Encyclopedia o f Chicago
Entries : Economic Geography
Economic Geography

Economic Geography

Elevator, Ships on Chicago River, c.1865
American cities grow or decline because of their roles in the national economy. The village of Chicago became the country's second largest city in 1889 because it captured many of the fastest-growing sectors of that economy. Businessmen and politicians enhanced Chicago's geographical position at the eastern edge of the nation's agricultural heartland, making it the center of multiple transportation networks. These supported wholesale trade and manufacturing which spurred the city's growth. Industry determined the physical development of the city itself, preempting space for zones of commerce and manufacturing and channeling the expansion of residential neighborhoods. During the twentieth century, new economic trends undermined Chicago's position; decentralization favored suburbs over cities, and the rise of the South and West created new centers of competition for the most dynamic sectors of the economy.

Chicago developed because its site was convenient for commerce. For hundreds of years, American Indians gathered each summer to trade where the Chicago River enters Lake Michigan. In 1673 the French explorer Louis Jolliet recognized Chicago's potential for wider trade: it sits on a low divide between the drainage areas of the Great Lakes and the Mississippi River, and only one large portage breaks an all-water route between Lake Michigan and the Gulf of Mexico via the Chicago, Des Plaines, Illinois, and Mississippi Rivers. During the rainy season, the “Chicago portage ” between the Chicago and Des Plaines Rivers could be traversed by canoe. Jolliet suggested cutting a canal across this portage to link the Gulf and French Canada, but French officials ignored him.

Treaty of Greenville (typescript), 1795
Chicago's first permanent resident, Jean Baptiste Point DuSable, settled near the mouth of the Chicago River in the late 1780s to take advantage of this geography to trade with the Indians. In 1795 the new United States government also recognized the site's potential and acquired a piece of land, six miles square around the mouth of the river, by treaty with the Indians. Fort Dearborn, erected in 1803, secured the site for Americans. Trading eastern manufactured goods for furs established a base for Chicago's economy, consistent with DuSable's more limited enterprise. After 1819 the American Fur Company, headed by John Jacob Astor in New York, monopolized the fur trade of Chicago and the Great Lakes region. From this point, Chicago's economy was tied to national and international markets and financing. By the late 1820s, overhunting depopulated the game of Illinois, and the American Fur Company left Chicago for points farther west. Rather than wither, however, the village of fewer than a hundred residents began its rapid expansion as others saw new opportunities in the site.

National business and political leaders created the conditions for the rise of Chicago in order to develop the country's western territories. When New York's Erie Canal connected the Great Lakes to the Atlantic Ocean in 1825, they searched for a port at the western end of the lakes to serve the potential trade with new settlers. Eastern businessmen and Illinois politicians revived Jolliet's vision to connect the lakes to the Mississippi through Chicago, and, in 1829, state legislators began planning the Illinois & Michigan Canal.

For easterners to settle northern Illinois, however, the Indians had to be dispossessed. In 1833 the federal government pressured the united Potawatomi, Chippewa, and Ottawa nations to cede all their lands east of the Mississippi River, opening the path for easterners to seek their fortunes in northern Illinois.

Plan for Mouth of Chicago River, 1830
Chicago had no natural harbor, but the sandbar at the mouth of the Chicago River created a sheltered spot for boats. The river became a federal harbor in 1834, when government aid for cutting a channel across the bar, constructing piers, and dredging made the river into the port of Chicago. The state authorized construction of a canal in 1836, and bonds sold well to eastern capitalists. From the mid-1830s, Chicago developed as a transfer point—shipping Midwestern agricultural products to New York and eastern manufactured goods to farmers on the plains.

Letter from Dixwell Lathrop, 1835
While many people came to Chicago to engage in this trade, others came because they believed a city would develop around the port. Real-estate speculation fueled town development in nineteenth-century America and was an important avenue to wealth. Speculation in Chicago real estate boomed in 1835 in anticipation of the construction of the canal. Several thousand people, including many New Yorkers, migrated to the city. William B. Ogden, Chicago's first mayor, came to oversee a relative's real-estate investments and bolstered their value by developing transportation facilities. He promoted the first swing bridge to span the Chicago River and link the North and South Sides of the city. In 1836 he helped found Chicago's first railroad, the Galena & Chicago Union, to connect the port to the lead mining center on the Mississippi.

Lumber District, 1886
Although most Chicagoans were involved in trade or real-estate speculation, some established factories to process the farm produce and natural resources that were shipped to the city. In 1829, Archibald Clybourne began meatpacking, and a lumber mill settled near his factory on the North Branch of the Chicago River. The city's first manufacturing district developed there, with the river providing transportation and waste disposal.

