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 crisis of cotton came from the civil war in the US. It was estimated by the time of the start in 1862, 20 million people worldwide or 1 out every 65 people, was involved in the cultivation or production of cotton cloth. In England, between 20 to 25% of the population was based on the industry; 1/10 of all British capital was invested in it and close to 1/2 of British exports was cotton yarn and cloth.

For the US, 61% of the value of its exports was cotton. In the 1850’s cotton grown in the US accounted for 77% of the 800 million pounds of cotton consumed in Britain; for France it was 92% of the 192 million pounds consumed; 92% of the cotton used in Russia.

Why so successful the US had the 3 critical ingredients that went into the production of raw cotton: labor, land and credit. Land was essentially free and soil is marvelously fertile; labor is abundant and the arrangement and mercantile organizations for cleaning and forwarding the cotton are all there. The phrase Cotton is King was true.

In an effort to force British diplomatic recognition, the Confederate government banned all cotton exports. This along with a northern blockage cotton exports fell from 3.8 million bales in 1860 to almost nil in 1862.

A mad scramble ensued because no one knew when the Civil War would end and would the south produce cotton again? The saving grace was in 1860 it was banner year and there were sufficient stocks in major ports and factories. Inventory could be used. As time went on, prices began to rise and no imports from the US led to closing for factories.

With higher prices, more supply came from India, Ottoman Empire, Egypt and Brazil.Crops increased and by 1894, the cost of cotton had fallen to 7 cents a pound from 24 cents in 1870.

Information always changes industry, for example in 1866, the first transatlantic telegraph cable was laid which accelerated the speed at which information traveled around the globe.

The emerging commodity markets were sophisticated institutions. The commodity markets helped standardize what a bale of cotton is. The standards were originally set by the Liverpool Cotton Brokers’ Association which became the Liverpool Cotton Association. This organization plus the New York Cotton Exchange helped define the standards.

In 1866, the US Department of Agriculture was formed, and it became the supplier of statistics to the public. This made their information valuable to everyone in the industry.

India has been the home to the world’s cotton industry and in 1843, it was the number one market for British manufacturers, By 1900, 78% of the British cotton industry was exported, much of it to India.

In the US, after the civil war, the US cotton empire expanded at a rapid clip and entered entirely new territories. By 1920, production had increased 2 1/2 times to 13,429,000 bales. The growth had come from 2 places: cotton in the older American cotton states of Georgia and the Carolinas increased in areas accessible by the railroad.

Cotton production increased in the Yazoo-Mississippi Delta where large numbers of African Americans grew cotton helped by new railroads, canals and levees. The most dramatic expansion occurred further west – in Arkansas, Louisiana, Oklahoma and Texas. The most important expansion was in Texas, in 1920 the growth in Texas amounted to 80% of what the south produced in 1860. The growth in Texas mirrored the expansion of infrastructure improvements including building of railroads and vast investments in irrigation infrastructure. In Dallas County, growers grew 3,834 bales in 1870 but in in 1880 21,649 bales an increase of 465% in one decade.

After the civil war, all manufacturing companies went looking for alternatives, and around the world between 1860 and 1920, 55 million acres of land in Africa, Asia and the Americas was planted for cotton. Approximately 80% of the land was situated in territories that had not grown cotton in 1860. By 1905, fully 1% of the world’s population were engaged in growing cotton.

There was another shift that was happening, the declining importance of cotton manufacturing in the United Kingdom. In 1860, 61% of the world’s mechanical spindles were located in England. By 1900 it was 43%, by 1930, 34% and it declined more during the depression and WW II, by 1963 it was 2.8%.

Where was it growing? the Asian cotton manufacturing had turned into the world’s fastest growing. Part of the reason was wages went up in England, which caused low-wage producers elsewhere to be competitive on global markets. At the same time, capitalists in the Global South supported by state policies conducive to their own project of domestic industrialization. They could draw on a pool of low-wage workers, many of whom had been displaced by the rapid transformation of the countryside.

Owners of capital in the Global South, awoke to the profit potential of industrial capitalism, and realized the opportunity in their backyards, their low-cost labor. These entrepreneurs often found themselves surrounded by workers experienced in textile production, had access to modern textile technology, and had sold imported cotton wares in their home markets. They understood to be profitable, industrial capitalism needed strong states to build infrastructures, protect markets, enforce property rights and maintain an advantageous labor market.

Today the world of cotton has changed, likely the shirt you are wearing cotton was grown in China, India, Uzbekistan or Senegal; spun and woven in China, Turkey or Pakistan, then manufactured in Bangladesh or Vietnam. In the US the top states are Arizona and Texas, but the cotton is so uncompetitive on the world market the growers receive federal subsidies to continue to farm it (about $4 billion a year). The vast complex in Lowell, Mass is a museum and closed up factories. In the US, 98% of all garments sold are made abroad. China supplies 40%, followed by Vietnam, Bangladesh, Indonesia, Honduras, Cambodia, Mexico, India, El Salvador and Pakistan. Yarn comes from China, India, Pakistan and Turkey. China contains half of the world’s spindles and looms, working with 43% of the world’s cotton.

In 1860, the US had a near monopoly on cotton growing for export, today only 14% of cotton worldwide is grown in North America. China and India lead the way with 34 million and 26 million bales respectively. Worldwide it is estimated that 3-4% of the world’s population is involved in growing, transporting, spinning and weaving machines and stitching clothing.

Linking to dividend paying stocks, every industry changes and with technology today, it will continue to change, as investors you need to understand how does your investments make a profit? In the example of cotton, it is land, labor and capital. How much does it cost for land? what is the maximum to pay for labor? what is the expected return on capital? the questions are relatively simple, but complex to answer because sometimes it depends.

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

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