Chicago: a key to modern capitalism

Review of Nature’s Metropolis: Chicago and the Great West By William Cronon

Chicago, we learn from this book, is a product and driver of early modern capitalism – it transformed lives, the landscape and the elite’s power equation, promoting both efficiency and corruption as well as grassroots entrepreneurship that necessitated a significant increase in the role of the state. Cronon covers Chicago’s rise from a primitive booster city through its apogee as a “gateway” for the entire country to its relative decline. The prose is poetic and vivid, mixing personal memories with detailed academic proofs. It is one of the best economic histories I have ever read.

In 1832, Chicago was promoted as the quintessential boom town, due to its location on the Chicago river and as the ideal place for a transportation hub where major waterways and railroads could meet. The local Potawatomi Indians had been displaced after the Black Hawk war ended, opening the way for the 200 white residents to claim control. This got the attention of investors in New York, who began to invest in a railroad hub there. Though an enormous initial real estate bubble quickly collapsed, Chicago became the nexus of a national transportation network, linking the city to the western hinterland as well as the east. This displaced competing cities, such as St. Louis, which was dependent on the Mississippi river for trade and missed the big wave of federal railroad investment due to its adherence to the Confederate cause. It is a perfect example of how economic growth is a mix of rational opportunity and historical accident.

With the transportation network in development, businessmen in Chicago proceeded on several fronts. First, they commoditized the grain trade. Rather than farmers having to market their own produce – bringing their sacks to markets sometimes weeks away – they could aggregate their food stocks in massive grain elevators in Chicago, later categorized by quality. While farmers hugely benefitted from the specialization of work this allowed, it also opened the process to corruption in mis-categorization (buying grains at lower prices than their quality merited, only to sell them as higher grades).

Moreover, with the development of futures markets, according to which traders took the risk of price fluctuations at some future date, farmers felt they were manipulated out of their profits. To resolve these issues, eventually the government got involved in inspections and regulation. This was one of the first genuinely modern market places, mixing trade in goods, the development of financial institutions, new accounting methods, and insurance. If this sounds banal, Cronon convincingly argues that it was a fundamental innovation that led to huge increases in wealth on both sides – city and rural.

Second, with the expansion of farms underway, the demand for construction wood grew at unprecedented rates, particularly in the plains states where there were few trees. This resulted in a massive demand for white pine from northern states around Lake Michigan. The hub for wholesale wood exchanges was Chicago of course, where wood could be shipped on water then parceled out to trains for retail sales farther west. It was a moment of phenomenal wealth generation, but eventually it denuded huge areas, altering the ecology of the region in many destructive ways.

Third, in the meat packing industry, Chicago became the spawning ground for some of the first mega-corporations. In the past, meat sales were limited by both geography and nature: transport was costly, spoilage could be avoided only in the coldest winter. But the development of both ice-based refrigeration and Taylorized slaughterhouse procedures – meats cut into prepackaged quantities, as portrayed in The Jungle – enabled a number of corporations to overcome these limits. Live beef and pork were brought to Chicago, butchered and then sent to satisfy demand for meat in the east in any season. The organizations to accomplish all of this were on a scale more massive than any yet seen, such as ice stations to maintain freezing cars at determined intervals on the way east, a miracle of coordination and logistics that would serve as models for manufacturing industries in the coming decades. While this led to the demise of the local butcher, who couldn’t compete on price, it also created new sources of wealth and productivity gains.

Fourth, as growth accelerated, a number of related industries sprung up. McCormick began to sell harvesters to farmers, an unprecedented increase in productivity. Sears and others developed sales by catalogue for newly affluent farmers, supposedly eliminating middle men and offering lower prices than local retailers. These too became mega-corporations.

Cronon stresses throughout that this growth was in most cases mutually beneficial for much of the 19^thcentury, though did allow for many unethical excesses. It is a highly complex and nuanced portrait of the early golden age of capitalism, when many conventions, rules, and conditions were established for what follows. I found his arguments for general betterment quite convincing, in particular because he never ignores the dark underside. A massive increase in exchange – wholesale in, wholesale out – was the end result of all the innovation that took place. Eventually, of course, Chicago lost its absolute advantages in large part because of the methods developed there – cheaper transport, regional hubs, a new scale of organization that was to go global in 20^th century, not to forget the congestion that the sheer size of the city created.

This is not a narrative history, though there are a number of individual stories that Cronon follows throughout as illustrative of the changes underway. Fortunately, the stories go beyond the usual treatments of entrepreneurs of genius to show how things impacted the little guys. John Burrows, for example, spent 6 weeks hauling sacks of potatoes by boat from his farm to New Orleans, where he had heard he could get 4 times what he was offered in Illinois. On the way, he discovered that many others were trying to do the same thing, causing a glut that resulted in a steep price drop at point of sale in New Orleans, to about 1/6 of the initial offer. This would no longer happen with the up-to-date information and quicker transport means that developed in the next decade. Later, Burrows developed a local network to bring manufactured products to farmers, only to see his business destroyed by mail-order catalogues. He died bitter and alone as did many of these early innovators. He is one of dozens of similar men we meet in the book.

While at times a bit heavy in its academic thoroughness, the book for the most part is a fascinating read. It is for advanced readers in economic history and not for those who seek a general history of Chicago.