The second mill--the Cabarrus--built by Mr. Cannon at Concord, North Carolina, was financed in this manner. Its plant was an old wood-working and iron establishment slightly modified to house cotton machinery; its capital stock was only $15,000 one-half paid up, and the other half payable in fifty cents weekly instalments, the whole to be paid in two years. Mr. Hartsell of Concord, remembers seeing the old secretary-treasurer of the mill going about the town with his collection books under his arm.[277] The Spartan Mills, Spartanburg, South Carolina, were rected under a building and loan scheme which gave the mill management little ready money.[278] Besides the expense of collecting the small and frequent payments, serious disadvantages might result from such a method of financing a mill. For instance, in the case of the Spartan Mills, John H. Montgomery, the projector, was persuaded to buy the old machinery of a mill at Newberryport, Ma.s.sachusetts; he lacked capital to purchase machinery otherwise, and the Newberryport mill took payment in stock. The machinery thus installed was worn out, out of date, showed quick deterioration and proved very expensive.[279]

The other co-operative plan is said to have been followed in the case of a good many South Carolina mills. All of those who might contribute to the erection of the plant--dealers in lumber, paint, tin, brick, etc.,--would be asked the question: "If you get this contract, how much stock will you take?"[280]

Some account has been given of the additional issues of stock on account of extensions in plant. There is evidence that very often, however, increases in capacity were made through earnings and credit rather than by the issue of more stock. Indeed, the latter method has been much more frequently followed, if the opinion of one of the best informed of the younger cotton mill men is to be taken.[281] He recited in support of his contention the typical case of the 5,000 spindle mill at Williamston, South Carolina, which issued extra stock to $30,000 and increased its spindleage to 15,000. Since then, the plant has grown to have 32,000 spindles, its capital standing at $300,000; this was accomplished through earnings and credit. It is fair to say that the normal capitalization of a plant of 32,000 spindles would be something in excess of $600,000, computing the cost at $20 to the spindle.

The first two-story addition of the Gaffney Manufacturing Company was rected upon earnings of the original plant in the first three years of its operation.[282] The finishing plant of the same mill, erected some years later, had to be dismanteled and given over to looms because the stockholders in the company would not give the president the required support, and the debt incurred was pressing.[283]

The Young-Hartsell Mill, at Concord, North Carolina, has been built up in plant by putting earnings back into the factory. Considerable enlargement, on the most approved lines, has recently been completed, the end of the extension being weatherboarded to allow of easy further addition.[284]

The capital stock of the Arlington Mill, Gastonia, organized by G. W.

Ragan and some of his friends who had withdrawn their holdings in the Trenton Mill, at the same town, was over-subscribed in fifteen minutes. At organization, the stock was fixed at $130,000 for 3,000 spindles; in three years an additional stock dividend of $45,000 was issued, and the spindleage increased to 9,500 and later still to 12,000.[285] There evidently was not here, as it has been intimated there sometimes was, an impetus toward expansion by reason of over-subscription at the time of organization, for the additional stock issued, presumably at least, went automatically to the original subscribers. It was a case of extension from earnings.

The mills established at the opening of the era made frequently huge profits, which made increases in size from earnings to the natural course.[286]

Also, just as earnings have in such cases quickened plant extension, so the investment of profits back into the business has in turn increased efficiency and earnings. The capital of the Salisbury Mill, as has been said, has now reached $250,000, but much of the increase in size of the plant has come by the agency of gains reinvested.[287]

Having seen some of the ways in which capital was secured from Southern sources, the paragraphs following deal with the means through which capital was induced to come to the Southern cotton mills from without the section.

From a reading of the preceding chapter, the question might naturally be asked: By just what methods did a Southerner anxious to establish a cotton mill secure financial a.s.sistance at the North?

Not a few Southern mills were projected by merchants, frequently small country store-keepers, as they would be called; but it is to be borne in mind that the proprietor of a general store in a rural community or in a small town in the South occupies a position very different from that of the small merchant elsewhere. The economy of the neighborhood pivots upon him--he is the agent of the fertilizer manufacturers, and extends, credit for fertilizers and food until the cotton crop is gathered; he probably markets the cotton when the bales are hauled. He is the link between the great sphere of business without and the little world of affairs within.