The national economic depression of 1837 halted work on the canal and the railroad. Trade atrophied, and Chicago land values plummeted. In 1840, Chicago was a small city of more than four thousand people, with the outline of the transportation network that would make it the center of wholesale trade in the west. Once the national economy revived in the mid-1840s, Chicago's potential came to fruition.

Midwest Stock Exchange, 1940
1848 was a key year for the city—the canal was completed, the first railroad opened, the telegraph reached town, and the Chicago Board of Trade was founded. The canal facilitated trade in bulky goods, not only farm produce but also coal from southern Illinois to fuel the city's homes and industries. Initial plans called for a deep-cut canal to allow boats to pass directly from the lake to the river system, but lack of funds led supporters to settle for a narrow, shallow one. This reinforced Chicago's position as a transfer point where goods were switched from lake boats to barges. Traffic on the canal peaked in 1882. In the long run, Chicago's development as a rail hub was more important for its dominance in wholesaling.

Private companies built railroads radiating out from Chicago in all directions to tap the farms of the Midwest. By 1856, 10 trunk railroads ended in Chicago, making the city a breakpoint for railroad traffic as well as waterborne trade. Tracks paralleled the river and canal to facilitate transfers of goods between railroad cars, canal barges, and lake ships. The wholesale traders set up along the river on South Water Street to direct this commerce. By 1854, Chicago claimed title as the greatest primary grain port in the world, and the grain elevators lining the river dominated the skyline. The grain trade grew rapidly as a national speculative futures market developed. The telegraph made such a market technologically feasible, but the Chicago Board of Trade made it a reality. It created standards and measures such as grades of wheat along with an elevator inspection system, giving eastern capitalists enough confidence to invest in grain sight unseen. The lumber trade also boomed, as lumber from the Midwestern woods was shipped by boat across the lake to be milled in the city. A huge lumber district, with sawmills and extensive storage yards, developed on the Chicago River's South Branch. After milling, the lumber was shipped by rail mostly to the west to build farmhouses, barns, and fences.

Chicago merchants combined wholesale and retail operations; they sent dry goods to small stores throughout the Midwest and kept stores in the city center for travelers and residents alike. The large retailers congregated on Lake Street, and Chicago's department stores developed as these establishments enlarged and diversified. The downtown rose around the wholesalers and retailers with hotels, restaurants, saloons, and less reputable businesses to service traveling men and conventioneers.

Although the wholesale trade was the most important element in Chicago's economy until the 1870s, industries for processing agricultural and raw materials also developed. Pork—salted, pickled, and otherwise preserved—was the primary product manufactured for easterners. At the same time, Chicago businessmen saw the potential of producing goods for farmers in Chicago rather than acting as middlemen for eastern manufacturers. In 1847 Cyrus H. McCormick opened his reaper works and initiated one of the city's most important industries— agricultural machinery.

Grain Elevator, Calumet River, 1948
The Civil War extended the advantages conferred by geography and human initiative. St. Louis, an older and larger city, was Chicago's rival for the western trade. Chicago's railroad network was making the city more attractive to shippers, but Union forces delivered the decisive blow to St. Louis when they closed the Mississippi River during the war. Trade that shifted to Chicago did not return to St. Louis after the war.

Contracts for supplies for the Union forces also stimulated Chicago enterprise, especially among the meatpackers. The packing plants, scattered around the city, had always been a nuisance because they created pollution. Now huge numbers of animals driven through the streets caused total congestion. Chicagoans wanted the plants moved, and the packers needed more space for pens and better access to railroads to minimize production delays. Chicago's first planned manufacturing district—the Union Stock Yard —opened in 1865 to solve these problems. The packers and the railroads chose a site just outside the city limits at 39th Street and Halsted Street. With access to the canal and major railroads, it was the prototype of future industrial developments that would move to the edge of the city in search of space and better transportation.

By the end of the Civil War, Chicago was poised to build on its dominance of Midwestern trade and its manufacturing base. Growth came quickly, as the completion of the transcontinental railroad enabled the vast expansion of Chicago's potential market. Federal subsidies underwrote this rapid development, in the form of land grants to railroads laying new track. Once again the joint efforts of politicians and businessmen secured Chicago's future. As the eastern terminus of important western railroads and the western terminus of eastern railroads, Chicago remained the central transfer point for people and freight. In the next decades, railroad building devoured more of Chicago's physical space, and rights-of-way guided the siting of industry and residences.

