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Rather than trying to answer all those points you made in the Southern Aristocracy thread, I thought I'd put this in a general statement in another thread. Let me just show you a different view overall, without any intention to be contentious.
You talk about there being no evidence at all to support what I said. I cannot agree that is true, but I can certainly see that the evidence is not conclusive.
In the 1850s, the American South dominated the worldwide production of cotton. They were in a monopoly position, producing the most desirable type and an overwhelming percentage of the worldwide crop (85%? 90%?). So it is not at all surprising that "King Cotton" people were strutting about proud as peacocks, crowing over the economic misfortunes of the rest of the country in the Panic of 1857, and becoming ****-sure that they could do whatever they wanted. Looking at the recent past, they were correct. (Also not much different than the overconfident speculators who thought the Internet had changed everything in the late 1990s, just before the "Internet Bubble" burst, or any of a few dozen other bubbles, such as the "South Sea Bubble" of 1720 (which included the collapse of "The Mississippi Company" immediately afterward) or the Tulip Craze of 1634-37 in the Netherlands or the Florida Real Estate Crash of the 1920s. P. T. Barnum said it best: "There's a sucker born every minute.")
If there is one thing in all of Economics that can be relied on, it is this: things change. Predicting the future based on the past is a very chancy proposition, and that is exactly what those "King Cotton" boys were doing in 1858-60. The phrase "Pride goeth before the fall" might have been written especially for them.
Other areas of the world were also seeking to develop cotton as a cash crop before the Civil War. Muhammad Ali Pasha introduced it to Egypt and made it a state monopoly to fund his military there --and Muhammad Ali Pasha's brutal rule ended when he died in 1849. He even introduced the long-staple cotton of the South, Gossypium barbadense. US supply far exceeded the rest of the world combined, but in a free economy opportunity leads men to create new supply, and this is what was happening in the 1850s.
Another instance of growing cotton production: when the British finally got tired of Brazilian stalling after 20 years of peaceful efforts from 1830 on, the Royal Navy smashed into the Atlantic slave trade in Brazil. They entered Brazilian waters, landed British troops and marines, fought it out with Brazilian forts, captured and burned suspected slave ships. In reaction to that, the Brazilian government became strong enough over the period 1850-55 to actually enforce their laws banning the slave trade -- which they had agreed to in 1830 in order to get British recognition -- and by the late 1850s the import of new African slaves into Brasil was dwindling towards nothing.
This created a situation in Brasil circa 1855 very similar to that in the American South. The supply of new slaves was sharply curtailed; it had to come from sources inside Brazil. The tobacco industry in the northeastern part of Brazil was relatively well-established and mature; the cotton industry in southern Brazil was new and booming.
Cotton planters in southern Brazil, like all those cotton planters across the Deep South in the US, were avidly seeking to clear raw land and plant cotton. They needed and wanted slaves to do it with. Tobacco planters in the northeast saw the rising prices of slaves down south in the cotton lands, and sold their troublemakers and excess slaves to them -- at a very hefty profit, just as the slaveowners in the Upper South and Border States might "sell them South". Average slave prices in Brazil rose steeply, just as they were rising in the US.
Now I do not think the world went from having "nowhere near enough cotton" to "too-darn-much-cotton" in the blink of an eye in 1860-61. We do know that supply was growing worldwide, and that Europeans -- seeing the huge amounts at stake -- were providing investment capital to expand production in places like Egypt (which actually produces very high-quality/valuable cotton today). In short, increased competition was on the way, and the disruption of the US cotton supply during the Civil War only hastened that trend.
In addition, the boom in the Deep South was increasing the cotton crop at a fantastic rate. During the war, much of that production was curtailed, destroyed, disrupted, or not even planted. If that had not happened, odds are the early 1860s would have seen a much greater supply on the world market from all sources combined.
In commodity markets, conditions of supply-demand imbalance occur all the time. They routinely adjust themselves in economics -- but sometimes that adjustment is very harsh on individuals (i.e., they go broke in a flash). Margins collapse, but expenses and debts remain as income shrinks. When the margin is slim to begin with (cotton planting was low-margin, dependent on high volume to make those huge profits -- which is why small farmers didn't become rich growing cotton), any shrinkage in margins can quickly ruin the planter, particularly if he has large fixed expenses. Those expenses would include the cost of keeping slaves and land -- including any loans he had out on that "property".
No one could tell you when a correction in the cotton market would have come about, only that one was inevitable unless growth in demand continued to exceed growth in supply. If we studied the history of cotton prices through the last 150 years, we would probably see a pattern of them, but it would have changed if there had been no Civil War.
