Chapter VI: FINANCING THE MILLS (Continued) (1)

An eminently successful mill president in Augusta was full of pessimism toward all the problems broached to him, but three characteristic sentences as to the capacity of Southern cotton manufacturers for financial administration fit the case of too many mill officials, undoubtedly:

"The people of the South have got no business sense; I am a Southern man, and I say that. Back yonder before the war what money they had was in land and niggers. They knew nothing about financial management on close make-or-lose propositions." This judgment is borne out by that of one of the foremost newspaper editors of the South, who is also a large investor in cotton factories, who said: "The history of the industry abundantly vindicated what Edward Atkinson said about the South not knowing the difference between a penny and a nickel. None of the projectors, with the exception of H. P. Hammett and a few like him, could carry to the mills more than a general business and executive capacity." Because of prosperous conditions, he said, most of them made money in their ventures, despite their lack of business experience, but he added "... when depression came, when it was necessary to discriminate between a penny and a nickel, the mill went to blazes. It was the exceptional man who could endure the test of the penny rather than the nickel."

Similarly, a Charlestonian who had just returned to the city after attending the reorganization of one of the most famous mills in the South, in which he is a heavy investor, was moved to declare: "Mismanagement and incompetency (the Southern people are the poorest business men in the world with a few exceptions) ... are responsible for most failures."

Mr. August Kohn, in Columbia, who is himself a broker and the historian of the South Carolina mills, while recognizing the fact of these shortcomings in Southerners, as obtaining in the past and yet not overcome, held out a more hopeful view for the future: "Lack of capital and lack of trained management have been the great difficulties where mills have failed. We are developing management of the trained sort in experience and in the improvement in the business tone of our people."[343]

With this introduction, it is convenient under the general topic of financial administration, to dispose of several random points at the outset of the chapter.

Until the outbreak of the European war, two great cotton mill combinations in North and South Carolina, were those controlled by Mr. James W. Cannon, and centering about Concord and Kannapolis, North Carolina, and that of the late Mr. Lewis W. Parker, with principal offices at Greenville, South Carolina. The former consists of thirteen plants, and the latter, which is no longer in existence, once numbered as many as sixteen mills. These combinations were financed on opposite plans. A gentleman trained by Mr. Parker, and at one time in a leading position in the management of the mills in the Parker Merger, so called, explained that "... Lewis Parker in his merger thought that amalgamation would reduce over-head expense; that he could get cheaper money and cheaper supplies by buying in quantities." He "... was offered immense sums of money at 3 per cent. when his merger went together, although before he had never gotten money at least than 5 per cent. for the individual mills."

In distinction from this plan, the Cannon mills have not been constituted into a merger in the same sense, though they are all under the presidency of Mr. Cannon, who said: "The management of each of the ... mills is distinct, though there are practically the same stockholders in all the mills. Lewis Parker had a merger, and tried to run it all from one office. my view is that each mill must have its own management and separate attention to secure success." He admitted that "There is not much saving on concentration where each corporation is a separate organization. Each mill has its own directors. Each mill must stand on its own financial strength. In many instances where the quantity is large, supplies are purchased for all the mills together, but where the quantity is less, this is not done."[344]

These two plans are brought nearer together, however, by Dr. Beattie's opinion that in practice Dr. Parker's idea of the saving to be derived from the merger would not work out, from the fact that all officers and higher employees of the combination would want increased pay for additional work, and not in proportion to the extra labor and responsibility imposed.[345] To this is to be added the caution that Mr. Cannon probably does, in borrowing and in administration generally, accomplish many economies not indicated in his statement.

An editor said that there was no "graft" particularly in the promoting of the mills; that the minutest details of an enterprise were watched by the people of the community. This tends to be a confirmation of the view the writer brought to take of the development of the industry in the South, that it was to a larger extent the child of the public initiative and concern than most economic movements.

Mr. Thompson says that "The North Carolina mills have been almost invariably managed honestly in the interest of all the stockholders."[347] This is true of the entire South. There have, however, been two instances of fraud, one chargeable to Northern selling agents, but the other, unhappily, though also inexplicably, the result of wrong-doing on the part of a Southern man who had drawn together a number of mills. The former case was one in which a New York commission firm which had taken the president of a successful plant under its patronage, and placed him at the head of a mill in which the firm was sinking large sums, was angered at his effective attempts to free the second mill from the influence of the selling agents, and sought vengeance by ruining the original mill of which he was president. In the second instance, it is said, the president of the merger, during years in which his associates and the general public had every confidence in him, had been owing, unknown to a soul, $400,000 to the holding company and to the constituent mills. When there was a directors' meeting of the holding company, the constituent mills would appear to be the ones involved, and when the several companies met, the sum seemed due to the general company. One of his intimate co-workers stated that "His failure shook this whole section, not only in a business way, but in a moral way."[348] And of both incidents, it was believed by another that to them was attributable a loss of interest by the Southern communities in mill building.

