Don't Fear the (McCormick) Reaper

I too have fallen under the spell of the reaper's song. Links below.
From The Conversable Economist:

Don't Fear the (McCormick) Reaper

The McCormick reaper is one of the primary labor-saving inventions of the early 19th century, and at a time when many people are expressing concerns about how modern machines are going to make large numbers of workers obsolete, it's a story with some lessons worth remembering. Karl Rhodes tells the story of the arguments over who invented the reaper and the wars over patent rights in  "Reaping the Benefits of the Reaper," which appears in the Econ Focus magazine published by the Federal Reserve Bank of Richmond (Third/Fourth Quarter 2016, pp. 27-30). Here, I'll lay out some of the lessons which caught my eye, which in places will sound similar to modern issues concerning innovation and intellectual property.

The reaper was important, but it didn't win the Civil War
The reaper was a horse-drawn contraption for harvesting wheat and other grains. Rhodes quotes the historian William Hutchinson who wrote: "Of all the inventions during the first half of the nineteenth century which revolutionized agriculture, the reaper was probably the most important," because it removed the bottleneck of needing to hire lots of extra workers at harvest time, and thus allowed a farmer "to reap as much as he could sow."

But somewhere along the way, I had imbibed a larger myth, that the labor saving properties of the reaper helped the North to with the Civil War by allowing young men who would otherwise have been needed for the harvest to become soldiers. However, Daniel Peter Ott in a 2014 PhD dissertation on " Producing a Past: Cyrus McCormick's Reaper from Heritage to History." Ott traces the claim that the reaper helped to win the Civil War back to some  promotional materials for the centennial celebration of the reaper in 1931 produced by International Harvester which included this statement:

"Secretary of War Stanton said: ‘The reaper is to the North what slavery is to the South. By taking the place of regiments of young men in western harvest fields, it released them to do battle for the Union at the front and at the same time kept up the supply of bread for the nation and the nation’s armies. Thus, without McCormick’s invention I feel the North could not win and the Union would have been dismembered.’"

Ott argues persuasively that this quotation is incorrect. Apparently, Edwin Stanton was a patent attorney before he became Secretary of War for President Lincoln, and he was arguing in court in 1861 that McCormick's reaper deserved an extension of his patent term. Ott quotes a 1905 biography of Edwin Stanton, written by Frank A. Flower, which included the following quotation attributed to an 1861 patent case, in which Stanton argued:

"The reaper is as important to the North as slavery to the South. It takes the place of the regiments of young men who have left the harvest fields to do battle for the Union, and thus enables the farmers to keep up the supply of bread for the nation and its armies. McCormick’s invention will aid materially to prevent the Union from dismemberment, and to grant his prayer herein is the smallest compensation the Government can make."

There doesn't seem to be any documentary evidence directly from the 1860s on what Stanton said. But it appears plausible that the he argued as a patent attorney in 1861 that the McCormick reaper deserved a patent because it could help to with the Civil War, and that comment was later transmuted by a corporate public relations department into a claim that Secretary of War Stanton credited the reaper with actually winning the Civil War.   

New innovations can bring conflict over intellectual property
Oded Hussey patented a reaper in 1833. Cyrus McCormick patented a reaper in 1834. By the early 1840s, Hussey had sold more reapers than McCormick. But the idea of a mechanical reaper had been in the air for some time. Joseph Gies offered some background in "The Great Reaper War," published in the Winter 1990 issue of Invention & Technology.  Gies wrote:

"In 1783 Britain’s Society for the Encouragement of Arts, Manufactures, and Commerce offered a gold medal for a practical reaper. The idea seemed simple: to use traction, via suitable gearing, to provide power to move some form of cutting mechanism. By 1831 several techniques had been explored, using a revolving reel of blades, as in a hand lawn mower; a rotating knifeedged disk, as in a modern power mower; and mechanical scissors. Robert McCormick had tried using revolving beaters to press the stalks against stationary knives. Cyrus McCormick and Obed Hussey both chose a toothed sickle bar that moved back and forth horizontally. Hussey’s machine was supported on two wheels, McCormick’s on a single broad main wheel, whose rotation imparted motion to the cutter bar. Wire fingers or guards in front of the blade helped hold the brittle stalks upright."

