samuel Slater, an Englishman who had apprenticed under a former partner of Arkwright. Slater believed his chances of owning a factory were much higher in the United States. So, having memorized Arkwright's technology, he sailed to New York, where he quickly determined that the city lacked an appropriate water source to produce textiles. Slater became aware that Moses Brown was looking for a mechanic familiar with the Arkwright's machinery. Early in 1790, he became a partner of Almy and Brown. Slater built the machinery with the smuggled technology; Almy and Brown provided the finance and marketing. The firm proved profitable until, in the aftermath of the War of 1812, the extent of overexpansion in the U.S. textile industry was revealed.57 When Almy and Brown concluded that financial propriety required that they limit their activities, Slater sought greener pastures. Leadership in the New England textile industry passed to Massachusetts. Over the balance of his working life, Slater was involved in eight partnerships with seventeen partners over four states, but he retained his relationship with Almy and Brown. Their factory only produced cotton yarn; the weaving operations continued to be put out to homes.
The honor of being the first integrated textile firm belongs to the Boston Manufacturing Company, headed by Francis Cabot Lowell, a Harvard-educated merchant. In 1810, Lowell traveled to Great Britain in part to observe power looms in Manchester and elsewhere. He believed New England's growth required that it supplement trade with manufacturing.58 Returning home in 1812, wary of the war's impact on his trading ventures, Lowell convinced other Boston merchants, including his friend Nathan Appleton and his brother-in-law Patrick Tracy Jackson, to invest $100,000. Working with the aforementioned Paul Moody in late 1813, Lowell successfully tested a water-driven loom based on his memory and smuggled sketches of what he had seen in England. By fall of the following year they demonstrated their loom to other investors before getting a patent. The factory they then constructed in Waltham was the first to turn raw cotton into finished cloth. By 1820, aggregate dividends exceeded the initial paid-in capital, and Lowell was pivotal in obtaining tariff protection from Congress (see Rosenbloom 2004).
The Boston Associates soon came to dominate the New England economy.59 In 1822, five years after Lowell's death, work began on a new manufacturing center in a town they named Lowell. By 1836, the Associates had located eight major firms at Lowell employing a total of 6,000 workers. All were organized on what has come to be known as the Waltham System, in which all the stages of production were integrated within a large plant that specialized in a single, standardized product. This high-volume strategy required a large capitalization, but it enabled the Associates to realize economies of scale in both production and marketing. The mechanization of production meant that the firm could make use of unskilled labor. Dormitories were constructed adjacent to the factories, and young New England farm girls were recruited (Gibb 1950; Zevin 1971, 1975; Dublin 1979; Jeremy 1981; Dalzell 1987). The textile industry quickly included hundreds of firms along New England's rivers. In 1832, the secretary of the Treasury conducted a survey of American manufactur-ing.60 Of the 106 companies with assets of at least $100,000, 88 were textile firms. Claudia Goldin and Kenneth Sokoloff (1982) report that, in 1850, women and children comprised at least 30 percent of the labor force.61
Sewing Machines
With the development of a cotton textile industry, and the training of mechanics, it was logical that entrepreneurs would attempt to find a way to mechanize sewing. A French tailor, Barthelemy Thimonnier, is considered to have put the first mechanical sewing device into production. His chain-stitch machine received a French patent in 1830, a British patent in 1848, and a U.S. patent in 1850. But, while the sewing ma-chine was invented in Europe, the crucial innovations came from the United States. The most critical is generally conceded to be Elias Howe's 1846 patent.
Howe developed his interest in sewing machines as a result of machinist work he did for Ari Davis, who made and repaired mechanical devices for mariners and Harvard scientists. All the incentive Howe needed was to overhear a conversation Davis had with a visitor remarking that the person who perfected the sewing machine would profit handsomely. Howe, ignorant of previous work but having watched his wife sew, believed such a machine would have to mimic the human hand. He tried many models, but an 1844 version with an eye-pointed needle, two threads, and a shuttle worked well enough to be patented in 1846. Finding little interest for his machine in the United States, he went to England. Although his machine was adopted, the profit went to William Thomas, an English corset manufacturer, who purchased the English rights to Howe's machine. In order to return home in April 1849, Howe pawned his first machine and patent papers. Upon his return, he learned that during the two years he spent in England, U.S. interest had increased, and a variety of machines, most making use of devices covered under his patent, was being offered for sale. Howe then began a series of lawsuits while manufacturing and marketing his own machine.