The depression following the panic of 1873 gave trouble to most of the cotton mills established in the years before the period of the industrial revival. During the hard times, for instance, some of those who had gone into Colonel Hammett's enterprise for the Piedmont Factory declined to pay their subscriptions. For the three months during which the machinery was being installed, the only pay the workmen got was credit for groceries at a small store in Greenville, two officers of the company giving their individual note of $500 as guarantee.[349] Colonel Hammett drew upon every resource of business and personal friendship to tide the venture over from 1873 to 1876.[350] He went so far as to mortgage his horses and carriage to buy the belting for the plant.[351]

In some of the mills, the treasurer has the largest part in financial administration. In such cases he is frequently a younger man, a product of the newer South, who has pushed his way up in the enterprise to the position of real power, leaving the president, who is perhaps a man better equipped in community esteem than in specific training, as nominal head of the concern. This has happened at Gastonia, North Carolina, a particularly progressive spinning place. But in most of the companies, especially the smaller concerns, the president is in chief control of financial affairs. He often stamps his personality deeply on every department of the business of the mill and village and region even. A case in point is that of Mr. Charles Estes, when interviewed 98 years old, and for twenty years before his retirement in 1901, president of the John P. King Manufacturing Company, Augusta. With some show of pride, he related how during his active career the manager of the R. G. Dunn commercial agency in Augusta one day called him into the office and let him see the report of the King Mill. It read: "John P. King Mfg. Co. Capital Stock $1,000,000. 3 per cent. semi-annual dividends. President calls directors together once in six months and tells them what he has done." "And that was the way I ran the mill," he declared.[352]

The Salisbury, N.C., Mill has a singular plan. Financial administration is concentrated in the hands of a finance committee composed of the president, treasurer and agent, or manager. The directors do about as the finance committee indicates; they hold a less important place because of the ill health of several of their number. Though nominally the whole finance committee passes on questions, the president does not attend regularly, and one of the directors not on the committee always agrees in the action of the smaller group.[353]

The effect of strong personality in a promoter and of the business reputation of his enterprise upon impressionable Southern communities has been mentioned in a previous report. This came out clearly in the ease with which money could be borrowed. It was said by an old gentleman who knew Colonel Hammett in South Carolina very well that "The few capitalists we had then (we didn't have many) just came to his assistance whenever he asked them."[354] With respect to certain wholesale merchants of New York, Philadelphia and Boston, the writer was made to believe that they have so much confidence in a particular North Carolina manufacturer, that they give him any amount of capital he needs.[355] Mention has already been made in another connection, of the fact that Mr. Parker was offered large sums of money at 3 instead of 5 per cent. when he broached his merger successfully. The recent depression of the famous Graniteville mill, one of the first in the South, was accounted for by the statement that everybody was ready to lend money to Graniteville as an old and reliable mill, and never thought of requiring it back, until all at once all the lenders wanted their money, and this fortuitous trend made reorganization necessary.[356]

During the war the old Augusta Factory was sold into new hands at, ostensibly, $200,000. The new company capitalized the plant at $600,000, about what it was worth. It must have been a device to lend financial prestige to the mill that Governor Jenkins of Georgia was given $100,000 stock for his influence as a director. He did nothing to earn this, was the writer's assurance.[357]

Perhaps it was to facilitate financial management of his mill that William C. Sibley preferred New York and Cincinnati subscriptions to large blocks of stock, to local subscriptions in smaller amounts, when soliciting backing for the Sibley Mill at Augusta.[358]

Turning now from the subject of financial administration of the mills to that of profits; it is not clear that gratifying earnings were usually due to good management; it is, however, true that poor profits or no profits were due oftener than otherwise to faulty executive control. It is meant by this to indicate that the industry in the South has shown itself, on the side of profitableness, singularly responsive to the material condition of the section, and to the state and trend of public opinion. The degree of success of the mills has displayed the fundamental fact that the South has in the past forty years been above all else in a process of growth, and has given fresh proof of the intimate connection between the fortunes of the companies and the changes in the whole section--economic, mental and spiritual. The profits of the mills have constituted a good barometer to the evolution of the South since Reconstruction. Graphically represented, the earnings of the plants would exhibit a curve of decided aspect. It is sought by specific references to make this curve appear, and afterwards to sum up the results with several reasons therefore.

Tompkins, by many believed to have been the best authority on cotton manufacturing in the South, wrote: "It has been abundantly proved by experience in the Carolinas that cotton mills on every class of goods manufactured there, can make a profit of 10 to 30 per cent. This has been done by the smallest as well as the largest mills on the coarsest and the finest yarns, single as well as twisted; and on the heaviest as well as the lightest weight cloths; and on dyed and undyed yarns and cloths. The variation in profit between 10 and 30 per cent. is caused by variation in prices of cotton and of manufactured goods, and also by variation in management."

In another passage he has said: "From the experience of the best mills that have been running in the South for twenty years and over, and which have always been kept well up to date, it would appear that about 15 per cent. is the average annual profit in clear money for the whole time."[359]

The writer was given the opinion by Mr. Thackston of Greenville, South Carolina, in whose knowledge and judgment great reliance is put, that for the last ten years the average earnings for well-managed Southern mills have been $2.50 per spindle, which, reckoning the average cost of the plants at $20 to the spindle (leaving aside other capital invested) is a profit of 12.25 per cent.[360]

A banker of Winston-Salem, which is an industrial community, could not understand how the Southern mills succeeded "as well as they have." When there were mentioned to him several mills which have been consistently profitable, he found special advantages accountable for their favorable showing. In one case it was tidewater freight rates, in another skilful cotton buying by a manager of long experience. It was his belief that the average profits of Southern mills from 1880 to 1914 (omitting, that is, the years since the outbreak of the war) were not as much as 10 per cent.[361]

So much for the gains over the whole period. The earnings at several points in the development of the industry show a wider range.

