The financial role of merchants in the development of U.S. manufacturing, 1815-1860

Abstract

Thus most early American manufacturing firms existed as a partnership (formal or informal) between technically knowledgeable factory owners or managers on the one hand, and mercantile capitalists on the other. Sometimes (as in the rail and textile mills) these alliances developed when merchants, perceiving a new market and seeking a profitable outlet for unused resources, pooled their funds to construct a factory, engage a supervisory staff, and commence production. On other occasions established manufacturers took in merchant partners in order to secure capital. Thus Jones and Laughlin. Jobbers and commission merchants became involved as a logical consequence of their role as distributors and suppliers.Whatever the particular circumstances, the ultimate effect of these relationships was to open a channel through which capital poured from the mercantile sector into the manufacturing sector of the economy.Merchants were the agents of transfer, a role which resulted naturally from their position at the nexus of American commerce. When American markets for manufacturers grew in the early nineteenth century, their expansion presented both an incentive and a compulsion for mercantile participation in manufacturing finance. The incentive was the profit potential of trade in domestic products; the compulsion derived from the need to control large and dependable supplies in order to maintain control of trade flows that carried increasing quantities of manufactured products as the nineteenth century progressed.While entrepreneurs built the factories and devised ways to run them, merchants provided agencies of distribution and finance. Only the preexistence of a prosperous, experienced, and efficient mercantile community permitted such a rapid development of mass production in America, for although many artisans perceived the great potential of expanding domestic markets, few of them possessed the capital or mercantile expertise to take full advantage of the growing opportunities. Had early American producers been wholly dependent upon their own resources in operating their firms, or wholly dependent upon retained earnings in expanding them, the pace of industrialization would have been retarded. Merchants, however, drove the economy forward by supplying the needed capital and mercantile skills to the emerging industrial sector.Out of this symbiotic combination of old mercantile wealth and talents, and new manufacturing technologies, emerged two of the pillars of American industrial maturity--the factory system that produced the goods, and the specialized institutions that financed their production and distribution.