Trading with the Enemy Read online

  One

  The World Cotton Economy

  TRADING WITH THE ENEMY WOULD HAVE BEEN IMMATERIAL during the Civil War but for the significance of cotton.

  Although the South was desperate for supplies of all kinds, the North had no reason to provide them if the South had nothing of value to trade. While the South's “King Cotton Diplomacy” failed to create enough anxiety in Europe about a war-induced cotton shortage to prompt Great Britain and France to intervene on the side of the Confederacy, the resultant intersectional trade between North and South demonstrated that cotton was no puppet monarch. The Northern states, and the industrialized economies of Europe, were more dependent on the staple than is commonly realized today. The profits were so extraordinarily tempting that efforts to block such trade were hopeless. Historian Lauriston Bullard wrote, “Massachusetts depended almost as much on cotton as did South Carolina and Mississippi.”1 Charles Francis Adams Jr., who was the son of Lincoln's minister to Great Britain and grandson and great-grandson of two American presidents, said, “Boston…became…a proslavery community, and it remained so until 1861.”2

  King Cotton was not the impotent power it is often ridiculed to be by twenty-first century observers. Ward Hill Lamon, who was one of Lincoln's legal partners for five years before the war and his personal bodyguard during the presidency, explained why Southern secession was such a frightening threat to Northerners:

  [Cotton] formed the bulk of our exchanges with Europe; paid our foreign indebtedness; maintained a great marine; built towns, cities, and railways; enriched factors, brokers, and bankers; filled the federal treasury to overflowing, and made the foremost nations of the world commercially our tributaries and politically our dependents. A short crop embarrassed and distressed all Western Europe; a total failure, a war, or non-intercourse, would reduce whole communities to famine, and probably precipitate them into revolution.3

  Presently it is easy to take the abundance of cotton clothing for granted. However, in the eighteenth century, cotton was more expensive than wool, linen, or silk. Before mechanization of the cotton textile industry, it took up to fourteen man-days to create one pound of thread, compared to six man-days for silk and two-man days for wool. Like modern semiconductors, from 1784 to the start of the Civil War in 1861, the price of cotton dropped 90 percent owing largely to technological advances in the production process. In response, cotton fabrics rapidly gained market share. In Europe during the century from 1783 to 1883, the fabric rose from a 6 percent share to nearly an 80 percent share, while wool dropped from about 80 percent to 20 percent.4

  The steadily declining cost created an almost insatiable demand for more cotton. It became known as a cash crop because it was nearly imperishable and could be inventoried indefinitely. It was practically a substitute for gold in international settlements between the United States and Europe. Financiers could extend credit on cotton inventories because it was fungible. In the sixty years from 1801 to 1861, shipping tonnage at Liverpool increased tenfold, from five hundred thousand to five million, translating to a 4 percent growth rate compounded annually.5 Consequently, cotton textiles became Great Britain's single largest industry at the start of the American Civil War, with about 20 to 25 percent of its population dependent on the sector.6

  During the seventy-five years prior to the Civil War, the American South became the world's dominant supplier of cotton. Cultivation required long growing seasons providing 180 to 200 frost-free days above sixty degrees Fahrenheit. The crop was typically planted in April or May. When the seeds sprouted in a couple of months, they had to be protected by hand chopping nearby weeds with a hoe. Next came cotton flowers, which burst into bolls in August. The bolls were handpicked through autumn. Before the cotton gin was invented in 1793, seed from the bolls had to be removed by hand. Less than six months after applying for a patent on his gin that mechanized the removal of cottonseeds, Eli Whitney learned that President George Washington granted approval. Unfortunately for Whitney, the government denied his requested renewal eighteen years later. The last step to market was to pack the seed-free cotton into bales typically weighing four hundred to five hundred pounds.7

  The cotton gin was merely the first in a string of production-process improvements. Examples include water-powered looms, spinning Jennies, and the steam engine. Cotton textile production was the first example of a large-scale industry resulting from the integration of a variety of technological advances.

