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 assistance 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 associated 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 assistance 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 assistance 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 capitalizationof 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' participation, 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. Forthe 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 mindand 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 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 oradvance working capital after thecapitalstock 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 depletedbefore 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 machinerymanufacturing 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 commissionhouses 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 almostimmediately 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 ofthe 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 capitalhas 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.
Undoubtedly, one of the chief influences contributing to the physical growth of the cotton manufacturing industry of the South has been the willingness, perhaps the eagerness, of commission firms and manufacturers of cotton machinery to encourage enlargements and extensions of plants; and in the enumerationof counts against these houses, this consideration figures in the mind of the Southern mill man. When the second and effective agitation for a cotton mill at Gaffney, already referred to, was proving successful, it was determined not to seek aid from commission merchants because they "—want too many enlargements; they want more goods; the more they sell, the more they get. This does not always suit the local stockholders."[327]
An interesting allusion, showing the effect of the desire for enlargment on the part by commission houses and machinery manufacturers, is contained in an Augusta dispatch to The News and Courier, Charleston, in April, 1881. "At the meeting of the Sibley Manufacturing Company today (it was the first annual meeting of the stockholders)[328]it was decided to increase the capital stock to one million dollars. Stock for the additional amount will first be offered, and, if this is not promptly taken, seven per cent. bonds will be issued." The resolution for the increase was offered by Mr. Samuel Keyser of New York, and seconded by Mr. David Sinton, of Cincinnati, two of the largest stockholders in the company.[329]Mr. Keyser and Mr. Sintonwere two of the six directors of the company.[330]The mill was first planned to be three stories high, with 23,936 spindles and 672 looms; the doubled capitalization was to allow of an increase of stories to four, in spindleage of 30,000, and in looms to 1,000; $66,500 was proposed to be spent on the village-tenements, operatives' homes, boarding house, etc.[331]While there is no specific evidence to show that these directors represented commission houses or machinery manufacturers, or that they would take the seven per cent. bonds in case the community would not absorb the additional stock to be issued first,[332]indications point to this having been the case.
It has been seen how the builders of the Gaffney Manufacturing Company's first plant refrained from including commission merchants in the venture, and still earlier in this chapter it was said that the two-story addition, next built, was a product of the earnings of the original plant in its first three years of operation. When, however, the third addition to the plant was made, a great mill costing $800,000, the persistence of the projectors was weakened by the four years since the firstmill was erected, or perhaps success had altered judgment, with some local subscriptions, the machinery people took a considerable amount of stock.[333]
A striking case here is that of the Rock Hill, South Carolina, Cotton Factory, "the 'Pet' of the town," it was called by the correspondent of a State newspaper, who continuing said: "This factory is owned and controlled by the citizens of the town, except $15,000 in stock owned in Charleston. It has a capital of $100,000 has over 6,000 spindles, with 1,500 more to be added in a few days. The best evidence of its success is that not one dollar of its stock can be bought." This clearly, was a mill born of local effort, with about the right capitalization for a plant of its small size. The conclusion of the notice, coupled with information taken from the same paper of two days later date, is significant: "It is the intention of the company, at an early day to run the factory day and night in order to keep up with its orders. The company, I learn, expect to increase their stock to $200,000 and build a duplicate factory."[334]A large part of the stock for this enlargement was subscribed by Northern capitalists.[335]
The circumstances attending the enlargment of the Loray Mill, at Gastonia, have been alluded to in another connection, John F. Love, a Gastonia man, and the son of R. C. G. Love, who had been very prominent in the Gastonia development, was the primary projector of the mill, he having a larger part in the enterprise than G. A. Gray, the greatest of the Gastonia mill builders. He got the building up, but the factory had not commenced operation, when the company had to be reorganized. It was intended when the mill was started to have 25,000 spindles; it was now wished to increase the spindles to 50,000. The local investors were scared off by this proposal, but the machinery manufacturers encouraged the enlargement, supplying the machinery and taking preferred stock in payment. The Whitin and Draper companies own most of the stock of the mill, and the Whitin representative in Charlotte is president of the mill. Commission houses hold some of the stock. The Loray Mill is the largest and the poorest in Gastonia; it makes coarse cloth from the local short-staple cotton on some 2,000 looms,[336]while the small mills built by local capital for the most part are making good profits from some of the finest yarns, of long-staple cotton, spun anywhere in the Southern States.
