CHAPTER V. _financing the Mills_

FINANCING THE MILLS

The preceding chapter dealt with the capital of the Southern cotton mills in the period of their establishment. It was first noticed that local capital was naturally drawn upon before any other, and the character of the appeals to local resources and the response to these appeals were brought out. The second division of the report dealt with the attitude of the Southern mill promoters toward outside, usually Northern capital, the nature of the appeals made to Northern capital, and the extent of the response to these solicitations.

Altogether, the surface aspects of the securing of capital were dealt with in a large way; in denominating the present chapter and that following: "The Financing of the Mills", it is intended to bring out the minutiae of the process, and to set forth the mechanism of the problem in its detail.

In seeking to make clear the methods of securing capital in the South, it is convenient to consider first the soliciting of subscriptions to stock, and at the outset it will be well to give a notice that appeared in the financial advertising columns of the Charleston News and Courier at the beginning of the period of cotton mill growth. This notice is directed by "The Charleston Manufacturing Company to The Citizens of Charleston", and carries a contemporary flavor that is of service in an understanding of the problem. Given almost entire, it reads:

"The necessity of establishing manufactures in our city, not only as a profitable means of utilizing capital, but more especially for furnishing employment to many in our midst, has been long felt. To put this matter into practical operation, a few gentlemen applied to the last Legislature and obtained a most favorable charter for 'The Charleston Manufacturing Company'.

"The intention is to raise the capital necessary and to proceed forthwith with energy and activity to erect and put into operation a cotton factory and yarn mill which will be second to none in the South. The marked and rapid success of the Charleston Bagging Company shows what can be done here.

"The undersigned, therefore, being those named in the charter and their associates, lay the matter before you, and respectfully urge your co-operation in carrying the work into effect.

"For this purpose Books of Subscription to the Capital Stock of 'The Charleston Manufacturing Company', under the charter granted by the last Legislature, will be opened on Thursday next, 27th instant, at 10 o'clock A.M., at Office of the Carolina Savings Bank, corner of East Bay and Broad Streets, and continue open from day to day until the entire Capital stock is subscribed. Shares One Hundred Dollars each. Ten per cent. of the amount subscribed will be called for when all the Capital is taken and the Company organized. Further instalments will be called for as needed." There follow the twenty names of those obtaining the charter.

The dignified yet homely character of this advertisement is made even more intimate by a dispatch from the capital, Columbia, to the same paper two months later, in which it is announced that over $90,000 had been subscribed in amounts of $2,500 and $5,000 to the project of "The Columbia and Lexington Water-Power Company" (a plan for a large development of cotton mills). The charter provided for a minimum capital of $500,000 and a maximum of $1,000,000. "The present object (in opening books of subscription before calling upon first subscribers for more) is to give everybody in the State an equal chance.... It is designed to visit each county of the State, with a view of making it as far as possible a State institution. It is expected that the $500,000 necessary can be easily secured in the State, but as much in addition will be welcomed to complete the capital stock ... nearly every man who is able will contribute to its (the undertaking's) speedy fruition." There is added the significant circumstance that "Governor Hagood will accompany the committee when they go to Charleston (to open books there) and use his influence in behalf of the enterprise."

The plant of the Pelzer Manufacturing Company is in the so-called up-country of South Carolina, but its projectors were Charlestonians, and Charleston was the financial center of the State and of the South, indeed, at that time. Consequently books of subscription were opened in Charleston, rather than in Greenville or Spartanburg, the little cities they were then, near the water power which should drive the mill. Ten per cent. of the amount subscribed would be required in cash.

The time necessary to secure the needed subscriptions may be checked up by following the optimistic notices that appeared in the paper from day to day as the capital grew. In this instance books were opened on January 25th, and on the twenty-seventh it was published that "the subscriptions to the stock ... amounted yesterday to $30,000, leaving but $50,000 to be subscribed. The books remain open today...." Toward the Trough Shoals (South Carolina) mill project of Walker, Fleming & Co., $50,000 was subscribed in capital stock in one week. Subscriptions to the Charleston Manufacturing Company, pursuant to the advertisement already quoted, were first received on January 27th; by February 4th, 189 subscribers had taken stock to the amount of $206,600. Two days later the amount had reached $220,200 representing 195 shareholders.

Mr. Converse, one of the proprietors of the Glendale Factory, which had proved itself successful, bought up the site of the Rolling Mill of Mr. Boles, at Hurricane Shoals, seven miles from Spartanburg; the first $200,000 was quickly subscribed for, and books of subscription for $300,000 additional stock were opened January 1st; February 14th they were closed, the amount having been taken.