A nephew of Mr. Tompkins, quoted above, who has succeeded in considerable measure to his uncle's manufacturing interests, and who is of too practical a turn of mind to be affected by the enchantment of distance, speaking of the success of mills right at the opening of the era, said that some made from 30 to 70 per cent. profit.[362] In a previous chapter, it has been seen how many mills at this juncture increased their plants from earnings. A Utopian tinge may be suspected in an article appearing in The Daily Constitution, Atlanta, in March of 1880, which, in urging upon Southern communities the establishment of spinning mills, stated: "At prevailing prices there is nearly or quite six cents per pound profit over all expenses in spinning No. 14 yarn, or three cents per spindle per day; this would give $9 per spindle per year, and as spinning mills can be built for less than $18 per spindle, no other figures are required to demonstrate the statement that the spinning mills in the South bid fair to realize this year fifty per cent. on the capital invested. Nearly all of these mills are running night and day, and every one of them is realizing handsome profits. These are facts."[363] The goods of the Wesson Cotton Mills, Mississippi, took a premium at the Centennial Exhibition in Philadelphia in 1876. The company started with one mill and a capital of $300,000. This plant made 30 per cent. profits, so another was built and the stock increased to $1,000,000.[364] A North Carolina newspaper trying to encourage cotton manufacturing in that State, stated in 1880 that upon the $2,288,000 invested in the mills in South Carolina, the profits ranged from 18 to 25 per cent.[365] The Boston Journal of Commerce in 1881 gave the opinion of an Englishman visiting the Eagle and Phoenix Mills, Columbus, Georgia, that the No. 3 Mill, then new, was the best equipped in the world, and said that "The profit of these mills last year was 20 per cent. on a capital of $1,250,000 or $5.76 per spindle."[366]

Saffold Berney, in his Handbook of Alabama, published in 1878, made a rather elaborate computation of the earning capacity of a 4,000-spindle, 125-loom mill, making 6,000 yards of cloth per day.[367] It may not be uninteresting to see how he worked out a considerable rate of profit for a small plant. His calculations are:

3,000 yds. 7-8 shirting at 6 cents $ 180.00
3,000 yds. 4-4 sheeting " 7 " 210.00
--------
Total gross income $ 390.00

Cotton on a basis of 10 1-2 cents,
15 per cent. waste $220.94
Labor and mill expenses 63.44
Office and general expenses 9.62
Coal, gas, oil, starch & supplies 19.00
Insurance 3.11
Charges in selling goods, 2 1/2 per
cent 9.75
Wear and tear machinery 5 per cent 13.69 339.55
------ -------
Leaving a net profit per day of $ 50.45

Or for 300 working days or one year of $15,135.00

Figuring the cost of this mill at $20 per spindle, and leaving aside, as before, money otherwise invested about the business, there is a capital of $80,000, upon which a profit of $15,135.00 is 18.8 per cent.

"Profits in the past," says Mr. Thompson, "have been so large that often before the last payment on the stock is due, a sum sufficient to pay all obligations has been accumulated." He cites as a particularly favorable instance, that of a mill which required no further instalments on subscriptions after a little more than one-third of the instalment-payment period had run out.[368]

A little incident is interesting as involving two of the most important and picturesque personalities and one of the chief mills connected with the rise of cotton manufacturing in the South, and it bears directly on the topic now being considered. It seems that the founding of the Piedmont Factory by Colonel H. P. Hammett in South Carolina inspired a notice from Mr. Edward Atkinson, of Boston, in which he reasoned that cotton manufacturing in the South could never pay. This came under the eye of Colonel Hammett. To the article he pinned his annual balance sheet, showing a profit of 20 per cent., and sent the two to Mr. Atkinson.[369]

In regard to these first years of the large establishment of cotton mills in the South, it is common to hear the opinion that the big profits made attracted the energies of the people to mill building.[370] Going a little further back, the mills in operation just before the textile era, though few in number, showed gains that bore a part in the boom about 1880.[371]

Twelve years after taking charge of the plant, Colonel Hickman had earned by the old Graniteville mill sufficient surplus to build the Vaucluse Mill at a cost of $361,513.24 without calling for assessments upon stockholders, and five years later had accumulated a cash surplus of $220,831.86. He had doubled the production of the original Graniteville Mill. The statement of the affairs of the two plants in 1804 showed:

_Gross Profits:_

Graniteville $82,724.69
Vaucluse 37,131.31
-----------
Total profits $120,856.00
Net profits 80,701.71

This net profit amount represented 13.5 per cent. profit on $600,000 capital.[372]

Coming down, now, a decade later in the period. There is shown a degree of success pretty much uniform for the various mills.

