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

Author

Listed:
  • 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.

Suggested Citation

  • Naomi R. Lamoreaux & Margaret Levenstein & Kenneth L. Sokoloff, 2004. "Financing Invention During the Second Industrial Revolution: Cleveland, Ohio, 1870-1920," NBER Working Papers 10923, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:10923
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    Cited by:

    1. Carlino, Gerald & Kerr, William R., 2015. "Agglomeration and Innovation," Handbook of Regional and Urban Economics, Elsevier.
    2. Franklin Allen, 2012. "Trends in Financial Innovation and Their Welfare Impact: An Overview," DNB Working Papers 355, Netherlands Central Bank, Research Department.
    3. Dora L. Costa & Naomi R. Lamoreaux, 2008. "Introduction to "Understanding Long-Run Economic Growth: Geography, Institutions, and the Knowledge Economy," NBER Chapters,in: Understanding Long-Run Economic Growth: Geography, Institutions, and the Knowledge Economy, pages 1-12 National Bureau of Economic Research, Inc.
    4. Edward L. Glaeser & Sari Pekkala Kerr & William R. Kerr, 2015. "Entrepreneurship and Urban Growth: An Empirical Assessment with Historical Mines," The Review of Economics and Statistics, MIT Press, vol. 97(2), pages 498-520, May.
    5. Mehmet Bac & Eren Inci, 2010. "The Old‐Boy Network and the Quality of Entrepreneurs," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 19(4), pages 889-918, December.
    6. William R. Kerr & Josh Lerner & Antoinette Schoar, 2010. "The Consequences of Entrepreneurial Finance: A Regression Discontinuity Analysis," NBER Working Papers 15831, National Bureau of Economic Research, Inc.
    7. Guido Buenstorf & Steven Klepper, 2010. "Submarket dynamics and innovation: the case of the US tire industry," Industrial and Corporate Change, Oxford University Press, vol. 19(5), pages 1563-1587, October.
    8. Edward L. Glaeser & William R. Kerr, 2009. "Local Industrial Conditions and Entrepreneurship: How Much of the Spatial Distribution Can We Explain?," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 18(3), pages 623-663, September.
    9. Eren Inci & Simon C. Parker, 2013. "Financing Entrepreneurship and the Old-Boy Network," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 22(2), pages 232-258, June.

    More about this item

    JEL classification:

    • N2 - Economic History - - Financial Markets and Institutions
    • N6 - Economic History - - Manufacturing and Construction
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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