This suggests a practise which was and still is frequent in the development of cotton mills in the South, namely, that of increasing the capital stock over the amount first proposed, as soon as the original sum had been subscribed, or when subscriptions somewhat in excess of the intended maximum had been received. In the case above, the additional stock was larger by $100,000 than the amount first offered. The Cannon Cotton Mill, Concord, North Carolina, was organized with a capital of $75,000. Before the building was completed, the capital stock was increased to $90,000 or so, most of the stockholders adding to the amount of their subscriptions. The Seminole Mill, now erecting at Gastonia, was designed to have $175,000 capital. Mr. Armstrong, its projector, saw that more persons wanted stock, and he increased the capitalization to $225,000. The plant was intended first to have 10,000 spindles, later increased to 12,000 or 15,000 spindles. Similarly, some others of the new mills under construction in Gastonia are capitalized above the amount named in their charters.

A very usual occasion for increase in the capital stock of a mill company has been the enlargement of the plant. Thus the Enterprise Factory, Augusta, Georgia, declared a 10 per cent. dividend and decided to increase its capacity by 125 per cent. or more. In this case the entire $350,000 extra capital stock was being negotiated for by M. J. Verdery & Co., brokers of Augusta; it was understood that one man and his friends would take stock to the amount of $140,000. If the statement of a rather flambuoyant trade review of three years later may be trusted, the entire stock of this mill after enlargement was $500,000 which would make the increase in stock $200,000 greater than the original capital. It is probable that the stock was doubled to bring it up to $500,000; three months after the decision to increase the stock, it appears, all but $50,000 had been secured, and this would be placed within the week. The directors of the Louisville and Nashville Railroad took $95,000 of the stock--"of course as individuals." Evidently, the plan of the brokers did not carry through, and the mill corporation put its stock regularly up for subscription.

The mill projected by Walker, Fleming & Co., already mentioned, was intended to have $100,000 capital as a beginning, this later to be increased to $200,000.

At a meeting of the organizers of the Salisbury Cotton Mills, held in November of 1887, "The capital stock was upon motion fixed at not less than $50,000, and not exceeding $100,000." A month later at a meeting of the subscribers, it appeared that $66,400 had been subscribed. Later the stock was increased; those soliciting subscriptions to the original stock experienced no difficulty in securing increase of these subscriptions. By March, 1893, the capital stock of the company had reached $250,000.

This last instance accords with what was told me by a gentleman of wide experience in the business, that the plants now having a stock of $100,000, etc., got their large capitalization by selling additional stock to the original subscribers at a reduction--say at 75 or 80 when the par was 100. The ventures were profitable generally, and the stock was maintained at its par value.

The character of the promoters of a venture always carries weight, but this was peculiarly true in the establishment of cotton mills in the South. Today, truly prominent men are known all over this State, and all over the section. Thirty-five years ago this was the fact even more than at present; the signatures to prospectuses were important through personal qualities as well as through business reputation. When it was said that those back of the scheme to build a factory in York County, South Carolina, were "among the most reliable and responsible men" in the county, the statement probably carried as much earnest of good faith as the accompanying notice that $25,000 toward $75,000 had already been taken.

The size of the plant to be erected was given consideration in financing a mill, though this did not enter to the extent that one would think. Opposite views were held as to the practicability of financing small mills. As far back as 1849 it seems natural to find a plan for financing a mill, by which fifteen planters would take each $4,000 worth of stock, select a site near their plantations, each detail three men, making a building force of forty-five, with teams and an overseer and general manager, the latter one of the stock-holders; these proceeding to put up a wooden building of three rooms. A persistence of the economy which suggested this arrangement is reflected, perhaps, in an editorial of The Daily Constitution, Atlanta, thirty years later, in which it is pointed out: "The people of the South who have money to put into manufacturing enterprises should build spinning mills. The South is not rich enough to do much weaving, but there is no reason why it should not convert a good part of the great crop into yarns.... There is plenty of surplus money in the South with which to establish spinning mills.... We do not refer now to mammoth mills, but to little neighborhood spinning mills."

The mills about Greenville are nearly all of considerable size. This is due perhaps to the effect of the example of the failure of the Huguenot and Campderdown mills, small ventures, both located within the city limits, as contrasted with the success of Pelzer, built later, and in the depths of the country. It is said to be the impression around Greenville that the small mill is hard to finance; so far from considering the small project suitable to the financial strength of the community in which the plant is proposed to be located, the reason for the lack of favor for small concerns was given the writer in the opinion that they could not attract outside capital, and that consolidations had recently resulted in South Carolina from this fact. For different reasons, principally considerations of managements, there is now a well discerned tendency in the Carolinas, at least, back to the small mill.

Mention has been made of the power of reputation in the financing of a cotton mill. Not only was this stressed in suitable ways by those concerned in securing funds directly, but it was used in another way. This may be conveniently illustrated by the history of the great mill at Albemarle, North Carolina. Some years ago this village was an isolated one of five or six hundred inhabitants. A family of planters near the place, the Efirds, wanted to see a cotton mill located at Albemarle. They were probably as little able to attract capital as the village was uninviting to the industrialist. In this situation, the Efirds approached J. W. Cannon, of Concord, a town nearby, who had succeeded in the cotton manufacturing business and had extended his interests to mills in other places, and asked him to take the presidency of the mill proposed, and subscribe to $10,000 of stock. Mr. Cannon was not much inclined to go into the venture, but the Albemarle family showed determination. The plant today is a mile long, and represents an investment of some $3,000,000. It is said that most of Mr. Cannon's mills outside of Concord had birth in the minds of people of the several communities; for instance, a merchant named Petterson interested him in a mill at China Grove.