  In 1800, Great Britain imported sixteen million pounds of cotton from the United States, which represented 28 percent of its requirements. By 1860, it was importing 1.23 billion pounds from America, which represented 88 percent of its needs. The British made several attempts to reduce their dependence on Southern cotton, but none were successful. India was a potential alternate supplier. But subcontinent cotton produced 20 percent less yarn and was more difficult to spin, and transportation costs were higher since India lacked railroads and an abundance of navigable rivers. Repeated attempts to reduce dependence on the Southern states consistently failed. For example, efforts to increase annual supplies from India resulted in a gain of only twenty thousand bales from 1800 to 1860, rising from one hundred thousand bales to one hundred twenty thousand.8 In 1860, the American South produced two-thirds of the world's supply, while Britain accounted for over half of world consumption.9

  Although New England's textile industry was far smaller than Britain's, it was virtually tied with France for second place. Later, New Englanders made significant improvements on Whitney's gin design, and the region had a number of streams that could be used to power water wheels for mechanized production. Massachusetts became the center of America's textile industry and also the largest manufacturer of cotton gins. As in Britain, on the eve of the Civil War, cotton textiles was America's single biggest industry. In 1860, its goods were valued at $115 million, compared about $73 million for wool and iron, which were the number two and three manufacturing industries respectively.10

  Northern states were linked to the cotton economy in other ways as well. Although the crop was raised in the South, nearly all the shippers exporting it to Europe were in the New England or middle-Atlantic states. Characteristically, coastal steamers would arrive in Southern ports from New York to discharge imports and load cotton for the return trip to New York, where the cargoes would be reloaded onto transoceanic vessels for export to Europe. Additionally, the lengthy growing season required that the plantation business have ready access to seasonal loans. But there were few banks in the South. Consequently, New York became both a financial and trading center.

  At the brink of the Civil War, New York City nearly monopolized international trade in the United States. Tariffs on imports accounted for nearly all of federal tax revenues, and New York City collected two-thirds of the total. When the South's cotton exports passed through the city, New York merchants took as much as 40 percent of the price paid by Europeans for profit and services such as warehousing, shipping, and insurance. As the first Southern states started seceding, New York business leaders became so alarmed that the city's mayor, Fernando Wood, proposed that Manhattan become an independent city-state similar to the seaport free cities of northern Germany. Wood fantasized about converting New York into a free city with minimal import duties that could supply both the North and South.11

  Of the original thirteen US colonies, only Georgia and South Carolina became important cotton producers. The real growth came from expansion into the states of Alabama, Mississippi, Louisiana, Arkansas, and Texas. Such states became known as the Old Southwest before the more arid lands farther west took on the identity commonly applied today. Lands in the Old Southwest were cheaper, provided fertile soil, and had good rainfall and a sufficiently long growing season. They were also laced with navigable rivers to provide inexpensive transportation.12

  Lands in the Old Southwest were auctioned in a mad scramble. Money poured in from the Northern states and Europe. Major buyers included companies with names li
ke New York and Mississippi Land; Boston and New York Chickasaw Land; New York, Mississippi, and Arkansas Land; and Boston and Mississippi Cotton Land. Few of the companies intended to settle and develop the properties. Instead they were speculators who hoped to promptly resell them. It was an orgy of land speculation fueled by an expectation for an ever-rising demand for cotton.13

  Without cotton, slavery was headed for extinction. It expanded chiefly into regions where cotton could grow, which was principally the Old Southwest. Slavery was considered indispensible for growing and harvesting the labor-intensive crop. But it was also important that slaves could be financed.

  Thus, planters used borrowed money to leverage their financial return in a manner similar to wealth accumulated by the World War II generation in America's housing market during the second half of the twentieth century. Rising prices and the financial leverage of a home mortgage enabled many twentieth century homeowners to move into steadily bigger houses as their families grew and to cash out at retirement. The key was to liquidate such properties before a real estate crash.