What the country lawyer is as real estate broker and arbiter of landed fortunes, that, and a great deal more, is the country merchant in all other departments of material activity. Holding, as he did, the contacts of the community with moneyed interests without, it was natural that the merchant should often be the leader, and also natural that he should turn to his mercantile connections for a.s.sistance. One case will ill.u.s.trate how this worked out.

James W. Cannon was born at or near the little place of Concord, North Carolina. He early went into a general store as clerk, and through successive stages, largely aided by his attention to business and his civility, he came to own a general merchandise business of his own in the town. He was in the habit of buying brogans from the house of Albert Stone; cloth he got from Leo Loeb, and he had an arrangement by which he shipped raw cotton to William Wood and Son. He decided to build a cotton mill at Concord--really the first at the place belonging to the great period of establishment--and got some $60,000 in subscriptions to stock locally. This was not sufficient capital, $75,000 being aimed for. Mr.

Cannon under these conditions went to Stone, to Loeb and to Wood and Son and explained his plans. The mill would enable the town of Concord to grow, and he could do a larger business with each of them. Whether moved by this reasoning, or influenced by the fact, that it was almost worth the amount of the subscription to keep Cannon's business and good will, each of the three firms subscribed to $5,000 worth of stock.[288]

Judging from the statement made by an old gentleman who has seen the whole development of Mr. Cannon's interests, he has held to these former merchant-day connections, though he is now as far from country store-keeping as could well be imagined. After explaining that Mr. Cannon in the early days was merchandising and could get money from his mercantile connections at the North, he said that retired wholesale merchants of Philadelphia, New York and Boston have so much confidence in him that they give him any amount of capital he needs.[289]

Out of 1,287 shares of the Young-Hartsell Mill at the same town, 1,250 are held by North Carolinians. The other 37 shares are owned in Baltimore. Mr.

Hartsell was born on a farm near Concord, and some thirty years ago came to town and went in business. In this way he knew the Baltimore merchants who hold 35 of the thirty-seven shares, the other two shares belonging now to the son of one of these men.

Of the two sources[290] of outside a.s.sistance to Southern Cotton Mills, cotton goods commission houses and manufacturers of cotton machinery were more often appealed to for capital in financing a mill than were firms with which the Southerner had mercantile relations. The influence of the commission houses and machinery manufacturers upon the rise, development and degree of success of cotton manufactures in the Southern States is of the first rank of importance, and not the least interesting phase of their connection with the industry is the way in which they were approached for help.

A South Carolinian, say, wishing Northern capital for a cotton mill which he was projecting, would usually have a.s.sociated with him some man who had experience in manufacturing in the State. The manufacturer would introduce the projector to the commission merchant in New York who was serving his mill. The Southern promoter thus put upon the track would make the best bargain in New York that he could, that is to say, find the commission house which would take the largest block of stock and lend the most money.

He would, similarly, be introduced to machinery manufacturers, and might induce several to become parties to his venture.[291]

Commission houses and cotton machinery manufacturing companies were not, however, making yarns and cloth. Other things apart, their business was selling the product and supplying the means of production, rather than manufacturing goods. They were willing, and sometimes anxious, to lend their a.s.sistance to a proposed mill to get its business, but they were not ordinarily interested in establishing mills. Consequently, the promoter had to have his home money first. He would secure, say, for the mill of ordinary size, $50,000 locally, and would go to the machinery people and say he had this backing, asking whether they would sell him the machinery, and what amount of the payment they would be willing to take in stock.[292]

The history of the relations of the Gaffney Manufacturing Company with commission houses is instructive. When Mr. Baker commenced the agitation in Gaffney for a cotton mill, A. N. Wood was doing a sort of private banking and investment business in the work. A fund of about $50,000 was subscribed, Mr. Wood made president of the organization, and a charter applied for.[293]

Mr. Wood went North to seek additional capital, going to Baltimore and New York. In Baltimore he called upon Woodward Baldwin & Co., Mr. Baldwin was very cordial, and when the plans of the Gaffney people had been explained to him, took $5,000 of the stock right away, with no strings tied to the subscription. It was not specifically understood that the firm was to have the account of the mill, but Mr. Wood supposes Mr. Baldwin expected it, and that probably it would have been given to his house.