The primary suit was against Isaac Singer, whose first machine was constructed in September 1850 and patented less than a year later. Singer, an actor, among other pursuits, aggressively marketed his machine, which had helped popularize the product (Jack 1956). It is generally conceded that Singer's machine corrected the deficiencies in all the earlier machines, including Howe's. Given Howe's lawsuits and the superiority of Singer's machine, relatively few additional firms entered the industry. This was abetted by the arrival of Edward Clark in 1851 to help Singer deal with the patent-infringement suit, the longest court case in United States to that point. Howe won the case in 1854, and Singer alone was forced to pay $15,000 in royalties on previously produced machines and $25 per machine on each machine produced until Howe's patent expired in 1867. The lawsuits, in the view of Grace Cooper (1968), were “choking the sewing-machine industry” (141). The solution, engineered by Clark, was a pooling of the interests of the important patentholders.62
In the early years, Singer's primary competition came from the firm of Wheeler and Wilson, which produced a lightweight machine for households. Singer overtook this firm by the 1870s and absorbed them in 1905. A second manufacturer worthy of note is Willcox and Gibbs. In attempting to produce a crude model of a Howe machine from an illustration, James Gibbs produced the first single-thread machine, as he could not tell that the Howe machine used two-threads. Most important, Willcox (the financier) and Gibbs turned to the firm of Brown & Sharpe to manufacture the machines. This sewing machine proved so successful that Brown & Sharpe introduced a new manufacturing process to mass-produce it with interchangeable parts. In the process, as Woodbury (1972) notes, they designed new machine tools that became important to all machine-shop work, not just to sewing machine production.
Mechanicians
What the Erie Canal and other transportation innovations did for the engineering profession, the textile industry and later the small arms industry did for mechanics. It created a group of native-born American “mechanicians” who provided American technological leadership.63
Although American entrepreneurs borrowed all the technology they could, early on inventors and innovators created a uniquely American industry, characterized by labor-saving capital and abundant raw materials use. The U.S. economy was short on labor and long on raw material; therefore, entrepreneurs conserved what was scarce and used what was plentiful. As Jonathan Hughes (1986) commented, “One cannot avoid the conclusion that, at the beginning, the character of the Yankee experimenting mechanic, with his craving for efficiency, together with the high price of skilled labor, led Americans to mass-production techniques” (146).
Mass production, as it evolved in the United States, contributed two important innovations: continuous processing and interchangeable parts. The former is most associated with Oliver Evans. In 1784–85, Evans built a flour mill outside Philadelphia run by gravity, friction, and waterpower. Grain was moved from the loading bin throughout the mill's several levels by buckets and leather belts without the intervention of any human effort apart from guiding and regulating. It was an assembly line more than a century before Henry Ford. Evans secured a patent, but, like many others, expended a large amount of time and money defending it.64 In the decade or so before the Civil War, pork packers in Cincinnati also adopted continuous processing-a disassembly line.
Small Arms Production
Interchangeability appeared first in small arms production, where technology was substituted for skilled workers, armorers, who simply were not available in the United States. In 1798, Eli Whitney received a contract for 10,000 muskets. When it became clear that he wouldn't be able to supply them in a timely way, he proposed to produce the muskets from interchangeable parts. Oliver Wolcott, secretary of the Treasury, who awarded the contract to Whitney wrote, “I should consider a real improvement in machinery for manufacturing arms as a great acquisition to the United States” (quoted in Hughes 1986, 141). The first task was to make the machines that would make the musket parts. Interchangeability had been tried by gunmaker Honoré Blanc in France with no known result. Thomas Jefferson (then in France) talked with him, hoping to get him to emigrate to the United States.65
Simeon North, another Connecticut arms manufacturer, more thoroughly developed the idea than did Whitney. North's 1813 contract with the government, in fact, stipulated interchangeability.66 In addition, a great deal of work was done at the Springfield Armory, a federal facility, under Roswell Lee, who introduced an assembly line and piecework wages. Lee introduced the use of gauges and explicit comparison to a master part into arms-making. Hounshell notes that this converted arms-making “from a craft pursuit into an industrial discipline” (1984, 35). In 1826 at Harpers Ferry, John Hall manufactured what is considered to be the first fully interchangeable parts weapons.
During the 1840s, the federal government no longer purchased arms from contract makers, such as Whitney and North, but instead bought them from producers with patents, such as Samuel Colt, from whom the government could simply purchase revolvers like any other customer. The technology developed by the contract arms-makers and the government armories had proceeded to a point where it no longer needed government subsidization.