The first plant of the Gaffney Manufacturing Company which was paid for when operation commenced, in three years earned enough to build an additional plant of two stories.[373] This mill indicates very well a fact brought out in the preceding chapter, that many additions to plant, which were being made after the mills had been a few years in operation, were accomplished from earnings. The Salisbury Mill is a case in point. Its inception and that of the Gaffney Mill the two being projected at about the same time had many things in common (as did the towns in which they were built). Increases in plant of the Salisbury Mill have been greater proportionally than the increases in capitalization.[374]

From manufacturers, from investors, and from persons acquainted with the public economy, have been had statements, each reflecting an individual bias, but each showing unmistakably that there was a general and marked decline in profits in the second decade of the development. A retired mill president, whose decision to leave the field was perhaps affected by the condition she described, regretted that the companies are still laboring under decreased profits as a result of the fact that mills were built more rapidly than the market for goods expanded to meet the development.[375] Another mill president thought that no more mills are likely to be built in his section too many years. "They went it too rank, you know," he declared with some feeling. "Once in a while you hear of a new mill starting up, but its not as common as it was ten or fifteen years ago." He put the date of the fall-off in profits at about 1900.[376] The son of Colonel Hammett, several times mentioned, who is a successful manufacturer, deplored the building of too many mills in a short period, and said that profits fell away abruptly.[377]

A bank president whose institution has played a leading part in the textile prominence of Columbia, South Carolina, said that "1890 to 1900 was the heaviest borrowing period, as this was the greatest period of development. Profits were poor, especially from 1895 to 1903."[378]

Though he does not believe selling agents have taken much stock in North Carolina mills, Mr. Thompson attributes many failures of mills to "slavery to commission houses through which they sell their product." He implies that it was the grip which the agents got on the mill by the loan of running capital that brought the ill effects. At any rate, the commission houses became more deeply interested in the mills as the plants increased in numbers, and profits were hurt by this fact, he believes.[379] This influence continues, thinks a former president of the great Graniteville Mill, who said: "The commission merchants take the very heart out of the mills. The commission houses of New York, Philadelphia and Boston get more out of the mills than the stockholders in the South."[380]

While it is true that "most of the mills of the South have succeeded,"[381] there have been, besides some concerns which have stood still, neither making nor losing, a few notable failures. It is the common opinion that failures have been due almost entirely to lack of capital and bad management. Probably these faults and a good many others contributed to the ill success of the old Charleston Manufacturing Company, which began life with such high hopes at the outset of the cotton mill era. If any enterprise was an expression of the motive forces in the South in 1880, this one was. It supplied a potent example to communities all over the South contemplating cotton factories. The property of the Charleston Manufacturing Company was sold under the hammer to the Vesta Cotton Mill Company, which was not more successful with the plant. After standing a year idle, the attempt was made to operate the mill with colored help, and a reorganization of the Vesta Company was had for this purpose. A large proportion of the subscribers to the original company remained in the two reorganizations that followed.[382] In the experiment of negro operatives the old factory was again opening up a vista to the South, for, as it was vainly pointed out to the negro population of Charleston, if the trial of colored operatives in the Vesta Mill had succeeded, plants all over the section would offer employment to negroes.[383] When this third effort to use the plant for a cotton mill came to nought, the machinery was moved to Gainesville, Georgia, and though the top of the new mill was carried away by a cyclone almost as soon as completed, the company is now doing well in its new location.[384] The great, gloomy pile that thrice held so much of the confidence of the South and the best hopes of Charleston still flanks the railway tracks and rears itself above the depot, and seems all very silent in spite of the fact that it is now occupied by tobacco manufacturers.

The grandfather mill, as it might be called, of the Southern textile industry, is that of Graniteville, established by William Gregg in 1846. The factory nearly failed in 1867, but was saved by the genius of H. H. Hickman, a merchant of Augusta, who became its president at the critical juncture. He died in 1898, and his son came in as president. At his retirement and the reorganization of the mill, a business man of Augusta has been elected the new president, but it will require, it is said, from seven to ten years for him to build up the organization again.[385]

The Royal Mills, the only cotton factory now operating in Charleston, was built eighteen or twenty years ago, in the period of stress just noticed. George Wagener, the original manager, left the mill at his death with a surplus of $90,000. It went into slovenly hands, and failed. It has been remodelled, however, and is now making money.[386]

The small mills' success inspired the belief that large plants would succeed. The Olympia, until recently the largest mill in the world, was built at Columbia, and the Loray Mill, with more than half as many spindles, was founded at Gastonia. It is the general opinion, whether colored too largely by the unsatisfactory history of these two conspicuous factories or not it cannot be told, that there have been more failures among the large than among the small mills.[387] It has been said of the North Carolina manufacturers as opposed to those of South Carolina that they "are not so ambitious for big places, (at the head of large companies) and a lot of those little fellows are getting rich." The North Carolina mind seems to run on smaller things. I am not sure but what the North Carolina mills have been more successful than the South Carolina mills.

