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Capital Mobilization and Southern Industry, 1880–1905: The Case of the Carolina Piedmont

Published online by Cambridge University Press:  03 March 2009

David L. Carlton  and
Peter A. Coclanis
David L. Carlton
Affiliation:
Assistant Professor of History, Vanderbilt University, Nashville, TN 37235
Peter A. Coclanis
Affiliation:
Assistant Professor of History, University of North Carolina, Chapel Hill, NC 27599
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Abstract

As the American South commenced its modern industrialization in the late nineteenth century, it found itself handicapped not simply by its poverty, but also by its lack of institutionalized means for mobilizing investment capital for manufacturing. Using evidence from the first major southern manufacturing region, the Carolina Piedmont, we argue that the resulting high information and transactions costs forced industrial promoters to rely heavily upon small, local investors who preferred safety to innovation. As a result, southern manufacturing firms were hampered in their flexibility, and southern industrial structure was skewed toward mature industries with little developmental potential.

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Articles
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The Journal of Economic History , Volume 49 , Issue 1 , March 1989 , pp. 73 - 94
Copyright
Copyright © The Economic History Association 1989

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References

Earlier versions of this article were delivered at the annual meeting of the Organization of American Historians, Philadelphia, April 4, 1987, and at the Triangle Economic History Workshop, National Humanities Center, May 6, 1987. The authors wish to thank the OAH commentators, Cathy McHugh and Randall Miller, and members of the audience, particularly Donald Winters and Kenneth Lipartito, for their valuable comments. We wish also to thank members of the Workshop, especially Robert Gallman, Richard Sylla, and Tom Kemp, for their advice. Both the editors and the anonymous referees for this JOURNAL raised important objections to certain points which we hope to have clarified. Finally, Robert Korstad supplied valuable suggestions.

1 A recent restatement of this point appears in Cobb, James C., Industrialization and Southern Society,1877–1984 (Lexington, 1985).Google Scholar

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11 On bank deposits, see James, John A., “Financial Underdevelopment in the Postbellum South,” Journal of Interdisciplinary History, 11 (Winter 1981), pp. 443–54, especially p. 443;CrossRefGoogle Scholar on insurance premiums, see Pritchett, , Financing Growth, p. 63.Google Scholar

12 On the prominence of migrants, frequently with outside connections, in midwestern manufacturing, see Kemmerer, Donald L., “Financing Illinois Industry, 1830–1890,” Bulletin of the Business Historical Society, 26 (06 1953), pp. 97–111.CrossRefGoogle Scholar

13 On the lower market density of the antebellum South, see Parker, William N., “Slavery and Southern Economic Development: An Hypothesis and Some Evidence,” Agricultural History, 44 (01 1970), pp. 115–26;Google Scholar on the resulting low commercial density, see Atherton, Lewis E., The Southern Country Store, 1800–1860 (Baton Rouge, 1949), pp. 39–42.Google Scholar

14 Davis, , “The Investment Market,” pp. 388–92; Pritchett, Financing Growth, pp. 41–45; and James, “Financial Underdevelopment.”Google Scholar

15 On Piedmont entrepreneurs, see Carlton, , Mill and Town, p. 43;Google Scholar and Escott, Paul D., Many Excellent People: Power and Privilege in North Carolina, 1850–1900 (Chapel Hill, 1985), pp. 217–19.Google Scholar Current research by David L. Carlton on North Carolina entrepreneurs suggests that local machinery makers may be an exception to the rule of native origins. Machine shop owners such as W. J. F. Liddell of Charlotte and O. C. Wysong of Greensboro were northerners who applied skills acquired elsewhere to southern needs. See W. J. F. Liddell Papers, Southern Historical Collection, University of North Carolina, Chapel Hill; on Wysong, see Thomas, Nolan David, “Early History of the North Carolina Furniture industry, 1880–1921” (Ph.D. diss., University of North Carolina, Chapel Hill, 1964), pp. 30–31, 248.Google Scholar

16 U.S. Census Office, Twelfth Census of the United States, 1900: Manufactures, Part 1, p. 58; hereafter cited as Census of Manufactures. “South” is defined here as the states of the Confederacy plus Kentucky; other regions are defined by the usual census groupings, with Maryland and Delaware included in the Mid-Atlantic region.Google Scholar