Samuel Colt's interest in firearms began in the aftermath of the failure of his father's merchant business and his mother's untimely death. The young Colt conceived the revolver well before he had the means to produce one. In 1835, in his twenty-first year, French and British patents were granted on his revolver during a trip to Europe. The following year he received a U.S. patent. In 1841, through the intercession of Zachary Taylor, the War Department queried Colt about purchasing his revolvers. Lacking the capital to produce the necessary quantity, he subcontracted with Eli Whitney, Jr. The performance of Colt revolvers in the Mexican War, the movement of settlers onto the Great Prairies, and the growing dependence on horseback riding all helped to increase demand.
In 1848, Colt opened a factory in Hartford and hired Elisha Root, an expert mechanic, as factory superintendent. Root, who had mechanized production elsewhere, designed new machines for Colt, many of which were adopted in other industries as well. Hounshell emphasizes that Colt and Root operated from “the proposition that uniformity would be an effect, not an absolute goal, of mechanization.” The “pursuit of precision” was subordinate to that of mechanization, volume production, and the substitution of skilled labor with Root machines. Consequently, it is Hounshell's contention that “Colt revolvers were not manufactured with interchangeable parts” (1984, 49). While true interchangeability might have required another step, it was a short step, and the evolution of mechanicians and the machine-tool industry made it one that would inevitably be taken.
Clocks and Watches
In 1816, three years after Simeon North's contract was issued, Eli Terry began mass- producing a low-priced wooden shelf-clock in his Plymouth, Connecticut, shop. His clock revolutionized production as it required redesigning the movements, making them smaller, and, most important, devising machinery to make interchangeable parts. Terry provides an exceptional example of an entrepreneur responding to an opportunity. His clock substituted wood for brass wherever possible, and his innovations fed into the production of brass clocks, watches, and a variety of hardware industries, including machine tools. His shop trained a number of future industry leaders including Seth Thomas, Silas Hoadley, and Chauncey Jerome, who in 1837 applied Terry's ideas to mass-producing brass clocks (Church 1975; Landes 1983; Hoke 1990).
Attempts to apply these ideas to watchmaking began at about the same time, but the job was more difficult as tolerances on the smaller parts were more restricting. Aaron Dennison eventually made the successful innovation. In 1850, Dennison and others formed the Waltham Company to mass-produce watches.67 In 1853, it took twenty-one man-days to produce a watch in what Landes terms the company's “early, experimental years.” This fell to four by 1859 after the company had significantly altered Dennison's initial design. Then came the Civil War, which significantly increased the demand for watches.68
The American System
By the 1830s, what came to be known as the “American system” (interchangeability, standardization, and division of labor in lengthy production processes) had begun to permeate industry. The common denominator of this evolution was the use of specialized machines. The result, according to Nathan Rosenberg (1972a), was that efforts such as those of Colt and Root became a separate industry that included firms such as Brown & Sharpe. The machine-tool industry brought together “the skills and technical knowledge essential to the generation of technical change throughout the machine-using sectors of the economy” (257). It dealt with problems and processes common to many industries, thus becoming the locus for transmitting new technological information. Rosenberg (1969) demonstrated a direct line between the introduction of the “American system” in the Springfield Armory at the start of the nineteenth century, the development of the machine tool industry in the middle of the century, and the emergence of the bicycle, aviation, and automobile industries at the end. American entrepreneurs were consistently effective in advancing the economy.
The American South
In contrast to what was happening in the North, antebellum Southern industry has been characterized as “a deplorable scarcity” (Bateman and Weiss 1981). With one- third of the national population in 1860, the South had slightly more than one-tenth of the national output of manufactured goods. There was no shortage of entrepreneurial talent in the South, but the incentive structure there was conditioned by plantation and household production. It was skewed toward agriculture and away from industry. Much of the skilled labor needed for normal manufacturing functions (e.g., blacksmiths, coopers) was bonded labor. This was true even where factories were the locus of production. Virginia's Tredegar Iron Works, the nation's fourth largest in 1860, used slave labor in positions requiring skilled labor. The tradition of household production continued on southern and western farms even as it was disappearing in the North. As was true in the North, the War of 1812 provided an impetus to southern business formation; indeed a few Rhode Island textile manufacturers migrated south after the war, but they were the exception. Census records indicate textile production was as lacking as aggregate industry, in spite of widespread support from politicians, civic boosters, and the press. Conventional wisdom suggests southern entrepreneurs invested their capital where rates of return were highest, but Bateman and Weiss's calculations suggest that rates of return in southern industry were higher than those in cotton. This lends support to their conclusion that “southern industrial laggardness may not have resulted entirely from rational adjustment” (Bateman and Weiss 1981, 16, 18). Given the region's resources, the southern industrial sector necessarily would have been smaller than that in the Northeast, but it could have been much larger than it was. The reason the South did not respond to these possible profit incentives is often attributed to extreme risk aversion in the face of industrialization's presumed dangers. As Eugene Genovese (1965) explained, the planters were concerned about their neighbors' reactions and about the creation of “a class of urban factory slaves or white proletarians” (221). If true, the “deplorable scarcity” was an entrepreneurial failure.
