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Wall Street History
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04/08/2005
America's Economic Power, Part IV
The last few weeks we’ve been exploring the origins of
America’s economic power and, using John Steele Gordon’s
book “An Empire of Wealth” as our guide, about now I would be
looking into the importance of cotton and Eli Whitney. But it
just so happens four years ago I did a series on both and it
made sense to revisit these pieces, incorporating some of
Gordon’s own thoughts into the material, including the following
broad analysis.
“Nowhere is John Donne’s dictum that we are all a part of the
continent more true than in the world economy. It is built, by
definition, upon an endless exchange of goods between
individuals, industries, and nations, the most intricate net in the
human universe. When a change happens anywhere in that
economy, that change ripples through the whole. And when two
separate developments happen to interact in a major way, it can
produce an economic synergy that is both great and terrible.
“No better example of this can be found than in what happened
when a young New Englander’s simple, bright idea to help
depressed southern agriculture interacted with the aborning
Industrial Revolution in the Midlands of faraway England.
Besides producing the most successful cash crop in American
history, it also revived the rapidly decaying institution of
bondage labor, and nearly destroyed the United States.”
Until the end of the 18th century, the human race wore miserable
clothing. We had garments that were difficult to wash, thus
they, and we, were filthy. Cotton was different. It was easy to
clean, could be worn next to the skin and, in warmer climes, it
was the primary garment, while in colder countries it was still
worn next to the skin.
But to produce a pound of cotton thread it took about 12-14 man
days. Compare this to other textiles at the time; six for silk, 2-5
for linen and 1-2 for wool. It was only a matter of time before
the clever people, who make life easier for those of us who
aren''t, came up with some solutions to make cotton more viable.
In the Britain of the late 18th century, a number of inventions
were spawned. First you had the Hargreaves spinning jenny
(1764), then the Arkwright “water frame” (1769), and Samuel
Crompton’s spinning mule (1779). Arkwright’s invention was a
water-powered machine that twisted carded cotton into thread,
while the spinning mule did the work of 200 spinners. Whereas
in 1765 half a million pounds of cotton had been spun in
England, all of it by hand, by 1784 the total was 12 million, all
by machine. And in 1785 the Boulton & Watt steam engine was
introduced to power these contraptions. Some label this last
development the first Big Bang of the Industrial Revolution.
[As an aside it’s interesting to note that Britain carefully guarded
the secrets of the inventions; forbidding the export or
descriptions of them while preventing the departure of informed
mechanics. Compare that to today and our porous borders for all
things technical.]
The first American cotton bale arrived in Liverpool in 1784 and
soon thereafter Eli Whitney transformed the industry.
Whitney was born in 1765 on a farm in Massachusetts. Back
then you had to pretty much produce what you needed in the way
of crude implements, shoes, and clothing, but it was in the little
workshops where the spirit of invention often flourished. As a
boy Eli Whitney was an inventive sort, setting up a forge to make
nails for his father.
Whitney worked his way through Yale as an engineer and upon
his graduation in 1792 he headed down to South Carolina where
he was to take a job as a tutor. On the way he decided to visit
fellow grad Phineas Miller, overseer of Mulberry Hill near
Savannah, Georgia. The plantation was owned by Mrs. Nathaniel
Greene, widow of the Revolutionary War hero.
By the mid-1780s in coastal Georgia and South Carolina, a long-
fiber “Sea Island cotton” was being grown commercially that
could easily be separated from its shiny black seeds by squeezing
it through rollers. But this particular kind of cotton had little
chance of making it in the soil and climate found elsewhere in
the South. The green seed in these other regions clung to the lint
so that the rollers crushed it and spoiled the fiber. One person
could barely separate a pound by hand over the course of a day.
So with this as background, upon Eli’s arrival Catharine Greene
noticed that he had quite an aptitude for all things mechanical
and she suggested he devise a mechanism for removing the seed
from the cotton. He did so in 10 days. Historian Paul Johnson
relates how Whitney was able to do it.
