Wednesday, June 18, 2008

Resource Independence

Consider this scene: politicians are complaining loudly about the United States' reliance on other countries for an essential input to the nation's economy. They say resource independence is long overdue.


No, iron. In the 19th century, cheap iron and steel meant farm tools, pipes, nails and -- most important of all -- railroads for a young and rapidly growing nation. Iron rails were to the American economy then what oil is to it now. Europeans took the place of Arabs.

In 1839, Nicolas Biddle, the former president of the Bank of the United States, complained, "With all the materials for supplying iron in our own lands, the country has been obliged to pay enormous sums to Europeans for this necessary article....This dependence is horrible....This costly humiliation ought to cease forever."

It wasn't until 1846, however, that the first iron rails were produced in America. They came from a most unlikely source. George Selden Scranton, Joseph Scranton and William Henry Scranton set up their iron works in Pennsylvania. They tried to make pig-iron at first, and then nails. Neither product made them any money. To add insult to injury, their work earned them the political and social ill-will of nearby Wilkes-Barre and surrounding farmers. Rather than being welcomed as wealth-creators and innovators, the Scrantons were personae non gratae.

Desperate for a success and on the edge of bankruptcy, the gutsy Scrantons decided to try making iron rails, even though they had never made one before. They were stepping into the ring with the British, the reigning heavyweight champ of rail making. In a classic entrepreneurial move, they managed to win a two-year contract for 12,000 tons of rails for the New York and Erie Railroad.

Now all they needed to know was how to make the product they had agreed to deliver. Amazingly, they figured out how to make the rails, build bthe last furnaces, import the ore and limestone, and to transport the finished rails to the work site. They delivered their final shipment four days before the end of their contract.

The story of the Scrantons contains two lessons. First, politicians have always worried about resource dependence. Today's calls for energy independence are just new words to an old song. Second, entrepreneurial determination, bravado, and desperation, not political favors or high poll numbers, is what the Scrantons used to succeed.

Source: The Myth of the Robber Barons: A New Look at the Rise of Big Business in America by Burton W. Folsom, Jr.

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