A re-examination of the origins of American industrial success

David Prentice

Discussion Paper No. A06.02 ISBN 1 92094 8740 ISSN 1441 3213 March 2006

A re-examination of the origins of American

industrial success∗

David Prentice

Department of Economics and FinanceLa Trobe University

March 2006

Abstract

Wright (1990) argues the origins of American industrial sucessare in the institutions that enabled exploitation of natural resources.These institutions, argue David and Wright (1997), included the stateand US geological surveys and universities that worked closely withindustry. However, their work does not directly analyze how US re-source intensive manufacturers directly competed with their Europeanpredecessors. In this paper we analyze the rise of the US cement in-dustry, the features of which closely resembles the pattern describedby David and Wright. This was in part due to the US successfullyadapting a more resource intensive production technology from Eng-land, and a rise in demand due to the gradual diffusion of reinforcedconcrete. Consistent with David and Wright, there is some directevidence of university-industry links and econometric evidence of geo-logical surveys creating a first mover advantage. However, it is arguedthe rise in the US industry would not have occurred without adapt-ing German methods of quality control and standardised product andtest specifications, and to credibly signal this. This is supported bythe failure of the US industry to become a large scale exporter (whileEuropean firms continued to do so). This result is also suggestive offactors that may have influenced which US industries rose to domesticdominance and which rose to dominate world markets.

∗This paper was begun while the author was visiting UCLA and he is most appreciativefor their hospitality. The author is also most appreciative to Naomi Lamoreaux and Jean-Laurent Rosenthal whose suggestions got this paper off the ground and gave it direction.The paper has also benefitted from discussions with Lionel Frost, Murray Kemp and withparticipants at seminars at Deakin University, La Trobe University, and the Universitiesof Melbourne and Sydney.

1 Introduction

Wright (1990) argues the immediate origin of US industrial development

to international leadership in the 1890s is its abundant natural resources.

This abundance resulted from not from a more extensive endowment but

more extensive exploration and exploitation of that endowment. This re-

sulted, argue David and Wright (1997), from a combination of liberal prop-

erty rights, public geological research and extensive university-industry links.

Irwin (2003) highlights the 1892 development of the Mesabi iron ore deposits

and, through an econometric analysis, an expansion of iron and steel prod-

uct exports. However, these studies implicitly assume a direct link between

resource discoveries, cheaper raw materials and fuel, and increased exports

of manufactured products. But there has not been a study that directly ana-

lyzes how the factors highlighted by David and Wright affected competition

between American and European firms in resource-intensive manufacturing

industries during this period.

In this paper, we re-examine the origins and timing of American industrial

success through analyzing the rise, from the 1890s, of a resource-intensive

manufacturing industry — cement. First, a systematic review of the state

geological surveys demonstrates geological research in most states began well

before the 1890s. This raises the possibility that other factors may have de-

layed or even caused the 1890s manufacturing boom. Secondly, an analysis of

the history of the cement industry suggests that successfully competing with

European cement manufacturers required not only the discovery of raw ma-

terials but the successful adaption of a English innovation (the rotary kiln),

German institutions (standardized product specifications and tests), quality

improvement and credible signalling of the domestic cement’s quality. An

econometric analysis, using a new dataset, suggests that while the extensive-

ness of geological surveys did not accelerate the rate of development of the

Portland cement industry, by state, there was a positive relationship with

plant daily capacity in 1909.

In general, the history of the cement industry is largely supportive of

the general arguments of David and Wright. The industry did not initially

develop in the US because of technological leadership, with, the albeit signfi-

cant, innovation that did take place adapted from an English invention. Both

the econometric analysis and the limited historical analysis is supportive for a

1

role for the state geological surveys both directly in finding raw materials and,

indirectly, through locating cheap fuel and materials for cheap steel. Thus far

the story is supportive of the general argument that cheap fuel and materials

enabled American manufactures to compete with the incumbent European

manufacturers. However, the required quality improvements, standardized

testing and product specifications suggests that for Portland cement, cheap

fuel and materials were not enough. Furthermore the fact that US cement

was never exported in large quantities (while German cement continued to be

exported around the world) also is significant. Institutions that could cred-

ibly signal domestically, were of less value signalling internationally. So, for

more complex manufactured products, US manufacturers would have had to

at least match if not exceed the quality of existing European manufacturers

(whose quality was already proven), and the quality improvements had to be

credibly signalled to customers around the world. It would be interesting to

assess which resource-intensive industries became successful exporters, and

which did not. It is possible that while (endogenous) natural resource abun-

dance was the origin of American industrial success, which manufacturing

industries became internationally successful was determined by other factors

- such as the ability to credibly signal product quality.

The paper proceeds as follows. In the next section we critically review

the arguments of Wright (1990) and David and Wright (1997) in general and

in the light of additional information on the state geological surveys. In the

next section we establish that the American cement industry both matches

the profile of industries highlighted by Wright and David. We then analyse,

both directly and econometrically, the history of the cement industry. Our

findings are summarized in the conclusion.

2 The origins of American industrial success

In this section, we review the arguments proposed by Wright and David in

three papers linking the American rise to industrial leadership to institutions

and actions that more rapidly developed their natural resources. Drawing on

new sources, we then review the history of the geological surveys. Finally,

we discuss some potential problems with the link between the surveys and

the rise to industrial leadership.

2

2.1 The origins of natural resource abundance and its

link to manufacturing

In three papers Wright (1990), Wright (1999) and David and Wright (1997)

propose that the origin of American industrial success was the national abil-

ity to locate and develop its mineral resources. These resources were then

converted into manufactured goods that were exported. There are three steps

in this argument.

The first step, in Wright (1990), is the demonstration that the rise of US

manufacturing during the mid 1890s was associated with a rise in the resource

intensity of exports. Importantly, Wright also argues that the rise was not

associated with dramatic product or process innovations, demonstrating that

there were not simultaneous rises in the physical and human capital intensity

of exports. He observes that the rise in resource intensity of exports occurs

simultaneously with the rise to world leadership in numerous minerals. He

then argues this leadership though is not due to greater endowments but a

greater ability at the time to locate and develop the endowments there.

The second step, begun in Wright (1990) and developed more thoroughly

in David and Wright (1997) is to explain the greater development of natural

resources over the second half of the nineteenth century. The features of the

US economy that lead to this, argue David and Wright (1997) are:

1. Liberal property rights on minerals.

2. State and federal geological surveys.

3. Extensive mining education system, with close industry links.

Although they emphasize the simultaneous contribution of these features,

with spillovers across different sectors and developments in each reinforcing

the effects of the others, David and Wright (1997; 223) do, though, place the

geological surveys around the beginning of these developments:

Provision of geological information was perhaps the most impor-

tant initial step in the collective enterprise of resource discovery

and exploitation.

Liberal property rights also develop before the Civil War with the mining ed-

ucation system developing shortly after though the United States Geological

Survey did not commence until 1879.

3

The third step, is the linking of natural resource abundance to industrial

success. If local natural resource abundance results in lower input prices

then manufactured exports will increase. Wright (1990) suggests this link

for steel products and argues it implicitly for a range of products. The origin

and importance of cheap steel is argued more thoroughly in Irwin (2003).

Irwin argues, with econometric evidence, the increase in iron and steel prod-

uct exports follows the rapid exploitation, from 1892, following the discovery

of the non-tradeable Mesabi iron ore deposits, in Minnesota, which led to a

dramatic fall in the price of iron ore. In addition, Wright (1990) argues re-

source abundance encouraged the distinctive American production methods

and corporate organization and even the type of goods produced. Though

it is argued in Wright (1999) in a different context, the development in the

US of chemical engineering as a speciality from the late 1880s, would have

also contributed to the link between resource abundance and manufacturing

success.

2.2 Geological surveys and manufacturing success

However, a timely link between discovery and exploitation is not documented

for the wide range of materials that the US had achieved leadership by the

1890s. In this section, we document, using a new source, that many state

geological surveys had operated for decades before the 1890s. Though David

and Wright discuss how some surveys began before the Civil War, we draw

on a collection of histories of all state geological surveys compiled in Socolow

(1988) that enables a more comprehensive dating. In Table One we summa-

rize the period state funded geological surveys operated in each state. Note

in almost all cases each survey had begun publishing within five years (and

usually within two years) of their first commencing. The states are divided

into three groups. Within each group, states are listed ordered by the date

which their geological survey began. The first group is those states for which

the geological surveys commenced pre-1880 and operated continuously from

the 1870s into the 1890s. The second group are those states which achieved

statehood but for which the geological surveys either did not commence be-

fore 1860 or for which the surveys did not operate continuously. The third

group of states did not achieve statehood before 1880.

This table demonstrates three features of the state geological surveys.

4

First, the first wave of surveys occurs between 1830 and 1860 with all states

before the Civil War, except for Florida, Georgia, Louisiana, Minnesota and

Oregon having at least one geological survey. The second feature is that for a

majority of states the state geological surveys ceased during the 1860s to early

1870s. While some of these may have ceased due to the Civil War, others

(both southern and non-southern) ceased much later. The third feature is

that a second wave started from the late 1880s in states that had previously

ceased their surveys as well as new states.

Note that the western states and territories - particularly Arizona, Col-

orado, Utah and Nevada - had been partially surveyed by various federally

funded surveys starting from the late 1840s and accelerating after 1865. In

1879, these surveys were in effect replaced by the US Geological Survey. Un-

til 1882 the US Geological Survey was restricted to operating in the western

territories. The broadening of their operations to all states came about, it

is argued, in Manning (1967), with support from the representatives of the

southern states and state geologists.

By 1890, in sixteen states state geological surveys had been operating for

over twenty years. While resource discovery and exploitation do take time,

the gap between commencing systematic resource exploration and the rise of

resource-intensive manufacturing requires some explanation. The first rea-

son could be the early state surveys were not very informative due to poor

resources, poor research or publication problems. There is some evidence for

this. State geological surveys that had one or more of these problems are

described in both Merrill (1969) and Socolow (1988). At the same time, early

geological surveys like those of New York and Pennsylvania are praised by

Merrill. Manning’s account of the arguments presented for extending the US

Geological Survey nationally also cites state geologists writing about hav-

ing experienced these problems to the head of the United States Geological

Survey (USGS) who was lobbying for expanding the USGS nationally.

However, though the timing is better it is unlikely that it was the USGS

and not the state geological surveys that were responsible for the discoveries

that created natural resource abundance. From 1881, when the USGS began

publishing geological reports, to 1890, they publish an average of just under

14 reports per year. Some of these reports do not contain geological infor-

mation and some are previews of subsequent reports. This seems too slight

5

to support the extent of mineral development demonstrated by David and

Wright by the 1890s. Natural resource abundance in the 1890s must have

resulted primarily from geological research by the state geological surveys

and, the less well documented, private geological research and prospecting.

So there is the potential for this research to be a necessary but not suffi-

cient condition for American industrial success. One set of sufficient condi-

tions could have been imported (or domestic) process or product innovations

were required before supply or demand conditions made resource develop-

ment and processing profitable. A second set of sufficient conditions (also

mentioned by Wright (1990)) could be that a transportation network was

required before the resources could be developed1. Finally, though input sup-

plies increased and input prices fell, other factors may have disadvantaged

US manufactures compared with European manufactures, delaying the rise

of the US to international industrial success.

To address these concerns, rather than briefly review the relationship be-

tween the timing of the development of many minerals and the geological

surveys, we closely analyze one mineral-intensive industry, the cement indus-

try, that appears to match the pattern highlighted by David and Wright and

that can be analyzed closely. So as well as considering the relationship, in

terms of timing of the surveys and the development of the industry, we also

directly focus on factors affecting competition between the existing (largely)

European manufacturers and the new American manufacturers.

