A History of Small Business in America

Mansel G. Blackford

• Publisher: The University of North Carolina Press
• Year: 2003
• Print ISBN: 9780807854532, 9780807827802
• eBook ISBN: 9780807862339
• Edition: 2
• Topic: History
• Subtopic: Small Business
• Index: History

From the colonial era to the present day, small businesses have been an integral part of American life. First published in 1991 and now thoroughly revised and updated, A History of Small Business in America explores the central but ever-changing role played by small enterprises in the nation’s economic, political, and cultural development.

Examining small businesses in manufacturing, sales, services, and farming, Mansel Blackford argues that while small firms have always been important to the nation’s development, their significance has varied considerably in different time periods and in different segments of our economy. Throughout, he relates small business development to changes in America’s overall business and economic systems and offers comparisons between the growth of small business in the United States to its development in other countries. He places special emphasis on the importance of small business development for women and minorities. Unique in its breadth, this book provides the only comprehensive overview of these significant topics.

Chapter 1: Small Business before 1880

Writing in 1849, John Beauchamp Jones, a small-scale Missouri storekeeper, captured well the importance of merchants in mid-nineteenth-century American life: “Wherever the surges of ‘manifest destiny’ scatter the seeds of civilization—whether it be in the solemn shade and solitude of the dark forests bordering the ‘Mad Missouri,’ or on the interminable prairies beyond the woods—the merchant or trader is always found in their midst.” Whether operating from offices called “counting houses” in major cities, running small country stores, or roaming the backwoods as peddlers, merchants held together the business systems of colonial America and the early United States. Thousands of small, personally owned and operated firms—such as Jones’s country store—formed the glue of America’s business system.

In the years before 1880, small business assumed myriad forms in America’s merchandising, farming, manufacturing, and service industries. Small businesses were the norm in most fields of endeavor, with single-unit, nonbureaucratic firms dotting the American landscape. Only in the 1880s and later was the dominance of small businesses challenged by the rise of big business in some fields. Small businesses were important to Americans in noneconomic as well as economic senses. From the first, America was a land settled by business people imbued with business values. Setting off for Arrow Rock, Missouri, then a frontier region, in the early 1830s, Jones expressed sentiments common in America: “I now determined to be a merchant, a millionaire, and nothing else,” he exclaimed. “I resolved to make my way in the world, and to obtain wealth.” Getting ahead in America meant succeeding in the world of business, and at a time when few large firms existed, business success meant success as a small business person. Not surprisingly, a national ideology favorable to business, especially small business, developed from the time of the founding of the first colonies.

Economic Growth and Limitations on Business Development

Rapid economic growth characterized the development of the American colonies and the new nation of the United States, and this economic expansion created opportunities for the small business people who came to compose America’s expanding commercial network. Technological, market, and financial limitations precluded the development of big businesses, except in a few fields, until after about 1880. Until these restrictions began to be lifted in the mid- and late-nineteenth century, small firms made up America’s business system.

Economic growth came from several sources in colonial America. The production of goods for foreign markets was a prime engine of growth. Throughout the colonial period the Atlantic Ocean served as a bridge connecting the colonies to overseas markets. By the 1760s and 1770s, the colonists were sending abroad a substantial share of the crops they raised and the handicraft items they made, to the extent that perhaps 20 percent of the income of the colonists came from these exports. Domestic developments, as well as foreign trade, drove the colonial economies. As time progressed, trading networks based upon major cities such as Boston, Philadelphia, New York, and Charleston penetrated inland, and local and regional commerce came to rival and then surpass overseas trade as a stimulus for economic growth.

Domestic commerce became still more important as the United States developed as an independent nation. As people moved west across the Appalachian Mountains, the focus of economic activity moved inland, and internal development replaced foreign trade as the most powerful force driving the American economy. An agricultural revolution greatly increased America’s output of staple crops, especially cotton and wheat, and the beginnings of the Industrial Revolution in America spurred the production of manufactured items. Meanwhile, the construction of turnpikes, canals, and railroads encouraged local, regional, and interregional trade. The emergence of America as the world’s largest domestic free-trade region provided the single most powerful stimulant to the business development of the United States throughout the nineteenth century and well into the twentieth.

