Easy Credit


Cyrus McCormick’s mechanical reaper revolutionalized agriculture. McCormick’s reaper enabled one man to harvest the same amount of grain in one day as he could in two weeks by hand. Since grain goes bad when not timely harvested, the reaper enabled farmers to plant far larger crops with commensurate profits. Additionally, the reaper lowered the price of grain, enabling the booming US population to cost-effectively eat.

His company, McCormick & Odgen (the major of Chicago), grew at a fast pace. Eventually, McCormick bought out Odgen and the McCormick Reaper Company thrived.

However, McCormick faced one major problem; his patent was expiring. In 1848, McCormick entered into an epic showdown with Obed Hussey, who invented and patented a similar reaper before his. After heated litigation, the judge did a Solomon and declared both patents invalid. Countless reaper manufacturers started selling low-cost knockoffs.

In response, McCormick marketed heavily. One of his biggest challenges was a chicken-and-egg problem. Farmers using reapers will realize increased revenue and profit. But, with their smaller farms and crops, reapers were not affordable.

Easy Credit

In response, McCormick came up with a seldom-used strategic move: easy credit. Knowing that the reaper will increase revenue and profit, McCormick extended credit to virtually anybody who wanted a reaper. Since McCormick’s business was already profitable he could afford to do this. However, the myriad of me-too knockoff reaper companies did not have the capital to compete.

McCormick’s strategy was wildly successful. His business, later renamed International Harvester, went on to dominate the field for 150 years. Interestingly, in 1984, International Harvester sold the farming division after suffering enormous losses due to a months-long strike. The CEO responsible for the strike, Archie McCardell, is the same CEO who ignored the Xerox PARC inventions during his time as CEO of Xerox. The Board of Directors fired him the day after the strike finally settled. McCardell was also at the helm of Xerox when Japanese competitors took the bulk of the copier market.

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