The Effectiveness of Entrepreneurship
This broad overview of entrepreneurship of necessity emphasizes success stories. The innovations discussed underlie the growth of the American economy in the antebellum years. However, not all entrepreneurship was what Baumol (1990) termed “productive,” and even successful entrepreneurs sometimes sought wealth through alternative routes.
Among several categories of “unproductive” entrepreneurs were those who violated patent rights. Consider once again how the plow evolved. Forty years passed between Charles Newbold's plow and that of John Deere. The historical record contains the names of several who made crucial improvements that proved patentable, but few names of those whose attempts came up short. Many of the latter group could be discovered by checking court records in which patentholders sought relief from those who sold plows that violated their patents. We know that several plow producers (and those who produced many other goods) expended significant resources defending their patents. There is no simple way of knowing the number of unsuccessful entrepreneurs or how many resources were consumed in their pursuits. However, on balance, the gains must have outweighed the losses as entrepreneurs from Eli Whitney at the beginning of the period to Elias Howe at the end were bedeviled constantly by those who illegally used their patents, and they considered it important to file patent-infringement suits.
A second category of unproductive entrepreneurs was privateers. Although the “golden age” of pirates and smugglers was a century earlier, one notable exception in the antebellum period was Jean Lafitte. Born in France, Jean and his brother Pierre established a blacksmith shop in New Orleans in 1809 that also trafficked in smuggled goods and slaves. A year later, recognizing there was more money in procuring than selling contraband, Lafitte became the de facto leader of the Baratarian pirates, named for their home base in Barataria Bay, Louisiana. When, in September 1814, it seemed likely the British would attack the port of New Orleans, Lafitte assisted the American victory in the Battle of New Orleans. After the war, he returned to piracy from a new base near present-day Galveston, Texas. When the Americans retaliated against his attacks on their ships, Lafitte moved south to the Spanish Main. Some have viewed Lafitte as a successful merchant, but his entrepreneurial methods clearly can be categorized as unproductive. Three decades later, Wall Street's “robber barons”(who will be discussed in the next chapter) began successful financial careers that would also raise ethical issues.
While it is unclear how many people courted entrepreneurial success, it is clear that even successful entrepreneurs occasionally sought wealth through a third approach to unproductive entrepreneurship, rent-seeking. Eli Whitney provides an appropriate starting point. Although Whitney may have had less to do with inter- changeability than others, his successful self-promotion, a useful talent for many entrepreneurs, led to his being tied to the idea. In 1797, faced with financial ruin from his gin business, Whitney wrote the federal government offering to produce 15,000 muskets. As noted, he received a contract the following year for 10,000, a far larger quantity than any manufacturer had ever produced. Whitney started from scratch and ultimately completed the contract several years late.
A second rent-seeker was Samuel Morse. What motivated him to work on the telegraph was a series of frustrations in his art career. In particular, he unsuccessfully sought a commission to paint one of the ceiling panels in the U.S. Capitol rotunda. After receiving a patent for the telegraph in 1840, Morse requested government support for his system. Three years later, Congress narrowly passed a $30,000 appropriation. In 1844, after successfully sending a message between Washington and Baltimore, Morse offered to sell his invention to the government for $100,000; instead it financed another year's operations. Thereafter, Morse was satisfied to live off the royalties he received by licensing his patent.