It has not always been the machinery manufacturers alone or together with the commission houses who facilitated the installation of more looms and spindles. Sometimes the ends aimed at by the commission merchants could be accomplished only through machinery, and they have been willing to undertake the financing of the enlargements or alterations in plant singly. The so-called Plaid Trust was sought to be formed; it was to handle the plaids of all the Southern mills, and was to be a New Jersey corporation. The plan did not carry, and the Cone Export and Commission Company went into the Southern field to handle the products of the mills generally. The older sheetings and plaids had been sold largely in the South, or almost so; the commission firm, to supply a larger trade, found it must re-organize the product of its client mills. It was attempted to persuade a mill at Durham, North Carolina to increase its denim output, but this was not done. In order to provide canton flannel, a new goods for the South, the commission house induced some interests to establish a mill at Greensboro, North Carolina. This prospered, and the house itself built a denim mill at the same place. All this time the mills were being urged to diversify their product, and the commission firm was financing them in the machinery changes which frequently had to be made. The client mills served were slow in establishing, as the commission firm urged them to do, individual finishing plants, and until thisgrowth came about, the Southern Finishing Mills, founded by the Cones at Greensboro, served them; it was discontinued as a finishing plant when the mills had their own finishing works, which they presently built and operated successfully.[337]
There is another way in which unsolicited outside capital frequently has lodged in the Southern mills. The conditions under which this would come about are well described by a banker now in Richmond and formerly the president of the Chamber of Commerce in Raleigh, North Carolina; "Usually the people who made the spirit for cotton mills in this way (through appeals to town pride and by town rivalry) were those least able to participate financially. Many mills started without sufficient capital and never did have enough till they failed in the hands of the original promoters and were bought up by other people, those who had been responsible for the enterprise losing out entirely."[338]Thus as far back as 1882 Colonel Walter S. Gordon, one of the projectors of the Georgia Pacific Railroad, purchased the Stansbury Cotton Mills, Carrollton, Mississippi, which cost originally $210,000. "The Georgia Pacific Railroad", says the notice of the purchase, "will run almost by its doors, and willgive competition in freights."[339]Evidently here was a mill which was commenced by local effort and had declined until it could be bought at a lower figure than its cost and held out the prospect of becoming profitable by the coming of new transportation facilities.
The Kessler Mill, the third built at Salisbury, North Carolina, offers a case in point. The first mill built in the place was a produce of the most whole-hearted local support centering about community pride; the second mill was an outgrowth of the success of the first, and was advantaged by the spirit aroused by the first mill, not too far spent. The Kessler Mill was organized by a faction which split off from the projectors of the first enterprise; local capital already seriously depleted was not quick in offering because of lack of interest in the project.[340]Under these circumstances the mill ran an indifferent course until taken over by a large manufacturer of a nearby town, who could command outside capital.[341]
A mulatto started a cotton mill at Concord in the sameState; no white people of the place took shares; the negroes all over the State who subscribed were allowed to pay in little instalments. The operatives were negroes. The promoter was faithful to the enterprise, but came to be heavily in debt, foreclosure followed on ill success, and the mill passed to the hands of the same capitalist who took over the Kessler Mill of Salisbury.[342]
FINANCING THE MILLS (Continued)
An eminently successful mill president in Augusta was full of pessimism toward all the problems broached to him, but three characteristic sentences as to the capacity of Southern cotton manufacturers for financial administration fit the case of too many mill officials, undoubtedly:
"The people of the South have got no business sense; I am a Southern man, and I say that. Back yonder before the war what money they had was in land and niggers. They knew nothing about financial management on close make-or-lose propositions." This judgment is borne out by that of one of the foremost newspaper editors of the South, who is also a large investor in cotton factories, who said: "The history of the industry abundantly vindicated what Edward Atkinson said about the South not knowing the difference between a penny and a nickel. None of the projectors, with the exception of H. P. Hammett and a few like him, could carry to the mills more than a general business and executive capacity." Because of prosperous conditions, he said, most of them made money in their ventures, despite their lack of business experience, but he added "... when depression came, when it was necessary to discriminate between a penny and a nickel, the mill went to blazes. It was the exceptional man who could endure the test of the penny rather than the nickel."