The Great Fire of 1871 decimated the center of the city, but it did not slow development. It spared most of the outlying areas, including the manufacturing district, the lumber district, the Union Stock Yard, the grain elevators, and the railroad freight terminals. This infrastructure supported the rapid rebuilding of the central business district and residential neighborhoods because it gave eastern investors who financed reconstruction confidence that the city would recover and investors would profit.

Bird's Eye: Stock Yard, 1866
From 1870 to 1920 Chicago was “the metropolis of the west,” the hub of transcontinental trade and the most dynamic center of manufacturing for the new national market. In the 1870s Gustavus Swift financed the development of the railroad refrigerator car, enabling meat butchered in Chicago to be shipped fresh to the East. He established sales offices and refrigerated warehouses in eastern cities and launched a national advertising campaign to overcome consumer fears about meat that was not butchered locally. Other newcomers to the city, like Philip D. Armour, followed his lead, until Chicago's “Big Five” packing companies controlled the nation's meatpacking industry. By 1900 these companies were expanding internationally, both exporting Chicago products and opening subsidiary plants abroad.

As production at the stockyards increased, the residential neighborhoods around the factories grew polluted and congested. The slums of Packingtown were peopled by poor workers, primarily immigrants from Central and Eastern Europe who struggled to support their families and sustain their cultural traditions. Large working-class neighborhoods characterized by industrial pollution, congestion, poverty, and cultural diversity developed wherever industry located.

Map of the Union Stock Yard, 1891
By 1890 Chicago had a population of more than one million people and had surpassed Philadelphia to become the second-largest city in the nation and the second-largest manufacturing center. The diversity as well as the size of its industries spurred this development. Manufacturing based on the trade in agricultural commodities, like brewing and baking, flourished. The furniture industry developed from the lumber trade; it prospered even after the woods of the northern Midwest had been decimated and the lumber trade declined in 1880s. Established industries like agricultural machinery also expanded as other manufacturers followed McCormick to Chicago. The creation of International Harvester from these companies in 1902 capped Chicago's leading position in this industry.

New industries such as iron and steel production also pushed Chicago ahead of other cities. The North Chicago Rolling Mill produced the city's first steel rails in 1865 but soon relocated to South Chicago. This move signaled not only its need for more space but also a new factor in the city's economic geography. The transcontinental railroads skirted the bottom of Lake Michigan, and production costs were minimized for manufacturers who obtained access to both lake boats and railroads by locating there. The new steel plant, which later became the United States Steel South Works, anchored the north end of the vast iron-and-steel-producing district that developed along the lake from South Chicago to Gary, Indiana. Like the stockyards, it attracted workers, especially immigrants from Eastern and Southern Europe, and created new neighborhoods on the fringes of the city.

Ships in Calumet Harbor, c.1973
Industries that used iron and steel, including those that manufactured machinery, machine tools, and railroad cars and equipment, also developed, most frequently near the steelmaking district. George Pullman, who manufactured railcars, saw the potential of the area around Lake Calumet; major railroads ran nearby and the lake provided an inland harbor accessible to Lake Michigan by the Calumet River. He built the town of Pullman on the western edge of the lake in 1881 to house his workers and a new factory. Unlike most of Chicago's manufacturing districts, Pullman's model town was neither polluted nor congested. It became a tourist attraction—a vision of what people wished the city would be. No other manufacturers followed Pullman's lead in building decent neighborhoods, although others followed him to the Calumet region. In 1889 and 1893 Chicago annexed all these suburban districts as well as extensive territory to the north, more than trebling its area.

Garment Industry Sweatshop, 1905
Although the combination of space and transportation drew some industries to the edges of the city, many still found the resources of the old central city more useful. Garment manufacturing was one of Chicago's most important industries, and Chicago led the nation in the production of men's clothing thanks to firms such as Hart, Schaffner, & Marx. Garment makers settled in lofts west of the downtown near Chicago's poorest neighborhoods, because the cheap labor of women and children was their most important requirement.

Perhaps the most important resource of the central city was the concentration of modes of communication. Chicago's printing and publishing industry, second only to New York's, developed with companies such as R. R. Donnelley & Sons, which located near the downtown because of the demand for business information and the proliferation of commercial journals. Chicago businessmen who pioneered and came to dominate a new form of trade— mail-order houses—also utilized this concentration. Montgomery Ward was first in the field, but Sears, Roebuck & Co. became even larger. This revolution in retailing used printed catalogs to reach out to individual customers in rural areas and created white-collar “factories” in the center city—office buildings full of clerical workers who processed orders that arrived by mail and filled them from huge warehouses situated on the river and the railroads.