17 Census of Manufactures, Part 1, pp. 58, 224; Part 3, p. 54.Google Scholar

18 Goldfarb, Stephen J., “Laws Governing the Incorporation of Manufacturing Companies Passed By Southern State Legislatures Before the Civil War,” Southern Studies, 24 (Winter 1985), pp. 407–16;Google Scholar and South Carolina Statutes at Large, vol. 19 (1886), pp. 540–50. David L. Carlton has examined several hundred corporate charters of manufacturing firms in North Carolina for the years up to 1905; virtually all include limited liability.Google Scholar

19 Census of Manufactures, Part 1, p. 503. The proportion of manufacturing firms incorporated was remarkably consistent among most states; the major exceptions were the Rocky Mountain and Pacific states, where the proportion incorporated reached 12 percent.Google Scholar

20 Census of Manufactures, Part 3, p. 60;Google Scholar on the structure of the Philadelphia textile industry, see Scranton, Philip, Proprietary Capitalism: The Textile Manufacture at Philadelphia, 1800–1885 (Cambridge, 1983).Google Scholar

21 Census of Manufactures, Part 1, p. 222. The cotton goods and furniture industries are used because they helped lead industrial development in the Carolina Piedmont and were important enough in other regions to permit reasonable comparison. A third important Piedmont industry, tobacco, will be dealt with later.Google Scholar

22 Complaints about the lamentable state of scholarship on small business are recurrent; a recent example is Blackford, , “Small Business in America: Two Case Studies,” p. 9.Google Scholar

23 Blackford, Mansel G., A Portrait Cast in Steel: Buckeye international and Columbus, Ohio, 1881–1980 (Westport, 1982), pp. 3–45.Google Scholar For another example, that of a Minnesota paper firm, see Boese, Donald L., Papermakers: The Blandin Paper Company and Grand Rapids, Minnesota (Grand Rapids, 1984), pp. 42–43, 73–74. The firm began as the Itasca Paper Company in 1901 with $200,000 in stock issued. Over half its stock was taken by a local banker, with two other men dividing the bulk of the remainder. Scarcely any individual in the Piedmont could command such resources.Google Scholar

24 Davis, Lance E., “Stock Ownership in the Early New England Textile Industry,” Business History Review, 32 (Summer 1958), p. 219,CrossRefGoogle Scholar tables 1 and 2. There appear to be some discrepancies in the tables, but the estimate given in the text seems roughly accurate. See also Mailloux, Kenneth Frank, “The Boston Manufacturing Company of Waltham, Massachusetts, 1813–1848: The First Modern Factory in America” (Ph.D. diss., Boston University, 1957), pp. 52–53;Google ScholarDalzell, Robert F. Jr, Enterprising Elite: The Boston Associates and the World They Made (Cambridge, MA, 1987), pp. 26–30.Google Scholar

25 Dalzell, , Enterprising Elite, appendix;Google ScholarEwing, John S. and Norton, Nancy P., Broadlooms and Businessmen: A History of the Bigelow-Sanford Carper Company (Cambridge, MA, 1955), pp. 7–10;CrossRefGoogle ScholarLozier, John William, Taunton and Mason: Cotton Machinery and Locomotive Manufacture in Taunton, Massachusetts, 1811–1861 (New York, 1986), pp. 7–10, 94–108; the quote is on p. 10.Google Scholar

26 Gaston County Clerk of Superior Court, Record of Corporations, vol. 1, pp. 74–76, 81 (microfilm in North Carolina Department of Archives, Raleigh); Trenton Cotton Mills, Stockholders' Minute Book, 1893–1903 (microfilm in North Carolina Department of Archives, Raleigh); Caldwell Ragan interview, November 15, 1975, Southern Oral History Program, H-284, pp. 17–18Google Scholar (transcript in Southern Historical Collection, University of North Carolina, Chapel Hill [Thanks to Robert Korstad for calling our attention to this]). See also the material collected in Ragan, Robert Allison, comp., The Pioneer Cotton Mills of Gaston County, N.C. “The First Thirty” and Gaston County Textile Pioneers (Charlotte, N.C., 1973).Google Scholar

27 The Spartan Mills stock list is reproduced in Stokes, Allen H. Jr, “John H. Montgomery: A Pioneer Southern Industrialist” (M.A. thesis, University of South Carolina, 1967), pp. 138–43;Google Scholar the description of Buckeye's stockholders appears in Blackford, , Portrait, p. 13.Google Scholar