3 The US cement industry and the geological

surveys

In this section we document, in a fashion similar to that of David and Wright

that the cement industry is suitable for analysis. After concluding that the

US cement industry appears to have followed the pattern of development

highlighted by David and Wright, we demonstrate that the state and US

geological surveys did provide information that was potentially useful for

entrants into the industry.

1Total US railroad mileage constructed doubles between 1870 and 1880 and almostdoubles again between 1880 and 1890. In addition, during this period the railroad networkadopts a standard gauge. (Puffert (2000), calculations from (Dept. of the Interior (1883),Dept. of the Interior (1895))

6

3.1 Was cement a minerals intensive industry that rose

to industrial leadership?

Cement is the powder which is used to make a mortar and concrete. It is

manufactured by burning in a large kiln raw materials with a mixture of

limestone (or a similar calcareous material) and clay. Limestone and clay are

usually located at the same site as the processing equipment. Around 1900,

there are two main types of cement. The first type is natural cement which

is manufactured using raw materials found naturally with two components

in roughly the right proportions. The second type is Portland cement for

which the raw materials must be combined before burning and requires more

processing. Natural cement was developed much earlier than portland cement

but since 1910 over 98% of cement consumed in the US has been portland

cement2. Portland cement is manufactured to have a chemical composition

set according to industry standards. Hence, it is a mineral intensive industry,

relying both on minerals for raw materials and mineral fuel for processing.

The first step in establishing cement as a suitable case study is to demon-

strate, using Table Two, that it rose in industrial leadership in the way and

at the time highlighted by David and Wright. The second and third columns

demonstrate an enormous growth in cement consumption from 2.042 million

barrels in 1880 to 92.85 million barrels in 1910. Second, columns five and six

demonstrate while cement never becomes a large export industry, substantial

imports are almost completely replaced simultaneously with the expansion.

Column four shows that there is also a rise in the cement intensity of con-

struction over this period. In columns seven and eight the prices of Portland

and natural cement are presented. They fall substantially over the period.

In addition, the US became, temporarily, the world leaders in cement

production. Based on estimates reported in the 1918 edition of the Minerals

Yearbook of the United States, in 1913 the US is the single largest cement

producer with 43% of international production, with the next largest being

Germany with 19%. By comparison in 1999 the US produced about only 5%

of cement internationally.

2Calculated from US Geological Survey and Bureau of Mines Statistics

7

3.2 Did the geological surveys provide information on

raw materials for cement production?

It is not unreasonable to suppose that the raw materials for cement manu-

facturing were not of the type to be of interest to the geologists compiling

the geological surveys. Limestone deposits had been used to make lime, fer-

tilizer and in iron production. Two statements by cement manufacturers to

the Tariff Commission (Tariff Commission (1883; 705-708, 2275-2280)) state

suitable raw materials are believed to be widely available. However, both

statements refer to statements by importers that Portland cement could not

be produced in the United States because of a lack of the type of raw mate-

rials used in Europe. Miller (1930) also refers to this belief as a reason for

the slow development of the industry. Furthermore, it is now demonstrated

that the actions of the state and US geological surveys suggest the locations

of raw materials were of interest to the geologists and the readers of their

reports. In particular, a review of their publications suggest an extensive

ongoing interest.

First we consider the state geological surveys. We reviewed the contents

of thirty geological surveys reports from eighteen states from 1837 to 1878.3

Searches were made for references in the text to cement and two terms used

for raw materials with properties suitable for making cement: hydraulic lime-

stone and water-lime. 4 The results of this review are summarized in Table

Three. Each column is associated with a different period during which the

first entry into cement production using within state raw materials occurred

(if at all). Each row is associated with a different degree of reporting on raw

materials for cement from no reference to the results of tests for suitability

for cement production being reported. A separate entry is recorded for each

report surveyed. This can mean multiple entries for a state. For example,

three reports were viewed on Indiana with one having no reference, one hav-

ing a reference and one including test results. Four reports were reported for

Missouri, with three having a reference and one including test results.

In seventeen out of the thirty reports reviewed at least some reference was

made to raw materials for cement. Of the thirteen reports with no reference,

3The Making of America website at the University of Michigan, as summarized in theE-books website is the main source for these, as well as in some original copies.

4These terms are also used in the USGS report “Useful Minerals of the United States”which is discussed below.

8

in two cases, references were made in other reports for the same state. In

a further seven cases either no domestic cement industry ever developed or

the industry did not develop until after the Second World War. While the

unsystematic nature of the sample limits the conclusions that can be drawn,

it does suggest that there was widespread interest in locating raw materials

for cement production during this period. This is perhaps not surprising as

natural cement production requires the materials with the right combination

of limestone and clay to be available in the ground without adding other

materials.

The interest in locating and reporting on raw materials for cement pro-

duction continued right into the 1900s — even when manufacturing became

less dependant on having the right materials located together naturally. The

USGS reported information on raw materials for cement production and the

cement industry in general in several ways. First, from 1882 on, in each an-

nual report a short report (which expanded over time) on different minerals

was published, including the cement industry (from hereon this is referred

to as the cement chapter). Second, in the 1882 and 1887 annual reports,

there is a concluding substantial chapter on “Useful Minerals of the United

States”, listing by state by mineral broad locations of resources, including

cement rock, water-lime and hydraulic limestone, which is stated to draw on

state geological surveys and other sources. Third, in the cement chapters for

1909-1911, 1914, 1916 and 1923, lists of publications by the US and state geo-

logical surveys as well as other sources with information on raw materials and

the industry are published. These lists include about thirty-nine additional

reports published by the USGS on raw materials between 1902 and 1913. In

addition, there is also an extensive discussion of cement raw material loca-

tions in the 1910 cement chapter. Included in the additional reports are two

large USGS Bulletins in 1905 and 1913 which outline at length (including

maps and test results) the location and nature of cement raw materials.

Despite the statements reported earlier in this subsection, the extensive

interest in and reporting of raw materials for cement production in geological

survey reports suggests there was a demand for information on the location

of raw materials into the early twentieth century — which the state and US

geological surveys attempted to meet.

9

4 What caused the rise of the US cement in-

dustry?

Table Two documents the dramatic changes in size and composition of the ce-

ment industry between 1890 and 1913. In 1890, 76.4% of cement consumed

in the US was natural cement, 20.1% was imported portland cement and

just 3.4% was domestic portland cement. Furthermore, the different cements

were substantially differentiated, and in some regions there were cartels. Fi-

nally, there was a national market for cement, alongside regional markets.

By 1913 the industry had completely changed. First, natural cement and im-

ported portland cement was just 1% of national cement consumption, with

3% of domestic portland cement exported. Furthermore, Portland cement

was homogenous, according to industry-agreed standards, and markets were

becoming (if not already) regional.

In this section we analyze what determined the rise of the US Portland

cement industry, including assessing the contribution of two of the factors

highlighted in David and Wright (1997). First we review the development

of cement and concrete as products over the nineteenth and early twentieth

century. In each case we begin with the initial developments in Europe and

conclude with developments in the US. In the light of these reviews, we then

analyse the rise of the natural and Portland cement industries in the US.

Because historical sources are incomplete we complement this analysis with

econometric analyses of the state entry rates (from 1872 to 1913) and plant

capacities in 1909.5

4.1 The development of cement

Natural cement was the first modern cement. Natural cement has the hy-

draulic property in that it both sets under water and does not slake when

exposed to water (Eckel (1922)).6 For construction where significant con-

tact with water was likely, such as for canals, natural cement replaced other

materials with hydraulic properties such as hydraulic lime and puzzolanic

5Previous historical work on the cement industry is reviewed in section A.6 of theAppendix.

6The discussion of the development of cement draws on Francis (1977), Draffin (1943),Hahn and Kemp (1994), Skempton (1963) and Klemm (1989) as well as sources specificallycited.

10

cement as a mortar or stucco for stone or brick. Puzzolanic cement was lime

mixed with certain raw materials such as trass (from around the Rhine or the

Carribean) or puzzolona from Italy. These materials had been used because

experience (in some cases from ancient times) had demonstrated particular

Puzzolanic cements or hydraulic limes had the hydraulic property, though it

was not understood why. Through experimentation, John Smeaton in Eng-

land discovered that the hydraulic property depends on the materials having

suitable proportions of limestone and clay, which he published in 1791. The

first commercial production of natural cement began in England in 1796.

Cement (natural and portland) is manufactured by extracting the raw

materials, grinding it (if necessary) and placing it in a kiln where it is burnt.

The burnt material is then ground yielding cement. Natural cement was

first manufactured in vertical kilns like those for burning lime. The only

substantial change in manufacturing technology over the nineteenth century

is moving from intermittment operation to continuous operation (Francis,

1977). The description of natural cement manufacturing in Francis (1977;36)

which seems to be about continuous operations suggests manufacturing took

just over a day. Natural cement is burnt such that there is some calcining

but no clinkering so grinding can be done by buhr stones, used for grinding

corn, albeit with continuous maintenance.

Portland cement differs from natural cement in several respects. Primar-

ily, Portland cement went from being as strong as natural cement to being

much stronger (Skempton (1963)). In addition, Portland cement is heavier

and a grey colour rather than yellow to brown (Eckel (1922;202)). Third,

unless raw materials are naturally in the right proportions, Portland cement

requires the mixing of materials before processing whereas for natural cement

the materials are processed as is. Portland cement requires the highest tem-

peratures as a hard clinker must form. Hence Portland cement also requires

more powerful grinding technology — the Blake stone-crusher, invented by

Eli Whitney Blake in Connecticut, was adopted in Europe from the 1860s

(Francis (1977;142)).

Portland cement as a product varies over the nineteenth century. When

Aspdin first patents Portland cement in 1824, the distinctive stated feature

is not clinkering but the mixing of materials. The importance of clinkering

was discovered in 1843 in England. Widespread manufacturing in the United

11

Kingdom doesn’t begin until the 1860s following its widely publicised use as a

mortar in the new London sewerage system. Production of Portland cement

begins in Germany in 1855 and in the US in 1871 at Coplay, Pennsylvania

(Draffin (1943)). Skempton (1963) demonstrates how the strength of Port-

land cement increased over the nineteenth century with the increases due

first to clinkering, then to chemical based quality control then finally with

the adoption of the rotary kiln.

Though chemical analysis of cement began with Vicat in 1818, strict

control over the chemical composition did not occur until 1871 in Germany

(Skempton (1963)). This was most likely in response to quality problems

i.e. the failure of cement. The problem is nicely summarized by Lipowitz

(1868) (the English translation as quoted in the August 28 edition of Scientific

American):

It is not improbable that a good Portland cement may last for

tens or even hundreds of years; but we cannot prove this, as our

experience and observations only embrace a period of fifty years.

We do not know what other agents besides air and water may

effect cement in the course of time, nor can we tell whether all

cements are equally durable.

This last idea forcibly occurred to me ten years ago, when a ce-

ment produced by a German house was used successfully in laying

pipes at a distillery. Another cement procured in the following

year from the same manufactory and used in the same purpose

fell to pieces in weeks.

The origins of this problem are clear in a striking description of cement

manufacturing in the factory of a large English manufacturer, where there

was not even systematic measuring of materials (contemporary description

quoted in Klemm (1989;11-12)). Before manufacturers began to improve

their quality control, individual consumers of cement had begun physical

testing of Portland cement (from the 1840s in England) setting specifications

in terms of the required test results (Skempton (1963)). In 1878 the Prussian

government issued a single standard specification after a inquiry following a

proposal presented by the Association of German Cement Manufacturers

(Skempton (1963)). Standard specifications were adopted on Continental

12

Europe soon after this, but not in the United Kingdom or United States

until the 1900s. The quote of Lipowitz also illustrates the problem facing

both a new product and any new producer. Before tests and specifications

only time would tell the quality of the product which places the entrant at a

considerable disadvantage to the established producers.