Children's Day at Marshall Field's, 1903
The continuing vitality of the old core was most apparent in the central business district, known as the Loop after 1882 when it was encircled by a cable car line. Chicago banks had expanded quickly after the Civil War; the city ranked second nationally in banking, manufacturing, wholesaling, and population by the end of the century. Large banks now joined the Board of Trade and the Stock Exchange to make LaSalle Street Chicago's financial center. The concentration of public transportation on the Loop enhanced its retail potential too, as middle- and upper-class shoppers enjoyed easy access from outlying residential neighborhoods. The department stores moved from Lake Street to State Street when Potter Palmer developed the latter as a fashionable street in the late 1860s. Stores such as Marshall Field's and Carson Pirie Scott reached a new level of elegance, appealing to the prosperous clientele created by the city's expanding economy as well as to the growing tourist trade. To serve the tourist trade, the Loop provided hospitality and entertainment for every taste—from the elegant Palmer House to the cheapest transient hotels, and from the best theaters to the infamous Levee, Chicago's vice district. Tourism hit a peak in 1893, when Chicagoans hosted the World's Columbian Exposition.

The growing demand for office space in the Loop led upward because of the constricted area. The skyscrapers of Chicago became the symbol of business success and set the architectural fashion for central business districts throughout the country. The Loop's clerical and managerial workers used public transportation to commute to a variety of residential neighborhoods. Districts of boardinghouses and apartments for those without children and middle-class housing for families sprang up in a ring around the inner areas. Construction was the city's largest employer and real-estate speculation was still a major avenue to wealth. Some contractors, such as S. E. Gross, built large developments of single-family houses, comparable in scale to more recent subdivisions.

To maintain their economic prominence, Chicagoans sponsored more transportation improvements, like the Chicago Sanitary and Ship Canal, built in the 1890s to replace the obsolete Illinois & Michigan Canal. Like comparable projects, it boosted industrial development outside the city limits. The Chicago Outer Belt Line Railroad, completed in 1887, facilitated freight traffic and spurred manufacturing in Chicago Heights, Aurora, Joliet, and Elgin. Although outlying areas had always attracted industry, the implications for Chicago changed in the twentieth century. When the city limits reached already established communities such as Oak Park and Evanston, Chicagoans found the path to expansion blocked. After 1900, outlying communities resisted annexation to Chicago, and the metropolitan area developed as an integral economic unit without political control or social unity. The limits on Chicago's development were set.

After 1920, the suburbs grew faster than the city. New transportation, the car and the truck, encouraged the suburbanization of people and industries and reversed the century-old pattern of increasing concentration. Railroads spurred suburban development, but always along their rights-of-way. Cars and trucks allowed industries and people to disperse throughout the area. This provided the large tracts necessary for the single-floor factories that utilized continuous-flow automated technologies.

As deconcentration increased, however, the metropolitan economy also experienced new competition. Detroit monopolized the most important new industry of the early twentieth century— automobiles. Even more significant were long-term shifts in regional development; the Midwest stagnated as the West and the South boomed. After 1920, cities in the Sunbelt enjoyed the advantages in location and transportation that previously had stimulated Midwestern economic growth. Chicago businesses reeled during the Great Depression of the 1930s and then boomed because of World War II defense contracts, but the regional shift determined the long-term trend in economic growth and hence in population, and in 1990 Los Angeles surpassed Chicago as the second city in population and wholesaling.

Chicago's economy did not fall behind for lack of leadership or innovation. Businessmen and politicians fostered transportation improvements such as the Mississippi-Illinois Waterway to accommodate modern barge traffic. Chicago port facilities modernized, although, like many economic functions, they did so by moving out of the center of the city. After the Cal-Sag Channel between Calumet Harbor and the Illinois River opened in 1922, Calumet Harbor replaced the Chicago River as the city's port. Chicagoans also embraced new technologies and developed Midway Airport in the 1920s, making Chicago the breakpoint for cross-country air traffic as it was for water and rail. The country's largest airline, United, headquartered in Chicago. To maintain the country's busiest airport after World War II, Chicagoans developed the larger, more modern O'Hare.