  The situation was much the same for cotton planters. Their plantations became increasingly valuable as cotton production increased. However, since the profits were perpetually reinvested in slave ownership, the planter's wealth fluctuated with the price of slaves. Under such circumstances, uncompensated emancipation meant financial ruin to the owners. Similarly, a halt in geographic expansion would probably lead to a decline in slave prices owing to a steadily rising slave population. On paper, slaves accounted for as much as 60 percent of the South's wealth, with an estimated value of $2 billion to $4 billion for its four million slaves.14

  So much money was tied up in slave ownership that the South had a shortage of funds for other investments. For example, from 1845 to 1860, banking assets in the South barely increased, from $62 million to $64 million. Meanwhile, bank assets in the North grew from $88 million to $193 million. Thus, the percent of bank assets in the South dropped from 41 percent to 25 percent of the national total in fifteen years. Yet the South was responsible for most of the country's exports. In 1860, Northern exports were only $45 million (20 percent), compared to $193 million (80 percent) in the South, of which $161 million was cotton.15 Southern exports enabled the United States to maintain a favorable trade balance. Given that gold was the international settlements standard, the country's ability to accumulate reserves was dependent on cotton exports. Cotton exports gave the United States substantial foreign exchange with which to pay for imported goods.

  As the South increasingly focused on producing cotton, it had to purchase services from the Northeast, food from the Northwest, and manufactured items from various Northern states. Domestic intersectional trade expanded as cotton exports grew. The Northwest annually sold about $30 million worth of food to Southern cotton producers, who also purchased about $150 million worth of manufactured goods from the North yearly.16 New England shippers transported cotton to Europe and returned with manufactured goods for Southern consumers. The region's financiers and merchants also found growing demand for their markets in the South. The interregional specialization prompted by slave-grown cotton facilitated public works on waterways and an ever-growing market for New England's cotton textile industry defended by the nation's protective tariffs.17

  New England's textile mills were central to America's Industrial Revolution. In 1816, less than 1 percent of the people in the region were employed in manufacturing. Twenty-four years later, in 1840, the figure was nearly 15 percent. The growth was mostly due to cotton textiles. In the late 1830s, two-thirds of the value added in New England manufacturing was in cotton textiles. Industrial use of cotton grew from 5 million pounds in 1790 to 433 million in 1860—more than eight times as fast as domestic population growth.18

  The region's specialization started as a reaction to the British blockade imposed during the War of 1812. Prior to the conflict, New England's was primarily a maritime economy. By 1805, the United States was the largest carrier of goods from European ports, and one-third of the fleet was in Massachusetts. In Boston harbor alone, the British blockade idled 250 ships. But the blockade also cut off most manufactured goods to the rest of the country. New Englanders foresaw an opportunity to meet the latent demand throughout the country for previously imported consumer goods by becoming a manufacturing center. Consequently, the region's investors poured capital into manufacturing sectors—particularly textiles—in preference to lending money to the federal government.19

  Francis Cabot Lowell was a brilliant mathematician and Harvard graduate from a wealthy family. On an 1810 trip to Great Britain, he secretly examined the country's textile manufacturing equipment and returned to the United States to copy and improve it. In a stunning incident of industrial piracy, he set up the Boston Manufacturing Company at Waltham, where he used the Charles River to power waterwheels. It was the first integrated mill turning out cloth from raw cotton. Such was the beginning of the famous Boston Associates that would include the Amory, Cabot, Higginson, Jackson, Russell, Lawrence, and Lee families. Later the families were labeled Boston Brahmins for the highest Hindu caste. The prestige of exclusive Brahmin society ultimately prompted “The Boston Toast”:

  And this is good old Boston

  The home of the bean and the cod

  Where the Lowells talk only to the Cabots

  And the Cabots talk only to God20

  The transition from small-scale operators to power-loom manufacturers led to steadily declining cotton cloth prices that fueled demand. Cotton cloth dropped from 30 cents per yard in 1816, to 6.5 cents in 1843.21 Historian Ronald Bailey concluded:

  New England graduated from shipping southern cotton to Europe and importing European manufactures…for distribution in the USA, to manufacturing these goods for the domestic markets…. Southern purchases of cotton goods from U.S. producers amounted to $27 million for the year ended June 30, 1860. This was about one-third of the total output of New England's cotton textile industry for the period…. The combination of…increasing incomes from raw cotton exports to Europe, expansion of commercial and manufacturing activities in New England and rapid…settlement of the West gave rise to sustained growth…for New England's cotton textile industry for many decades…. New England became the most rapidly expanding market for southern cotton…. In this way southern dependence moved from Britain to New England, to the great advantage of the latter's commerce and industry, especially the cotton textile industry.22

  By the mid-1830s, industrial New England had become wedded to the institution of slavery. It depended on a steady flow of cotton for profits. Northern bankers grew rich providing credit to Southern planters. The Northern maritime industry eagerly anticipated annual growth in cotton exports. Consequently, the economic interests of the disparate regions drew their leaders into tolerant and cordial relations.

  For example, among the Brahmins, a youthful Amos Adams Lawrence was sent by his father (Amos Lawrence) to tour the South as an agent for various Boston firms to spread goodwill among the planters. He was welcomed enthusiastically everywhere from Louisville to New Orleans to Mobile to Charleston. In return, Southern planters vacationed in New England summer resorts where they mixed with Northern manufacturers in Saratoga, New York, and Newport, Rhode Island. Each developed a tolerant regard for the rights of the other, cemented by personal friendships that strengthened economic ties.

  Conservative Northerners were repelled as abolitionism began to take root about the same time. They shuddered with horror when abolitionists criticized the US Constitution by proclaiming that any compact with slavery was evil and such a Union should be dissolved. Amos Lawrence, whose last name would later be taken by an abolitionist town in Kansas much hated by Missouri bushwhackers, told Robert Rhett of South Carolina that he would never interfere in the matter “unless requested by my brethren in the slaveholding states.” The New England cotton aristocracy, which was politically aligned with the Whigs, sought to reassure its Southern frie
nds that abolitionists were merely a lunatic fringe not to be taken seriously. Abolitionist William Lloyd Garrison was booked for his own protection as a “rioter” by Boston police when one of his speeches was interrupted by an angry mob in 1835.23

  Feelings against abolitionists were even stronger in New York. Five days before South Carolina seceded in December 1860, the Union Committee of Fifteen organized a meeting of business leaders in the Wall Street district to advocate for maintenance of the Union and to show support for Southern grievances. Two hundred were invited, but two thousand showed up. Among them were former president Millard Fillmore, Rothschild banking representative August Belmont, aristocrat William Astor, and future presidential candidate Samuel J. Tilden. Major cotton merchant Richard Lathers led the group. He began by directing his comments to Southern planters to “consider their duties to that part of their Northern brethren whose sympathies have always been with Southern rights and against Northern aggression.”24

  Also attending was John Dix, who would later become a Union general deeply involved in interbelligerent trade and still later governor of New York. Dix also publicly addressed the cotton states by adding, “We will not review the dark history of the aggression and insult visited upon you by Abolitionists and their abettors during the last 35 years. Our detestation of these acts of hostility is not inferior to your own.”25

  Three weeks later, New York mayor Wood spoke to the city's governing Common Council of his stunning proposal that the city join the tide of sentiment triggered by South Carolina and secede to become an independent city-state. “With our aggrieved brethren of the Slave States we have friendly relations and common sympathy…. An [independent New York City] would have the whole and united support of the Southern States as well as all other states to whose interests and rights under the constitution she has always been true.”26 Forty years earlier, cotton became the country's chief export. During the ensuing four decades, New York City grew to become the nation's commercial and financial center largely because of its primacy in the cotton trade.