A committee representing New England manufacturers has stated in spite of an advantage over the Eastern mills of 25 per cent. in labor, and 50 per cent. in respect to taxes, the Southern mills have made less profits than their older competitors because of poor financing. However this may be, the total losses on $100,000,000 invested in cotton manufacturing in the South in thirty years does not represent more than 20 per cent., is the belief of Mr. Thackston, of Greenville.[388]

To go to a lyceum lecture on a sultry summer night and be whisked away by picture and description to the snowy peaks and green glaciers of the Canadian Rockies is not a more complete or refreshing transition than that experienced by the traveler who lumbers along the Southern Railway for weary, slow miles of sodden country and ill-kept settlement, all at once to alight at the neat station and view the trim town of Gastonia, North Carolina. It is not attempted here to account for the New England psychology that animates this nonetheless Southern place, but it is deserving of better praise than its harsh name gives it. Neither is it proper in this place to seek to account for the success of its score and a half of cotton mills. The recital of the profits they have made since the European War is astounding, but there is every cause to believe in the accuracy of the information given.

In the first place, while the big Loray Mill, as has been seen, has not reflected much credit upon the community of factories at Gastonia, and is spoken of not very warmly there, no mill in Gastonia has ever had a receivership.[389]

The mills at Belmont right near Gastonia are making on the average 25 per cent profits. The Treanton Mill at Gastonia, paid 100% in cash during the first five years of its operation. The Majestic Mill, at Belmont, was expected to make in 1916-1917, 100 per cent., or the price of the plant in a single year.[390]

In cataloguing the notes from a summer trip to the mill towns, the writer feared he had made some mistake in setting down the results of an interview with the vice-president and cashier of the First National Bank, Gastonia, which is most largely interested in the mills of the place, as to the earnings. He therefore wrote for a restatement on doubtful points, and found himself confirmed. To quote the case of one mill from Mr. Robinson's reply. "We have a mill here that had $150,000 capital paid in, and after a short time issued a stock dividend of 20 per cent. which gave them (it) a capital of $180,000, and this mill made $155,000 net profits for the year 1915. I am satisfied that this same mill will make 125 per cent. profit this year (1916) on their (its) $180,000 capital, or around $225,000 net profit."[391]

From the interview, there is the instance of a 12,000 spindle mill; not one of the most successful in Gastonia, which made $2,500 the week previous.

While the mill expected to make 125 per cent. net profits for 1916 is said to be exceptional, a number of mills were, as near the end of the old year as November 28th, expected to show from 75 to 100 per cent. net profits for 1916, the writer was told that it would be a pretty poorly managed plant that did not clear the lower percentages.[392]

A burly, forceful man in middle life, who has risen from foot pedlar to mill president, said with frankness: "I am making more money than I know what to do with. I am ashamed to take it!" He showed me the statements of the orders for product with which his four mills would be kept busy for the next four or five months. He expected to clear $60,000 on the output of each plant for this period.[393] Mr. Robinson, previously quoted, recognizes that the cotton mills at Gastonia are more prosperous than those of any other section of which he knows.[394] Not even early in the period, when mills were first building, did they make such profits as now, is the opinion of an old manufacturer at Gastonia.[395]

The foregoing citation of the earnings of various mills at various points of time in the period since their establishment has served to exhibit the general movement of profits. At the outset, most conditions were favorable to large gains--there was little competition, labor was most plentiful and cheap, the lack of advantageous marketing facilities was to some degree offset by purely local demand for the product, and the deficiencies of management tended to be neutralized by the presence of physical advantages which disappeared when a more advanced development increased the size of plants, widened the area from which raw cotton was drawn, and extended the market for product. It is said repeatedly that in those days any fool could make money in cotton manufacture in the South.[396]

With the closing years of the second decade of the mill growth, most of these advantaging circumstances were fading before the increase of competition. Their very success was proving fatal to the mills. They had ceased to be local affairs. When outside influences came in--commission and machinery men--new and difficult problems had to be faced. The factories were assuming the physical proportions which they were bound to assume, and which it was right they should assume, but they ran ahead of the development in the textile industry, and in the South of expertness of management, business resourcefulness and economic outlook. The spirit could not keep up with the flesh, and the mind lagged behind the body.

The prosperity which the mills are now enjoying they very well understand to be hectic, the result of the European War. They were having a hard time enough until the war came and put them all on velvet, as someone expressed it; 25% of the Southern Mills were in bad shape, defaulting an interest, etc.[397]

There are in the industrial community of Gastonia, however, and in certain individual mills and managers, particularly in North Carolina, signs, that point to a catching up of internal capacities with external maturity. There is being developed--not yet clearly seen by any means, and in not a few points apparently contradicted[398]--a manufacturing spirit in the South, an industrial faculty that is able to cope with difficult conditions, the results of economic progress. This promises that the South is learning after forty years what Edward Atkinson said it did not know, the difference between a penny and a nickel. It indicates that the South will be meeting narrow margins of profit with close figuring of the costs of production.

It is natural to turn from the subject of profits to that of dividends. There is in the history of the mills a general parallel between the two, with, however, certain variations arising from the fact that the industry has been and is now in constant process of growth. With the exception of perhaps a few years, earnings could always be profitably invested in the business,[399] particularly in expansions of plant.[400] As will be seen in more detail later, the peculiar conditions under which the mills took their rise involved indebtedness for plant and for running capital, and earnings had to go to pay interest and principal of this.

