The Rise of Cotton Mills in the South

by Broadus Mitchell

It has been said above that the same importance did not attach, from a financing standpoint, to the taking of stock by machinery manufacturers as applied in the case of commission houses. The reason for this is that, generally speaking, the machinery manufacturers have not held their shares for long, while the commission firms have usually been stockholders over a period of years, their holdings sometimes diminishing and sometimes decreasing, but their influence in the affairs of the mills being always felt. A banker's experience was that generally machinery manufacturers taking stock in a mill sold it almost immediately at a discount; it is not reasonable to suppose that a machinery manufacturer would wish to take stock; he did it in order to sell his machinery.[315] An interesting explanation of the statement that the machinery manufacturers were heavier stockholders in the Southern mills than the commission houses is implied in a remark made by Mr. Thackston, of Greenville, a stock broker already quoted; the machinery men must get their profits quickly; these they received partly in the cash payment, two-thirds of the price of the machinery; their shares may have been numerous for either or both of two reasons—they may have been forced to take considerable stock in consequence of making the largest possible sale of machinery, which in turn was made necessary if they were to get a profit out of the proportion of the price paid in cash, or knowing that they must look forward to a quick sale at discount, they figured this into their price to the mill man, and counted upon deriving a profit from as large a number of shares as they could get in payment.[316]

The commission men, on the other hand, must expect to get their returns slowly,[317] either through dividends as shareholders, or through profits from the handling of the product of the plant, or by both of these means; in the former case, the necessity of their holding their shares is obvious; in the latter case, to have a voice in the affairs of the mill, particularly in the annual elections and in instances where increased profits from commissions must come through extension of output, active connection with the affairs of the mill must be maintained.[318]

The machinery men have in a few cases held the stock they have taken in a mill.[319] An instance of this is seen in the fact that D. A. Tompkins, until a few years ago, the representative in Charlotte, North Carolina, of many Northern machinery manufactures, was obliged to have sold two or three mills to which he had supplied machinery and taken payment partly in stock; ordinarily the machinery manufacturers would not stay in long enough for the first flush of establishment to dwindle to failure, taking away all possibility of sale with minimum discount losses.[320]

Another case in which the machinery manufacturers have retained their stock, and a very notable one, is that of the great Loray, known as the "Million Dollar Mill," at Gastonia, North Carolina. The mill is controlled by machinery makers, holding preferred stock, of which there is an actual majority; they became thus heavily involved when the mill was reorganized incident to the doubling of its capacity, to which more detailed reference appears later. The president of the mill is a representative of a large machinery manufacturing concern, and, in the affairs of the mill, speaks for another great firm.[321]

Before concluding this division of the subject, it is proper to say something of borrowing particularly from banks, in the financing of the mills. Soon after the outbreak of the war in Europe, the greatest of the cotton mill mergers in the South came to disruption. A committee representing New England manufacturers made an investigation into the affairs of the mills concerned in the combination and found that, in its opinion, the mills of the South have an advantage over mills in other parts of the country, particularly New England, amounting to 25 per cent. in labor, and 50 per cent. in respect to taxes. The statement was made by the committee that, in spite of these superiorities of situation, the cotton mills in the South make less than the mills of New England because, in considerable measure, of poor financing, particularly poor borrowing facilities; their credit is not good.[322]

Northern mills can borrow money frequently at 2 or 3 per cent. less than Southern mills even today, though the credit of the Southern manufacturies has steadily risen. It is true that New England mill paper will sell cheaper, almost invariably, than Southern mill paper.[323]

In spite of this disadvantage, however, if its credit is good, a Southern mill can borrow money at 4½ or 5 per cent.

It was formerly, early in the period, frequently the case that a mill company borrowed money to augment local subscriptions and the assistance given by commission houses and machinery manufacturers, to put up the plant.[324] Borrowing for this purpose is not often done today—the time of very large earnings, due to superior local advantages unmarred by competition, and to the peculiar conditions of manufacture then, which made it possible to pay off a plant debt, is passed; money is still sometimes borrowed for extensions of plant, however. But while it was once a rule to borrow all the working capital, in addition probably to some of the fixed capital, working capital has not passed from this category; the mills still borrow working capital at certain periods.[325]

Richmond has done more than any Southern city in recent years, not excepting Baltimore, to assist the cotton mills of the section in their operation and growth. The mills with which one young official is connected, centering about Anderson, South Carolina, have at some seasons of the year owed Richmond as much as $3,000,000 or even $4,000,000. He said that the First National Bank of Richmond, probably has more Southern cotton mill paper than all the banks of Atlanta combined.[326]

The next paragraphs consider the principal channels through which capital came to the development of the Southern industry from outside sources, more or less of its own accord, rather than being the subject of solicitation on the part of the Southern manufacturers.