It must not be forgotten that the incentives facing potentially productive entrepreneurs are no guarantee of success. It is also true that relatively unsuccessful entrepreneurs may still earn a profit, and vice versa. Consider the competition between Obed Hussey and Cyrus McCormick, what has been termed “the great reaper war.” Both produced a successful reaper in ignorance of each other (and many others). McCormick's name became firmly connected to the reaper in part because his machine was better for reaping grain, and he moved west where grain became the primary crop of the great American prairie. Hussey's machine was better suited to mowing grass/hay, and, he remained in the east. The “war” involved many skirmishes over a few issues. Hussey attempted to make it clear that his device was patented before McCormick's. When Hussey's 1847 application for a patent renewal was late, Hussey was forced to petition Congress; McCormick actively lobbied Congress to refuse Hussey's petition. The following year, when McCormick applied for renewal, Hussey lobbied against it. Curiously, the war continued long after both men passed away. In 1897, the Bureau of Engraving and Printing proposed to commemorate Eli Whitney, “inventor of the cotton gin,” and Cyrus McCormick, “inventor of the reaper,” on new ten-dollar silver certificates. Hussey's friends protested, and the bills were not issued.69
Regardless of McCormick's success, the incentives facing Hussey were still strong as he was working on a steam plow at the time of his death in 1860. His resources remained sufficient to compete in the reaper business for a quarter of a century and to finance the development costs of new inventions, but he did not accumulate the wealth of the McCormicks. Gies (1990) reports when Hussey sold his business in 1858, he claimed in a letter to a friend, “I made no money during the existence of my patent” (27), and that his foreman made more. However, unlike many others who were “runners-up” in competitive battles, Hussey's name is remembered. How much anonymous individuals contributed to entrepreneurial effectiveness may never be known, but it seems clear the competition in which they participated made a significant contribution to economic growth.
Conclusion
The “coming of age” of American entrepreneurship took place at London's Great Exhibition of 1851. Antebellum America was teeming with innovative entrepreneurs. When Britain invited the nations of the world to present their manufactures at this famous exhibition in the Crystal Palace, there was no shortage of American inventors and innovators. American products, not noted for their elegance, were, as Rosenberg (1972b) notes, considered to be practical, affordable, and useful. Five Americans received Council Medals, the Exhibition's highest award.70 The five included William Cranch Bond for devices applying electricity to instruments making astronomical measurements, Gail Borden for his meat biscuit, David Dick for his antifriction press, Charles Goodyear for his rubber fabrics, and McCormick for his reaper.71 Almost all the Americans who exhibited played important roles in making sure their products were put to effective use. It was clear that the “American system” had taken over in light consumer goods. Later, it would work its way into heavy industry, into machine-making, and, indeed, into nearly the entire economy.
These five entrepreneurs, like the others discussed above, came from a wide variety of backgrounds. In antebellum America, successful entrepreneurs could rise to the top echelons of society; unsuccessful, unproductive entrepreneurs could become social pariahs. Such individuals were the sons of successful merchants and the sons of farmers. They were graduates of the nation's best universities and grade-school dropouts. Even among the better-educated, more well-to-do of the group, entrepreneurship involved learning by doing (or hiring someone with the requisite complementary skills). America's early engineers, those not formally educated at West Point, were largely products of the transportation sector; early machinists largely, but not exclusively, came from the textile and small arms industries. A well-developed apprenticeship system passed these critical skills to the next generation.
Many entrepreneurs accumulated wealth; others invested their earnings in new ventures or had to protect their rights to an existing one. Time and again, the innovative ideas of these individuals proved so simple that they strained the patent system's ability to protect the holder's right. A good deal of the potential profit was spent protecting those rights. However, the story of those who copied Whitney's gin is little different from the textile technology smuggled from England in the minds of those like Slater and Lowell. In spite of his legal problems, Whitney left an estate in 1825 worth just under $3 million in today's dollars. Isaac Singer, who died fifty years after Whitney, left an estate worth one hundred times that of Whitney. Reputedly, the wealthiest man of the antebellum era was John Jacob Astor. Born in Germany, Astor arrived in the United States shortly after the Treaty of Paris ended the Revolution. He entered the fur trade and, from the start, invested the profits in New York City real estate. By the early 1790s, Astor was the leading American fur trader in the Montreal and London markets, and, with time, helped open the Great Lakes region, the Pacific Northwest, and trade with China. At his death in 1848, Astor was worth over $250 million in today's dollars.
In the antebellum period, the United States was blessed with individuals who helped establish the institutional infrastructure that allowed this growth to compound. The openness of American society, its tie to the common law, and the emergence of a sound financial system contributed to the ability of innovators to bring goods to market. Continued improvements in transportation and communication widened that market throughout the antebellum period. U.S. manufacturing was blessed with a generous supply of curious tinkerers who helped to foster economic growth. The conjunction of entrepreneurial opportunities and an appropriate infrastructure led an agricultural nation to the brink of industrialization over the antebellum years.