Mr. Wood introduced himself to the chief member of another firm, of whom he knew as commission merchant for the Pacolet Manufacturing Company in South Carolina. In this case, the promise of the account was wanted, but to this Mr. Wood did not agree. Mr. Wood said that it was attempted from the outset to take advantage of the position in which he was placed.[294]

Having noticed to this extent the minutiae of securing a.s.sistance from commission houses and machinery manufacturers, it will be interesting to observe in general the part played by such firms in the establishment of mills in the South. First of commission houses.

It is possible to be deceived as to the wealth of Southern communities thirty-five years ago by a recital of the capitalization of the mills they built, coupled with the statement that a large proportion of the stockholders were local people, and that nearly all of the paid-up capital was from the neighborhood or State. There might well be a greater number of small local investors, and one or two Northern firms with quite as large holdings as all these together; the capital paid in might be of local origin, but only a small proportion might be paid up,[295] the rest representing the holdings of commission houses and machinery manufacturers in one way and another. If it be asked how the mills hoped to succeed with so little paid-up capital, the answer lies partly in the fact of reliance upon earnings to take care of debt, and partly in the scarce provision of working capital.

The influence of the commission house on the Southern cotton mill is a subject of the deepest interest, and this might be drawn out in some detail under a discussion of the marketing of the product of the mills.

Whether the commission houses' partic.i.p.ation, as marketing agents, or as stockholders with a voice in the affairs of the company, was on the whole helpful or detrimental is of concern where only incidentally as pertaining to those involved in the launching of the enterprises. For the present purpose, that the commission merchant was an investor is enough, except only for the consideration as to whether it were wise to invite his connection in the first place.

One practical-minded man declared that the mills could not have existed without the commission houses, be their influence good or bad, and dismissed the matter with this.[296]

A mill president grown old in the business in North Carolina said that the Southern mills could not have gotten along at all without the commission houses at first; that not only in their establishment, but in selling their product, they needed an influential agent.[297] After explaining that Northern commission houses had supplied much of the capital for the developing of the cotton manufacturing in his region, another mill president, and one who has had experience of every phase of the mills'

growth, said: "Their influence (that of the commission houses) was good; you ought to praise always the bridge that carried you over."[298]

The editor of one of the chief textile periodicals in North Carolina said that there were cases where the commission houses hurt the profits of the mills, but they did start the mills.[299] Another North Carolinian, of conservative turn of mind and much practical knowledge, gave a parallel statement, that even as a general rule the commission houses formerly had a baleful influence, though this is no longer the case; that they have had the effect of promoting the development of mills in the South.[300]

A mill treasurer in what is perhaps the most progressive and ambitious spinning district of the South, gave it as his belief that as a whole, while there are commission houses and commission houses, their influence on the Southern textile industry had been bad. Asked whether there were not many Southern mills that would not have come into existence but for the aid of the commission houses, he answered yes, but that such mills were built as feeders for a commission house and not to earn money for the local stockholders.[301]

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 partic.i.p.ation 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 princ.i.p.al bankers of Raleigh a.s.serted 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 partic.i.p.ation 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; n.o.body asked them to take stock; the machinery was bought outright.[310]

Whatever the extent of the partic.i.p.ation 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 reimburs.e.m.e.nts--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 a.s.sured, 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]

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 4-1/2 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 a.s.sistance 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 compet.i.tion, and to the peculiar conditions of manufacture then, which made it possible to pay off a plant debt, is pa.s.sed; 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 pa.s.sed from this category; the mills still borrow working capital at certain periods.[325]