“Watching a cat claw a chicken and end up with clawfuls of
mere feathers, he produced a solid wooden cylinder with
headless nails and a grid to keep out the seeds, while the lint was
pulled through by spikes, a revolving brush cleaning them. The
supreme virtue of this simple but brilliant idea was that the
machine was so cheap to make and easy to operate.”
Whitney’s invention, the “cotton gin” (‘gin’ being short for
engine) was unfortunately “absurdly simple.” A simple
description was all any skilled worker needed to rip it off and by
the time a patent was secured (1794) a number of copies were
already in use. [Phineas Miller was a party to the patent as well.]
Whitney ended up earning no more than $100,000, mere peanuts,
for an invention that would help change the course of history.
And the invention of the cotton gin was not a good thing for
those who would become slaves. One working on a plantation
using the gadget could produce 50 pounds of cotton a day instead
of one.
But Whitney wasn’t finished. A driven, Puritan type, he was a
lifelong bachelor interested only in his job. Eli lived in a simple
farmhouse with a few workshops near New Haven, Connecticut.
He always seemed to be short of money and Congress denied his
attempt to renew his patent.
[It got so bad that during the War of 1812 he directly petitioned
President Madison for funds, though earlier he had received
money from various states, including South Carolina which gave
Whitney $50,000 to cover patent infringements.]
In 1798 Eli built a firearms factory and it was during this phase
that he came up with the “American System,” the theory behind
mass production. Whitney grasped “that the way to produce
machinery or products in vast quantities at low prices was to
achieve interchangeability of parts, uniformity, standardization,
on a scale never before imagined.” [Paul Johnson] Whitney was
creating some of the first machine tools.
Interestingly, the British and French scoffed at his ideas because
it took away the craftsman’s “individuality.” But labor costs
were so high it was often unfeasible to keep a craftsman on the
books. Whitney was looking for a process whereby marginally
skilled men could be easily trained and his work pool ended up
being a largely immigrant one. It would take decades before the
superior Europeans (ahem) understood that America’s labor-
saving machinery was far better than anything they had.
Back to cotton, unfortunately the labor used to harvest the cotton
crop was of a slave nature and it’s because of this that cotton
played a paramount role in the genesis of the American Civil
War. John Steele Gordon notes:
“After 1793 the price of a slave ratcheted upward. A slave who
would have sold for $300 before the cotton gin was selling for
$2,000 and more by 1860. The slave holders, possessed of an
increasingly valuable asset, were less and less inclined to part
with what became, in the early decades of the nineteenth century,
an enormous capital investment. Even the parts of the South
outside the cotton-growing area became deeply involved
economically with continuing what came to be called the South’s
‘peculiar institution.’ As tobacco became less and less important
to the economy of such states as Virginia and Maryland, they
began selling their surplus slaves to the new cotton states.
Between 1790 and 1860, some 835,000 slaves were ‘sold
south.’”
By the early 1800s, Europe, particularly Britain, had a ravenous
appetite for cotton and the American South was far and away the
leading exporter. In 1810 the South was supplying Britain with
48% of its needs. By 1830 that percentage would rise to 70%
and hold that level up to 1860.
At the end of the War of 1812 annual cotton production in the
South was less than 150,000 bales. By 1860 that total would
rise to 3.8 million (almost two billion pounds). Not only was
cotton America’s largest export (as it would remain until the
1930s), it was also the biggest single source of the country’s
growing wealth.
With improvements in harvesting techniques the price of cotton
yarn fell drastically to the benefit of all. Historian Paul Johnson
notes that by the early 1860s the price of cotton cloth was about
one percent of what it had been in 1784.
“There is no instance in world history of the price of a product in
potentially universal demand coming down so fast. As a result,
hundreds of millions of people, all over the world, were able to
dress comfortably and cleanly at last.”
But, again, there was a price and it was the slaves who paid it.
Ironically, were it not for cotton various religious movements
across the land may have swept the slave practice away. Cotton,
instead, turned slaveholding into a powerful political force.