Notes
Much of this chapter was completed while the author was visiting the Center for Population Economics at the University of Chicago. He is grateful to Robert Fogel, to the Kauffmann Foundation for financial assistance, and to Marianne Hinds Wanamaker for research assistance nonpareil. He also thanks Will Baumol, Alyse Freilich, Meg Graham, Naomi Lamoreaux, and Joel Mokyr for their comments.
1 Baumol (1990, 2002) stresses the importance of rules. Murphy, Schleifer, and Vishny (1991), who also emphasize rules, investigate how talented individuals choose between entrepreneurship and rent-seeking.
2 Dam argues that an independent judiciary, one that controls the bureaucracy, is vital to economic growth and development (2006, 86–87). In particular, “Better-performing courts have been shown to lead to more developed credit markets. A stronger judiciary is associated with more rapid growth of small firms as well as with large firms in the economy” (93).
3 After 1793, a patent was issued as a result of filing an application accompanied by a fee. Khan and Sokoloff (2006) report that under the 1790 patent law the fee was $3.70 plus copy costs. It was raised to $30 in 1793 and to $35 in 1861. Kenneth Sokoloff (1988) notes the latter was never less than 30 percent of per capita income while it was in force.
4 Khan 1995. See also Horwitz 1977. Machlup and Penrose (1950) discuss the pro- versus antipatent debates of the mid-nineteenth century in the United States and elsewhere. Michele Boldrin and David K. Levine, Copy Right: Against Intellectual Monopoly (available at http://www.micheleboldrin.com/research/aim/anew.all.pdf) is a contemporary antipatent view.
5 Other organizational structures (e.g., the limited partnership) could have achieved the same end, but, in the early nineteenth century, the corporation was better known.
6 Charles River Bridge v. Warren Bridge, 36 U.S. (11 Pet.) 420, 546 (1837).
7 Lamoreaux discusses the complex consequences of general incorporation for small and medium-size firms. She argues that, to secure such advantages as limited liability, “businesspeople increasingly had to agree to a particular set of organizational rules” (2004, 34). Wallis (2005) notes that in this period, eleven states adopted new constitutions containing both provisions for general incorporation and procedures for issuing government debt.
8 The personhood of corporations meant that directors or managers could assert constitutional claims on behalf of the enterprise. The expansion of limited liability, which occurred concurrently, effectively insulated shareholders from most claims against the corporation. This began the gradual separation of ownership from control almost a century before Berle and Means (1932) brought it to the nation's attention. See Lamoreaux 2004.
9 Born illegitimate in the British West Indies and orphaned at eleven, Hamilton was apprenticed to inter-national merchants. He attended King's College (now Columbia University) and became aide-de-camp to George Washington during the Revolution and, later, one of New York's representatives to the Continental Congress. While there, Hamilton, along with Robert Morris and others, attempted unsuccessfully to develop a revenue source for the national government.
10 Rolnick, Smith, and Weber (1993) argue the states gave up their right to issue money because they experienced exchange rate variability and came to prefer a monetary union.
11 Whether U.S. economic growth was “finance-led” remains an open question, but it is clearly the case that these policies facilitated growth. See also Rousseau and Sylla 2005 and Wright 2003.
12 Only the first five will be considered; for the sixth, which may be as much an outcome as a component of a stable financial system, it suffices to note that in the 1790s states chartered over ten times the number of corporations they chartered in the 1780s (Rousseau and Sylla 2005, 12).
13 Hamilton's famous “Report on Manufactures” of December 1791 also contained revenue-enhancing recommendations that were adopted (Irwin 2004).
14 Thomas Jefferson, among others, greatly doubted the extent to which the Revolutionary expenditures of the states had been in the common cause (Hofstadter 1958, part 3, document 3, 155).
15 The 1782 coinage report of Robert Morris, superintendent of finance, was adopted by Congress. Morris recommended a decimal system based on the Spanish silver dollar, but Jefferson objected to the large size of that basic monetary unit (Ford 1894, 446–47).
16 Gresham's Law suggests only one metal will remain in circulation. Until the mid-1830s, silver was favored; for the remainder of the antebellum period, it was gold (Studenski and Krooss 1952, 62–63; Martin 1977).
17 The view that the states used bank charters to get around the prohibition against printing notes has been buttressed by research showing that states not only taxed banks' capital, but sometimes invested in banks. Researchers estimate that, in the antebellum period, states may have raised as much as 20 percent of their finances from bank-chartering (Sylla, Legler, and Wallis 1987).