28 Mooresville Cotton Mills, Stock Ledger A, List of January 1, 1896, William R. Perkins Library, Manuscripts Division, Duke University; Piedmont Manufacturing Company, List of Subscribers, October 3, 1874, typescript in South Caroliniana Library, University of South Carolina, Columbia; Graves, Lawrence B. Jr, “The Beginning of the Cotton Textile Industry in Newberry County” (M.A. thesis, University of South Carolina, 1947), pp. 78–79; and Cleveland County Clerk of Superior Court, Record of Corporations, vol. 1, pp. 101–103 (microfilm), North Carolina Department of Archives. The Piedmont transcription is incomplete. Ten shares are missing from each of two pages, and 50 from a third; the tally of shareholders falls six short of the official total. The above figures were calculated assuming that the missing shares on each page were held by a single shareholder, an assumption which overstates the concentration of ownership. Our definition of “small investor,” one whose investment totals $2,500 or less, is intentionally conservative. One could, for instance, use holdings of from $1,000 to $5,000. Alternative estimates using different assumptions are presented for six mills in Table 3. As one can see, under any of these assumptions the role of the small investor is prominent.Google Scholar

29 Data from Gaston County Clerk of Superior Court, Record of Incorporations, vol. 1 (microfilm), North Carolina Department of Archives. Two firms were excluded, as they were reorganizations of mills in operation before 1880; both were closely held. It should be noted that shareholders' data derived from North Carolina corporate charter records are not nearly as complete or reliable as the shareholders' lists of the corporations themselves. They are offered here for illustrative purposes.

30 Graves, , “Newberry County,” pp. 78–79; Iredell County Clerk of Superior Court, Record of Incorporations, vol. 2, pp. 28–30 (microfilm), North Carolina Department of Archives; Mooresville Stock Ledger A; and Stock List of the Pacolet Manufacturing Company, 12 31, 1895, in Frank E. Taylor Papers, South Caroliniana Library, University of South Carolina, Columbia.Google Scholar

31 By contrast, the median subscribed capital of the 21 Gaston County cotton mills mentioned earlier was $25,000. Gaston County mills were, it should be added, abnormally small.

32 Davidson County Clerk of Superior Court, Record of Corporations, vol. 1; and Guilford County Clerk of Superior Court, Record of Incorporations, vols. A, B, and C (all microfilm), North Carolina Department of Archives.

33 Navin, Thomas R., The Whirin Machine Works Since 1831 (Cambridge, MA, 1950), pp. 227-35;CrossRefGoogle ScholarGibb, George Sweet, The Saco-Lowell Shops: Textile Machinery Building in New England, 1813–1949 (Cambridge, MA, 1950), pp. 246–49, 272–73, 351–55, 398, 416–19,CrossRefGoogle Scholar and appendix 12. Gibb assigns greater importance to the practice than does Navin. In 1896 builders of preparatory machinery concluded an agreement pledging, among other things, not to accept stock in payment for machinery. While the agreement soon broke down because of the need to compete for southern business, it clearly indicates the resistance of machine men to the practice. See Navin, , The Whitin Machine Works, p. 246. This is, of course, a special case of the immobility problems of manufacturing capital discussed earlier.Google Scholar

34 Mitchell, Broadus, The Rise of Cotton Mills in the South (Baltimore, 1921), pp. 237–55;Google ScholarCarlton, , Mill and Town, pp. 56–59. The quote of South Carolina's Hammett, H. P. is from Anderson, S.C., Intelligencer, 05 5, 1887.Google Scholar

35 Mitchell, , The Rise of Cotton Mills.Google Scholar

36 See Carlton, , Mill and Town, especially chap. 2.Google Scholar

37 Wright, , Old South, New South, pp. 87–89;Google Scholar and Woodman, Harold D., King Cotton and His Retainers: Financing and Marketing the Cotton Crop of the South, 1800–1925 (Lexington, KY, 1968), pp.312–14, 348–57.Google Scholar

38 On the traditional reliance of manufacturing firms, especially in textiles, on equity, see Dewing, Arthur S., The Financial Policy of Corporations (New York, 1921), vol. 2, pp. 56–60.Google Scholar On the consequences often resulting from resort to leveraged finance, see Dewing, Arthur S., Corporate Promotions and Reorganizations (Cambridge, MA, 1914), pp. 308–9, 340;Google Scholar and Smith, Fenelon DeVere, “The Economic Development of the Textile Industry in the Columbia, S.C. Area From 1790 Through 1916” (Ph.D. diss., University of Kentucky, 1952), pp. 202–7.Google Scholar

