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

65 Pages Posted: 13 Dec 2004 Last revised: 30 Oct 2014

See all articles by Naomi R. Lamoreaux

Naomi R. Lamoreaux

Yale University; National Bureau of Economic Research (NBER)

Margaret C. Levenstein

University of Michigan at Ann Arbor - Survey Research Center; The Stephen M. Ross School of Business at the University of Michigan, Business Economics and Public Policy

Kenneth L. Sokoloff

University of California, Los Angeles (UCLA) - Department of Economics; National Bureau of Economic Research (NBER)

Date Written: November 2004

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

Lamoreaux, Naomi R. and Levenstein, Margaret C. and Sokoloff, Kenneth L., Financing Invention During the Second Industrial Revolution: Cleveland, Ohio, 1870-1920 (November 2004). NBER Working Paper No. w10923. Available at SSRN: https://ssrn.com/abstract=622867

Naomi R. Lamoreaux (Contact Author)

Yale University ( email )

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HOME PAGE: http://www.econ.yale.edu/faculty1/lamoreaux.htm

National Bureau of Economic Research (NBER)

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Margaret C. Levenstein

University of Michigan at Ann Arbor - Survey Research Center ( email )

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HOME PAGE: http://www-personal.umich.edu/~maggiel

The Stephen M. Ross School of Business at the University of Michigan, Business Economics and Public Policy

Ann Arbor, MI 48109
United States
734-764-8336 (Phone)

Kenneth L. Sokoloff

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States
310-825-4249,310-825-1011 (Phone)
310-825-9528 (Fax)

National Bureau of Economic Research (NBER)

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