As to the development, nature and persistence of a market in the South for cotton mill securities, the princ.i.p.al partner in a firm dealing in stocks, bonds, real estate loans, and fire insurance, who has besides long been identified with the cotton manufacturing industry in the Piedmont region, said: "... as far as I am able to recall, the stock market began to develop in this section about 1898 to 1901; and referring to some old records, as of March, 1901, I find such entries as this:

"5 Monaghan at 95 3 Brandon at 90"

with other entries of the same kind.

"About this date, in the up-country there were several young men who began trading in these stocks largely on a brokerage proposition. I recall the names of:

A. M. Law & Co Spartanburg, S.C.

W. D. Glenn Spartanburg, S.C.

F. C. Abbott & Co Charlotte, N.C.

George E. Gibbon Charleston, S.C.

and a few others whose names I do not recall just now.

"In Greenville, there was Mr. A. G. Furman.... All these men are still in the same line of business, and from small beginnings, have developed satisfactory business in the buying and selling of these securities.

"One element that lends itself to this business was the fact that in a number of instances builders of machinery would take part of their bill in stock, and later dispose of these holdings at concessions. I recall in one year that I disposed of about $2,000,000.00 worth of such stocks."[422]

An investor with considerable cotton mill holdings, in his replies, threw a little different light on the matter in some particulars: "A market for cotton mill securities developed between 1890 and 1900. There is less sale for them now, but in those ten years they used to go like hot cakes. All these brokers take a whack at them, but any man would starve that tried to deal in them exclusively. I had a friend that tried to make his living from dealing in them, but he didn't make his office rent, I deal in them a little, more than anything else for accommodation to friends. There is practically nothing in it for me."[423]

Mr. Buist has here placed the commencement of this market as far back as 1890. But in the early months of 1881 M. J. Verdery & Co., brokers of Augusta, were negotiating for the entire issue of $350,000 extra capital stock to be made in connection with enlargements to the Enterprise Factory. It was said that one man and his friends would take $140,000 of the stock.[424] This was, however, an underwriting transaction, such as those of which the first quotation speaks as being conducted on a brokerage proposition, rather than the regular marketing of stocks indicated by Mr. Buist.

Another said: "n.o.body deals exclusively in cotton mill securities, and they are not quoted on the big exchanges either."[425] There is no doubt about either of these points, judging from all the information received.

And further: "At the opening of the period, the sale for cotton mill stocks was very local, and each mill took charge of its own sales."[426]

A mill president of Augusta said that he frequently has inquiries for stock; he refers these applicants to brokers in the city.[427]

It has been seen that the curve of dividends of the mills shows a rough correspondence to that of profits; it may be observed in the paragraphs that follow that the third curve of market values of mill stocks follows more or less the other two curves. There will be mentioned first the cases in which the securities sold, for one reason and another, at low figures, and second the instances of more advantageous quotation, with some comments on the occasion for the high and low prices.

The cotton manufacturing business in the South has been a precarious one; it has proved quixotic, and there have been intervals of sterility.[428]

This may be taken as accountable for the fact that "mill stocks usually sell below their book value."[429] This consideration has not, however, as will appear more clearly a little later, prevented great variation in the selling price of securities of mills in different sections of the South, at the same point of time.

"Mill shares have been a drug on the market and confidence in them has been lost to a large degree."[430] In conformity with this, an ex-manufacturer, now a cotton factor, of Augusta, Georgia, explained that: "Stocks of mills in Augusta haven't sold at par in twenty years. You can buy preferred stock of mills in Augusta at less than par. You can buy the stock of the Augusta and Enterprise mills at 20 or so. The Augusta Factory hasn't paid a dividend in twenty years." He could not understand why this was true of the local manufacturing community, which is one of the most notable in the entire South.[431]

These considerations are in contrast to the statement of Mr. Goldsmith: "The market value of the stock is almost always above par, increasing in proportion to the age of the mill." The writer inclined to doubt this accuracy of Mr. Goldsmith's information.[432]

Referring now to the sale of stock at less than its book value, it may be noticed again that during the war the Augusta Factory was sold into new hands at, ostensibly, $200,000. The new company capitalized it at $600,000 about what it was worth.[433] F. W. Wagener and Julius Koester bought in the property which is now the Royal Mills, at Charleston, at about 20 cents on the dollar.[434] An indication of the prevalence of this condition is seen in the fact that the people of Charleston, who previously had been generous subscribers to cotton mill stock, every promoter going to Charleston for the placement of a large block, "about 1905 or 6 ... got canny, and quit subscribing to the stock of new mills, for they found they could wait and buy the stock at less than par. For twelve or fourteen years Charleston has not contributed to new mills."[435] The reason for the general drop in the value of mill securities twelve or fourteen years ago lies in the depression in the industry caused by the ill-considered boom in mill building, already dwelt upon; a cause which had its rise earlier, but which no doubt continued to operate through this later period, was set forth plainly by a banker of Columbia. He said:

"Suppose a Southerner was promoting a mill that was to cost $1,000,000. In contracting for $600,000 worth of machinery, the machinery people would take half of the amount in stock. Machinery was in great demand, and high in price. The machinery manufacturers could throw their stock on the market quickly at 50 cents on the dollar, and make money. But in doing this they hurt the price of the stock of the mill."[436]

There seems to be pretty clear cause for the sensational drop that once occurred in the selling price of the stock of Pacolet, one of the greatest of the Southern mills. The factory had been making heavy goods for the Chinese market; this market was so unfavorably affected by the exclusion act that the goods became unprofitable to the mill. It cost money to change the machinery. So much preferred stock was issued that the common stock of the mill fell from 300 to a point below par.[437]

It has been seen that for the last six years of the first decade of the operation of the Laurens Mills, 12 per cent. annual dividends were paid.

Within two years after the fight between local shareholders and Northern selling agents, the dividends got down to 5 per cent. and the stock fell from 175 to par.[438] A similar decline has been very apparent in the stock of Pelzer, in the same State, which ten years ago was selling at 175 or 180, and which now may be bought at a little above par.

T. C. Duncan built the Union Mills, and these succeeded. The stock went to $150 a share in 1900 or 1902. Then he built the Buffalo Mills. The projector of these mills was, however, a cotton speculator, it is said, and the market went against him. The town of Union, South Carolina, "busted with Tom Duncan", as it was expressed.

At the opening of the cotton mill period, it was said of the Rock Bill Cotton Factory that "The best evidence of its success is that not one dollar of its stock can be bought."[439] In the same month of the same year it was published that of the successful Mississippi mills, "The one at Wesson pays 26 per cent. dividends, and the stock is worth over 300."[440] Pacolet was built in 1880. The architect suggested a certain firm as selling agents for the mill, and Captain John H. Montgomery, the projector of the company, was introduced to a member of this firm. In consideration of receiving the account of the factory, this official subscribed for the commission firm to fifty or a hundred shares of Pacolet's stock. He told a friend shortly afterwards that he did not know why he bought the stock, and offered to sell it at $50 on the share. It happened that he held the stock, and he afterwards sold the stock at $300 per share.[441]

This buoyant success of the early mills, previously remarked with reference to profits and dividends, and here seen in the advance in the price of stock, is further ill.u.s.trated by the history of some plants now having large capitalization. These sold additional stock to the original subscribers at a reduction--say at 75 or 80 when the par was 100. The ventures were so profitable that the stock remained at par value.[442] The same observation comes out, as applicable to a still earlier time, in the circ.u.mstance of the issue, in 1865, when the Augusta Factory was paying more than 14 per cent. dividends of three shares for one, bringing up the capitalization to $600,000.[443]

Fifteen years later it was said: "Augusta is becoming prominent in the South as a manufacturing city, there being eight cotton factories running here successfully.... These factories aggregate about 2,500 looms and 10,000 spindles; they consume about 50,000 bales of cotton annually, manufacture about 50,000,000 yarns (yards) of cloths, (this besides yarn mills) and employ 2,000 operatives. The capital stock of nearly all these factories is at a high premium."[444]

If the success of the Augusta Factory in 1865 was sufficient to maintain at par issues of extra stock, as just noted, the reverse was true of Graniteville two years later, when the elder Hickman took charge. Twenty years earlier, the plant had cost to build $375,000. By 1867 the stock had increased to $716,000, and the shares had fallen to $62.50 in value. The mill was $50,000 in debt. Colonel Hickman cancelled $116,000 capital shares, bringing the interest-bearing stock of the company down to $600,000. He restored the depreciated stock to its proper value.[445]

Reference has been made to a stock dividend of 20 per cent. issued by a mill of Gastonia within the last few years.

A very present instance of this same quality, reflected this time in the recuperative power of a mill, is contained in a prediction made by the gentleman who knows most about the Graniteville Mill, that the stock which then, at reorganization, sold for $60 the share will in a year, if all goes well, sell at par.[446]

It has been said that the stock of the Rock Hill Cotton Factory could not be bought, and that the stock of several mills sold for $300 per share.

That of the Tucapau Mills, in South Carolina, is not to be had today, or it can be had only at 3 or 5 for one. This is by some regarded as the most successful mill in the State.