39 Campbell, Jerome, “Dave Hall: The ACMI's New President,” Modern Textiles Magazine (03 1961), pp. 51–52. For more on the Chronicle Mills of Belmont, see Ragan, Pioneer Cotton Mills. It should be noted that Hall's father, while described as “maintain[ing] his family … with a fair degree of plain, back-country comfort,” was able to save enough not only to invest in Chronicle but also to place another $5,000 in a later mill. Gaston County Clerk of Superior Court, Record of Incorporations, vol. 1, pp. 277–79.Google Scholar

40 On the importance of mill stocks to Charlestonians, see the Langdon Cheves II Papers, South Carolina Historical Society, Charleston. Cheves, an attorney, served as trustee for several relatives. The William Watts Ball Papers, Duke University, contain considerable correspondence concerning mill investments of Ball and his wife. Women represented nearly one-third of Pacolet's stock list (44 of 138), but their median holding was only 15.5; two-thirds held 20 shares or fewer, and they collectively held only one-sixth (942.5, or 16.8 percent) of the shares. Pacolet Manufacturing Company Stock List, Frank E. Taylor Papers, South Caroliniana Library, University of South Carolina, Columbia.

41 Waring, Thomas R. to William Watts Ball,03 8, 1912; Lewis W. Parker to Ball, 03 11, 1912. William Watts Ball Papers, Duke University.Google Scholar

42 Blythe, LeGette, Robert Lee Stowe: Pioneer in Textiles (Belmont, NC, 1965), p. 133; Trenton Stockholders Minute Book; Gaston County Clerk of Superior Court, Record of Incorporations, vol. 1, pp. 277–79.Google ScholarKuznets, Simon, Introduction to Daniel Creamer, et al., Capital in Manufacturing and Mining: Its Formation and Financing (Princeton, 1960), pp. xliii-I, notes the primary importance of internal financing to manufacturing growth at the turn of the century.Google Scholar

43 Copeland, Melvin T., The Cotton Manufacturing Industry of the United Slates (Cambridge, MA, 1912), pp. 143–44;Google Scholar spindleage distributions compiled from Davison's Textile Blue Book, 1905–1906. On optimal plant size, see also Oates, Mary Josephine, “The Role of the Cotton Textile Industry in the Economic Development of the American Southeast: 1900–1940” (Ph.D. diss., Yale University, 1969), pp. 60–65.Google Scholar

44 Wright, . Old South, New South, pp. 147–55.Google Scholar

45 McGouldrick, Paul F., New England Textiles in the Nineteenth Century: Profits and Investment (Cambridge, MA, 1968), chap. 5.Google Scholar See also Dalzell, Robert F. Jr, “The Rise of the Waltham-Lowell System and Some Thoughts on the Political Economy of Modernization in Ante-Bellum Massachusetts,” Perspectives in American History, 9 (1975), pp. 229–68.Google Scholar

46 McGouldrick, , New England Textiles, chap. 7, pp. 135–38.Google Scholar

47 Unlike the New England industry, the southern cotton textile industry scored its first major advances after the American textile machinery industry had reached its maturity, and at a time when the pace of innovation had noticeably slackened. Thus T. Y. Shen's estimates of machine investment/output ratios for selected years from 1840 to 1940 show sharp declines to 1880, with stabilization through World War I. Shen, T. Y., “Job Analysis and Historical Productivities in the American Cotton Textile Industry: A Study in Methodology,” Review of Economics and Statistics, 40 (05 1958), p. 151.Google Scholar Irwin Feller has noted that the automatic loom was the only major innovation between the 1890s and the 1930s. Feller, Irwin, “The Diffusion and Location of Technological Change in the American Cotton Textile Industry, 1890–1970,” Technology and Culture, 15 (10 1974), pp. 569–93.CrossRefGoogle Scholar

48 The clearest discussion of this point is in Niemi, Albert W. Jr “Structural Shifts in Southern Manufacturing, 1849–1899,” Business History Review, 45 (Spring 1971), pp. 79–84.CrossRefGoogle Scholar

