When you think of the industrial revolution, what industry do you think of? My answer would have been the invention of the steam engine and the railroad industry. Recently read a book which changes the viewpoint, the book is Empire of Cotton – A Global History written by Sven Beckert, published Alfred A. Knopf, NY, 2015. The book examines cotton through global transformation – the movement of capital, people, goods, and raw materials.

The discovery of the Americas will change cotton and enable the creation of a complex, Eurocentric maritime trade web; the forging of a military-fiscal state allowed for the protection of power into the far-flung corners of the world the invention of financial instruments – from marine insurance to bills of landing – allowed for the transfer of capital and goods of security to global investments; the construction of alliances with distant capitalists and rulers provided access to local weavers and cotton growers; the expropriation of land and the deportation of Africans created flourishing plantations.

After Columbus discovered the Americas for Europe, next came Hernan Cortes claiming the Aztec Empire for Spain and sending back gold and silver to make Spain the richest country in the world. Portugal acquired Brazil; France took parts of the Midwestern and Southern States or the states around the Mississippi River and a piece of Canada. England started a colony in Virginia and claimed most of the eastern seaboard.

For Europe the other big discovery was many people believed the earth was flat or they were Mediterranean centric. Vasco da Gama sailed around South Africa and made it to India. Before this route, all trade from India and China went through various middlemen who marked up prices. The trip around the South Africa met lower prices or higher markups or higher profits for Europeans.

India was the number one producer of cotton textiles, but European control was limited. One of the reasons why Indian textiles were so popular was their superior design and brilliant colors. The work was done in the home and had been done for centuries which allow people to have great skills.

In Americas, the Europeans started with taking gold and silver, but gradually moved to the growing of rice, tobacco and indigo. To grow these products they needed bodies or slaves. Often the currency of choice for the sellers was cotton textiles. For a time 50% of the purchase price of slaves was cotton from India, the people produced agricultural commodities for European consumers.

At first the plantations in the West Indies produced sugar cane, which requires a lot of bodies to grow and harvest. Then cotton was introduced because the manufacturers in England were dependent on India for their raw cotton and in business it is always better to have more than one source of raw material.

The revolution began in the most unlikely of places: a quiet valley in the low hills that surround Manchester, England. If you think of England, you will likely know where London is. Travel northwest 3 hours by car and you will reach the city. Not far from the airport is the Quarry Bank Mill. This was the first mill to use a new spinning machine called water frames which used falling water to mechanize the work for hundreds of years done by humans. The year was 1784.

The cotton came from Jamica and Brazil which arrived in the city of Liverpool, about a hours drive away, The spark that was ignited in Manchester changed the city into the leading manufacturer of cotton and made England the dominate country in the world.

The question of why Manchester and not somewhere else? For a long time, cotton cloth was less inexpensive in India, for example in 18th century India spinners needed 50,000 hours to spin a hundred pounds of cotton. In 1790, using a 100-spindle mule, could spin the same amount in 1,000 hours. In 1795, they needed 300 hours with the water frame. In 1825, it was 135 hours. In 3 decades, productivity had increased 370 times, which meant labor costs in England were less than India. An increase in productivity would demand more cotton inputs.

Prices for British yarn fell every year and soon were lower than yarn manufactured in India. In 1830, a British manufacturer could sell Number 40 yarn for 1 shilling, 2.5 pence, in India the price was 3 shillings, 7 pence. The output of British manufacturers grew annually at 10.8% or another way to look at it, in 1788 there were 50,000 mule spindles, by 1830, over 7 million.

Linking to dividend paying stocks, to gain entry into a market you can either do it on a value proposition or be less expensive than the other company. To be less expensive you need to use technology to increase productivity which lowers unit costs which makes it competitive and then have a competitive advantage. It seems to be a never ending loop, but there are markets that seem easier because they tend to have monopoly characteristics.

There are more questions than answers, till the next time – to raising questions.