And cotton also played a leading role in some of the financial
disasters that plagued America in the first half of the 19th
century, particularly the Panics of 1819 and 1837.
Regarding the former, the source of the turmoil was a sudden
collapse in cotton prices in the English market. In 1818
American cotton had temporarily soared to 32.5 cents a pound.
The high price forced British textile manufacturers to turn away
from this source and look to cheaper ones from the East Indies,
so that by 1819 the price had fallen to 14 cents.
The Panic of 1837 was the result of declining British demand for
cotton, mostly due to existing stockpiles, which set off bank runs
in the U.S. Then in 1839 a bumper cotton crop led to a new
collapse in prices, setting off a depression.
[The price subsequently fell to, and remained below, 10 cents a
pound through most of the 1840s and into the 1850s, when it
finally poked back above that level in 1855, reaching 15 cents in
1857.]
By 1850 in America, the slave states comprised 42% of the
population but only 18% of the manufacturing capacity. And
the vast majority of new immigration was finding its way to the
North. As for cotton, 70% was exported, 5% stayed in the South
and the other 25% went to northern mills; where the value added
by manufacturers equaled the price that raw cotton brought the
South, which in turn imported two-thirds of its clothing and other
manufactured goods from the North or abroad. And a final hook
was that the very ships that carried cotton from the South and
returned with manufactured goods were almost exclusively
owned by northern or British companies.
Nonetheless, with cotton prices firming after the plunge of the
late 1830s / 1840s, and with bumper crops, many planters began
to think twice about secession as the movement gained ground.
But there was still this issue of manufacturing capacity. The
rallying cry in the South became “Bring the spindles to the
cotton.” Wrote one newspaper of the time, addressing the slave
issue, “Why should all our cotton make so long a journey to the
North, to be manufactured there, and come back to us at so high
a price? It is because all spare cash is sunk here in purchasing
Negroes.” Because of slavery, a cotton plantation could be laid
out and in full production in two years and it was even possible
to harvest a crop in one year.
In the census report of 1860 the government said, “The growth
of the culture and manufacture of cotton in the U.S. constitutes
the most striking feature of the industrial history of the last 50
years.”
By 1860, while the image of the South’s economy was still poor
the average per capita income of $103 was good, about the same
as Switzerland and exceeded only by the North, Great Britain,
and Australia. And as the secessionist cries picked up in the slave
states it was South Carolina Senator James Hammond who
proclaimed, “You dare not make war upon our cotton. No power
on earth dares make war on it. Cotton is King.” King Cotton.
A Vicksburg newspaper editorialized in 1860, “(The South),
safely entrenched behind her cotton bags, can defy the world –
for the civilized world depends on the cotton of the South.”
And it was largely for this reason that the South had the illusion
that “King Cotton” would lure military aid and political
sympathy around the world, especially from those like Britain
and France who appeared to be so dependent on the fiber. At
one point before the war started, the Confederates imposed a
voluntary embargo on shipments as a way of showing the
Europeans just how important the South was, but the overseas
textile manufacturers were able to subsist on the record crops of
1859 and 1860. The British manufacturers, in particular,
welcomed the opportunity to diversify away from America so,
by the time they needed more cotton, it had become available
from new sources in Egypt, India, and elsewhere.
But after Jefferson Davis became president of the Confederate
States he hued to the line that Europe could not survive without
the South and its exports. Plus, Davis just knew that when the
Europeans saw that northern oppression was endangering their
cotton supply, they would come running to the aid of the South.
Of course you all know the rest of the story. Without cotton
there may not have been an American Civil War.
Sources:
“Growth of the American Republic,” Morison, Commager,
Leuchtenburg
“A Great Civil War,” Russell Weigley
“A History of the American People,” Paul Johnson
“America: A Narrative History,” Tindall and Shi
“Battle Cry of Freedom,” James McPherson
“An Empire of Wealth,” John Steele Gordon
We’re going to take a break from this series next week (April 15)
as we instead look at the worst six months of the year for the
market, historically May through October.
Brian Trumbore
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