The Rise of Cotton Mills in the South

by Broadus Mitchell

Reference has been made to the effort of Mr. Wood to secure capital from commission firms for the Gaffney Manufacturing Company. He returned to the South discouraged, and the mill project for Gaffney was dropped for the time. When it was later revived, no subscriptions were sought from commission houses. Mr. Wood said: "We wanted to be free and do as we pleased. A mill is very unfortunate to be controlled by a commission house. have not done as well as others."[302]

The South Carolinian well versed in the financial affairs and history of cotton mills in the South, computes that in the cases where the mill projector sought the commission house and machinery manufacturer, from 40 to 50 per cent. of the total capital was supplied by them. Mr. Separtk, of Gastonia, already quoted as opposed to the participation of commission houses in the financial affairs of Southern mills, said that in the two mills of which he is treasurer and the one of which he is vice-president, no stock is owned by commission houses, and that "They can't get it." The way to rid a mill of the influence of a commission house, he said, is to pay what is owed. If this debt is held by the commission house in the shape of a majority of the shares, they must be bought at an exorbitant figure, but nonetheless bought.[303]

One of the principal bankers of Raleigh asserted with some feeling that the commission houses have been an incubus on the cotton mills of the South; it is true, partially, that many mills would not have come into existance without them, but it is also true that the commission houses put into the hands of the mill projectors little real money; they would take bonds or advance working capital after the capital stock of the mill was exhausted in erecting the plant, but when they advanced money, it was usually on goods sent them to sell, and then only two-thirds of the value of the goods would be advanced.[304]

This statement is rather borne out by information given by a member of a commission firm which has gone into the South with all its interests, and would therefore be inclined, one would suppose, to lend sympathetic ear to Southern mills in their financing problems, namely, that usually the commission house stands to the mill in the position of creditor rather than of shareholder, for it must have a liquid and not a fixed capital; the commission house arranges loans, discounts loans, and lends direct.[305]

It would appear from one source that when a commission firm lent money to a mill, it did not take a mortgage on the plant, for this would have destroyed its credit. They had, in fact, hardly any security other than the value of the plant.[306]

A young lawyer whose firm has had considerable to do with suits over cotton mill securities, referred to the fact that in the process of starting a mill capital is often depleted before goods are got on the market; at this critical juncture, he said, come to the commission men. Their part has not by any means always been for the good of the people of the South. They get a breeches hold on the president of a mill. The mill may in time go up, but they will have cleared on their commissions.[307]

For a reason which will appear in a moment, the same importance, from a financing standpoint, does not attach to the machinery manufacturers in their relation to the Southern cotton mills as immediately applies in the case of commission firms. There seems to be a strange diversity of opinion as to the extent of the participation of machinery manufacturers in the financing of the mills. A mill man of Anderson, South Carolina, said that the machinery people have played a larger part than the commission houses in the establishment of Southern mills; that the machinery business was at a standstill in New England at the time of the great activity in mill building in the Southern States, and the machinery manufacturers began to look about for mills to equip.[308] Another informant stated that the machinery manufacturers are not found to be very heavy stockholders; that the stock is sometimes not even in the name of the machinery manufacturing company, but is held by the president and directors of the company.[309] A third, whose testimony, however, may be questioned very seriously on this point, went so far as to say that cotton machinery manufacturers took no stock in the mills of the South to amount to anything; nobody asked them to take stock; the machinery was bought outright.[310]

Whatever the extent of the participation of the manufacturers of the machinery in the building of the mills in which it was installed, their arrangement for payment seems to have included three means of reimbursements—stock, cash and time notes; a mill might have purchased machinery from several firms under such agreements.[311] It is said that those mills which bought their machinery for cash, rather than seeking to make the machinery manufacturers to greater or less degree a party to the venture, received rebates and many privileges and advantages, though the mill men were assured, particularly those projecting new plants, that the time payment method was just as advantageous to them.[312]

While the fact might better find place in the discussion of the part played by machinery manufacturers and commission houses in the extension of plants, it may be mentioned here, and in conclusion of this particular topic, that Southerners projecting mills were sometimes encouraged, by the offers of machinery manufacturers to sell machinery for stock and on time, to make their plants too large.[313]

The opinion was held by a well-informed man very close to the whole Southern industry that the influence of the machinery manufacturers has been good, except that they caused the mills to expand beyond wise limits; they have not exploited the mills otherwise.[314]