The movement towards a standard specification in the US begins in 1885

when the American Society of Civil Engineers settles on recommendations on

how cement is to be tested and suggested ranges in which outcomes can fall.7

However, in Lesley (1924), the cement chapters and in Klemm (1989) there

is discussion of how different specifications from different users is a problem

for domestic manufacturers. Different specifications arise not only because

of different needs for different users but because there are several ways to

test cement. In 1904 the American Society for Testing Materials adopts a

standard specification though it is not until 1917 that the US Government

and the ASTM have a single standard specification. So the path to a standard

is quite different in the US compared with Germany - private institutions set

up the standards rather than lobbying the government to set a standard.

Over the nineteenth century there are also large changes in how Portland

cement is manufactured. The first methods of manufacturing could take up

to several months (Francis (1977;78-80)) because materials were mixed and

immersed in large quantities of water to settle over time in tanks. It was

not until 1870 that an English innovation removed the need for settling and

settling tanks (Francis (1977; 141-142)). The materials that were mainly

used in England was soft chalk and mud dredged from the Thames. At first

the kilns used are described as intermittent vertical but these were replaced

from the 1880s by continuous vertical kilns developed in Germany.

However, in 1877 a patent was granted in England for a rotary kiln,

though it was not further developed for commercial application. In the mid-

to-late 1880s several attempts were made simultaneously to make this step.

In England, though two improved rotary kilns were patented in 1885 (by

Ransome) and 1888 (by Stokes), neither were then successfully developed for

commericial use there. In the United States, Portland cement made with

rotary kilns is patented in 1885 (by Mathey) and 1889 (by Duryee).8 Rotary

7The development of specifications is discussed in Lesley (1924),Gonnerman (1958),Anderson (1999) and Slaton (2001).

8Patent numbers 330602 and 417634.

13

kilns appear to have been of particular interest in the US because although

they use more fuel, compared with the continuous vertical kilns, the rotary

kiln mechanizes the handling of raw and processed materials as well as fuel,

cutting labor requirements considerably. It is repeatedly stated in the cement

chapters and Lesley (1924) that compared with Europe fuel is cheap but labor

expensive. Attempts to adopt the Ransome kiln are made in Oregon, New

York, and, after a failed attempt with the Mathey kiln near Rosendale, NY,

successfully by the Atlas Portland Cement Co at their Coplay, Pennsylvania

plant(Hadley (1945)).9 The Atlas Portland Cement Co. then made two more

important innovations. First, a chemist brought across from Belgium to work

for them, determined gypsum could be added to regulate the setting time

of rotary kiln produced cement. Second, two engineers (one American and

one English) adapted the rotary kiln to the replace the previously used fuels

of gas and oil with the much cheaper powdered coal. The Atlas Portland

Cement Co. was unable to prevent other companies from inventing around

their innovation (Hadley (1945) and Atlas Portland Cement Co. et al. v.

Sandusky Portland Cement Co. (196 F. 385; (1912) U.S. App.)). The rotary

kiln quickly diffused back to Europe too — to the extent the previous situ-

ation was reversed in that engineers now visited the US to work and learn

about successfully using the rotary kiln and American engineers built plants

in Europe (Francis (1977; 256);Lathbury&Spackman (1902)).

It is important to note that the rotary kiln is the type of innovation con-

sistent with the developments highlighted in David and Wright. It increased

both the capital and resource intensity of production of cement. Furthermore,

the rotary kiln was not a US invention, but an adaptation of an English in-

novation, that was suited to an environment where resources, particularly

fuel, were relatively cheap.

4.2 Development of the use of concrete

The main use of cement until the mid-nineteenth century was as a stucco or

mortar (Francis (1977;55),Cowan (1977;262)). Over the second half of the

nineteenth century cement replaced lime as the main ingredient in concrete

9The Atlas Portland Cement Co. is the ultimate name of a series of firms with thesame principals that operate from 1885 as extensively described in Hadley (1945). Onename is used for simplicity

14

— a building material that had also developed over the early nineteenth cen-

tury. The cement chapters during the 1890s emphasize that there is a rapid

expansion of demand taking place though for mortar rather than for mono-

lithic construction (with the exception of war-related building). In addition,

the 1897 cement chapter refers to excess demand in Europe as well (restrict-

ing the supply of exports to the US). More specific reference to monolithic

construction is made during the cement chapters of the 1900s. Though the

inventions that result in this international increase in demand for cement

occurred well before 1890 their use only accelerated then.10

Though concrete construction was done in Ancient Greece and Rome, it

did not start to be used with any regularity again until revived in France in

1786 by Cointeraux. His concrete was a combination of rocks and lime, to

bind the rocks together, using techniques used in, the similarly flexible, pise

(i.e. mud) construction. The first initial extensive experimentation with con-

crete is done in France and England. Concrete had the potential to replace

stone as a building material. It has at least as good physical properties as

stone and better properties if reinforced. In addition, it is much cheaper than

stone, building takes much less time and ultimately, it can be poured (rather

than carved if possible) into a wide set of shapes. Concrete also is an eco-

nomic material for inexpensive fireproof buildings (Wermiel (2000; Chapter

Five), Cowan (1978)). However, similar to cement, the quality and strength

of concrete construction cannot at first be established except through exper-

imentation and experience, which takes time.

Over the nineteenth century, there are two sets of developments in con-

crete. First, it is applied to a broader and broader range of applications.

Second, metal is included to form reinforced concrete which means concrete

construction can be used to carry loads. The decades required for diffusion

of concrete seem to arise from two additional factors to the difficulties in

determining quality described above. First, as argued in Skempton (1963),

reinforced concrete was not practical until the 1880s when German Portland

cements reached a certain strength. Second, similar to the way electricity dif-

fused as described in (Devine, 1983) (and discussed in David (1990)) it takes

10Because there are no statistics on the use of concrete or even cement across differentcountries in the nineteenth century the discussion of its uses draws on accounts in Straub(1964), Collins (1959), Condit (1960), Condit (1961), Condit (1968) Cowan (1978) andSlaton (2001).

15

time for users to understand and carry out the most productive applications.

An early application of concrete in both England and the US is pre-cast

concrete blocks. Widespread use of concrete cast blocks in England dates

from the 1860s and 1870s in the United States (Francis (1977;55),Condit

(1960)).11 Poured (or monolithic) concrete (now using cement) for build-

ing takes off, after several experiments, in the 1850s in France and England

from the later 1860s (Collins (1959;Chapters Two and Three)). Connected

with this is the development in France (and simultaneously though less influ-

entially in England) during the 1850s of reinforced concrete (Collins (1959;

Chapters Two and Three)). Over the second half of the 1870s, Cowan (1978),

Condit (1960) and Draffin (1943) document the increasing range of applica-

tions to which concrete is applied in the United States e.g. the first concrete

bridge is built in New York in 1871. A second set of milestones are achieved

from the late 1880s: the first concrete dam (1887 in California), reinforced

concrete bridge (1889; California), concrete road (1892; Ohio) (though con-

crete roads do not take off until from 1909), first reinforced concrete dam

(1899; California). The different systems of reinforced concrete are diffused

in Europe (and to a lesser extent in the US) through contractors licensed to

use that system by consulting companies that train contractors and provides

additional support. This process begins in the late 1880s and spreads to the

US in the late 1890s (Newby (2001; Introduction). In the United States an

important early diffuser of reinforced concrete is the English migrant, Ran-

some who after beginning in cast concrete block manufacture, becomes the

preeminent US builder in reinforced concrete. (Condit (1960), Ransome and

Saurbrey (1912), Draffin (1943)).

Hence the increase in demand for cement starting from the 1890s is likely

to have been due to international improvements in reinforced concrete tech-

nology diffusing to the US. Wermiel (2000) highlights one use of concrete

that might have meant the demand pressure may have been even greater

in the United States than in Europe — the approach to fire control. By

the 1880s, practical commercial passenger elevators are developed, permit-

ting buildings greater than six stories, with the first (ten story) skyscraper

in Chicago in 1882. Concerns about fires, led to cities (Chicago, New York

11The first concrete blocks in England are in the 1830s, where lime is used instead ofcement, but their failure, Francis argues, delayed the further development of structuralconcrete til the 1860s.

16

and Boston around 1885) requiring tall buildings to be fire proof. Stone is a

costly and economically infeasible way of doing this, resulting in the devel-

opment of the skeleton frame building, reducing the use of stone, enabling

the use of concrete walls around an iron or steel frame. Wermiel notes that

the falling prices of iron, steel and cement all contribute to this. To fur-

ther aid fireproofing reinforced concrete floors (along with tiled floors) are

adopted in these buildings, with reinforced concrete dominating after 1906

(Wermiel(2005; Chapter Five)).

4.3 Development of the cement industry in the United

States

Before discussing the events of the 1890s, the rise of the large natural ce-

ment industry is also worthy of analysis. Before proceeding, note Table Four

summarizes the development of the US cement industry. The second and

third columns state the first known date of natural cement production by

state and the number of plants in 1890. The fourth column summarizes the

total number of sites where both raw material extraction and manufacturing

took place. The last three columns summarize the number of sites developed

within each period with the last line recording the number of sites closing

during the period.

4.3.1 The development of the natural cement industry

Natural cement production in the US began in 1818, near Syracuse, New

York, upon starting construction of the Erie Canal. Before then, canal con-

struction proceeded using puzzolanic material from the Carribbean and the

first construction for the Erie Canal unsuccessfully used lime as a mortar

(Hahn and Kemp (1994;19), Shaw (1990)). Indeed, the lack of a local ce-

ment industry was perceived to hold back canal development (Shaw (1990)).

By 1890 natural cement manufacturing was largely concentrated in three

locations - Rosendale, New York, near Louisville, Kentucky, (including Clark

County Indiana) and the Lehigh Valley, Pennsylvania, with a few producers

of varying sizes scattered elsewhere across the US.12 While manufacturing

12There is only limited information on the operation of the natural cement industrybefore 1890. Cummings (1898), Lesley (1924), Hahn and Kemp (1994), state geologicalsurvey reports and the cement chapters all provide partial accounts. From 1850 to 1880statistics for cement production are stated in the Census of Manufactures, which match

17

had occurred in all three major centers since before the Civil War, except for

the Rosendale district, extensive manufacturing probably began post Civil

War in Louisville and the Lehigh Valley.

The US natural cement industry appears to have lasted much longer

than the European industries which seem to have become less important once

Portland cement diffused. Uriah Cummings, a natural cement manufacturer,

suggests a reason for this is that their raw materials were of better and

more uniform quality in larger quantities(Cummings (1898) quoted in Klemm

(1989)). But we have no independent confirmation of this.

Note that as natural cement was traded over much larger distances it

could be described as featuring a national market. In the 1882 cement chap-

ter, Louisville cement is quoted as being traded in Denver, Colorado, and

Rosendale cement quoted as being traded in San Francisco, though it is

stated that English Portland cement “partly owing to low freights, ... nearly

crowding out the Eastern Rosendale, at one time extensively used.” (Min-

eral Resources of the United States (1882; 464). Reports of Louisville and

Rosendale cement being traded in the west continue in the 1880s.

The second point is that products of different regions and firms are treated

as differentiated. This is demonstrated by two court cases that were launched

by firms attempting to protect trademarks. In ((Edmund J. Newman et

al. v Earle B. Alvord et al. 51 N.Y. 189 (1872)), an Akron, New York,

manufacturer prevented a Syracuse, New York manufacturer from calling

their product “Akron Cement”. However, the New York and Rosendale

Cement Co. failed in their attempt to stop the Coplay Cement Co. from

branding their line of natural cement as Rosendale cement (New York and

Rosendale Cement Co. v Coplay Cement Co. 44 F. 277 (1890)).