Chicago in Industrial America, 1952
The building of the interstate highway system in the 1950s and 1960s helped the area's economy initially, because the first expressways paralleled existing forms of transportation and reinforced older metropolitan areas. Transcontinental bus lines routed through Chicago, and the largest company, Greyhound, established its headquarters in the city. The Chicago area also became the country's leading trucking center. The interstate system intensified the attraction of suburban locations for industries, however, especially south of the city, where the major east-west and north-south routes met.

Between 1920 and 1970, the Chicago area retained most of its traditional industries. In 1954, it even surpassed Pittsburgh, the old leader, in iron and steel manufacturing, producing one-quarter of the nation's output. Production remained high in machinery, primary metals, printing and publishing, chemicals, food processing, and fabricated metals. The consumer electronics industry expanded greatly, as firms such as Motorola, Zenith, and Admiral captured a significant share of the market for radios and televisions. The first big loss, however, was meatpacking. The industry had been decentralizing since the turn of the century, as Chicago companies shifted to multiple plant locations in western cities, closer to the feed lots. The Chicago stockyards closed in the 1960s.

Although the area's industrial economy remained strong, the city's did not. Companies closed aging factories in the city and shifted work to new suburban plants. The McCormick Reaper Works was demolished in 1961; production was taken over by a new plant south of Hinsdale. Many new industries, such as Sara Lee's frozen foods, began in the suburbs. As jobs became more plentiful outside the city, people migrating to the Chicago area often settled in the suburbs, bypassing the city entirely. This was only true, however, if the migrants were white; because of discrimination, African Americans were restricted to the city. Out migration accelerated after 1950, when the city's population peaked at 3.6 million people. White people followed the jobs, as Chicago's share of the area's manufacturing dropped from 71 percent to 54 percent between 1947 and 1961.

Woodfield Mall Interior, 1973
The history of the Loop reflected both the struggle to remain competitive and the process of deconcentration. Financial institutions stayed on LaSalle Street, though not all retained their dynamism. The Chicago Board of Trade stayed on top of the national futures market by creating innovative contract markets in new fields such as financial instruments. Chicago banks, however, serviced the Midwest, and they grew slowly, in step with the sluggish regional economy. Beginning in the 1950s, many corporations moved their headquarters out of the skyscrapers to suburban “campuses.” Headquarters thrive on quick access to air transport, and O'Hare drew them out of the Loop to the northwest suburbs. Most notable was Sears, which left after trumpeting its success by building the world's tallest skyscraper. The Loop's tenuous economic situation is reflected in the building booms and busts since World War II, which left some of the world's most innovative skyscrapers often half empty.

The Loop's retail functions also ebbed. Marshall Field's and other Loop department stores opened their first branches in the suburbs in the 1920s. City officials replaced the cluttered and decaying South Water Street with Wacker Drive in the 1920s, but new building in the Loop virtually ceased for decades while North Michigan Avenue became the Magnificent Mile. Suburban competition became intense in the 1950s with the opening of shopping malls. Loop retail trade declined, but the Loop continued to attract conventioneers after the construction of McCormick Place Convention Center. Loop Hotels, theaters, and museums drew tourists to the lakefront of the central city.

St. Lawrence Seaway, 1959
Since 1970, the character of Chicago's metropolitan economy has been transformed; both manufacturing and wholesaling play a lesser role than in the past. Chicagoans hoped to gain international commerce with the opening of the St. Lawrence Seaway, but the ocean-going trade was not as successful as projected. Furthermore, foreign competition undercut many manufacturing companies. Older plants in Chicago closed first; newer ones in the suburbs followed. Some corporations, even giants such as International Harvester, failed. Both central city and suburbs suffered, as the area lost almost all railcar and agricultural machinery production and most of its consumer electronics industry. The steel industry declined precipitously but has since rebounded; at the end of the century it employed, however, only one-third as many workers as it did in the 1970s. A high-tech corridor has developed in the western suburbs, but most of the new industries are centered elsewhere.

The service sector is the source of most new growth for the metropolitan economy. The old central city is almost totally dependent on business services and tourism for its vitality. Where the river empties into the lake, a ferris wheel replaces the grain elevator as a symbol of what makes the city great. The diversity of the area's economy remains a strength, but its future, like its past, will depend on national and international economic trends. Chicago was geographically well situated to become the capital of the Midwest. It retains this position, but the old dream of dominating the continent has died.

Cronon, William. Nature's Metropolis: Chicago and the Great West. 1991.
Marsh, Barbara. A Corporate Tragedy: The Agony of International Harvester Company. 1985.
Mayer, Harold M., and Richard C. Wade. Chicago: Growth of a Metropolis. 1969.