Similarly, a Charlestonian who had just returned to the city after attending the reorganization of one of the most famous mills in the South, in which he is a heavy investor, was moved to declare: "Mismanagement and incompetency (the Southern people are the poorest business men in the world with a few exceptions) ... are responsible for most failures."
Mr. August Kohn, in Columbia, who is himself a broker and the historian of the South Carolina mills, while recognizing the fact of these shortcomings in Southerners, as obtaining in the past and yet not overcome, held out a more hopeful view for the future: "Lack of capital and lack of trained management have been the great difficulties where mills have failed. We are developing management of the trained sort in experience and in the improvement in the business tone of our people."[343]
With this introduction, it is convenient under the general topic of financial administration, to dispose of several random points at the outset of the chapter.
Until the outbreak of the European war, two great cotton mill combinations in North and South Carolina, were those controlled by Mr. James W. Cannon, and centering about Concord and Kannapolis, North Carolina, and that of the late Mr. Lewis W.Parker, with principal offices at Greenville, South Carolina. The former consists of thirteen plants, and the latter, which is no longer in existence, once numbered as many as sixteen mills. These combinations were financed on opposite plans. A gentleman trained by Mr. Parker, and at one time in a leading position in the management of the mills in the Parker Merger, so called, explained that "... Lewis Parker in his merger thought that amalgamation would reduce over-head expense; that he could get cheaper money and cheaper supplies by buying in quantities." He "... was offered immense sums of money at 3 per cent. when his merger went together, although before he had never gotten money at least than 5 per cent. for the individual mills."
In distinction from this plan, the Cannon mills have not been constituted into a merger in the same sense, though they are all under the presidency of Mr. Cannon, who said: "The management of each of the ... mills is distinct, though there are practically the same stockholders in all the mills. Lewis Parker had a merger, and tried to run it all from one office. my view is that each mill must have its own management and separate attention to secure success." He admitted that "There is not much saving on concentration where each corporation is a separate organization. Each mill has its own directors. Each mill must stand on its own financial strength. In many instances where the quantity is large, supplies are purchased for all the millstogether, but where the quantity is less, this is not done."[344]
These two plans are brought nearer together, however, by Dr. Beattie's opinion that in practice Dr. Parker's idea of the saving to be derived from the merger would not work out, from the fact that all officers and higher employees of the combination would want increased pay for additional work, and not in proportion to the extra labor and responsibility imposed.[345]To this is to be added the caution that Mr. Cannon probably does, in borrowing and in administration generally, accomplish many economies not indicated in his statement.
An editor said that there was no "graft" particularly in the promoting of the mills; that the minutest details of an enterprise were watched by the people of the community. This tends to be a confirmation of the view the writer brought to take of the development of the industry in the South, that it was to a larger extent the child of the public initiative and concern than most economic movements.
Mr. Thompson says that "The North Carolina mills have been almost invariably managed honestly in the interest of allthe stockholders."[347]This is true of the entire South. There have, however, been two instances of fraud, one chargeable to Northern selling agents, but the other, unhappily, though also inexplicably, the result of wrong-doing on the part of a Southern man who had drawn together a number of mills. The former case was one in which a New York commission firm which had taken the president of a successful plant under its patronage, and placed him at the head of a mill in which the firm was sinking large sums, was angered at his effective attempts to free the second mill from the influence of the selling agents, and sought vengeance by ruining the original mill of which he was president. In the second instance, it is said, the president of the merger, during years in which his associates and the general public had every confidence in him, had been owing, unknown to a soul, $400,000 to the holding company and to the constituent mills. When there was a directors' meeting of the holding company, the constituent mills would appear to be the ones involved, and when the several companies met, the sum seemed due to the general company. One of his intimate co-workers stated that "His failure shook this whole section, not only in a businessway, but in a moral way."[348]And of both incidents, it was believed by another that to them was attributable a loss of interest by the Southern communities in mill building.