49 See Hekman, John S., “The Product Cycle and New England Textiles,” Quarterly Journal of Economics, 94 (06 1980), pp. 697–717.CrossRefGoogle Scholar The classic discussion of “the product cycle” is Vernon, Raymond, “International Investment and International Trade in the Product Cycle,” Quarterly Journal of Economics, 80 (05 1966), pp. 190–207.CrossRefGoogle Scholar On southern dependence on outside technology, see Feller, “Diffusion”; and Beatty, Bess, “Lowells of the South: Northern Influences on the Nineteenth-Century North Carolina Textile Industry,” Journal of Southern History, 53 (02 1987), pp. 37–62.CrossRefGoogle Scholar

50 Webb, Mena, Jute Carr: General Without an Army (Chapel Hill, 1986), pp. 30–85;Google Scholar and Tilley, Nannie May, The Bright-Tobacco Industry, 1860–1929 (Chapel Hill, 1948), pp. 500–502, 577–79.Google Scholar

51 Durden, Robert F., The Dukes of Durham, 1865–1929 (Durham, NC, 1975);Google ScholarNavin, and Sears, , “Market for Industrial Securities,” pp. 116–19;Google Scholar and Chandler, Alfred D. Jr, The Visible Hand: The Managerial Revolution in American Business (Cambridge, MA, 1977), pp. 290–92, 381–91.Google Scholar

52 Durden, , Dukes of Durham, pp. 177–98;.Google Scholar

53 Cochran, Thomas C., Frontiers of Change: Early Industrialism in America (New York, 1981);Google ScholarLindstrom, Diane, Economic Development in the Philadelphia Region, 1810–1850 (New York, 1978);Google Scholar and William N. Parker, “Native Origins of Modern Industry: Heavy Industrialization in the Old Northwest Before 1900” (forthcoming). Compare the discussion in Oates, “Role of the Cotton Textile Industry.” Numerous counterparts to the Piedmont tobacco magnates emerged at this time in the manufacturing belt; the most obvious examples include Swift and Armour in meat packing, McCormick and Deering in farm machinery, Carnegie in steel, and Rockefeller in oil. See Chandler, , Visible Hand, Parts 3 and 4.Google Scholar

54 To trace the development of mill securities listings, see the Charleston, News and Courier, 02 3, 1883; 11 28, 1885; 07 23, 1887; 10 7, 1890; 02 27, 1891; 03 3, 1895; and 01 26, 1900. Mill quotations first put in an appearance in the Charlotte Observer on 06 7, 1900; their source was identified as Hugh MacRae and Company of Wilmington, a leading banking firm.Google Scholar

55 See Hugh MacRae and Company, Bankers, , “Data on Important Southern Cotton Mill Stocks, March 1903,” broadside in Hugh MacRae Papers, Duke University; and Security Dealers of North America (New York, 1927), pp. 68–69, 421–23, 499–501.Google Scholar

56 “Questions Often Asked Us and the Answers,” The Solicitor: A Magazine of Banking [Wachovia Bank and Trust Company]. 9 (03. 1917), pp. 7–8; “Report from Bond Department,” The Solicitor, 10 (09 1918), pp. 14–15.Google Scholar

57 Security Dealers of North America, pp. 68–69, 421–23, 499–501; “Looking for Investments,” The Solicitor, 10 (01 1918), p. 10; advertisement, “We Are Prepared to Buy and Sell,” The Solicitor, 12 (12 1919), inside back cover.Google Scholar

58 Hirschman, Albert, The Strategy of Economic Development (New Haven, 1958), p. 158.Google Scholar

59 U.S. Department of Commerce, Survey of Current Business (04 1987), table 2, p. 34, reports per capita income for North and South Carolina in 1986 at 84.6 and 76.7 percent, respectively, of the U.S. figure, a plateau both states reached in the mid-1970s. U.S. Department of Labor, Employment and Earnings (04 1988) reports average hourly earnings for manufacturing production workers in the two states at 83.8 and 85.7 percent respectively of national levels. The four major standard metropolitan statistical areas of the Piedmont all report wage levels beneath the national average, particularly in the southern Piedmont (Charlotte-Gastonia-Rock Hill [86.3] and Greenville-Spartanburg [84.9]), although the more northerly areas (Greensboro-High Point- Winston-Salem [93.3] and Raleigh-Durham [94.9]) approach the national average.Google Scholar

60 See Galenson, Alice, The Migration of the Cotton Textile Industry From New England to the South, 1880–1930 (New York, 1985).Google Scholar