Railroads and Capital: Money, Credit, and the Industrialization of Shoemaking

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). …