The depression following the panic of 1873 gave trouble to most of the cotton mills established in the years before the period of the industrial revival. During the hard times, for instance, some of those who had gone into Colonel Hammett's enterprise for the Piedmont Factory declined to pay their subscriptions. For the three months during which the machinery was being installed, the only pay the workmen got was credit for groceries at a small store in Greenville, two officers of the company giving their individual note of $500 as guarantee.[349]Colonel Hammett drew upon every resource of business and personal friendship to tide the venture over from 1873 to 1876.[350]He went so far as to mortgage his horses and carriage to buy the belting for the plant.[351]
In some of the mills, the treasurer has the largest partin financial administration. In such cases he is frequently a younger man, a product of the newer South, who has pushed his way up in the enterprise to the position of real power, leaving the president, who is perhaps a man better equipped in community esteem than in specific training, as nominal head of the concern. This has happened at Gastonia, North Carolina, a particularly progressive spinning place. But in most of the companies, especially the smaller concerns, the president is in chief control of financial affairs. He often stamps his personality deeply on every department of the business of the mill and village and region even. A case in point is that of Mr. Charles Estes, when interviewed 98 years old, and for twenty years before his retirement in 1901, president of the John P. King Manufacturing Company, Augusta. With some show of pride, he related how during his active career the manager of the R. G. Dunn commercial agency in Augusta one day called him into the office and let him see the report of the King Mill. It read: "John P. King Mfg. Co. Capital Stock $1,000,000. 3 per cent. semi-annual dividends. President calls directors together once in six months and tells them what he has done." "And that was the way I ran the mill," he declared.[352]
The Salisbury, N.C., Mill has a singular plan. Financial administration is concentrated in the hands of a finance committee composed of the president, treasurer and agent, or manager. The directors do about as the finance committee indicates; they hold a less important place because of the ill health of several of their number. Though nominally the whole finance committee passes on questions, the president does not attend regularly, and one of the directors not on the committee always agrees in the action of the smaller group.[353]
The effect of strong personality in a promoter and of the business reputation of his enterprise upon impressionable Southern communities has been mentioned in a previous report. This came out clearly in the ease with which money could be borrowed. It was said by an old gentleman who knew Colonel Hammett in South Carolina very well that "The few capitalists we had then (we didn't have many) just came to his assistance whenever he asked them."[354]With respect to certain wholesale merchants of NewYork, Philadelphia and Boston, the writer was made to believe that they have so much confidence in a particular North Carolina manufacturer, that they give him any amount of capital he needs.[355]Mention has already been made in another connection, of the fact that Mr. Parker was offered large sums of money at 3 instead of 5 per cent. when he broached his merger successfully. The recent depression of the famous Graniteville mill, one of the first in the South, was accounted for by the statement that everybody was ready to lend money to Graniteville as an old and reliable mill, and never thought of requiring it back, until all at once all the lenders wanted their money, and this fortuitous trend made reorganization necessary.[356]
During the war the old Augusta Factory was sold into new hands at, ostensibly, $200,000. The new company capitalized the plant at $600,000, about what it was worth. It must have been a device to lend financial prestige to the mill that Governor Jenkins of Georgia was given $100,000 stock for his influence as a director. He did nothing to earn this, was the writer's assurance.[357]
Perhaps it was to facilitate financial management of his mill that William C. Sibley preferred New York and Cincinnati subscriptions to large blocks of stock, to local subscriptions in smaller amounts, when soliciting backing for the Sibley Mill at Augusta.[358]
Turning now from the subject of financial administration of the mills to that of profits; it is not clear that gratifying earnings were usually due to good management; it is, however, true that poor profits or no profits were due oftener than otherwise to faulty executive control. It is meant by this to indicate that the industry in the South has shown itself, on the side of profitableness, singularly responsive to the material condition of the section, and to the state and trend of public opinion. The degree of success of the mills has displayed the fundamental fact that the South has in the past forty years been above all else in a process of growth, and has given fresh proof of the intimate connection between the fortunes of the companies and the changes in the whole section—economic, mental and spiritual. The profits of the mills have constituted a good barometer to the evolution of the South since Reconstruction. Graphically represented, the earnings of the plants would exhibit a curve ofdecided aspect. It is sought by specific references to make this curve appear, and afterwards to sum up the results with several reasons therefore.