The Augusta Factory was founded in 1847,[401] and, with Graniteville nearby, though in South Carolina, resembled in its earlier years, and to a diminished extent still does, the English and Continental textile manufactories.[402] They have both fallen upon evil days more recently. The Augusta Factory made 5 per cent. quarterly dividends for eight years and nine months from its founding.[403] In 1858, eleven years after establishment, the plant was sold to a company with Wm. H. Jackson at its head, for the sum of $140,000. Though the stockholders in the Jackson Company paid $60,000 for repairs to the property, the purchase price, payable in instalments for ten years, was made up from profits. The mill at the close of the war was the wealthiest in the South. It was said in 1884 that it had had an uninterrupted course of prosperity since the war. From 1865 to 1880 the company paid average annual dividends of 14 21/32 per cent.[404]

In 1880 the stock of the mills at Augusta, Georgia, paid about 8 per cent. interest per annum, in semi-annual and quarterly dividends.[405]

Under Col. H. H. Hickman's management of Graniteville there were regular dividends of 10 per cent.[406] The son of this former president, and until recently himself president of the mill as his father's successor, said: "Graniteville was so successful it had a large influence. It never ceased operation, and to my certain knowledge it had a fifty-year record of dividends."[407]

Perhaps some indication of the widespread popularity of cotton mills as an investment from a purely dividend-seeking point of view is contained in a newspaper notice of 1881 setting forth that a large mill at Nashville, Tennessee, had declared a dividend of 14 per cent. and another was built. In 1881 the Enterprise Factory, in Georgia, declared a 10 per cent. dividend, and decided to increase its capacity by 125 per cent. or more--from 13,890 spindles to over 33,000, and from 264 looms to more than 600.[408] Mills as Pulaski, in the same State, were anxious to double their capacity; $50,000 was subscribed for a mill at Jackson, West Tennessee; Dallas, Texas, was starting a $200,000 spindle plant, and the town of Sherman wanted a $75,000 factory.[409] The following year, the same paper printed an item showing further that dividends were being paid to stockholders in factories all over the South: "The cotton mills in Mississippi have proved bonanzas for the owners. The one at Wesson (it has been seen that this company made 30 per cent. profit from the plant) pays 26 per cent. dividends...."[410] The mill established by Mayor Courtenay, of Charleston, at Newry, South Carolina, paid no dividends for the first seven years of its life; this distinction from the earlier mills in regard to dividends, bears out what was said of profits in the period in which this plant was built (1892-3). Over the whole twenty-four years of its history, however, the company has paid an average of 6 per cent. to its shareholders.[411]

The building of the Salisbury Mill was completed December 1, 1888. The first cloth was turned out February 9, 1889. The first dividend of 5 per cent. was declared January 11, 1890. The mill has missed only one dividend payment, a quarterly one, since this time.[412] It is true that for the first three or four years of its life, the concern was in an uncertain way, the panic of 1893 proving embarrassing to it, though not as seriously so as in the case of the Newry Mill, just cited. For a long time the investment paid 8 per cent. dividends, then for several years of late 10 per cent. On July 10, 1916, the directors declared an extra dividend of 5 per cent., paid August 1. A part of the profits has for years and years gone back into the business, enabling it now to earn good sums.[413]

In the first ten years of its operation, the Laurens Mills were very profitable. Borrowing money to bring its spindleage up to thirty thousand, it expanded to 43,000 spindles on earnings. At the end of the ten-year period there was the plant worth about $800,000; the company owed no money, and the only liability against it was $350,000 of common stock. There was a cash surplus, probably small. For six years it had been paying 12 per cent. annual dividends. The mill was incorporated in 1895.[414] It is not certain that dividend payments were made by this company while it was carrying its debt, but the Anderson Mill, Anderson, South Carolina, paid interest on its indebtedness and 8 per cent. dividends as well.[415]

Reference has been made to Mr. Thompson's statement that large profits have frequently enabled mill companies to discharge all obligations before the last subscription-payment was due. He cites the case of an enterprise of $100,000 capitalization, with shares payable in weekly instalments of 50 cents, which after 70 weeks, with only $35 on the share paid up, declared a dividend of 4 per cent. on the capitalization. This plant, which he says is by no means universal, has, besides building large additions from profits always paid 4 or 5 per cent. in dividends each half-year. This is probably the Cabarrus, one of the Cannon mills, at Concord.[416]

From Mr. August Kohn was had a valuable estimate of the whole matter of Southern cotton manufactories as investments, assuming, that is, that the mills of his State have been typical in this respect of those of the rest of the section. He said: "If the people of South Carolina had put their money into farm loans at 7 per cent.--the same people and the same money--they would have been better off personally than they are after having invested in cotton mills. There are no failures in real estate mortgages at 7 per cent., but in cotton mill investments, principal and interest has frequently been lost."[417]

If this opinion is to be believed, had Mr. Goldsmith taken all the factories of the State, and not "the fifty more important cotton mills of South Carolina," he would have found an annual average dividend for 1905, 1906 and 1907, not of 7.56 per cent., but something below 7 per cent.[418]

It is well to conclude this random review of the dividends paid by the textile enterprises of the South with a thoughtful caution from Mr. Thackston, of Greenville, who has been of chief assistance to the writer in the financial aspects of the problem: "When it is said that the mills (have) made such and such dividends, it is to be remembered that in many cases the plant had cost more than the capitalization would show. Twelve or 10 per cent. on a $50,000 investment is very different from 12 or 10 per cent. on $30,000 paid up. The mills made so much money that they could pay off their indebtedness frequently in a few years, but the returns on capital paid up were not so great as might appear in some statements.

