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Firm Size and Industrial Structure in the United States During the Nineteenth Century

  • Jeremy Atack (a1)

Abstract

This paper investigates the impact of the emergence of large-scale enterprises on industrial structure in America in the mid-nineteenth century and concludes that their impact was ambiguous. In cottons and irons, average scale increased dramatically, but inequality in the size distribution of plants declined and economic concentration showed no clear trend. In other industries, changes in average scale were much smaller and inequality increased, but again there was no clear trend in concentration.

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The author is Associate Professor of Economics at the University of Illinois, Urbana, Illinois 61801. This study was underwritten by a summer research grant from the University of Illinois College of Commerce IBE Fund. The author thanks Larry Neal, Mary Yeager, and the participants of the University of Illinois Economic History Workshop, especially Ephraim Kleiman, for their helpful comments and suggestions on an earlier version of this paper.

1 See, for example, Chandler, Alfred D. Jr, The Visible Hand (Cambridge, Mass., 1977), especially pp. 5078 and 240–83;Clark, Victor S., History of Manufactures in the United States (New York, 1929), especially vol. 1, pp. 438–63, and vol. 2, pp. 154–527;Porter, Glenn, The Rise of Big Business, 1860–1910 (Arlington Heights, Ill., 1973). See also standard American economic history texts as Niemi, Albert W. Jr, U.S. Economic History (2nd ed., Chicago, 1980); or Ratner, Sidney, Soltow, James, and Sylla, Richard, The Evolution of the American Economy (New York, 1979).

2 Chandler, , Visible Hand, p. 240.

3 See, for example, Marx, Karl, Capital (Chicago, 1912), trans. Untermann, E., vol. 1, especially p. 836.

4 The censuses collected data by establishment. Multiple plants owned by the same firm and producing the same product in the same location were treated as one establishment, but this was probably quite rare and therefore establishment is treated as synonymous with plant in this study.

5 It is important to note that although Chandler is in the vanguard of those emphasizing the emergence of the modern large-scale industrial enterprise, he at least is quite clear that the trend is not across the board. It is easy to lose sight of this. See, for example, Sabel, Charles and Zeitlin, Jonathan, “Historical Alternatives to Mass Production: Politics, Markets and Technology in Nineteenth Century Industrialization,” Past and Present, 108 (08 1985), pp. 133–76; and Berger, S. and Piore, M. J., eds., Dualism and Discontinuity in Industrial Societies (Cambridge, 1980). I am indebted to Mary Yeager for bringing this literature to my attention.

6 Whether or not the same plants survive is unknown since I only observe the distribution of establishments not the continuation of particular establishments.

7 See James, John A., “Structural Change in American Manufacturing, 1850–1890,” this JOURNAL, 43 (06 1983), pp. 433–60;Atack, Jeremy, “Industrial Structure and the Emergence of the Modern Industrial Corporation,” Explorations in Economic History, 22 (01 1985), pp. 2952;Atack, Jeremy, “Economies of Scale and Efficiency Gains in the Rise of the Factory in America, 1820–1900,” in Kilby, Peter, ed., Quantity and Quiddity: Essays in US Economic History in Honor of Stanley L. Lebergott (Middletown, Conn., forthcoming). See also Atack, Jeremy, Economies of Scale in Nineteenth Century United States Manufacturing (New York, 1985).

8 Sokoloff, Kenneth, “Was the Transition from the Artisanal Shop to the Nonmechanized Factory Associated with Gains in Efficiency? Evidence from the U.S. Manufacturing Censuses of 1820 and 1850,” Explorations in Economic History, 20 (10 1984), pp. 351–82; Atack, “Economies of Scale and Efficiency Gains.”

9 See Laurie, Bruce and Schmitz, Mark, “Manufacture and Productivity: The Making of an Industrial Base, Philadelphia, 1850–1880,” in Hershberg, T., ed., Philadelphia: Work, Space, Family, and Group Experience in the Nineteenth Century (Oxford, 1981), pp. 4392, especially pp. 76 and 87.