Tompkins, by many believed to have been the best authority on cotton manufacturing in the South, wrote: "It has been abundantly proved by experience in the Carolinas that cotton mills on every class of goods manufactured there, can make a profit of 10 to 30 per cent. This has been done by the smallest as well as the largest mills on the coarsest and the finest yarns, single as well as twisted; and on the heaviest as well as the lightest weight cloths; and on dyed and undyed yarns and cloths. The variation in profit between 10 and 30 per cent. is caused by variation in prices of cotton and of manufactured goods, and also by variation in management."
In another passage he has said: "From the experience of the best mills that have been running in the South for twenty years and over, and which have always been kept well up to date, it would appear that about 15 per cent. is the average annual profit in clear money for the whole time."[359]
The writer was given the opinion by Mr. Thackston of Greenville, South Carolina, in whose knowledge and judgment greatreliance is put, that for the last ten years the average earnings for well-managed Southern mills have been $2.50 per spindle, which, reckoning the average cost of the plants at $20 to the spindle (leaving aside other capital invested) is a profit of 12.25 per cent.[360]
A banker of Winston-Salem, which is an industrial community, could not understand how the Southern mills succeeded "as well as they have." When there were mentioned to him several mills which have been consistently profitable, he found special advantages accountable for their favorable showing. In one case it was tidewater freight rates, in another skilful cotton buying by a manager of long experience. It was his belief that the average profits of Southern mills from 1880 to 1914 (omitting, that is, the years since the outbreak of the war) were not as much as 10 per cent.[361]
So much for the gains over the whole period. The earnings at several points in the development of the industry show a wider range.
A nephew of Mr. Tompkins, quoted above, who has succeeded in considerable measure to his uncle's manufacturing interests, and who is of too practical a turn of mind to be affected by theenchantment of distance, speaking of the success of mills right at the opening of the era, said that some made from 30 to 70 per cent. profit.[362]In a previous chapter, it has been seen how many mills at this juncture increased their plants from earnings. A Utopian tinge may be suspected in an article appearing in The Daily Constitution, Atlanta, in March of 1880, which, in urging upon Southern communities the establishment of spinning mills, stated: "At prevailing prices there is nearly or quite six cents per pound profit over all expenses in spinning No. 14 yarn, or three cents per spindle per day; this would give $9 per spindle per year, and as spinning mills can be built for less than $18 per spindle, no other figures are required to demonstrate the statement that the spinning mills in the South bid fair to realize this year fifty per cent. on the capital invested. Nearly all of these mills are running night and day, and every one of them is realizing handsome profits. These are facts."[363]The goods of the Wesson Cotton Mills, Mississippi, took a premium at the Centennial Exhibition in Philadelphia in 1876. The company started with one mill and a capital of $300,000. This plant made 30 per cent. profits, so another was built and the stock increased to $1,000,000.[364]A North Carolina newspaper trying toencourage cotton manufacturing in that State, stated in 1880 that upon the $2,288,000 invested in the mills in South Carolina, the profits ranged from 18 to 25 per cent.[365]The Boston Journal of Commerce in 1881 gave the opinion of an Englishman visiting the Eagle and Phoenix Mills, Columbus, Georgia, that the No. 3 Mill, then new, was the best equipped in the world, and said that "The profit of these mills last year was 20 per cent. on a capital of $1,250,000 or $5.76 per spindle."[366]
Saffold Berney, in his Handbook of Alabama, published in 1878, made a rather elaborate computation of the earning capacity of a 4,000-spindle, 125-loom mill, making 6,000 yards of cloth per day.[367]It may not be uninteresting to see how he worked out a considerable rate of profit for a small plant. His calculations are:
Figuring the cost of this mill at $20 per spindle, and leaving aside, as before, money otherwise invested about the business, there is a capital of $80,000, upon which a profit of $15,135.00 is 18.8 per cent.