"Piedmont is capitalized at $800,000. The plant probably cost $1,500,000. When they pay 10 per cent. on the investment, it is because they are neglecting to reduce the debt on the plant. They are really paying about 6 per cent. on the investment, considering the total liabilities of the stockholders."

Tompkins has placed a useful modification upon the nominal showing of dividends which finds place here, and has application to what was earlier said of profits as well: "The tables ... showing range of profits, are made up from exhibits as usually made in annual reports. This is exclusive of depreciation, or wear and tear. Even in cases where an item of depreciation is carried in the accounts, it is often simply a matter of bookkeeping, and not a sum set aside for replacing of machinery.... Where large profits are reported, and large dividends paid, it is always a question whether the vitality of the mill is not suffering. There is a number of cases where mills have paid several large dividends at the start, but, on account of making no provision for depreciation, have finally collapsed."[419]

Some mills to continue Mr. Thackston's statement, cost in plant, he said four times their total capital. A man would build a 10,000-spindle mill and add to it greatly, not increasing the capital at all; he trusted to earnings to care for the debt, and delayed payments on common stock.

A remark of Mr. Goldsmith, though he unfortunately does not give the source of his information, confirms this calculation. He says: "The average South Carolina weaving mill costs about $20 to $21 per spindle; it is capitalized at about $12 per spindle, and earns from $2 to $4 per annum per spindle."[420]

A statement covering five years for average well-managed mill properties in and around Greenville, South Carolina, shows, he said:

Average earnings on plant cost 13.47 per cent.
" " per spindle $ 2.94
" cost " " 21.08
Capitalized at " " 12.72

His conclusion was that "In general, the dividends on the actual cost of the plants have not been over 12 per cent."[421]

As to the development, nature and persistence of a market in the South for cotton mill securities, the principal partner in a firm dealing in stocks, bonds, real estate loans, and fire insurance, who has besides long been identified with the cotton manufacturing industry in the Piedmont region, said: "... as far as I am able to recall, the stock market began to develop in this section about 1898 to 1901; and referring to some old records, as of March, 1901, I find such entries as this:

"5 Monaghan at 95
3 Brandon at 90"

with other entries of the same kind.

"About this date, in the up-country there were several young men who began trading in these stocks largely on a brokerage proposition. I recall the names of:

A. M. Law & Co Spartanburg, S.C.
W. D. Glenn Spartanburg, S.C.
F. C. Abbott & Co Charlotte, N.C.
George E. Gibbon Charleston, S.C.

and a few others whose names I do not recall just now.

"In Greenville, there was Mr. A. G. Furman.... All these men are still in the same line of business, and from small beginnings, have developed satisfactory business in the buying and selling of these securities.

"One element that lends itself to this business was the fact that in a number of instances builders of machinery would take part of their bill in stock, and later dispose of these holdings at concessions. I recall in one year that I disposed of about $2,000,000.00 worth of such stocks."[422]

An investor with considerable cotton mill holdings, in his replies, threw a little different light on the matter in some particulars: "A market for cotton mill securities developed between 1890 and 1900. There is less sale for them now, but in those ten years they used to go like hot cakes. All these brokers take a whack at them, but any man would starve that tried to deal in them exclusively. I had a friend that tried to make his living from dealing in them, but he didn't make his office rent, I deal in them a little, more than anything else for accommodation to friends. There is practically nothing in it for me."[423]

Mr. Buist has here placed the commencement of this market as far back as 1890. But in the early months of 1881 M. J. Verdery & Co., brokers of Augusta, were negotiating for the entire issue of $350,000 extra capital stock to be made in connection with enlargements to the Enterprise Factory. It was said that one man and his friends would take $140,000 of the stock.[424] This was, however, an underwriting transaction, such as those of which the first quotation speaks as being conducted on a brokerage proposition, rather than the regular marketing of stocks indicated by Mr. Buist.

Another said: "Nobody deals exclusively in cotton mill securities, and they are not quoted on the big exchanges either."[425] There is no doubt about either of these points, judging from all the information received. And further: "At the opening of the period, the sale for cotton mill stocks was very local, and each mill took charge of its own sales."[426]

A mill president of Augusta said that he frequently has inquiries for stock; he refers these applicants to brokers in the city.[427]

It has been seen that the curve of dividends of the mills shows a rough correspondence to that of profits; it may be observed in the paragraphs that follow that the third curve of market values of mill stocks follows more or less the other two curves. There will be mentioned first the cases in which the securities sold, for one reason and another, at low figures, and second the instances of more advantageous quotation, with some comments on the occasion for the high and low prices.