10 See, for example, Bruchey, Stuart, Growth of the Modern American Economy (New York, 1975);Chandler, , Visible Hand;Cochran, Thomas C. and Miller, William, The Age of Enterprise (New York, 1961); and Porter, , Rise of Big Business.

11 Bruchey, , Modern American Economy, p. 106. Compare with Marx who argued, “One capitalist always kills many [leading to a] constantly diminishing number of magnates of capital, who usurp and monopolized all advantages of this process of transformation.” Marx, , Capital, p. 836.

12 Bateman, Fred, Foust, James D., and Weiss, Thomas, “Large Scale Manufacturing in the South and West, 1850–1860,” Business History Review, 47 (Spring), pp. 117.

13 See Bateman, Fred and Weiss, Thomas, “Comparative Regional Development in Antebellum Manufacturing,” this JOURNAL, 35 (03 1975), pp. 182208;Bateman, Fred and Weiss, Thomas, “Market Structure before the Age of Big Business: Concentration and Profit Early Southern Manufacturing,” Business History Review, 49 (Autumn, 1975), pp. 312–36; and Bateman, Fred and Weiss, Thomas, A Deplorable Scarcity: The Failure of Industrialization in the Slave Economy (Chapel Hill, N.C., 1981), espcially pp. 143–56.

14 Morris Adelman, testimony before U.S. Congress, Senate, Subcommittee on Antitrust and Monopoly hearings, Economic Concentration, Part 1, 89th Cong., 1st sess., 1964, pp. 225–40 and 339–41.

15 See Sokoloff, Kenneth L., “Industrialization and the Growth of the Manufacturing Sector in the Northeast, 1820–1850” (Ph.D. diss., Harvard, 1982).

16 See Atack, Jeremy, “The Estimation of Economies of Scale in Nineteenth Century United States Manufacturing and the Form of the Production Function” (Ph.D. diss., Indiana University, 1976);Bateman, and Weiss, , Deplorable Scarcity, especially pp. 165–84. Since these studies were concluded new samples have been added to the data set, including Illinois (1850), Kansas (1870), and Michigan (1850, 1860, and 1870). See Bateman, and Weiss, , Deplorable Scarcity, Appendix B, pp. 185–92 for some details on this sample, and Bateman, Foust, and Weiss, “Large Scale Manufacturing,” p. 117. No comprehensive analysis of these data has been published.

17 Thus, for example, while 67 of the 825 lumber mills in the 1850 sample came from Michigan (8.1 percent of the total), they should have represented only 3. 1 percent of lumber mills nationwide.

18 Thus, for example, the sample cotton mills in Connecticut were resampled so that they represented 0.133 of all the mills in the 1860 sample of cotton mills for the nation, while those in Massachusetts were resampled so that they represented 0.343 of the observations. These proportions are the relative proportions of Connecticut and Massachusetts cotton mills in the parent population. Without this adjustment, there were equal numbers of Connecticut and Massachusetts cotton mills in the Bateman and Weiss 1860 samples and they represented only 38 percent of all mills in the samples. Correction was made by repeated sampling from the samples of those states where establishments in a particular industry were underrepresented and random samples of sufficient observations from those states with too many establishments in a particular industry.

19 Alfred Chandler only distinguishes between iron and the other industries in my group. See Chandler, , Visible Hand, pp. 242–69.

20 Current values were adjusted using the Warren-Pearson price indexes for individual products. See U.S. Department of Commerce, Historical Statistics of the United States from Colonial Times to 1970 (Washington, D.C., 1975), Series E54-E56 and E58-E63.

21 Based upon the observation that the samples for each state include establishments producing less than a million dollars worth of output. One hundred and thirty-eight were producing output valued at a million 1870 dollars or more, but price adjustments reduce the number to that shown.

