External economies and inertia: The rise and decline of the Naugatuck Valley brass industry

Date of Completion

January 1997


History, United States|Economics, History




This dissertation explores two aspects of the division of labor--that is, specialization--among firms, namely, external economies and inertia. The Naugatuck Valley brass industry, which began in the early nineteenth century, and expired only in recent decades, illustrates these concepts. The history of this industry is investigated and analyzed from an evolutionary perspective.^ External economies, as I define them, result from the uncertainty of the division of labor among firms. When an entrepreneur elects to take on certain activities, then he must necessarily leave specific complementary activities for others. This follows because there are diminishing returns to extending one's capabilities. Other producers, or entrepreneurs, may in fact be more capable of carrying out certain activities; moreover, there are internal economies to be gained by limiting oneself to small range of the set of productive activities. This is especially true in localized industries, where the division of labor among firms evinces the nature of complementary businesses.^ External economies, however, do not last forever. When the firms in a localized industry draw their strength from external economies for many years, then the disappearance of such economies may spell ruin or hardship for the firms. This is because the firms have developed their core-capabilities to take advantage of external economies, which may no longer be forthcoming. Internal capabilities may overtake external capabilities in importance. These internal capabilities may be lacking in the firms in the localized industry, however, because the firms relied, from the start, on external capabilities. This is to say that the course of evolution is path-dependent. Inertia is the result. Firms fail to develop the necessary competencies.^ The Naugatuck Valley brass industry, which had its center in the Connecticut town of Waterbury, has often been overlooked by scholars. There are some accounts--William Lathrop's 1926 book, for example--and much of the history had to be reconstructed by tying together various articles, unpublished manuscripts, and archival sources. ^