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Financing Invention During the Second Industrial Revolution: Cleveland, Ohio, 1870-1920

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  • Naomi R. Lamoreaux
  • Margaret Levenstein
  • Kenneth L. Sokoloff

Abstract

For those who think of Cleveland as a decaying rustbelt city, it may seem difficult to believe that this northern Ohio port was once a hotbed of high-tech startups, much like Silicon Valley today. During the late nineteenth and early twentieth centuries, Cleveland played a leading role in the development of a number of second-industrial-revolution industries, including electric light and power, steel, petroleum, chemicals, and automobiles. In an era when production and inventive activity were both increasingly capital-intensive, technologically creative individuals and firms required greater and greater amounts of funds to succeed. This paper explores how the city's leading inventors and technologically innovative firms obtained financing, and finds that formal institutions, such as banks and securities markets, played only a very limited role. Instead, most funding came from local investors who took long-term stakes in start-ups formed to exploit promising technological discoveries, often assuming managerial positions in these enterprises as well. Business people who were interested in investing in cutting-edge ventures needed help in deciding which inventors and ideas were most likely to yield economic returns, and we show how enterprises such as the Brush Electric Company served multiple functions for the inventors who flocked to work there. Not only did they provide forums for the exchange of ideas, but by assessing each other's discoveries, the members of these technological communities conveyed information to local businessmen about which inventions were most worthy of support.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 10923.

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Date of creation: Nov 2004
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Publication status: published as Auerswald, Philip and Ant Bozkaya (eds.) Financing Entrepreneurship Elgar Reference Collection. International Library of Entrepreneurship, vol. 12. Cheltenham, U.K. and Northampton, MA: Elgar, 2008.
Handle: RePEc:nbr:nberwo:10923

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Cited by:
  1. Edward L. Glaeser & William R. Kerr, 2008. "Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?," NBER Working Papers 14407, National Bureau of Economic Research, Inc.
  2. Edward L. Glaeser & Sari Pekkala Kerr & William R. Kerr, 2012. "Entrepreneurship and Urban Growth: An Empirical Assessment with Historical Mines," NBER Working Papers 18333, National Bureau of Economic Research, Inc.

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