Finally, the state geological surveys of Indiana and Kansas report cartels

operating at different stages. For both regions, a selling organization is cre-

ated through which cartel members sell their cement. The Louisville cartel

is particularly well documented. Collusion in the Rosendale market is also

alluded to in the market reports in Manufacturer and Builder in the early

1880s.

There is very limited information on the firms in the natural cement in-

dustry. However, there was considerable interest in documenting the length

the accounts to a certain extent and we draw on both in our analysis.

18

of time cement had been made at a different location. And these discussions

enable the first direct test of the importance of one of the factors highlighted

by David and Wright — geological research. We compare the starting dates

of the natural cement industry in each state with the starting dates of the

first geological survey. If the industry developed before the geological sur-

vey it was not possible for the geological survey to have discovered the raw

materials for the industry. The first half of Table Five summarizes which

states featured entry before the state geological survey began operations and

the share of production in 1890. At first it seems like the state geological

surveys could have played a significant role in the development of the natural

cement industry. In twelve states, the industry developed after the surveys

commenced, whereas in thirteen states (incuding the far west states of Col-

orado, New Mexico and Utah) the industry developed before. However, the

number of states overstates the significance of the industry. 85% of natural

cement production in 1890 was by states developed before including all of the

major producing states of New York, Pennsylvania, Kentucky and Indiana.

Of the states that developed afterwards only Kansas, Ohio, Minnesota and

Wisconsin had developed sizeable durable natural cement industries by 1890.

Instead, both contemporary accounts (Cummings (1898), Lesley (1924))

and recent accounts (Hahn and Kemp, 1994) link the rise of the natural

cement industry to the building of canals. Canals provided demand for the

initial production then provide means of transportation for the bulky product

of the cement plant. The comparison of the starting dates of the industry

with the construction of canals summarized in the second half of Table Five

is consistent with these arguments. This suggests that private prospecting

(albeit in publically supported projects) led to the abundance of natural

cement by the 1890s.

Finally, it is interesting to note how the natural cement industry competed

with imported portland and natural cement. In (Tariff Commission, 1883)

it is stated (by the representative of cement manufacturers) that, before

1869, cement imports were not reported in Treasury statistics, because they

were too small. Review of the different Tariff Acts finds the first reference

to natural (Roman) cement in the 1846 Act with a ad valorem tariff of

20% which remains the tariff rate (excluding 1857-1861 when the rate fell

to 15%) until 1890. This suggests that there must have been some imports

19

before 1869. Whether it was the tariff or transport costs that discouraged

substantial natural cement imports, by 1869 there had been considerable time

for local natural cements to build up strong reputations. By the 1882 Cement

chapter, most imports are stated to be Portland cement rather than natural

cement. Manufacturer testimony (responding to a Commissioner question)

in (Tariff Commission, 1883) refers to imports driving down prices of natural

cement which suggests there was competition between domestic natural and

imported Portland.

4.3.2 The development of the Portland cement industry

From 1873 to 1889, while 19 plants had begun production of Portland ce-

ment, over a third had exited in the same period. Domestic producers faced

competion from Portland cement imported, mainly from England at first,

and then Germany and Belgium (Lesley (1924;39-50). Despite the comments

about higher costs in the US, US cements typically traded at a lower price

than imported cement — between 1878 and 1887 in the market reports in

Manufacturer and Builder, the price of imported Portland cement typically

is greater than that for American portland and references to a price gap

are made in the 1890s in cement chapters. How rotary kiln produced Port-

land cement overtook imports, vertical kiln Portland cement is represented

in Graph One. In 1900, Portland cement overtakes natural cement. After

1900, all three competing types of cement rapidly decline. In 1899 there

were sixteen Portland cement plants using vertical kilns but this had fallen

to three by 1905. After 1900, imports fluctuate between about 900,000 and

2.3 million barrels until 1907, after which they decline below 100,000 barrels

by 1912. Natural cement declines steadily in almost all years after 1899,

falling below 1 million barrels in 1911. Graph Two represents the shares of

the different types of cement from 1890 to 1913, including Puzzolan cement,

another artificial cement. The movement in the shares are suggestive of the

timing of different shocks. It is consistent with the supply shock taking affect

in the late 1890s, with the initial effect on the closest subsitute, imported

Portland cement. From 1899, domestic Portland cement takes more market

share away from domestic natural cement. It is over the late 1890s that the

largest price fall occurs. This fall would be even larger if the quality im-

20

provements were taken into account.13Though an additional substantial fall

in the price occurs in 1904 and then 1908. By 1907 domestic Portland ce-

ment makes up about 90% of the over 50 million barrels of cement consumed

in the US, and by 1913, about 99% of the over 90 million barrels of cement

consumed in the US.

The exact contributions of the demand and supply side developments de-

scribed are not clear. Lesley (1924) argues the large natural cement industry

possibly delayed the rise of the US Portland cement industry. However, it is

possible that in the absence of the rotary kiln, if the natural cement industry

had been less extensive, there would have been greater reliance on imported

portland and natural cement. Similarly, while the development and diffusion

of reinforced concrete increased demand it is not impossible that this could

have been continued to have been satisfied by imports and, to a lesser extent,

domestic natural cement. Likewise, the rotary kiln meant a substantial fall in

costs. But its quick international diffusion meant that any advantage gained

by US producers was to be only temporary, unless fuel remained relatively

cheap.

What did not change was the tariff rate. At the Tariff Commission in

1882, testimony is recorded from two sets of witnesses connected to the ce-

ment industry and both request higher tariffs (at a fixed value) using an

infant industry type argument. While in 1890 the tariff rate does go to a

fixed value it is well below what is asked for and, at the prices in 1890, rep-

resents at most a small increase. And the tariff does not change through to

1909 (though as a proportion of price it does increase). Transport costs do

change. While in the 1893 chapter it is noted that transport costs are not

high to New York, in the 1894 it is noted that there is an increase in the

transport cost to Chicago. Lesley (1924) also notes of cheap imports coming

to California as ballast (though the fall in prices may have made this less

attractive).

However, it is clear that a factor that may have delayed the rise of the in-

dustry was quality control.14 Miller (1930) discusses quality control problems

13The head of the testing laboratory in Philadelphia in 1898 states “The city is usingto-day cement over 50 per cent stronger than that used during 1892, and a cost of from50 to 60 cents per barrel less. nearly every barrel of this material is American cement”statement by Richard L. Humphrey in discussion of Lesley (1898)

14This has been discussed in Anderson (1999)

21

by the first US producer at Coplay. Lesley (1924) emphasizes the competi-

tion with imported Portland cement and natural cement in the necessity for

the domestic brands to establish their quality compared with the competing

products. Though not stated directly, the following quote (Lesley (1924;134))

discussing information provided by Frederick Lewis, an engineer who worked

for Booth, Garrett &Blair, a testing company, suggests until the 1890s there

were quality problems:

It is true, as Mr. Lewis says, that American technology in port-

land cement was quite limited in scope and rudimentary in quality

throughtout the period between 1880 and 1892, and aside from

Eckert, who was a trained chemist then superintending manu-

facture by the American Cement Company, and Pierre Giron,

the Belgian engineer who later went into the employ of the Atlas

Company, there were few, if any, cement workers whose knowl-

edge corresponded to the well known “technikers” usually in charge

of the German cement works, at that time the most scientifically

successful in the world.

Eventually the US industry adopted the set of solutions already adopted

in Germany — quality control using chemists at the plant and standard

specifications. In this they were assisted by another institution — the private

testing laboratory.15 Lesley (1924; 138) states

In referring to all this testing of cement as part of the commercial

development of the industry, it must be understood that there

was required such work as was done by testing laboratories of

established reputation before the American cement could acquire

merited standing.

The concern by US producers to demonstrate quality control is illustrated in

many dimensions in the 1901 edition of Brown’s cement industry directory.

Fifteen companies (including many of the largest such as Atlas) include test

results in their listings. The vast majority of reported test results are for

tests performed outside the firm — by users such as city engineers, testing

15Rosenberg (1985) has stressed the importance of materials testing in this period,including a brief discussion of cement and concrete.

22

companies such as Booth, Garrett & Blair, Robert W. Hunt Co. and Lath-

bury & Spackman, and university professors (in two cases - though more

universities are listed in a directory of cement testers). The use of outside

test results relates to the latter part of Lesley’s quote — the testing had to

be credible and credibility was gained by testing laboratories, large users or

institutions with valuable reputations to be lost, having their name assigned

to the test results. Booth, Garrett &Blair are also cited by Lesley as playing

two other roles — as an arbitrator for disputes and as a source of advice

for local manufacturers. Furthermore this firm is also cited in descriptions

of new plants as having tested raw materials for new plants (EngRec (1900)

Chapters Eleven and Thirteen)). Finally, many companies include in their

listings (in Brown’s cement directory) of company officers, their chemists.

There are several arguments that suggest that the development of stan-

dard specifications and testing would have led to an increase in demand.

First, standard specifications would have reduced the transaction costs of

using concrete and cement, providing an independent credible focal point for

user and producer alike. In addition, a credible specification could then be

used by users that previously did not have the skills to produce their own

specifications, enabling them to use cement and concrete with more con-

fidence. For example, instead of testing every barrel (as was done in the

London sewer project) sampling could be used. Third, the effect of introduc-

ing standard specifications and testing is to homogenize cement as a product

reducing market power from product differentiation. Producers producing

cement that passed the specified tests could now compete on price.

The role of firms in promoting adopting standard specifications at first

seems paradoxical — normally firms seek to create and hold onto product

differentiation. However, this argument only strengthens the case that stan-

dardization must have significantly increased demand. The involvement of

large producers, including those from the Lehigh Valley, through the Ameri-

can Association of Portland Cement Manufacturers, suggests that they were

only be willing to forgo the gains their firms would make in an “unspecified”

market if they believed much greater gains would be made from their share

of a much larger market with homogenous products and standard specifica-

tions.16 As standardisation does not take place until 1904, when the market

16See Shapiro and Varian (1999; Chapter Seven) for a discussion of this tradeoff in a

23

shares natural cement and imported portland cement were well into decline,

it seems more likely this contributed to the increase in demand post 1904,

rather than the rise of US cement producers in the late 1890s and early 1900s.

However, the published standards and test results did give the US manufac-

turers a clear target (and early histories directly refer to US producers seeking

to exceed German test results) for their quality control efforts.

What can we learn about the rise of the American cement industry from

its spatial diffusion? Table Four reveals three more features of the develop-

ment of the industry. First, the rate of entry accelerates over time. Over

twenty years up to 1889 only nineteen plants enter, whereas nearly double

that enter over the 1890s, and one-hundred and eighteen plants enter from

1900 to 1913. Second, there is a similar pattern in terms of the spread of

plants over the United States. Up to 1889, entry occurs in nine states, entry

occurs in eight new states in the 1890s and fourteen new states from 1900

to 1913. After 1913 entry (using on-site raw materials) occurs in only eight

more states. Third, note that the early development of the industry occurred

not only in new areas but in more established areas of the US - a feature of

the general development of resources highlighted by David and Wright.

However, looking at the number of plants developed per state understates

the concentration of output that occurred during this period. In particular,

the share of of production produced in the Lehigh Valley rose from 44.9%

in 1893 to 72.7% in 1899 before falling to 29.5% in 1913. Between 1894 and

1902 the Lehigh Valley share never fell below 60%. The Lehigh Valley had

two advantages. First, the raw materials there were close to a natural Port-

land cement, requiring a minimum of additional mixing. Second, entrants

after 1889 in the Lehigh Valley all adopt rotary kilns (though not the main

incumbents until 1899). Some entrants in New York also adopt the rotary

kiln but these all fail for various reasons. In addition, the second plant in

California and an entrant in the 1890s in Ohio also adopt the rotary kiln.

