Railroads and capital: money, credit, and the industrialization of shoemaking - Special Invited Issue: Money, Trust, Speculation and Social Justice - Part 2: Trust and Money

American Journal of Economics and Sociology, The, Oct, 1998 by Robert Enoch Buck

I

Introduction

The purpose of this paper is to examine the role of railroads in the formation of capital for the initial industrialization of shoemaking in New England prior to the Civil War. Although the role of railroads in the industrialization of the United States has been widely discussed, including their role in consolidating capital resources for their own use, the manner in which industrialization has generally been discussed casts less attention on the role played by railroads in capital formation for the industrialization of other industries. It is suggested that in a society with the problems of money and credit such as faced by the smaller towns of antebellum New England in which early industrialization occurred in the United States, this could be of some significance. Lack of attention to this appears to be due, at least to some degree, to the manner in which initial industrialization, that is, the first case of industrialization of an industry, is discussed, and also to trends in the discussion regarding the role of railroads in U.S. development.

Explanations of initial industrialization tend to focus on the Industrial Revolution, that is, the textile industry in England in the eighteenth century. Studies of early industrialization in the United States thus tend to examine the manner in which mills in antebellum New England instituted practices that originated in England and adapted them to their particular social setting (Prude, 1983, 1985), or the origins of America's system of large-scale production in heavy industry (e.g., Rostow, 1960). The latter research, however, focuses on the relative importance of backward and forward linkages created by the rapid expansion of railroads in the formation of an industrial society. Less attention has been given to the industrialization of shoemaking, in which the major innovations associated with industrialization originated in the United States, albeit under quite different conditions than those associated with the British textile industry. In particular, the problem of capital formation was far different in the smaller communities of New England where the transformation from handicraft manufacturing to the industrial production of shoes occurred. It is suggested that the coming of railroads to shoe manufacturing towns played a major role in this process, although with very different results depending on the conditions under which it occurred.

Although differing explanations of Britain's industrial revolution abound, capital formation is generally treated as the product of the creation of surpluses due to major changes in the agrarian economy, the expansion of world trade, and the movement of precious metals from new world colonies through the centers of European commerce to the entrepot of the world economy, London (Braudel, 1984; Crafts, 1985; Harley, 1993; Landes, 1969; Mokyr, 1993; Wallerstein, 1989). Prior to industrialization, Britain already had a sufficient national currency; well-established regional networks of credit institutions, including private bankers, joint-stock banks, and attorney-brokers; and usury laws that facilitated capital mobility by suppressing interest rates (Hudson, 1989, pp. 82-98; Mokyr, 1993, pp. 48-49). The transportation needs of the emerging industrial economy were filled by canals, rivers, and coastal waterways. Railroads were more an outcome than a precursor to this process (Hudson, 1989, p. 70; Pollard, 1984, pp. 173-174).

Conditions for industrialization were far different in the United States, especially with regard to the continuing problem regarding money and credit in the small New England towns in which early industrialization occurred. The role of railroads in U.S. industrialization has been given considerable attention. They have variously been hailed as a creator of a national economy, a primary cause of industrialization, the spark of the takeoff to self-sustained growth, and the cradle of managerial capitalism (Chandler, 1978; Nettels, 1962; Rostow, 1960; Taylor, 1962). Econometric analyses have challenged the primacy and necessity of the railroads with regard to industrialization and the settlement of the west (Fishlow, 1965; Fogel, 1964). Nevertheless, they have generally acknowledged the central role, and even causality, associated with railroads in the actual course of the economic development of the United States. Fogel (1964), in particular, debated Rostow's (1960) notion of the necessity of the railroads for the so-called takeoff into self-sustained growth, constructing an econometric argument suggesting that, if railroads had not developed, other alternatives were available to achieve the same outcomes. But both sides of this ancient debate addressed a notion of industrialization as being a sudden, largescale revolution or takeoff. A growing body of research now views industrialization as a long-term social process, one in which unintended consequences play a significant role (Gutmann, 1988; Mendels, 1972). Fogel (1964) suggests a gradualist explanation of sorts in noting that the true cause of the economic growth of the nineteenth century was the gradual accretion of scientific knowledge over the seventeenth, eighteenth, and nineteenth centuries, which provided the basis for a variety of alternative forms of innovation in response to any given set of economic conditions. Nevertheless, this argument still relies, to a degree, on technological determinism, missing the meandering social course that industrialization sometimes takes over the long haul. It is precisely this type of course, and capital formation for shoemaking as an unintended consequence of railroad building, that this paper seeks to address.