As the United States developed an increasingly unified business system, the individual firms making up that system became more and more specialized. For most of the colonial period, the largest merchants and other business people were generalists. Markets were too small and fragmented and financial facilities too poorly developed to permit them to specialize very much. From about the 1750s on, however, the growth of commerce, industry, and agriculture, together with transportation improvements, allowed business people to begin specializing. Merchants, who had previously dealt in a wide variety of goods and markets, found it possible to specialize as brokers handling specific products, such as cotton, wheat, or iron. Others became involved in financing and insuring America’s growing commerce, while still others entered the world of industry. This transformation was, nonetheless, far from complete at the time of the Civil War. Especially in frontier areas, business people operating as generalists continued to run country stores and to work as peddlers.

Most colonial Americans were eager participants in the development of a commercial economy. Merchants were, as already suggested, one of the key groups—probably the key group—in the business system of colonial America. But, so were artisans (skilled workers), many of whom possessed their own tools and shops and who may well be thought of as the owners of small businesses. Farmers, too, were part of the commercial development of colonial America. Only a relatively small proportion of them was involved in subsistence growing. Perhaps three-quarters produced for the market and, like merchants and artisans, acted as small business people in their economic transactions. With the development of a vibrant business system, colonial Americans experienced a rising standard of living, which reinforced their commercial outlook. By the time of the American Revolution, the colonists (except for black slaves) possessed a standard of living higher in many respects than that of most Europeans. The involvement of Americans in the development of their nation’s commercial economy increased in the early and mid-1800s, and most Americans continued to share in a rapidly rising standard of living. Despite economic downturns in 1837, 1857, and 1873, America’s real per capita gross national product (GNP) rose by one-third in the twenty years after 1839 and continued to rise in later years.

For all of this economic activity, however, individual businesses remained small. Limitations in both the distribution and production of goods prevented the rise of big businesses on a major scale until after the Civil War. What the dean of business historians Alfred D. Chandler Jr. has called the “throughput” of business, the amount of goods and services passing through a nation’s business system in a given period of time, remained so small in the antebellum years—when compared to what would come later—that small businesses, linked together in America’s commercial web, could easily handle it. Only after 1880 did large companies arise in substantial numbers to coordinate the greatly increased flow of goods resulting from accelerating industrialization.

Limitations in distribution were those of speed and expense in transportation and communications. Wind and animal power long remained the energy sources in transportation. Ships in the transatlantic trade required months to reach their destinations, while those sailing to China took a year or more. In domestic commerce, roads were so poorly constructed as to be virtually impassable much of the time. Canals, although an improvement, especially in the carriage of heavy and bulky goods such as wheat and coal, were slow and unreliable. Only from the 1830 s on did railroads begin hastening the speed of transporting goods over long distances. Similarly, in the 1840s and 1850s the telegraph began to be used by business people for scheduling orders and keeping track of affairs, quickening commercial life. Constraints in technology also limited the production of manufactured items. As long as animal, water, and wind power ran mills and factories, their output remained relatively low. Breakthroughs along the East Coast started in the 1830 s, when anthracite coal from Pennsylvania began to come into use as a fuel for steam engines and as a source of heat in processes for the making of sugar, beer, chemicals, and the like. A bit later, producers in the Midwest used bituminous coal mined west of the Alleghenies. Still, the changes in industrialization required decades to complete, and as late as 1880 most industrial firms were still small businesses.

Enterprise in Trade and Commerce

Foreign and domestic commerce held together the economies of the American colonies and the new United States, and it was merchants of various types who handled this trade. Comprising 2 to 5 percent of the workforce in colonial times, and probably a somewhat larger proportion in the early and mid-1800s, the merchants were all small business people. Even the largest and most important conducted their business affairs in single-unit enterprises that lacked managerial hierarchies. They could do so because the pace of business was slow and the volume of business was low. Thomas Hancock, the leading Boston merchant of the mid-eighteenth century, for instance, sent out an average of only sixty-two letters per year.

Nonetheless, while all of the merchants may be considered small business people, gradations appeared within their ranks. Relatively large sedentary merchants operated from offices in seaport cities, importing and exporting goods and selling at wholesale and retail. Smaller storekeepers located in inland towns supplied the countryside with goods and credit. Purchasing their products from the eastern merchants and selling them to farmers in return for their agricultural produce, the country storekeepers were, arguably, the most important small business people of their day. Upon their work pivoted the economies of colonial and early national America. Finally, peddlers owning only the goods upon the backs of their horses or in their wagons reached beyond the areas served by stores to the farthest frontiers.