Until 1897 entry also occurrs with vertical kilns — most frequently in New

York. The Atlas Portland Cement Co. takes full advantage of its first (suc-

cessful) move — by 1901 it is nearly twice as large as its next largest rival

(also in the Lehigh Valley). In the cement chapter in 1896 the large Lehigh

more general context and Lesley (1924; Chapter Eleven) on the role of large producers insetting specifications.

24

Valley plants (and some other large manufacturers) are described as having

national markets whereas other plants sell to only local markets. But this

state of affairs has substantially eroded by the end of this period. Even the

Atlas Portland Cement Co. reduces the size of its plant in the 1910s.

A question remains why the domestic success of the US industry did

not translate to international success. This question was regularly raised

in the cement chapters from 1904 on. It was repeatedly reported that not

only did the US not export more than the main European countries, a much

smaller proportion of US cement was exported. In 1910, English, German

and Belgian producers all exported much more than the US. In the 1914

cement chapter, the start of the first world war was seen as an opportunity

for US producers to increase their share of South American markets which

had been dominated by European producers. In the 1906 Cement chapter it

is argued:

Any attempt on the part of the United States to compete in these

markets should be made with a distinct knowledge of the excel-

lent quality of the German product. Inferior cements, or badly

packed barrels carrying superior cement, cannot successfully com-

pete with them.

By the 1914 Cement chapter, the argument has shifted (page 249-250):

It seems to be generally acknowledged, however, that there are

several serious problems which must be solved before the cement

producers of the United States can permanently annex the South

American markets. Education of the cement user to a full appre-

ciation of the superiority of American cement is one of the first

step, in order that he may be willing to pay the necessary price.

The prices paid for Belgian cement ... have been so low that

American producers can not be tempted to meet them, and the

prices paid for German Portland cement have been lower than

could well be met by producers in the United States.

Other problems highlighted included South American preference for ce-

ment shipped in barrels (which the US industry had stopped doing), lack

25

of ships and willingness to grant South American consumers long-time cred-

its. Without changes, any gain due to World War One, was believed to be

temporary (at the time). This account suggests several things. First, that

international standardization had led to lack of differentiation across coun-

tries. As a result, German cements no longer received premiums in export

markets. In addition, US consumers were now willing to pay more for domes-

tic cements than imported (including German) cements. This is a standard

outcome in international trade (Jondrow, 1982) — in part because domestic

cement can be delivered more quickly and reliably. But it is also consistent

with standardisation and signalling of quality being also important.

4.3.3 Factors identified by David and Wright

How far do the factors identified by David and Wright explain this pattern of

development? As a first step, we review the available histories of the plants

that were built before 1900. First we check for evidence of a major role

for academic or geological survey employee involvement. Then we check for

other regularities.

The classification of entrants up to 1899 is reported in Table Six. This

table illustrates we have only very partial information on this. In addition,

the available biographical information is often only on the founders which

may miss important roles played by others. First, rather than a small number

of firms developing the initial sites, in each period most of the sites are

developed by new single-plant firms. Natural cement manufacturers also did

not form a large source for developers. In the Other class, cement users (such

as wholesalers, builders, concrete-products manufacturers) form the largest

single class - there are also a few firms started by firms in related industries

such as Lime. This classification, though, misses that an early chemist at

the first plant in the US had worked on the Pennsylvania Geological Survey.

He also became the superintendent at the plant of the second entrant in the

Lehigh Valley.

Academics played direct roles in two start-ups during the 1890s, at Oglesby

Illinois (Pit and Quarry; July 1937) and Bay Bridge, OH, where S.B. New-

berry was a co-founder. While teaching at Cornell, Newberry had previously

assisted with chemical problems at the Warners Cement Company near Syra-

cuse, New York. Similarly, in an account of the origins of the Howes Cave,

26

New York plant, is stated that Professor Schaefer, from Cornell, is stated

to have helped with the testing of cement at the Howes Cave plant (Lesley

(1924)). In addition, a Professor R.C. Carpenter is also stated as helped in

further experiments, including relating to fuel. Though his affiliation is not

stated, a Professor R.C. Carpenter was the head of the Department of Ex-

perimental Engineering at Cornell University in the 1890s (Selkreg (1894);

History of Cornell Chapter XIX). Finally, twelve universities (and Profes-

sor Carpenter) are listed in the 1901 Brown’s cement directory as available

for cement testing. While this suggests that for the cement industry the

university-industry nexis was mainly confined to testing, it is possible that

academics may have played a greater role as consultants. However, the dis-

cussion in section 4.1 suggests that interactions with scientists working in

the private sector are more likely to have been cited in retrospect and at the

time.17

However, one qualification to this is that the industry arises just after

the start of training in chemical engineering begins at universities like MIT

(whose first graduates were in 1891). While this is too late for the first

wave of cement plants and (probably in any substantial numbers) the second

waves, this could well have contributed to the development of the plants

in the third wave (though in the 1909 edition of the cement directory, the

chemist, rather than chemical engineer, is frequently listed in the company

listing).

However, the history of the cement industry also suggests there were

other important influences. First, there is repeated anecdotal evidence of

technological transfer via immigration. In the histories of the early plants,

there are several stories of immigrant cement workers or engineers being

involved in discovering raw materials or supervising operations including at

Egypt, Pennsylvania, South Bend, Indiana, San Antonio, Texas and at The

Atlas Portland Cement Company. In addition, there are also accounts of

local producers obtaining advice or even designs from English and German

sources (e.g. at Bellefontaine, Ohio, and Coplay, Pennsylvania) or visiting

cement plants overseas (Yankton, South Dakota).18

17An academic associated with the Kansas Geological Survey was also associated witha short-lived start-up in the late 1900s in Kansas.

18At the Glens Falls Portland Cement company which first used German continuousvertical kilns, the first president of the company stated ”Like all the improved German

27

Second, there is the importing of testing methods and the idea of the

standard specifications from Europe. The rise and decline of the share of

Lehigh Valley Portland cement is consistent with this. First, as is described

in Lesley (1924) as the rotary kiln produced cement is commercially released

there is competition between vertical kiln producers (which included Lesley’s

firm) and the rotary kiln produced plants. It takes less than ten years for ro-

tary kiln production to exceed that from vertical kilns, and the state averages

for New Jersey (which had just two plants located in the Lehigh Valley but

exceeded the average for all other states including (the next largest) Pennsyl-

vania for most of the 1890s) suggest that the rotary kiln plants became larger

than typical vertical kiln plants earlier than this. However, the persistence

of the large share for Lehigh Valley plants suggests value that persisted for

some time as well but that declined over the 1900s. As suggested by the

evidence (and in part argued) earlier, the behavior of firms suggests that the

quality control problem was a serious barrier to the expansion of the industry

— possibly more significant than knowing the location of raw materials.

However, this does not rule out important indirect roles for the factors

highlighted by David and Wright. This could occur in two ways. First,

the cheap energy is primarily cheap energy from burning coal or fuel oil -

both of which potentially benefit from the factors identified by David and

Wright. And the rotary kiln is certainly technology more suitable for a

resource abundant economy. Second, and less directly, the earlier expansion

of the steel industry required developing expertise in chemical testing of steel

(Misa (1995), Rosenberg (1985)). To the extent these private laboratories

were involved in this process, they could build up expertise and credibility

that then could be used to certify the quality of the product of the cement

industry when it expanded due to increased demand.

4.4 Did the extensiveness of geological surveys accel-

erate development of the industry?

Because we have little direct evidence on the contribution of the geological

surveys to the cement industry, we use an econometric analysis of the rate at

kilns, while very simple and uniform in their working when properly controlled, manydisastrous failures have taken place from attempting to operate them theoretically withinexperienced men ... it was found necessary to employ head burners trained in the oldworks of Europe” quoted in Bayle (1949).

28

which sites were developed to draw out any general trends not highlighted

in the previous sections. The variables we use are defined in part one of

Table Seven. Table Seven also defines the variables used in the next two

subsections. Discussion of the sources, definitions and data are contained in

an appendix.

In particular we estimate the effect of years surveyed by the state geologi-

cal survey by 1890 and 1913 on the number of entrants relative to the number

of available sites. We use the state rather than the plant as the unit of obser-

vation because there is insufficient entrant-specific information to estimate

why particular sites were developed rather than others. This is particularly

acute as there are numerous locations throughout the U.S. where multiple

sites (such as in the Lehigh and Hudson Valleys) are developed. Hence we

use the two dependent variables, sby89 and sby13 as defined in Table Seven.

Before discussing the determinants of these variables the choice of technique

should be discussed.

Neither a tobit or a discrete dependent variable estimator like a Poisson

regression is suitable for this data. Because several states have only a few

available sites, the data is too discrete to be really suitable for a tobit. How-

ever, different states have different numbers of sites that may be developed

during the period which is not captured in the assumptions underlying a

Poisson regression. Instead, we follow Thomas et. al. (1990) who faced a

similar problem when analyzing the survival rates of children (which is lim-

ited by the number of children born, which varies across families), and use

a Generalized Linear Method. This method requires making some distribu-

tional assumptions — we follow the standard assumptions which results in a

logistic regression.

We use three sets of explanatory variables. First, to capture demand as

we do not have estimates of construction expenditure, we use population (and

a squared term to allow for non-linearities). As demand may be greater in

urban areas (for sidewalks, for example) we also include the share of market

size urbanized. Because of the changes in the demand for cement highlighted

in section 4.1, there is unlikely to be a constant relationship between popu-

lation and share of sites developed. So we run separate regressions for the

development up to 1889 and the development up to 1913. Second, we use

variables to capture competition from other products. In particular, we use

29

the coast dummy to control for import competition and the ncem1890 vari-

able to control for the extent of the natural cement industry in the state

for 1890. Finally, we have two variables to control for the extent which the

state has been explored for minerals. First, to proxy for the extensiveness of

geological surveys we use the length of the time the state geological survey

operated in the state. While surveys may vary in productivity, this measure

will distinguish between surveys that operated throughout the nineteenth

century (like that of New York) those that stopped and started (like that of

Virginia) and those that never really started (like Florida). As a proxy for

other activities that may have discovered the resources for cement, we use

the number of years since settlement.

The results of these regressions are summarized in Table Eight. The

share of population urbanized is statistically significant in both periods and

positive — consistent with our intuition that demand is higher in urban

areas. However, the market size variables are only significant in the second

period. The lack of the significant relationship between market size and

development before the 1890s is consistent with the story that there was in

general insufficient demand to support a domestic Portland cement industry

given the technology. However, the number of natural cement producers

in 1890 has a significantly positive effect on the share of plants developed

before 1890. This suggests that rather than competing, the natural cement

industry provided resources for development of the Portland cement industry.

The variables that are not statistically significant determinants are also of

interest. First, note that the geological survey variable is never statistically

significant suggesting the geological survey extensiveness is not correlated

with the extensiveness of development by state. Surprisingly, the coastal

dummy is also not significant which runs counter to the account that imports

deterred entry (unless it also deterred entry in the natural cement industry

- which is possible).

These results suggest that the state geological surveys did not provide

information that significantly increased the extensiveness of the industry by

either (and most importantly) 1890 or even 1913.But the share of number of

sites is only a crude measure of the rate of development so we analyze plant

capacity in 1909.

30

4.5 Did the geological surveys yield first mover advan-

tages?