22 To the extent that the technological force—the sewing machine—behind the growth of ready-made clothiers was the same as that affecting boots and shoes, the differential rate of expansion of these two industries is particularly interesting, but one for which I have no explanation.

23 The labor force for Pacific Mills was reported by the census as 3,800; that for the Troy Iron and Nail Works, 1,500; Longstreet and Sedgwick employed 900.

24 See, for example, McGouldrick, Paul, New England Textile in the Nineteenth Century (Cambridge, Mass., 1968).

25 See, for example, Uselding, Paul J., “Henry Burden and the Question of Anglo-American Technological Transfer in the Nineteenth Century,” this JOURNAL, 30 (06 1970), pp. 312–37.

26 This result does not seem to be an artifact of peculiarities in the samples. The published censuses for 1850, 1860, and 1870 show the same trend. See U.S. Interior Department, “Statistics of Manufactures of the Seventh Census,” Senate Execurive Documents, 35th Cong., 2nd sess., 1859, Serial Set 984; U.S. Census Bureau, Manufactures of she United States in 1860 (Washington, D.C., 1865);U.S. Census Office, Ninth Census, Statistics of Wealth and Industry of the United States at the Ninth Census (Washington, D.C., 1872).

27 These data impose an upper bound upon the magnitude of the four-firm concentration ratio. At most, the four-firm ratio can be four times larger than the single-firm ratio. There is, however, a fundamental question that is unaddressed here: What was the relevant market? See Bateman and Weiss, “Comparative Regional Development,” and “Market Structure Before the Age of Big Business.”

28 Estimates of physical production are based upon average unit price data taken from the census samples. The estimate of per capita flour consumption is taken from Cummings, Richard O., The American and His Food (Chicago, 1940), p. 236; and Bennett, Merrill K. and Pierce, Rosamund H., “Changes in the American National Diet, 1879–1959,” Food Research Institute Studies, 2 (05 1961), pp. 116–17.

29 I have not included data from 1820 here because of the much smaller sample sizes upon which to base this judgment. But despite the supposed bias in the 1820 sample towards larger plants, the percentages of small, and particularly very small, plants was lower in later years than in 1820.

30 See Atack, “Emergence of the Modem Industrial Corporation.”

31 In the discussion of the phenomenon by historians, this would represent the case of industrial dualism. See Berger and Poire, Dualism.

32 Sokoloff has reported the results of a limited analysis of firm location by size that supports the hypothesis that small producers located at a distance from the large. See Sokoloff, , “Transition from the Artisanal Shop to the Nonmechanized Factory,” p. 362.

33 See Gibrat, R., Les Inégalités économiques (Paris, 1931) and Kalecki, Micheal, “On the Gibrat Distribution,” Econometrica, 13 (04 1945), PP. 161–70.

34 See, for example, A Singh and Whittington, G., Growth, Profitability and Valuation (Cambridge, 1968).

35 See, for example, Ijiri, Yuji and Simon, Herbert A., Skew Distributions and the Sizes of Business Firms (Amsterdam, 1977), especially Chapter 8 which reprints Ijiri, Yuji and Simon, Herbert A., “Business Growth and Firm Size,” American Economic Review, 54 (03 1964), pp. 7789. Also see Silberman, Irwin H., “On Lognormality as a Summary Measure of Concentration,” American Economic Review, 57 (09 1967), pp. 807–31.

36 See, for example, Hymer, Stephen and Pashigian, Peter, “Firm Size and Rate of Growth, Journal of Political Economy, 70 (12 1962), pp. 556–69;Mansfield, Edwin, “Entry, Gibrat's Law, Innovation, and the Growth of Firms, American Economic Review, 52 (12 1962), pp. 1031–34; and Marcus, Matityahu, “A Note on the Determinants of the Growth of Firms and Gibrat's Law,” Canadian Journal of Economics, 3 (11 1969), pp. 580–89.

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