18 Wright 2001 is an expanded version; Bodenhorn (2000, chaps. 2–3) reaches a similar conclusion.
19 Knodell (2003) argues that, by providing both interregional and international exchange services, the bank experienced a “positive synergy” between its private and public business.
20 According to Martin (1974), Jacksonians faulted the Second Bank for not ridding the country of small- note paper currency.
21 See Clay's study (1997) of merchant activity in early California.
22 For early scholarship, see Callender 1902. Hurst (1970) argued that the initiative was governmental; by incorporating transportation companies, political leaders could grant privileges and the rights to claim land, contract loans, and levy tolls to support transportation enterprises.
23 Given the constitutional prohibition on benefit taxation, Wallis and Weingast (2005) argue that Congress was unable to tax nationally to finance projects that provided benefits to a small number of districts.
24 Most turnpike companies were small and built fairly short roads; one long-distance route would be served by several companies, each charging tolls on its own sections. Most funds invested in turnpikes were private, even in Pennsylvania, where direct state government turnpike investment was greatest (Fishlow 1972, 472–75).
25 Fishlow (1972, 474) estimated profit rates of only 3–4 percent.
26 The most successful of the previous attempts was John Fitch's Experiment that operated on the Delaware River from Philadelphia in 1790. Fulton's first working boat traversed the Seine at speeds of less than three miles per hour.
27 The North River Steam Boat was an extremely narrow vessel, 146 feet by 12 feet, with a side water- wheel. The boat was rebuilt with a wider hull and began regular weekly runs between the two cities the following year.
28 Hunter (1949, 7–11) notes that Fulton recognized the economic potential of the western rivers at the time of the initial Hudson River trial. The partners applied for monopoly grants throughout the west, but only the legislature of “the Orleans territory” obliged.
29 Mak and Walton 1972, 625. Productivity per ship tended to rise faster than tonnage increased as a result of design improvements, better engines, and better docking facilities (Hughes and Reiter 1958). Per-unit productivity increased by a factor of nearly nine from 1815 to 1860 (Mak and Walton 1972, 637; see also Hunter 1949).
30 Canal investment from 1815 to 1844 was $31 million, of which 73 percent came from governments. From 1844 to 1860, another $66 million was invested, about 66 percent of which was government money (Goodrich et al. 1961, 215).
31 By 1829, foreigners had purchased half of the canal's debt (Goodrich 1960, 53–56; Rubin 1961).
32 To that end, he organized the Patowmack Company to extend the Potomac River as a canal that went up into the mountains (Bernstein 2005, 22–23).
33 In addition to Wright and Geddes, there was Charles Broadhead about whom little is known (Whitford 1906). The first choice, William Weston, refused to leave England (Bernstein 2005, 58–59; see also Stuart 1871, 48–52). The Americans did “so well as to earn the praise of European experts” (Taylor 1951, 34).
34 See Goodrich et al. 1961, 30–32. This discussion includes the contrasts drawn between the “Erie route” and the “Ontario route,” where Lake Ontario would be used for part of the journey across New York.
35 Bernstein 2005, 215–16. The canal commissioners promised that White would be compensated for using his patent and his trip expenses to England, but the state legislature refused to honor the agreement.
36 During the early decades of the nineteenth century, boys acquired skills in many trades through an apprenticeship program. By the Civil War, the proportion of boys serving apprenticeships was declining. This is customarily attributed to the lack of a formal guild system or similar institution.
37 The following year, Peter Cooper introduced the “Tom Thumb,” the first steam locomotive built in the United States to be operated on a common carrier, the Baltimore & Ohio RR.
38 A road west, the Pittsburgh Pike, was completed in 1817. Although Pennsylvania invested tax funds ($1.8 million by 1825), the Erie presented a new challenge to the state, in general, and Philadelphia, in particular.
39 Overall, the Main Line Canal earned only 3 percent on the original investment and was sold in 1857 to the Pennsylvania Railroad for $7.5 million (Rubin 1961). For insight into the economic and political difficulties associated with internal improvements in general, see Wallis 2003.
40 Fishlow 1965. For a brief survey of the conventional view that railroad construction determined fluctuations in the business cycle, see Fogel 1964, 1–10.
41 Fogel (1964) found that all but 4 percent of the agricultural land that existed in 1890 would have been cultivated in his rail-less system.
42 Von Gerstner 1997 is a translation of a German book from 1842–43 that looks at both canals and railroads on a geographical basis.