In this subsection, we perform a weaker test for plant-specific first mover

advantage. The idea underlying these regressions is that first entrants into

the industry, using information from the geological surveys or other sources

were able to select sites that would be more profitable than those available

to later entrants.19 A weakness of this approach is that there may be other

sources of first-mover advantage. However, because of product standardis-

ation and the rapid diffusion of the rotary kiln technology, the first movers

would have had no long-term advantages from product differentiation or, in

general, superior technology. This still leaves strategic investment by first

movers, so it is still a weaker test. In theory, advantage should not be corre-

lated with the extensiveness of the geological surveys. In practice, because

many plants enter within a short period of time, it is possible that for at least

some observations, within states, there will be a direct inverse relationship

between the entry rank and years the geological survey operated.

In Table Nine, we summarize the distribution of plant sizes for 1909. The

daily capacity is used because it does not depend on operating time and is

the most commonly reported measure of capacity cited in Brown’s cement

industry directory, trade journal and other sources at the time. While nearly

three quarters of plants have capacities between 1000 and 3500 barrels per

day, there are several large plants and a few small plants. Six of the ten

plants of 6,000 barrels or more are in the Lehigh Valley, and a seventh plant

is a plant associated with a Lehigh Valley company. Twenty of the twenty

four plants of 4,000 barrels or more are located in the Lehigh Valley or part

19Note that the economic theory of depletable resource extraction provides only mixedsupport for firms actually doing this (Slade, 1988). If, as in the cement industry, capitalrequirements are expensive, then work by Campbell (1980) and Cairns and Lasserre (1986)have established the following. The firm will build its optimal capital stock as quickly asit can upon commencing extraction. By adding capital requirements, Cairns and Lasserreshow deposits of differing quality can be simultaneously extracted — though they are still“exhausted in declining order of grade” but not necessarily developed in order of grade. Ifdeposits are of the same grade, then they will be invested in and begin production earlier,have larger capacity and be exhausted later. Note in these models the only difference inquality is the level of extraction costs. Sites may also differ in terms of transport costs(to markets or fuel sources) or the reserves may simply vary in size. Low extraction andtransport costs, all else being equal, still imply first mover plants will be larger. However,larger reserves may or may not be associated with larger plants but will be associated withlonger lived plants.

31

of a multi-plant firm.

Were these plants or firms first movers? Of the ten largest plants, three

were first movers, and of the eleven smallest plants, four were first movers.

Two of the largest plants, that were not also first movers, were technological

innovators. One plant is the Northampton, Pennsylvania plant of the Atlas

Portland Cement Co. which fully exploited its innovations made at the

nearby Coplay plant to create a plant that was more than two and a half

times the size of its nearest rival. The other plant was the Edison Portland

Cement Co. plant which pioneered the use of very large kilns, exploiting its

advantage by building a large plant (indeed the largest plant owned by a

single plant firm). Of the four small first movers, two are monopolies in their

states, but the other two were followed by larger plants. This suggests first

movers being overtaken by followers. But this is not correct as most of these

first movers were also the sole firms in their states. This suggests monopolies

forming in relatively small markets (or in the cases of Maryland and West

Virginia, in the shadow of the large Lehigh Valley plants).

So there is some evidence that first movers tended to build larger plants.

However, to clarify the different roles of being a first mover, demand, and

other potential determinants we run a set of OLS regressions on the capaci-

ties of the plants operating in 1909. Estimating a structural game-theoretic

econometric model of capacity choice is beyond the scope of this paper so

we estimate a reduced form version. The explanatory variables are the plant

demand and cost determinants and measures of the effect of geological sur-

vey extensiveness and entry rank. To proxy for demand we use the market

based measures of population and urbanization, pop1910 and urb1910. We

include three proxies for cost conditions. First, as plants using (wet) marl

as a raw material would have extra fuel costs in burning off the water, we

include a dummy for the marl plants, the coefficient of which is expected to

be negative. Second, as there was a cement boom (that was soon to break)

in Kansas based around very cheap natural gas, we include a dummy for

being located in the Kansas gas belt, the coefficient of which is expected to

be positive. Finally, as there is some lumpiness in investment in the cement

industry, we include a dummy for plants that began operations before 1900

to capture a smaller than typical scale, the coefficient of which is expected

to be negative. The remaining variables attempt to capture the effects of the

32

geological survey (years geological survey operated before entry (gsyent))

and any other first mover effects (rank amongst surviving plants (svrkpdr)

and dummies for being the oldest survivor (svfmvdum), and the first plant

(fmvdum)). The results of these regressions are reported in Table Ten.

The signs on the demand and cost determinants are as expected — though

the coefficents are not always statistically significant. There is a positive sign

on mkt1910, urb1910, the pre1900 dummy and the kansas dummy (kscode)

and negative signs on the marl dummy, though only the coefficient on the

marl dummy is statistically significantly different from zero.

The dummies on being first mover or the oldest surviving plant are not

significantly different from zero. The sign on survivor rank is consistently

negative and the sign on the squared term is positive but both coefficients

are insignificant. The coefficient on gsyent is positive and the signed squared

terms of gsyent is significantly negative. Hence, we focus on the relationship

between the extent of the geological survey and capacity, which provides qual-

ified support for the hypothesis that geological survey extensiveness created

a first mover advantage. In particular, the coefficients suggest a positive but

decreasing relationship between plant size with a turning point at around 38.

For most states, the geological surveys had not operated for 38 years by 1909.

However, for those states, entry (of survivors) occurred within a few years

(the largest gap between oldest and newest being 10 years). Hence, most of

the variation supporting this section of the relationship is likely to be cross-

state, supporting the hypothesis. For the states with all plants entering after

more than 38 years, for the two states (Michigan and New York), making up

nearly all of the observations, the gaps are longer, suggesting within state

variation may be responsible for the negative part of the relationship. This

is consistent with the geological survey providing a first mover advantage,

but also other factors providing a first mover advantage. The three states

(California, New Jersey and Pennsylvania) with plants entering both before

and after 38 years, the gaps are all over 10 years (and Pennsylvania has a

gap of 33 years). This cases are similar to Michigan and New York (with the

possible exception of Pennsylvania) in providing mixed support. The case for

geological surveys being the origin of any first mover advantage is strength-

ened by the fact that most of these observations fall within the markets with

the largest number of plants, suggesting limited opportunities for strategic

33

investment.

5 Conclusions

This examination of the rise of the US cement industry has in general found

much to support the arguments of David and Wright. As a product, Portland

cement was not invented in the US. An important process innovation was

developed in the US, one that increased the resource (and capital) intensity

of production. However, it is argued that it was not just reduced costs that

enabled domestic manufacturers to overcome the incumbent natural cement

and German Portland cement competitors. US producers had to raise the

quality of their product, and credibly signal this to consumers, which they

did in several ways. First, they adapted the German approach to quality

control and standardised product specifications. Second, they drew on the

credibility of private testing laboratories and university professors, to signal

the quality of their products.

This then provides a mixed result for the arguments of David and Wright.

Knowledge of natural resources was a necessary but not sufficient condition

for the rise of the US cement industry. There was only limited direct evi-

dence of the role of the geological surveys and industry-university links high-

lighted in David and Wright (1997). However, the credibility of the testing

laboratories was developed in the earlier development of the steel industry.

Furthermore, an econometric analysis of plant capacities is consistent with

the geological surveys as an origin of first mover advantage in the industry.

Analyzing a single industry even if it is one particularly suited to the par-

ticular hypothesis still runs the risk of yielding findings that do not generalize.

And it can certainly be argued that the quality issue is particularly acute in

the cement industry when its products go into bridges, tunnels, skyscrapers

and dams. However, quality control was clearly an issue in the steel industry,

which has been previously identified as playing a key role in the rise of the

US to industrial leadership. Furthermore, the problem of credibly signalling

quality both at home and abroad is suggestive as to what may have shaped

which industries could rise to domestic success, and which may have risen to

dominate not only domestic but international markets.

34

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A Construction of the dataset

In this section, we detail the construction of the dataset used for the empirical

analysis and present some properties of the data itself. First we detail the

construction of the data used in Table One and in subsequent regressions.

Then we review the data used to construct Table Two. Third, we describe

the features of the central set of data used in this paper - a list of plants

operated from 1870 to 1998 and their characteristics. We also discuss the

construction of the market size data used in the regressions. Finally, in Table

A.4 we present summary statistics of the data

39

A.1 State geological survey data

In Table One, we report starting and stopping dates for each state geological

survey (excluding stops of less than a decade). The complete set of start-

ing and stopping dates is used to construct the variables yrgs90, yrgs13 and

gsyent.Socolow (1988) is the main source for the starting and stopping dates

for each state geological survey, though Merrill (1969) is also a useful source.

However, we exclude some of the periods included in Socolow if (1) no pub-

lications resulted (2) the surveys were very limited e.g. in Georgia there was

a survey of just one county (3) There was no state funding e.g. in Nebraska

from 1878 to 1899 a State Geologist was appointed without any funding.

Likewise there were honorary State Geologists in Colorado from 1874. We

also excluded the territorial geologist of Oklahoma from around 1898.

A.2 Cement and construction

The cement intensity of construction was calculated as the ratio of cement

consumption (in barrels) to real construction expenditure. The sources of

these statistics are in the subsections below. In addition, it is also worth

noting that the import share is calculated for Portland cement. Import

statistics include non-portland cement but it is repeatedly stated that 95-

100% of imports are Portland cement. Furthermore, there are no export

statistics available for 1880 or 1890 though 0 exports were reported in 1891

— the first year available.

A.2.1 Cement

Annual natural, portland and puzzolan cement production from 1880 to 1924

and by decade from 1818-1929 to 1870-1879 is reported on page 358 of the

Cement chapter of the Minerals Yearbook for 1924. The estimates from

1890 on are based on surveys conducted by the US Geological Survey and

Bureau of Mines. Previous estimates from 1880 were made by authors of

the cement chapters. A comparison between the estimated statistics and

survey-based statistics for 1890 and 1891 found the estimates were 2-3%

lower than the actual. The estimates before 1890 are based on estimates

made in Cummings (1898). To estimate consumption, cement exports were

subtracted and imports were added. Both were obtained from various years

40

of Minerals Resources and Bureau of Mines Yearbooks. The issue arises

whether to measure cement by physical quantities or expenditure. Neither

are perfectly satisfactory. For portland cement, the unit of a barrel varies

over time (but not across locations) from 400 to 376 pounds of cement. For

natural cement the pounds per barrel before 1921 vary from 240 to 300

pounds per barrel and for puzzolan cement, 330 pounds per barrel. Using

the value of production avoids the units problem. However, imported cement

is not valued at market prices. Because imported cement is differentiated

from domestic cement, without detailed pricing information it is harder to

make adjustments over time. Practice at the time and since then is just

to use the barrels unadjusted for these weight differences. The effect is to

underestimate the change in cement intensity by 10-30%.

A.2.2 Construction

To estimate construction we use ”Expenditure for New Construction” from

Table N70 of Historical Statistics of United States. which features annual

current and constant (1929 dollar) statistics from 1889 to 1955 and overlap-

ping decade averages from 1869-1878 to 1884-1893.

A.3 Plants and characteristics

While there is not an annual census listing all cement plants for all years,

we can compile a list of the 324 plants that operated in the continental US

between 1870 and 1998 from three sets of sources: cement industry reports

published by the USGS and its successors, industry directories and various

plant-specific sources. These sources are largely consistent on what plants

operated and for 285 out of 324 plants we can identify both entry and exit

dates. These sources also provide information on their raw materials and

in varying degrees for different plants at different times other plant specific

information such as capacity and technology. Out of three hundred and

twenty-four plants that have ever operated, two hundred and sixty-eight are

identified as using on-site limestone (or a substitute). The remaining fifty-six

plants are composed of four plants from Alaska and Hawaii, six grinding-only

plants, ten plants that used oyster shells for raw material, twenty-nine plants

that definitely used remote raw materials, two more plants for which it was

unclear if they used local raw materials, and five plants that produced a

41

specialty portland cement, white cement, only.