Personal trust lay at the heart of colonial America’s business system, even in that part controlled by the largest merchants. At a time when communications were slow and the risks in business were traditional ones such as shipwrecks, merchants found themselves having to rely upon friends and relatives. Elaborate managerial hierarchies, whether staffed by relatives or not, offered no advantages and were not used. Colonial American trading companies lacked the monopoly powers often granted European trading companies and were, consequently, much smaller. A colonial American merchant ran his business from his (or occasionally her) counting house with the aid of only one or two or, at most, a half-dozen clerks, all of whom he or she knew personally. The merchant often spent each afternoon away from the counting house in nearby coffee houses and inns discussing affairs with other traders. Little in the way of new business methods came into use, for they provided no advantages over traditional ones. The types of risks apt to be encountered in trading were well known and unlikely to vary much from year to year. New ways of doing things could not appreciably lessen the risks, such as storms at sea. Instead, techniques handed down with little change from medieval Europe remained in vogue: the use of single and (occasionally) double entry bookkeeping, promissory notes, bills of exchange, and samples.

When the regional economies of the colonies and, later, the new United States became better developed through transportation and financial improvements, mercantile specialization occurred. Merchants engaged in just one type of trade: importing or exporting, trading with just one rather than many parts of the world, selling at wholesale or retail, but not both. By the late 1850s, for instance, Boston possessed 218 wholesale establishments engaged in importing and selling shoes and another 70 houses doing business solely in hardware. As Americans moved inland, Cincinnati, St. Louis, and Chicago developed as wholesale centers. By 1859, Cincinnati boasted 50 wholesalers specializing in dry goods and another 50 specializing in clothing, leading one news reporter to observe that “within the last eight or ten years Cincinnati has been gaining a position as a great centre of supply, by wholesale, to the country merchants of Ohio, Indiana, Illinois, and Kentucky, of their dry goods, groceries, hardware, boots and shoes, hats, drugs, and fancy goods.”

While relatively large merchants controlled the wholesale trade of the nation, smaller retailers brought the goods to customers throughout America. By 1839, there were 57,565 retail outlets in the United States, with the average amount of capital invested in each store coming to $4,350. The most common form of retailer was the country storekeeper. Operating in small towns, the storekeepers generally found their markets too restricted to allow specialization. Most carried a broad assortment of goods, everything from groceries and drugs to hardware and dry goods. A traveler in Pennsylvania remarked upon this feature in 1806: “These storekeepers are obliged to keep every article which it is possible that the farmer and manufacturer [artisan] may want. Each of their shops exhibits a complete medley; a magazine where are to be had both a needle and a anchor, a tin pot and a large copper boiler, a child’s whistle and a pianoforte, ring dial and a clock, a skein of thread and trimmings of lace, a check frock and a muslin gown, a frieze coat and a superfine cloth, a glass of whiskey and barrel of brandy, a gill of vinegar and a hogshead of Madeira wine.”

For all of the variety in their goods, however, the country stores were very limited in both their physical size and their capital investment. The stores were the archetypal small businesses of their day. Log cabins about twenty feet on a side were the norm into the 1820s and 1830s. The stores contained display counters, open barrels, and shelves for the goods, together with a small office where the storekeeper kept his or her ledgers and accounts. By the mid-1800s, these rude structures were giving way to brick and clapboard stores with bay windows and other amenities in the more settled areas. It was a rare store that stocked more than $10,000 worth of goods at a time (many carried only $1,500 to $3,000 in goods), most of these purchased on credit from wholesalers.

The main economic function of the stores was to facilitate the exchange of goods. Once or twice each year storekeepers made trips to purchase goods from wholesalers in New York, Philadelphia, and Baltimore, or from those in emerging regional centers such as Chicago and St. Louis. The storekeepers usually bought their supplies with a bill of exchange payable in twelve months (no interest was charged for the first six months, but a rate of 6 to 10 percent applied for the second six months). For western storekeepers these buying trips were often arduous, sometimes requiring six weeks or longer to complete. John Allen Trimble, a storekeeper in Hillsboro, Ohio, wrote of his early nineteenth-century experiences, emphasizing that poor transportation facilities made travel difficult. “Turnpikes, rail roads & steam boats were not then in existence,” he observed. “The roads over the mountains were the most indifferent wagon ways conceivable,” he continued, “without grading, ruts & gutters, mudholes and other obsticles [sic], never mended, and being hilly, broken & uncommon mountainous country made it toilsome in the extreme.”