"Profits in the past," says Mr. Thompson, "have been so large that often before the last payment on the stock is due, a sum sufficient to pay all obligations has been accumulated." He cites as a particularly favorable instance, that of a mill which required no further instalments on subscriptions after a little more than one-third of the instalment-payment period had run out.[368]
A little incident is interesting as involving two of the most important and picturesque personalities and one of the chief mills connected with the rise of cotton manufacturing in the South, and it bears directly on the topic now being considered. It seems that the founding of the Piedmont Factory by Colonel H. P. Hammett in South Carolina inspired a notice from Mr. Edward Atkinson, of Boston, in which he reasoned that cotton manufacturing in the South could never pay. This came under the eye of Colonel Hammett. To the article he pinned his annual balance sheet, showing a profit of 20 per cent., and sent the two to Mr.Atkinson.[369]
In regard to these first years of the large establishment of cotton mills in the South, it is common to hear the opinion that the big profits made attracted the energies of the people to mill building.[370]Going a little further back, the mills in operation just before the textile era, though few in number, showed gains that bore a part in the boom about 1880.[371]
Twelve years after taking charge of the plant, Colonel Hickman had earned by the old Graniteville mill sufficient surplus to build the Vaucluse Mill at a cost of $361,513.24 without calling for assessments upon stockholders, and five years later had accumulated a cash surplus of $220,831.86. He had doubled the production of the original Graniteville Mill. The statement of the affairs of the two plants in 1804 showed:
Gross Profits:
This net profit amount represented 13.5 per cent. profit on $600,000 capital.[372]
Coming down, now, a decade later in the period. Thereis shown a degree of success pretty much uniform for the various mills.
The first plant of the Gaffney Manufacturing Company which was paid for when operation commenced, in three years earned enough to build an additional plant of two stories.[373]This mill indicates very well a fact brought out in the preceding chapter, that many additions to plant, which were being made after the mills had been a few years in operation, were accomplished from earnings. The Salisbury Mill is a case in point. Its inception and that of the Gaffney Mill the two being projected at about the same time had many things in common (as did the towns in which they were built). Increases in plant of the Salisbury Mill have been greater proportionally than the increases in capitalization.[374]
From manufacturers, from investors, and from persons acquainted with the public economy, have been had statements, each reflecting an individual bias, but each showing unmistakably that there was a general and marked decline in profits in the second decade of the development. A retired mill president, whose decision to leave the field was perhaps affected by the condition she described, regretted that the companies are still laboring under decreased profits as a result of the fact that mills werebuilt more rapidly than the market for goods expanded to meet the development.[375]Another mill president thought that no more mills are likely to be built in his section too many years. "They went it too rank, you know," he declared with some feeling. "Once in a while you hear of a new mill starting up, but its not as common as it was ten or fifteen years ago." He put the date of the fall-off in profits at about 1900.[376]The son of Colonel Hammett, several times mentioned, who is a successful manufacturer, deplored the building of too many mills in a short period, and said that profits fell away abruptly.[377]
A bank president whose institution has played a leading part in the textile prominence of Columbia, South Carolina, said that "1890 to 1900 was the heaviest borrowing period, as this was the greatest period of development. Profits were poor, especially from 1895 to 1903."[378]
Though he does not believe selling agents have taken much stock in North Carolina mills, Mr. Thompson attributes many failures of mills to "slavery to commission houses through which they sell their product." He implies that it was the grip which the agents got on the mill by the loan of running capital thatbrought the ill effects. At any rate, the commission houses became more deeply interested in the mills as the plants increased in numbers, and profits were hurt by this fact, he believes.[379]This influence continues, thinks a former president of the great Graniteville Mill, who said: "The commission merchants take the very heart out of the mills. The commission houses of New York, Philadelphia and Boston get more out of the mills than the stockholders in the South."[380]
While it is true that "most of the mills of the South have succeeded,"[381]there have been, besides some concerns which have stood still, neither making nor losing, a few notable failures. It is the common opinion that failures have been due almost entirely to lack of capital and bad management. Probably these faults and a good many others contributed to the ill success of the old Charleston Manufacturing Company, which began life with such high hopes at the outset of the cotton mill era. If any enterprise was an expression of the motive forces in the South in 1880, this one was. It supplied a potent example to communities all over the South contemplating cotton factories. The property of the Charleston Manufacturing Company was soldunder the hammer to the Vesta Cotton Mill Company, which was not more successful with the plant. After standing a year idle, the attempt was made to operate the mill with colored help, and a reorganization of the Vesta Company was had for this purpose. A large proportion of the subscribers to the original company remained in the two reorganizations that followed.[382]In the experiment of negro operatives the old factory was again opening up a vista to the South, for, as it was vainly pointed out to the negro population of Charleston, if the trial of colored operatives in the Vesta Mill had succeeded, plants all over the section would offer employment to negroes.[383]When this third effort to use the plant for a cotton mill came to nought, the machinery was moved to Gainesville, Georgia, and though the top of the new mill was carried away by a cyclone almost as soon as completed, the company is now doing well in its new location.[384]The great, gloomy pile that thrice held so much of the confidence of the South and the best hopes of Charleston still flanks the railway tracks and rears itself above the depot, and seems all very silent in spite of the fact that it is now occupied by tobacco manufacturers.