A.3.1 Construction of the data

We use three sets of sources to compile the list of plants and their charac-

teristics. The first source we use is is the annual cement industry report

published each year from 1882 to the present day by (at different stages) the

US Geological Survey and the Bureau of Mines. From 1890, an estimate of

the number of Portland and natural cement plants by state or group of states

is reported in the report. Except for certain years ending with the 1932-1933

edition, the identities of the cement plants are not reported. The accuracy

of these numbers is supported by their reconciliation, for all years for many

states, and most years for others, with information on other sources. In addi-

tion, from 1952, the Bureau of Mines also compiles State reports which often

identify the plants operating within the state (at least by location) and their

type of raw materials.

The second main source we draw on are various sources that do provide

lists of plants. First, we use the Portland Cement Association Plant Infor-

mation Summaries from 1974 to 1998. Second, we use the 1901, 1904, 1906

and 1909 editions of the Directory of American Cement Industries. In ad-

dition, lists of plants for particular years were used - these coming from the

American Cement Directory compiled by Bradley Pulverizer and the trade

journals Pit and Quarry and Rock Products.

These sources do not provide systematic information on the industry be-

fore 1890, and to a lesser extent, before 1900. To supplement these sources

for information on particular plants, we draw on original company annual

reports and 10-K statements, summaries of annual reports in the Moodys

Industrials Manuals, articles in trade journals including Concrete, Cement

Age, Engineering Record, Manufacturer and Builder, state geological surveys

and histories of regions, cities, companies and plants, amongst other sources.

A complete list of sources is available from the author.

Entry and exit dates for a particular plant are not available if two con-

ditions are satisfied. First, neither the USGS or no other source outside of

the USGS provides information on the precise date of closure. Second, the

state either features a large number of plants, or is aggregated with several

other states. Then, for example, during the Great Depression (but also in the

42

Table A.1: Characteristics of plants

Category Number NumberTotal plants 320LessNumber of plants grinding or remote raw mat 45Number of plants switched from own to remote unknown 2Yields sample plants 273Of whichNumber of plants entry date unknown 15Number of plants uncertainty about entry greater than 3 years 4Number of plants exit date unknown 33Number of plants uncertainty about exit greater than 3 years 15Plants still in operation in 1998 99

1900s and during the Second World War) if several plants in a region close

around the same time, we cannot identify which plant closed when. Table

A.1 demonstrates that this problem is not a large one though. First, only 37

plants out of 273 have uncertain entry (4) or exit (22) (or in 11 cases both)

dates. Second, for nearly all entry dates and half of exit dates, the extent

of the uncertainty is no more than 3 years. In these cases, we established

the earliest and latest possible dates for entry and exit. Then we used the

middle point between the two extremes to estimate the date of entry, exit or

both.

A.3.2 Use of the data

The primary use of this list is to compile the set of plants, with entry and

exit dates, that have ever operated using their own raw materials. This

is treated as the set of potential sites for portland cement plants. This is

not unreasonable, as barring substantial relocation of populations there are

unlikely to be large raw material deposits remaining that are higher quality

than those being used. This is reflected in part by the slowdown of plant

entry after the 1970s. When analysing the effect of the geological surveys

on the development of the industry by state, the number of potential sites

per state is used as the numerator for estimating this share. Furthermore,

this list also provides the source for calculating many other variables listed

in Table Seven.

43

A.4 Market Size

There are two issues that must be addressed when constructing market size

for a cement plant. They are:

1. What variable is used to measure demand for cement.

2. What is the spatial dimensions of the market

The first of these is almost compelled by the available data. Construction

is probably the ideal measure of demand for cement. However, a complete

set of construction data by state is not available before 1956.20In addition,

during the rapid growth stage of the industry it is possible that construction

may be jointly determined by cement production in that a lower cement price

permitted construction of larger buildings and roads and the like. Instead,

we use the population of a region as a measure of market size. While this is

most likely exogenous, it is also less closely related to changes over time. We

begin with the county populations for each census year from 1870 to 1990

from Bureau of the Census (1996).

This then gives rise to the second problem. In particular, which counties

should be included as part of the market of a particular plant. For recent

periods there is both direct and indirect evidence on the size of markets for

cement plants. First, in the US Transportation Census of 1977 it is reported

that 80% of shipments are made within 200 miles of cement plants. A radius

of 200 miles has been used to construct market sizes for postwar plants by

various studies of the cement industry such as Prentice (1997), and several

papers by Rosenbaum and various co-authors from Rosenbaum (1989) to

Rosenbaum and Sukharomana (2001). Second, from the 1960s numerous

companies built specialized terminals for the distribution of cement. Most of

these were found to be within 200 miles of the plant. There is less evidence

on market size before the 1960s. At the birth of the industry, there is direct

evidence of plants shipping over much greater distances. The importance of

the distant markets though is not clear. In the cement chapter in 1896 it is

also stated that some (mainly inland) plants have local markets and others

(primarily in the Lehigh Valley) having much larger markets.

20FW Dodge did not cover the Western states before this year

44

A.4.1 Construction of the Market Size Data

To construct markets, first we need geographical coordinates for all plants and

counties. The latitude and longitude for each town each plant is located in is

compiled from the National Atlas of the United States and the US Gazetteer

online. For the counties we used the Census 2000 Gazetteer of locations of

counties, which are the central points based on the current boundaries. To

calculate the plant market sizes, we then calculate the distance in nautical

miles between each plant and each county. The market size is then calculated

as the sum of populations of all counties located within 200 nautical miles of

the plant.

In calculating the market sizes, there were three complications. First, a

number of counties ceased to exist by 1990. Using maps from Thorndale

and Dollarhide (1987), it was determined which present day counties these

most closely corresponded to and the coordinates assigned to them. Second,

in Oklahoma and South Dakota, there were Indian Reservations before the

counties and a similar method was used here. Third, in Virginia, there are

Independent Cities - again each of these are assigned to existing counties.

A potential problem with using this measure is that county boundaries

do change. However, Bureau of the Census (1996), states for each county the

date of the last significant change to the boundary. Table A.2 summarizes

this information. Out of 3192 counties and Indian reservations, 2583 have

had no significant change during this period. In particular 2157 have had no

significant change after 1880 and a further 426 counties which were created

after 1880 have no significant change since then. This leaves 609 counties.

This is an upper bound on the number of problem counties, as mislocation

of the centre of the county will only be a problem if the county is on the

boundary of a market area. Because this is a relatively crude measure of

demand, no further adjustments are made to correct this.

However, one adjustment is made for 15 plants which had documented

terminal networks that extend beyond 200 miles. These plants are on the

Atlantic Coast (1), California (4), Great Lakes (4), Gulf Coast (2) and Mis-

sissippi River (4). We calculate the sum of population for counties within

100 miles of the terminals (that did not overlap with those within 200 miles

of the plant or 100 miles of another terminal) and add this to the market

size.

45

Table A.2: Characteristics of Counties

Characteristic NumberTotal Counties 3192Counties with no significant change after 1880 2157Counties started after 1880 with no change 426Counties ended after 1880 and before 1990 37Counties with last significant change in 1890 140Counties with last significant change in 1900 91Counties with last significant change in 1910 98Counties with last significant change in 1920 126Counties with last significant change after 1920 117

Second, note the construction of the population sizes for the state level

data. Using state population for the market for producers in that state is

problematic as the market for the producers in a state may be substantially

beyond the state. For example, in the market for plants in East Pennsyl-

vania would include, at the very least Maryland, New Jersey and southern

New York. We construct state demand variables in three steps. First, we

determine the largest county in each state at each census, using the Census

Data. This is termed the centre of population for the state. Second, for each

state, determine which population centres are within 200 miles of one an-

other. For some very small states some early results are disregarded. Third,

sets of states with population centres within 200 miles of one another are

selected to be part of the market for producers in the state. The set of state

markets is listed in Table A.3.

Finally, to construct the urban market size, we estimated the total share

of population urbanized from Historical Statistics of the United States (1970

edition) for each set of states selected as included in the state market.

A.5 Other Variables

We calculated the state version of the coast dummy variable as follows. First,

the extent of import competition needs to be noted. This is aided by the

reported customs district statistics for 1893 to 1895. Most states with ocean

or Great Lake frontage are recorded as having imports and so are recorded as

having import competition. In addition as they border major ports MS, CT,

DE, NJ, NH and RI are recorded as facing import competition. In addition,

46

because they are recorded as receiving imports in the data, MO, IN, KY are

also recorded as facing import competition. In addition, as Kansas City, MO

is recorded as receiving imports Kansas is also included. The only coastal

states not recorded as facing import competition are AL, MN and WI.

For the plant version of the coast dummy, we assigned a 1 if the plant

was in a coastal city or, in the case of six plants, very near to the coast.

Table A.3 Groups of States for the State Markets

Single States AZ, CA, FL, ID, MO, MT, NV, NM,ND, TX, UT, WVExclusive Clusters (AL,GA), (CO,WY), (MI,OH), (NC,SC), (OR,WA)Overlapping GroupsState Other StatesAR TNCT DE, ME, MA, NH, NJ, NY, PA, RI, VTDE CT, DC, MD, NJ, NY, PA, VAIL IN, WIIN IL, KYIA KS, NEKS IA, NE, OKKY INLA MSME CT,MA,NH,RI,VTMD DE,DC,NJ,NY,PA,VAMA CT,ME,NH,NJ,NY,RI,VTMN SDMS LA,TNNE IA,KS,SDNH CT,ME,MA,NJ,NY,RI,VTNJ CT,DE,DC,MD,MA,NH,NY,PA,RINY CT,DE,MD,MA,NH,NJ,PA,RIOK KSPA CT,DE,DC,MD,NJ,NYRI CT,ME,MA,NH,NJ,NY,VTSD MN,NETN AR,MSVT CT,ME,MA,NH,RIVA DE,DC,MDWI IL

47

A.6 Previous historical work

There are two broad sets of historical work on the U.S. cement industry.

First, there are a set of histories of the industry, firms or regions. An early

manufacturer and active industry figure, Robert Lesley wrote, with two other

manufacturers, a history of the US Portland cement industry that is a valu-

able resource (Lesley (1924)). There are also several histories of large firms

Hadley (1945), Wilson (1991) or regions Hahn and Kemp (1994). It is also

worth noting the recent history of reinforced concrete construction in the

U.S. by Slaton (2001). Second, Appendix A of the dissertation of Anderson

(1988) includes systematic technological and economic histories of the Port-

land cement industry. For the dissertation a particularly complete dataset

on the industry was compiled which is drawn on for a series of papers by

Anderson, Tushman and various coauthors to test various hypotheses aris-

ing in the strategic management literature (Anderson and Tushman (1990),

Keck and Tushman (1993), Tushman and Rosenkopf (1996), and Anderson

and Tushman (2001)). Anderson (1999) discusses the importance of quality

and the importance of the German industry setting an example for the US

industry. However, there is relatively little on the natural cement industry

beyond its connection to the Portland cement industry and little discussion

of the role of domestic testing firms. Perhaps more surprising, though the

importance of standardisation and quality control is emphasised, the changes

in concrete demand are not mentioned. Marchildon (1994) also discusses the

technological development of the industry, including more on the develop-

ment overseas and the importance of developments in concrete. The first

chapter of Mabry (1998) reviews the early history of the Portland cement

industry, briefly discussing the natural cement industry.

