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.

In Mississippi, in 7,000 square miles, the mighty Mississippi River had unloaded its rich sediments for millennia. In 1859, as many as 60,000 slaves produced a 66 million pounds of cotton, nearly 10 times as much as exported from Haiti to France at its height in early 1790s.

As the cotton industry became larger in the US, more networks built up to increase the advantages of growing cotton in the US. For example, as transatlantic travel became more secure and more predictable, the cost of transporting goods lower.

At the core of all these networks was the flow of cotton from the US to Europe and of capital in the opposite direction. The capital was more often than not secured by mortgages on slaves, giving the owners of these mortgages the right to a particular slave should the donor default. Bonnie Martin showed that in Louisiana 88% of loans secured by mortgages used slaves as partial collateral; in South Carolina it was 82%.

Some of the money made by the planters went to research and development of better cotton. In 1806, a planter brought back seeds from a cotton plant in Mexico which had larger bolls that could be picked more easily, possessed better fiber quality, especially fiber length and was resistant to rot. This became the basic cotton plant planted in the US.

If you were new to the business, books such as De Bow’s Review and the American Cotton Planter made it easier to get into the business.

In the 1820’s the British manufacturers were wondering are they too dependent on American cotton? There were 3 reasons: would America develop its own cotton manufacturing factories? other countries had cotton manufacturing plants would they take in more American cotton? and is the system of slavery sustainable?

In 1810, Francis Cabot Lowell travelled to Manchester to acquire a blueprints for a cotton mill. It was built in Waltham and financed by a group of wealthy Boston merchants and the company was called Associates of the Boston Manufacturing Group. The plant sold inexpensive coarse cotton goods and proved highly profitable paying dividends of 10% in paid up capital. In 1823, they group expanded to Lowell. Mass where the largest integrated mills anywhere in the world was built.

Around the world, in Germany, Russia the pattern followed. Access to capital and a history of textile production were essential to embarking on the manufacturing yarn and cloth with machines. The catalyst that turned the full-fledged cotton industrialization was pressure: the competition from British imports. In addition, it was extremely helpful if the government could impose measures on the importation of cloth from Britian or tariffs. Where governments did, a domestic industry opened up.

For Britian the key in the face of protectionism was to focus on higher-quality yarn and cloth, since they lacked competition from technologically less advanced manufacturers. In addition, they depended on markets in colonial or semi-colonial areas of the world.

Where were the prices of cotton set? Liverpool’s cotton exchange. The city of Liverpool’s port was the epicenter of a globe-spanning empire. Its merchants sent ships all around the world, mostly by wind (the clipper ships) and by the 1860’s by steam. For a long time, the Liverpool price was what cotton growers looked to, now days the price is NY Cotton Exchange.

How did the system work? For a planter in Mississippi to provide cotton to a Manchester manufacturer, a local Mississippi merchant, a so-called factor, had to provide the planter with credit to acquire land, slaves and implements. The factor probably drew on London or New York for these resources. Once the cotton had ripened, the factor would offer for sale to exporting merchants in the port of New Orleans, who would sell it to importing merchants in Liverpool, who would provide insurance on the bales and organize their shipment to Europe. Once in Liverpool, the importing merchant would ask a selling broker to dispose of the cotton. As soon as a buying broker found the cotton to his liking, he would forward to a manufacturer. The manufacturer would work up the cotton and then provide it to a merchant in a distant port, for example Calcutta. Once there the yarn would be sold to Indian merchants, who would distribute it to the countryside, where it would be bought by an Indian weaver, who would sell it yet again to other traders who would deliver it to the retail merchants in towns and cities. The empire of cotton consisted of tens of thousands of such ties.

Merchants everywhere constituted these webs, built on credit, trade, information, trust, social connections, and the never-ending search for profit.

Between 1800 and 1860, cotton goods accounted for 40 to 50% of the value of total British exports. In 1820, the value of raw cotton exported from the US was $22 million; leaf tobacco was $8 million and wheat at less than $500,000. Cotton constituted 31% of US merchandise exports, by 1860, the value of tobacco had doubled, wheat increased by a factor of 8, but cotton up nearly 9 times to $192 million or 60% of all exports.

Why did the cotton trade center on Liverpool? by the late 1830’s 89% of cotton imports came through Liverpool. They merchants succeeded for several reasons: initially Liverpool’s central position in the slave trade set it up well for cotton. Cotton initially arrived along with sugar, tobacco and other goods as return freight from the West Indies. Liverpool controlled up to 85% of the slave trade, by 1807 as much as 1/4 of the shipping was in slaves. Everyone who worked in the city port was experienced in long-distance trade and with the cotton growing areas of the Americas. The city benefited from its location near the spinning districts around Manchester, a connection that rapidly improved thanks to building of canals, improvements on the Mersey River and eventually the arrival of the world’s first railroads.

The most powerful and wealthiest of Liverpool’s merchants engaged in the cotton trade. The traders started with a 607 traders trading cotton but it was dominated by the larger ones. In 1820, the leading 10 cotton merchants imported 24% of all cotton coming into Liverpool, and the top 30 controlled 37%. By 1839, the leading 10 traders brought in 36% and the leading 30 had 60% market share.

Linking to dividend paying stocks, every industry has multiple parts and when you examine it they all must work together or find a way to work together. While it is possible to be independent or semi-independent, the system is the system and you must work within the system till it changes, hopefully for the better.

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