The grandfather mill, as it might be called, of the Southern textile industry, is that of Graniteville, established by William Gregg in 1846. The factory nearly failed in 1867, but was saved by the genius of H. H. Hickman, a merchant of Augusta, who became its president at the critical juncture. He died in 1898, and his son came in as president. At his retirement and the reorganization of the mill, a business man of Augusta has been elected the new president, but it will require, it is said, from seven to ten years for him to build up the organization again.[385]
The Royal Mills, the only cotton factory now operating in Charleston, was built eighteen or twenty years ago, in the period of stress just noticed. George Wagener, the original manager, left the mill at his death with a surplus of $90,000. It went into slovenly hands, and failed. It has been remodelled, however, and is now making money.[386]
The small mills' success inspired the belief that large plants would succeed. The Olympia, until recently the largest mill in the world, was built at Columbia, and the Loray Mill, with more than half as many spindles, was founded at Gastonia. It is the general opinion, whether colored too largely by theunsatisfactory history of these two conspicuous factories or not it cannot be told, that there have been more failures among the large than among the small mills.[387]It has been said of the North Carolina manufacturers as opposed to those of South Carolina that they "are not so ambitious for big places, (at the head of large companies) and a lot of those little fellows are getting rich." The North Carolina mind seems to run on smaller things. I am not sure but what the North Carolina mills have been more successful than the South Carolina mills.
A committee representing New England manufacturers has stated in spite of an advantage over the Eastern mills of 25 per cent. in labor, and 50 per cent. in respect to taxes, the Southern mills have made less profits than their older competitors because of poor financing. However this may be, the total losses on $100,000,000 invested in cotton manufacturing in the South in thirty years does not represent more than 20 per cent., is the belief of Mr. Thackston, of Greenville.[388]
To go to a lyceum lecture on a sultry summer night and be whisked away by picture and description to the snowy peaks and green glaciers of the Canadian Rockies is not a more completeor refreshing transition than that experienced by the traveler who lumbers along the Southern Railway for weary, slow miles of sodden country and ill-kept settlement, all at once to alight at the neat station and view the trim town of Gastonia, North Carolina. It is not attempted here to account for the New England psychology that animates this nonetheless Southern place, but it is deserving of better praise than its harsh name gives it. Neither is it proper in this place to seek to account for the success of its score and a half of cotton mills. The recital of the profits they have made since the European War is astounding, but there is every cause to believe in the accuracy of the information given.
In the first place, while the big Loray Mill, as has been seen, has not reflected much credit upon the community of factories at Gastonia, and is spoken of not very warmly there, no mill in Gastonia has ever had a receivership.[389]
The mills at Belmont right near Gastonia are making on the average 25 per cent profits. The Treanton Mill at Gastonia, paid 100% in cash during the first five years of its operation. The Majestic Mill, at Belmont, was expected to make in 1916-1917, 100 per cent., or the price of the plant in a single year.[390]
In cataloguing the notes from a summer trip to the mill towns, the writer feared he had made some mistake in setting down the results of an interview with the vice-president and cashier of the First National Bank, Gastonia, which is most largely interested in the mills of the place, as to the earnings. He therefore wrote for a restatement on doubtful points, and found himself confirmed. To quote the case of one mill from Mr. Robinson's reply. "We have a mill here that had $150,000 capital paid in, and after a short time issued a stock dividend of 20 per cent. which gave them (it) a capital of $180,000, and this mill made $155,000 net profits for the year 1915. I am satisfied that this same mill will make 125 per cent. profit this year (1916) on their (its) $180,000 capital, or around $225,000 net profit."[391]