It would seem that absolutely no stock of the Salisbury Mills is on the market. Recently an energetic young man anxious to buy stock of the mill for princ.i.p.als, went to the treasurer of the company and to shareholders individually, without success. The treasurer said that by looking long enough, and waiting for his chance, he might induce some stockholder to sell at 200.[447] This comparatively low figure in his prognostication is perhaps accounted for by the conservative character of the company from the start, and the uniformly satisfactory, though not brilliant dividends of the enterprise, together with the fact, maybe most potent of all, that sixty of the one hundred and five shareholders in the Salisbury Mills are ladies, the majority of whom have received their holdings through inheritance.[448]

The Majestic Mill, Gaston County, North Carolina, which in 1916 after nine months' operation declared a dividend of 10 per cent., sold three shares of stock which in some way had not been marketed, at 150 each.[449]

In mentioning the contrast between the market price at this time of the stock of mills in various localities. Thought was particularly of the facts as to the Augusta mills' securities and those of the plants in and about Gastonia. The latter are as optimistic as the former are the reverse. Mills in Gastonia making in 1916 from 75 to 100 per cent. net profits, are represented by stock selling at figures ranging from $150 to $250 the share.[450]

VITA

Broadus Mitch.e.l.l was born at Georgetown, Kentucky, December 27, 1892; he attended a primary school in Richmond, Virginia, and then, for four years until 1908, Richmond Academy; for one session, 1908-1909, attended the Hope Street High School, Providence, Rhode Island; in 1909 entered the University of South Carolina; in the summer of 1911 was a member of the reportorial staff of The Daily Record, Columbia, South Carolina; graduated from the University of South Carolina with A.B. degree in 1913; from June, 1913, until October, 1914, was a member of the reportorial staff of the Richmond Evening Journal; entered The Johns Hopkins University in 1914; was a Hopkins Scholar during this and the succeeding session; was Fellow in Political Economy, 1916-1917; in July, 1917, became special staff writer The New Leader, Richmond, Virginia, and was given furlough from this position to return to the University in the fall of 1917; Fellow by Courtesy and instructor in Courses in Business Economics, 1917-1918.

FOOTNOTES:

[1] P. H. Goldsmith, The Cotton Mill South, p. 4.

[2] D. A. Tompkins, in The South in the Building of the Nation, Vol. II, p. 58. A more summary statement by the same author is the following; after speaking of the prominence in the South of manufactures in the early years of the nineteenth century: "The profit of cotton raising with slave labor drew people away from manufactures to cotton planting. On the abolition of slavery, the capabilities of the people to organize and conduct manufactures showed itself again.... The re-establishment was not commenced immediately after the civil war, because of the chaotic disorder brought about by the abolition of slavery and the enfranchis.e.m.e.nt of the negro." But now (1899) "every obstacle to the development of manufactures has been removed. In many parts of the South the development is already well advanced and in others it will undoubtedly grow rapidly." (Ibid., Cotton Mill, Commercial Features, pp. 108-109.)

[3] The South's Position in American Affairs, p. 1. Cf. "Upon the whole, the last half of the Eighteenth Century, before the influence of the cotton gin and Arkwright's inventions were fully felt in the South, was a period when agriculture yielded some ground in primary manufactures and household industries." (V. S. Clark, in South in Building of Nation, Vol.

V, p. 308.)

[4] Holland Thompson, From the Cotton Field to the Cotton Mill, p. 25.

"Except in the East, the feeling against slavery was strong during the first quarter of the nineteenth century", and there is remarked the foundation in 1816 of the Manumission Society, which had thirty-six branches in 1825 and 1600 active members in 1826. (Ibid., pp. 26-27.)

[5] August Kohn, The Cotton Mills of South Carolina, pp. 10-11.

[6] Kohn, Cotton Mills of South Carolina, pp. 9-10.

[7] Kohn, Cotton Mills of South Carolina, pp. 10-11. In 1809 the legislative committee on incorporations reported unfavorably a request of John Johnson, Jr., President of the Homespun Company of South Carolina, for a loan on account of a patent, but it was recommended that he be allowed until the next meeting of the legislature "to report on the utility of the machine called the Columbia Spinster, so as to ent.i.tle, in case the same be approved, the inventor of the same to the sum provided by law for his benefit." (Ibid., pp. 11) Cf. Ibid., pp. 11-13.

[8] For these facts the writer is indebted to an unpublished ma.n.u.script of M. R. Pleasants, "Manufacturing in North Carolina before 1860", to which reference will frequently be had.