48

Table A.4: Summary statistics of data used in the study

Variable Observations Mean Standard Deviation Minimum Maximumsby89 39 0.5 1.2 0 5sby13 39 4.2 6.2 0 28mkt90 39 40.4 47.9 0.5 178.5mkt10 39 58.0 70.1 0.8 266.0urb90 39 0.28 0.17 0 0.62urb10 39 0.37 0.19 0.11 0.73yrgs90 39 14.6 15.5 0 57yrgs13 39 28.6 20.6 0 78ncem1890 39 1.6 5 0 30coast 39 0.6 0.5 0 1stage90 39 92.7 79.4 1 284stage13 39 115.7 79.4 24 307cap1909 109 2857.3 2921.5 400 26000mkt1910 109 9.8 6.3 0.21 20.5gsyent 109 33.3 16.0 0 67svrkpdr 109 5.4 5.2 1 23fmvdum 109 0.1 0.4 0 1svfmvdum 109 0.2 0.4 0 1kscode 109 0.1 0.3 0 1marl 109 0.2 0.4 0 1pre1900 109 0.2 0.4 0 1urb1910 109 0.5 0.2 0.2 0.7

49

Table One: State geological survey details

State Year of State geological surveysStatehood Years operated No. of years operated

By 1890 By 1913ContinuousNorth Carolina 1789 1823-27, 1851- 40 63Tennessee 1796 1831-99, 1909- 57 71New Jersey 1787 1835-40, 1854- 36 59New York 1788 1836- 55 78Pennsylvania 1787 1836-58, 1874- 32 52Indiana 1816 1837-39, 1859- 20 43Michigan 1837 1837-45, 1859- 35 58Ohio 1803 1837-38, 1869- 24 41Kentucky 1792 1838, 1854-57, 23 35

1873-92, 1904-Alabama 1819 1848-57, 1873- 28 51California 1850 1860- 30 53Minnesota 1858 1864-1900, 1911- 23 36(Re)Started post-1880South Carolina 1788 1825-26, 1842-60, 18 31

1901-Massachussets 1788 1830-39, 1971- 10 10Connecticut 1788 1835-42, 1903- 8 19Maryland 1788 1834-42, 1896- 9 27Virginia 1788 1835-43, 1908- 9 15West Virginia 1863 1835-43, 1897- 9 26Maine 1820 1836-38, 1861-62, 7 28

1889-1932, 1943-Delaware 1787 1837-41 1951- 5 5Table continued over the page

50

Table One continued: State geological survey details

State Year of State geological surveysStatehood Years operated No. of years operated

By 1890 By 1913(Re)Startedpost-1880New Hampshire 1788 1839-44,1868-78, 17 17

1942-Rhode Island 1790 1839-40, 1909-13, 2 7

1975-Vermont 1791 1844-61, 1886- 19 42Mississippi 1817 1850-72, 1903- 23 34Illinois 1818 1851-75, 1905- 25 34Missouri 1821 1853-78, 1889- 20 43Wisconsin 1848 1853-82, 1897- 23 40Iowa 1846 1855-69, 1892- 8 30Arkansas 1836 1857-60, 1871-75, 13 16

1887-93, 1923-Texas 1845 1858-75, 1888- 12 26Kansas 1861 1864-65, 1889- 4 27Nevada 1864 1866-78, 1929- 13 13Louisiana 1812 1869-72, 1892-1909, 4 22

1931-Georgia 1788 1876-79, 1890- 5 28Nebraska 1867 1899- 0 15Colorado 1876 1907-27 1967- 0 7Florida 1845 1907- 0 7Oregon 1859 1911-23, 1937- 0 3Statehood post-1880Wyoming 1890 1881-90, 1901- 10 23Arizona 1912 1888- 3 18Washington 1889 1890- 1 16South Dakota 1889 1893- 0 20North Dakota 1889 1895- 0 19Oklahoma 1907 1908- 0 6Idaho 1890 1919- 0 0Montana 1889 1919- 0 0New Mexico 1912 1927- 0 0Utah 1896 1931- 0 0Note gaps of less than a decade are not included in the Years operated columnbut are considered when calculating the No. of years operated.Source: See section A.1

51

Table Two: Industry development

Year Portland Natural Cement Portland Export Portland Naturalcement cement cement cement cement

mill. bbls mill. bbls intensity import share share price price1880 0.042 2.00 0.0010 0.820 n.a. 11.00 3.121890 0.340 7.44 0.0018 0.850 0.00 8.43 2.061902 17.200 8.00 0.0039 0.104 0.02 4.86 2.041913 92.100 0.75 0.0101 0.001 0.03 3.34 1.54Source: Section A.2 (includes definitions)

Table Three: Results of review of state geological surveys

Industry First development of the cement industry by stateType of report Never Industry developedin survey develops By 1889 1890-1899 post-1913No reference made LA,NH, CA(2),MN,WI,IN* NJ MS(2),NC(2)

VTReference made IN*,MI,MI*,MO(3)#, AR

OH*,PA(2)*,TN*,WIReference includes IN*,IA#,ME,MO#,test results OH** Cement production already occurring in the state by the time of the survey# Unknown if cement production already occurring

52

Table Four: Development of the US cement industry

Natural cement Portland cementState Year of Plants Number of sites developed

first in 1870- 1870- 1890- 1900-entry 1890 1998 1889 1899 1913

North EastMaine Null 0 2 1 0 0New York 1818 30 24 5 8 8New Jersey 1850C 0 4 0 2 2Pennsylvania 1826 6 37 5 6 17Maryland 1829 4 3 0 0 2West Virginia 1829 1 3 0 0 1Connecticut 1826 0Massachussets 1870C 0MidwestOhio 1846 2 17 2 4 5Kentucky 1829 2 1 0 0 1Indiana 1832 10 9 1 1 5Michigan 1866 0 21 1 3 13Illinois 1838 2 4 0 2 2SouthVirginia 1848 1 3 0 0 2Tennessee 1861 0 6 0 0 2North Carolina Null 0 1 0 0 0South Carolina Null 0 3 0 0 0Georgia 1850 1 4 0 0 3Florida 1898 0 7 0 0 0Alabama Null 0 7 0 0 3Mississippi Null 0 3 0 0 0CentralIowa Pre-1884 0 4 0 0 2Missouri Pre-1887 0 7 0 0 5Arkansas Null 0 3 0 1 0Texas 1880 1 19 1 0 5Oklahoma Null 0 5 0 0 2Kansas 1868 2 14 0 0 14Nebraska 1873 0 2 0 0 0South Dakota Null 0 2 0 1 0North Dakota 1901 0 1 0 1 0Minnesota 1883 1Wisconsin 1876 2Table continued over the page

53

Natural cement Portland cementState Year of Plants Number of sites developed

first in 1870- 1870- 1890- 1900-entry 1890 1998 1889 1899 1913

MountainMontana Null 0 3 0 0 1Wyoming Null 0 1 0 0 0Colorado 1882 0 6 1 0 3New Mexico Pre-1887 1 2 0 1 0Arizona Null 0 4 0 0 2Nevada Null 0 2 0 0 0Utah 1891 1 4 0 1 2Idaho Null 0 2 0 0 0PacificOregon Null 0 4 1 0 0Washington 1869 0 6 0 0 5California 1860 0 18 0 2 7Total 268 18 33 114Remote 47 1 3 4Exits 7 11 37C: First year recorded in Census of Manufacturers with no other reference in literature.Null: No known plants.

54

Table Five: State geological surveys and the natural cement industry

Event States in 1890 Share ofProducing Non-producing 1890 production

State geologicalsurvey(SGS)Entry beforeSGS

GA,IL,IN,KY CO,CT,FL, 85%

commenced NM,NY,PA,WV NE,UT,WA

Entry within 10years of SGS

KS,MD,OH CA,ND 6%

Entry more than10 years afterSGS commenc-ing

MN,TX,VA,WI MI,TN 9%

Entry unknown IA,MO 0CanalsEntry linked IL,IN,KY,MD, 87%to canals NY,PA,VA,WV

Entry aftercanals

OH CT 1%

With no linkNo canals KS,MN,GA CA,CO,FL,IA,MI 12%

NM,TX,WI MO,NE,ND,TN,UT,WA

Table Six: Characteristics of entrants

Characteristic 1870-1889 1890-1899 1900-1913Total entrants 19 36 118Portland cement - US* 3 6 27Natural cement 3 2 3Cement - overseas 1 0 2Other 8 11 14Unknown 4 17 72*:Includes ownership groups.

55

Table Seven: Definitions of the variables

Variable DescriptionUsed in state regressionsby89(13) Share of state total sites operated at by 1889 (1913)mkt90(10)* State market size in millions in 1890(1910)yrgs90(13) Years geological survey operated up to 1890(1913)ncem1890 Number of natural cement plants operating in 1890coast Dummy variable equals 1 if state exposed to import competitionstage90(13) Years since statehood or settlement (for 13 original states)urb90(10) Share of market in urban locations(1910)Used in capacity regressionCapacity Plant daily clinker capacity in barrelsmkt1910 Plant market size in millions in 1910urb1910 Share of state market in urban locations in 1910kscode Dummy variable equals 1 if plant in gas belt of Kansasmarl Dummy variable equals 1 if plant uses marl as raw materialpre1900 Dummy variable equals 1 if plant operated before 1900fmvdum Dummy variable equals 1 if plant first entrant in statesvfmvdum Dummy variable equals 1 if oldest operating plant in statesvrkpdr* Entry rank of operating plant by stategsyent* Years geological survey had operated up to entry date for plant*Squared versions of these variables are used as well

Table Eight: Development by state

Variables 1890 1913Dependant sby89 sby13Explanatory Coefficients Standard Explanatory Coefficients Standard

Errors Errorsmkt90 .032 .025 mkt10 .027∗∗∗ .01mkt90sq -.0002 .00016 mkt10sq -.0001∗∗∗ .00004yrgs90 -.05 .034 yrgs10 -.0022 .01ncem1890 .11∗∗ 0.05 ncem1890 .043 .032urb90 9.00∗∗ 3.68 urb10 2.46∗∗ 1.07coast .55 1.36 coast -.13 0.42stage90 -.004 0.011 stage13 -0.004 .004constant -6.50∗∗∗ 1.64 constant -1.24∗∗ .53sample 39 39Log likelihood -56.73 -158.49SL:1%∗∗∗, 5%∗∗, 10%∗

56

Table Nine: Capacity of plants operating in 1909

Daily capacity Number of plantsCapacity>6000 6Capacity=6000 4Capacity=5000 64000≤Capacity<5000 83000≤Capacity<4000 162000≤Capacity<3000 231000≤Capacity<2000 35Capacity<1000 11Total 109

Table Ten: Plant capacity in 1909

Dependant cap1909Explanatory Coefficients Standard Coefficients Standard Coefficients Standard

Errors Errors Errorsmkt1910 52.22 65.86 69.44 65.34 61.24 63.82gsyent 139.14∗∗ 67.44 118.49∗ 64.99 126.33∗∗ 63.58gsysq -1.81∗∗ 0.91 -1.56∗ 0.88 -1.66∗ 0.87svrkpdr -207.11 219.23 -336.52 243.05 -253.86 203.51svrksq 5.10 9.83 10.50 10.75 7.05 9.22fmvdum 586.73 1001.57svfmvdum -590.98 942.97kscode 1164.80 1131.39 953.00 1138.31 1076.71 1117.63marl -1741.96∗∗ 821.57 -1774.35∗∗ 820.53 -1765.19∗∗ 817.88pre1900 369.01 827.75 335.37 823.75 320.65 820.87urb1910 2652.15 2837.89 1838.96 2879.69 2314.35 2769.46constant -364.70 1600.25 894.63 1689.61 200.64 1272.26sample 109 109 109F-Statistic 1.82∗ 1.82∗ 1.99∗∗

Adjusted R2 7.04 7.09 7.66SL:1%∗∗∗, 5%∗∗, 10%∗

57

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