43 This was more than five times the amount invested in canals (Fishlow 1972, 496).
44 Gates 1934 contains samples of all the problems associated with mixed enterprises.
45 Ogden's family lived in New York, upstream of Philadelphia, and supplied that city with lumber. Years later, Ogden's interests included the lumber town of Peshtigo, Wisconsin, which burned over the same days as the 1871 Chicago Fire.
46 See John 1995, 25ff. The statistics appear on p. 51.
47 Lakwete (2003) explains the long history of gins. Whitney's gin increased the speed of ginning, but it sacrificed fiber quality for quantity.
48 In 1812 Congress refused to renew Whitney's patent, but it did express the profound esteem of a grateful nation (Lakwete 2003, 133–34).
49 Primack (1962, 492) estimates that a sixth of the Midwestern labor force in the 1850s was constantly engaged in clearing land.
50 The figure comes from “Inventive Were the Pioneers,” a webpage maintained by Burlington County, New Jersey, where Newbold was born: http://www.burlco.lib.nj.us/county/history/inventive.html.
51 Peacock's plow led to a successful infringement suit by Newbold (Hurt 1994, 101).
52 Predictably, others infringed on Wood's patents, and Wood is reported to have used a large portion of his profits defending them.
53 Hurt 1994, 134. Since a cast-iron surface had small cavities and did not take a high polish, the mold- board had a tendency to hold prairie soils and slow the plow.
54 The most extensive history of Deere and his company is Broehl 1984. Among others are Arnold 1995; Clark 1937; and Dahlstrom and Dahlstrom 2005.
55 Cyrus's father attempted to construct a reaper earlier. Cyrus turned his attention to reaper production as a way to pay off the debts incurred when, in 1836, he and his father purchased an iron foundry (“Cotopaxi”) (Hower 1936, 70–71).
56 As noted, Ogden offered to finance the move. In 1848, McCormick and Ogden became partners in the distribution of reapers in Illinois, Indiana, Michigan, Kentucky, and Tennessee.
57 In his search for a labor force, Slater is often credited with launching the family system of labor in which children tended machines for their fathers.
58 According to David Jeremy (1981, 95), Lowell was the optimal vessel of technology transfer.
59 According to Krooss and Gilbert (1972, 96), “By 1850, they controlled 20 percent of all cotton spindles, 30 percent of Massachusetts railroads, 40 percent of Massachusetts insurance, and 40 percent of Boston Banking.”
60 The McLane Report has many shortcomings, but as Rosenberg (1973) notes, this is the only document that comes close to being a “census of manufactures” circa 1830.
61 Although it is notoriously difficult to measure the labor participation rate of women working in the home, women and children are estimated to have been about 10 percent of the labor force around 1800, rising to roughly 40 percent around 1830. The rate then declined, but remained above 30 percent through 1850.
62 Singer could not pay Clark in cash, so he gave him a one-third interest in his patents. Davies (1976) discusses Clark's long career at Singer.
63 Wallace notes that mechanicians was the term then used to describe the skilled workers who designed and made production machines; they were also the inventors and users of machine tools. With specialization, this occupation “merged imperceptibly into that of the blacksmith, the iron master, the machine maker, the engineer, the draftsman, the artist, the inventor, and the natural scientist” (1980, 212).
64 After 1800 Evans concentrated on high-pressure steam engines that were used for his milling operations as well as for steamboats. See Pursell 1969; and Ferguson 1980.
65 Hounshell (1984, 25–26) cites General Jean-Baptiste de Gribeauval as the person who introduced the idea to Jefferson.
66 “The component part of pistols, are to correspond so exactly that any limb or part of one pistol may be fitted to any other pistol” (Hounshell 1984, 28).
67 Carosso 1949. In 1844, Dennison founded what became the Dennison Manufacturing Company, but he turned over the paper-box business to his brother to enter the watch business.
68 Landes (1983, 317) notes that the 14,000th watch was produced in 1858 and the 118,000th watch in 1865. Church (1975, 621) reports that the military demand increased productivity by 25 percent.
69 Greeno 2006. Morse and Fulton appeared together on a two-dollar silver certificate issued in 1896 (Friedberg, Friedberg, and Friedberg 1981).
70 These were given to but 1 percent of the 13,937 exhibitors (Royal Commission 1851; see also Ffrench 1950 and Moser 2006).
71 Dick's press was described in one of his advertisements as “an arrangement of mechanical power, by which any given amount of force can be exchanged for any other amount of force…and no material discount lost in the trade for friction…where the simple lever becomes inconvenient” (Reynolds 1938; see also Frantz 1951; Stephens 1989; and Korman 2002).
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