H AVING AN I DEA , S TARTING A F IRM, AND G ETTING A L OAN
The Industrial Revolution started in England. Its first
success was to revolutionize the production of cotton cloth
using new machines powered by water wheels and later by
steam engines. Mechanization of cotton production
massively increased the productivity of workers in, first,
textiles and, subsequently, other industries. The engine of
technological breakthroughs throughout the economy was
innovation, spearheaded by new entrepreneurs and
businessmen eager to apply their new ideas. This initial
flowering soon spread across the North Atlantic to the
United States. People saw the great economic
opportunities available in adopting the new technologies
developed in England. They were also inspired to develop
their own inventions.
We can try to understand the nature of these inventions
by looking at who was granted patents. The patent system,
which protects property rights in ideas, was systematized in
the Statute of Monopolies legislated by the English
Parliament in 1623, partially as an attempt to stop the king
from arbitrarily granting “letters patent” to whomever he
wanted—effectively granting exclusive rights to undertake
certain activities or businesses. The striking thing about the
evidence on patenting in the United States is that people
who were granted patents came from all sorts of
backgrounds and all walks of life, not just the rich and the
elite. Many made fortunes based on their patents. Take
Thomas Edison, the inventor of the phonogram and the
lightbulb and the founder of General Electric, still one of the
world’s largest companies. Edison was the last of seven
children. His father, Samuel Edison, followed many
occupations, from splitting shingles for roofs to tailoring to
keeping a tavern. Thomas had little formal schooling but
was homeschooled by his mother.
Between 1820 and 1845, only 19 percent of patentees in
the United States had parents who were professionals or
were from recognizable major landowning families. During
the same period, 40 percent of those who took out patents
had only primary schooling or less, just like Edison.
Moreover, they often exploited their patent by starting a
firm, again like Edison. Just as the United States in the