One of the most interesting cotton mills in the Southern States is that of the Gaffney, South Carolina, Manufacturing Company. The mill was conceived by a building contractor of the place while working upon churchs and cottages in a nearby mill village, that of Clifton. When he had planted his idea in the minds of the leading men of Gaffney, spurred them to local subscription and then to seeking money at the North, and because receiving small encouragement in New York and Philadelphia, their enthusiasm subsided, Mr. Baker, considering home enterprise and outside assistance unavailing, went to Mr. Converse, head of the successful Clifton Mill, and asked him to take over the Gaffney project at the point at which it had been dropped. Mr. Converse was aged, and felt himself overburdened with mill cares, but he encouraged the Gaffney man in his ambition, saying that mills in the South would pay better dividends than Northern mills, either large or small.

Meantime, however, Mr. Baker had come to know H. D. Wheat, the superintendent at Clifton. The indomitable promoter had hard work to persuade the practical-minded superintendent to leave his good position at Clifton for the uncertain fortune of a factory at a town which had failed to establish the mill itself, and could not interest Northern support; but finally, Mr. Wheat agreed to raise $20,000 besides his own subscription, to add to the subscriptions still in force at Gaffney, and to take charge of the mill as its active president. The $20,000 was invested by friends of Mr. Wheat at Clifton and at Kings Mountain, nearby. Directors were soon elected, and the imported president with his contributions to the venture, was installed.

At the commencement of the great period of cotton mill building in the South, every town which could make any pretensions to ability to establish a mill was engaging the utmost resources of the moneyed men it had--capital was hardly seeking opportunities for investment. Sometimes, however, a place with almost no resources and with only a few enterprising citizens, perhaps, would advertise itself openly as an inviting chance. An advertisement in the winter of 1881 read: "We will give to a Cotton Manufacturing Company, that will organize and locate at Landsford, S.C., with a capital of $300,000 a site, 20 acres of land and 300 horse water power." Those interested were directed to apply for particulars to three gentlemen living respectively in Rock Hill, Landsford and Charleston. These were doubtless promoters who had settled on this particular town as worth effort, or who were burdened with real estate of no value unless the town could be built up.

But these instances were the exception at a time when everybody was too much concerned with the cotton mill in his own town, to think of the needs of another place. There is a notable instance of the bidding of one place against another for a proposed cotton mill, however, in recent years. Captain Ellison A. Smythe announced that he would put up a fine goods mill as all of his interests in the Piedmont of South Carolina have prospered, there was keen rivalry between Greenville and Laurens for the plant. There were campaigns in both places, much enthusiasm being evidenced; Greenville was able to offer the best proposition, and got the Dunean Mill.

In the methods of securing capital at home, two co-operative schemes are to be considered. The plan that comes first to mind as co-operative is said by Mr. Holland Thompson book to have been often employed in the building of cotton mills in North Carolina; shares would be of $100 par value, made payable in weekly instalments of one dollar, fifty or even twenty-five cents, thus attracting the very small investor--operatives took shares under such an arrangement. The last payment plan requires eight years for completion, as against four or two for the first plans; those wishing to do so might pay cash, less six per cent. for the aver payment-time, the discount bringing the share down to $89.60 plus.

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. The Spartan Mills, Spartanburg, South Carolina, were rected under a building and loan scheme which gave the mill management little ready money. 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, Massachusetts; 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.

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?"

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. 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. 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.

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.

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. 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.

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.

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 assistance 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 assistance. One case will illustrate 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.

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.

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 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.

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.

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.

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.

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 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, 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. 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.

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. 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."

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. 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.

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.

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."

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.

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 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.

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.

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.

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.

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. 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. 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.

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. 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.

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.

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.

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. 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.

The commission men, on the other hand, must expect to get their returns slowly, 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.

The machinery men have in a few cases held the stock they have taken in a mill. 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.

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.

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.

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.

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 assistance given by commission houses and machinery manufacturers, to put up the plant. 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 capital has not passed from this category; the mills still borrow working capital at certain periods.

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.

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 enumeration of 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."

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) 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. Mr. Keyser and Mr. Sinton were two of the six directors of the company. 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. 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, 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 first mill was erected, or perhaps success had altered judgment, with some local subscriptions, the machinery people took a considerable amount of stock.

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." A large part of the stock for this enlargement was subscribed by Northern capitalists.

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, 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 this growth 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.

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." 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 will give competition in freights." 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. 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.

A mulatto started a cotton mill at Concord in the same State; 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.