The cotton manufacturing business in the South has been a precarious one; it has proved quixotic, and there have been intervals of sterility.[428] This may be taken as accountable for the fact that "mill stocks usually sell below their book value."[429] This consideration has not, however, as will appear more clearly a little later, prevented great variation in the selling price of securities of mills in different sections of the South, at the same point of time.

"Mill shares have been a drug on the market and confidence in them has been lost to a large degree."[430] In conformity with this, an ex-manufacturer, now a cotton factor, of Augusta, Georgia, explained that: "Stocks of mills in Augusta haven't sold at par in twenty years. You can buy preferred stock of mills in Augusta at less than par. You can buy the stock of the Augusta and Enterprise mills at 20 or so. The Augusta Factory hasn't paid a dividend in twenty years." He could not understand why this was true of the local manufacturing community, which is one of the most notable in the entire South.[431]

These considerations are in contrast to the statement of Mr. Goldsmith: "The market value of the stock is almost always above par, increasing in proportion to the age of the mill." The writer inclined to doubt this accuracy of Mr. Goldsmith's information.[432]

Referring now to the sale of stock at less than its book value, it may be noticed again that during the war the Augusta Factory was sold into new hands at, ostensibly, $200,000. The new company capitalized it at $600,000 about what it was worth.[433] F. W. Wagener and Julius Koester bought in the property which is now the Royal Mills, at Charleston, at about 20 cents on the dollar.[434] An indication of the prevalence of this condition is seen in the fact that the people of Charleston, who previously had been generous subscribers to cotton mill stock, every promoter going to Charleston for the placement of a large block, "about 1905 or 6 ... got canny, and quit subscribing to the stock of new mills, for they found they could wait and buy the stock at less than par. For twelve or fourteen years Charleston has not contributed to new mills."[435] The reason for the general drop in the value of mill securities twelve or fourteen years ago lies in the depression in the industry caused by the ill-considered boom in mill building, already dwelt upon; a cause which had its rise earlier, but which no doubt continued to operate through this later period, was set forth plainly by a banker of Columbia. He said:

"Suppose a Southerner was promoting a mill that was to cost $1,000,000. In contracting for $600,000 worth of machinery, the machinery people would take half of the amount in stock. Machinery was in great demand, and high in price. The machinery manufacturers could throw their stock on the market quickly at 50 cents on the dollar, and make money. But in doing this they hurt the price of the stock of the mill."[436]

There seems to be pretty clear cause for the sensational drop that once occurred in the selling price of the stock of Pacolet, one of the greatest of the Southern mills. The factory had been making heavy goods for the Chinese market; this market was so unfavorably affected by the exclusion act that the goods became unprofitable to the mill. It cost money to change the machinery. So much preferred stock was issued that the common stock of the mill fell from 300 to a point below par.[437]

It has been seen that for the last six years of the first decade of the operation of the Laurens Mills, 12 per cent. annual dividends were paid. Within two years after the fight between local shareholders and Northern selling agents, the dividends got down to 5 per cent. and the stock fell from 175 to par.[438] A similar decline has been very apparent in the stock of Pelzer, in the same State, which ten years ago was selling at 175 or 180, and which now may be bought at a little above par.

T. C. Duncan built the Union Mills, and these succeeded. The stock went to $150 a share in 1900 or 1902. Then he built the Buffalo Mills. The projector of these mills was, however, a cotton speculator, it is said, and the market went against him. The town of Union, South Carolina, "busted with Tom Duncan", as it was expressed.

At the opening of the cotton mill period, it was said of the Rock Bill Cotton Factory that "The best evidence of its success is that not one dollar of its stock can be bought."[439] In the same month of the same year it was published that of the successful Mississippi mills, "The one at Wesson pays 26 per cent. dividends, and the stock is worth over 300."[440] Pacolet was built in 1880. The architect suggested a certain firm as selling agents for the mill, and Captain John H. Montgomery, the projector of the company, was introduced to a member of this firm. In consideration of receiving the account of the factory, this official subscribed for the commission firm to fifty or a hundred shares of Pacolet's stock. He told a friend shortly afterwards that he did not know why he bought the stock, and offered to sell it at $50 on the share. It happened that he held the stock, and he afterwards sold the stock at $300 per share.[441]

This buoyant success of the early mills, previously remarked with reference to profits and dividends, and here seen in the advance in the price of stock, is further illustrated by the history of some plants now having large capitalization. These sold additional stock to the original subscribers at a reduction--say at 75 or 80 when the par was 100. The ventures were so profitable that the stock remained at par value.[442] The same observation comes out, as applicable to a still earlier time, in the circumstance of the issue, in 1865, when the Augusta Factory was paying more than 14 per cent. dividends of three shares for one, bringing up the capitalization to $600,000.[443]

Fifteen years later it was said: "Augusta is becoming prominent in the South as a manufacturing city, there being eight cotton factories running here successfully.... These factories aggregate about 2,500 looms and 10,000 spindles; they consume about 50,000 bales of cotton annually, manufacture about 50,000,000 yarns (yards) of cloths, (this besides yarn mills) and employ 2,000 operatives. The capital stock of nearly all these factories is at a high premium."[444]