America's Economic Power, Part IV
Brian Trumbore
President/Editor, StocksandNews.com

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 as we instead look at the worst six months of the year for the market, historically?May through October.

Brian Trumbore