Hussey and McCormick then both argued in 1848 for their patent rights to be extended for a first time. By 1861, at the time patent attorney Stanton made his comments about the importance of the reaper, Hussey's patent rights had been extended for a third time, and McCormick wanted his patent rights extended, too....MORE

In the words of The Bruce Dickinson:

"I mean, really.. explore the space. I like what I'm hearing. roll it."

Way back in May of 'aught-seven we took the reaper as our hook for some posts on trading government policy:

Global Warming, Politics, Laws and Opportunity
Climateer Investing readers will be well served if they keep track of the various bills currently in Congress, or alternatively if they check in with CI from time to time (he said modestly).

We have entered the political (money) phase of the climate change discourse. So of course I am going to write about wheat.

I first became aware of just how much money can be made by paying attention to what the politicians are up to when I re-read the story of Cyrus McCormick and his Reaper twenty years ago. Most of what I knew of the story turned out to be wrong. On Monday evening I dug out my 1961 edition of "Historical Statistics of the United States" for some backround.

First off the reaper was probably invented by Cyrus' dad: The great demonstration of 1831 was done just six weeks after Robert McCormick's failed demonstration. Second, McCormick's version was not the first patented. Third, the invention was a commercial failure (at first).

There have been many reasons put forth to account for the eventual success of the machine. At a 1931 ceremony marking the centennial of the first test a former governor of Virginia said:

Rather jocularly speaking, he was possessed of a combination of qualities which have at all times proved invincible. He was a Virginian, he was a Democrat, and he was a Presbyterian; and so God blessed him with success because he deserved it.

Invented in 1831 and patented in 1834, McCormick didn't sell a single machine until 1840. The sales figures for the early years are debatable but these are the best I could put together:

1840------- 2
1841--------0
1842--------7
1843------ 29
1844------ 50
1845------ 58
1846------ 75
1847-----800

External factors played a part: Florida, Texas and Iowa were admitted to the Union in '45, '45 and '46 respectively.

Miles of railroad trackage, 2818 miles in 1840 increased to 4633 in 1845 and 9021 in 1850.
The nation's asset base grew e.g. life insurance in force went from $4.7mm (face) in 1840 to $97.1mm in 1850. The country was growing pretty fast.

On the corporate level, McCormick was a pioneer of installment sales.
The company moved to Chicago in 1847. Contrary to what this wonderfully illustrated 12 page history says:

It was not until 1847, when he built his own factory in Chicago, that he was able to sell a significant number of machines.

the salesmen's order books were filling up prior to the move.

This is getting to be a long post. I think I will serialize and show the opportunity created by laws and politics in the next posting....

Global Warming, Politics, Laws and Opportunity--Part II

To summarize part I (below) the McCormick family invented the reaper, sales in the first nine years were zero and in the next seven averaged 31 per year. They then exploded to 800 machines in 1847. What happened?

As reported by The Economist May 16, 1846, the British House of Commons had repealed the "Corn Laws", eliminating the tariff on imported wheat, the day before. Corn in this usage is not maize but rather is generic for grain. Prime Minister Peel won the battle but lost his premiership, the quote of the day was "Peel and repeal."

Some historians have argued that Peel's motive for this early example of free trade was the ongoing famine in Ireland, Peel himself had raised the issue in an earlier speech. This idea is patently false as Ireland's landlords continued to export food throughout the famine, with the dead Irish (est. 800,000 although some historians put the number at two million) being replaced by 977,000 head of cattle.

In his May 15, 1846 speech Peel said: "But let me say, altho it has not been brought prominently under consideration, that, without any reference to the case of Ireland, the working of the law, as far as Great Britain is concerned, during the present year has not been satisfactory."

According to "Historical Statistics of the United States:" wheat exports from the U.S. to the U.K. more than doubled from 1846 to 1847 and the McCormick family fortunes were assured....MORE

If you ar going to take this approach to investing, especially as my-little-crony direct investment rather than on a portfolio basis,  always, always, always heed the words of our first inductee into the Climateer Hall of Fame, the 26th Secretary of War, Democrat and Republican (!) Senator from Pennsylvania, Simon Cameron:

Our Hero

"The honest politician is one who when he is bought,
will stay bought."