Storekeepers sold their items to nearby farmers, accepting goods of all types in payment. Cash was usually in short supply, especially on frontiers, and most storekeepers conducted a portion of their trade on a barter basis. Storekeepers allowed liberal credit terms to their customers, often as long as twelve months, for farmers could settle their accounts only in the fall and winter after they had harvested their crops. Storekeepers accumulated corn, pork, cotton, and wheat—as well as more esoteric products, such as ginseng, beeswax, feathers, and beaver pelts—in their trade. These they either sent east directly to pay off their debts to the wholesalers or processed locally, as in the grinding of wheat into flour, before shipping them east.

Country stores played especially important economic roles in the predominantly rural South. Small farms were at least as important as large plantations in southern development, and country stores grew up at crossroads throughout the antebellum South to serve them. While larger merchants called “factors” operated directly from southern cities such as Charleston and New Orleans to handle the purchasing, marketing, and credit requirements of the planters, country storekeepers took care of the smaller farmers. On average, each storekeeper supplied 300 to 400 farm families with goods, allowing, as in other regions of the United States, up to twelve months’ credit on the purchases. Storekeepers also acted as marketing agents for the cotton, tobacco, corn, and other crops taken in trade—selling them in large lots to urban-based factors and commission houses, selling them in other regions or even abroad through partners residing in cities, or sending them out in peddling wagons for sale to whomever would buy them.

Even more than the merchant, the storekeeper found that traditional forms of business organization sufficed. Most storekeepers operated as single-owner proprietors. Almost none of the storekeepers organized their businesses as corporations. Their capital needs were scanty, and working capital could be provided by credit from their wholesalers. Although less common than single-owner proprietorships, partnerships did exist. In the most prevalent form of partnership both partners gave full-time service to one store and contributed to its capital stock. Less commonly, a partnership might control two or more stores, with different partners running the individual stores and acting as agents in eastern cities. Occasionally, family-based partnerships grew to control chains of country stores. In 1803, Andrew Jackson operated three stores in different parts of Tennessee, and in the same year James and Archibald Kane ran four stores in villages around Albany, New York. The Andrews family entered merchandising with a store in Huntsville, Alabama, in 1826, opened a second store in Tuscaloosa three years later, and soon had family members in New York and Philadelphia employed as buying and selling agents for the stores.

In running their businesses, the storekeepers depended upon their own efforts with, perhaps, the help of unpaid family members. Multilevel managerial hierarchies did not exist. At most, a storekeeper might employ a young man as a clerk. Clerking became, in fact, the most commonly followed road to store ownership by the 1840s, at least in the West. Some 70 percent of the storekeepers in that region started as clerks in other people’s stores. Another 15 percent entered merchandising directly from agriculture, and 5 percent had first been schoolteachers. Few day laborers or skilled artisans became storekeepers. Most stores opened early and closed late. Nonetheless, stock turnover was slow, sometimes painfully so. When John Jones and his brother opened their first store in Missouri in the early 1830s, they sold $150 worth of goods on their first day of business, but receipts soon fell to less than that per week. As Jones glumly noted, “We had dull days there as well as elsewhere.” The average weekly sales of the stores, which varied considerably with the seasons, came to roughly $200 to $300.

In this situation of slow business, traditional bookkeeping methods saw little change. A few storekeepers simply marked their walls with chalked tallies of their accounts; others ran columns of figures on shingles, the forerunner of the visible file. One storekeeper kept his cash account by hanging up a pair of boots, one on each side of a fireplace. Into one boot went the money received during the day; into the other we...

Table of contents

• Cover Page
• A History of Small Business in America
• Copyright Page
• Contents
• Preface
• Introduction
• Chapter 1: Small Business before 1880
• Chapter 2: Small Business in the Age of Giant Enterprise, 1880–1920
• Chapter 3: Industrial Districts and Stand-Alone Companies
• Chapter 4: Small Business in Boom and Bust, 1921–1945
• Chapter 5: Specialty Products and Niche Markets
• Chapter 6: Small Business in an Expanding Economy, 1946–1971
• Chapter 7: Small Firms in the Silicon Valley
• Chapter 8: Small Business in Modern America, 1972–2000
• Chapter 9: Independent Bookstores in a Time of Consolidation
• Conclusion
• Index