We do know that there were times in the late 19th century when natural events struck at cotton and tobacco (and probably other crops essential to the South. The impact of the flea beetle on tobacco was growing throughout the 19th century, to the extent that it killed half the US tobacco crop by 1876, and a viable method of controlling it was not found until 1880. The Boll Weevil would still have arrived in Texas and migrated north to all US cotton areas. I have no reason to believe that would have changed. Inevitably, those events would have caused grave economic impact to those they struck.
How bad those effects would be without the Civil War, with slavery still in place, is unknown. Perhaps better; perhaps worse. Slavery based systems tend to have a much higher capital fixed cost, a much lower variable cost, and a much lower margin of profit. That would make slave-owning planters highly vulnerable in a downturn. Crop failures can ruin them no matter what happens to the worldwide price, because their own personal income might not cover their debts.
I am by no means an economics expert; I took no more than 15 credits in the subject in school. As to commodities, I did write software for a company that sold software for trading financial instruments, and the main project I worked on involved commodity futures, forwards, options and the like -- but I can't say I ever mastered the commoditiy markets, because I don't think anyone ever has. I do understand that the above is fairly vague and sketchy in those terms.
trice wrote:
"In the 1850s, the American South dominated the worldwide production of cotton. They were in a monopoly position, producing the most desirable type and an overwhelming percentage of the worldwide crop (85%? 90%?)."
In 1860 cotton accounted for 60% percent of all US exports. How long that would have continued in peacetime is uncertain.
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"Those who forget to remember the past are condemned to repeat it", George Santayana.
trice wrote:
"In the 1850s, the American South dominated the worldwide production of cotton. They were in a monopoly position, producing the most desirable type and an overwhelming percentage of the worldwide crop (85%? 90%?)."
In 1860 cotton accounted for 60% percent of all US exports. How long that would have continued in peacetime is uncertain.
Yes, but that is a different slice of the pie. Cotton exports might have gone up and still have been a lesser part of total exports. Other US products could expand their sales more than cotton would, simply because they were starting from a smaller base.
The fortunes of cotton planters would not be affected by the percentage they formed of US Exports. As long as US cotton planters could sell all the cotton they produced for a price they liked, they had no difficulties. But if demand for cotton fell (or world supply increased) they might not be able to sell it all, or they might have to take a lesser price. That is when the problem starts.
In that sense, new production in Brazil, Egypt and other places competes with US production in the world market, and will tend to drive prices down unless demand grows even faster than supply.
In the 1850s, everything was going in favor of US cotton. They produced some 85% of the entire world supply, and they also produced the most desired type. Such conditions in commodities always end at some point. The question is when.
Such conditions in commodities always end at some point. The question is when.
Marketing 101: Take care of your cash cow, but develop alternatives.
Ole
__________________ I never knew a man who wished to be himself a slave. Consider if you know any good thing that no man desires for himself. A. Lincoln
Marketing 101: Take care of your cash cow, but develop alternatives.
Yes, but also events can pass you by from time to time no matter what you do.
For a recent agricultural example that is a little similar to cotton, think about wine.
For decades, the American wine industry was moribund. (poor quality and reputation coming out of Prohibition, no government support, etc.) Then in the 1970s it began to move, accelerating as California built a reputation for quality. In the 1980s it exploded, as worldwide wine consumption (and particularly American wine consumption) shot up. American, Australian, Chilean, etc. entrepeneurs rushed to plant new acerage and open new wineries. Owning a winery became fashionable among the new money set (particularly in high-tech areas). By the 1990s new acerage was being cleared and planted at a ferocious rate. Farmers desperate for a cash crop were ripping out orchards and other crops to plant vines.
There is an old saying in the wine industry: "To make a small fortune, start with a large one". Wineries are very capital-intensive. You need expensive equipment. You need acerage for vineyards. You need time for the plants to mature (generally at least 2-3 years before you get a harvest to turn into wine -- and then you have to make and age the wine before selling). There is work to do in the vineyard with the vines about 10 months of the year. All that piles up debts and eats up money.
Along about 2003-04, the fruit of all those new vineyards and wineries started coming into the market. Supply got ahead of demand. There was a "wine glut". Out in California they suddenly had wine and fruit they couldn't sell. Some vintners ended up opening the tanks and letting the wine run out into the dirt. Some fruit was left to rot on the vine. You could find "Two Buck Chuck" at Trader Joe's because juice that would have gone at $10/gallon a year or two before was now selling for a $1/gallon wholesale. "Boutique" wineries that expected and needed to sell wine at $50/bottle discovered it wouldn't sell for more than $20 or so.
The "wine glut" hit other points around the world (Australia, New Zealand, France, Chile). In France, they've been selling some of the wine off to make ethanol in recent years at a substantial price reduction. This all seems to be working itself out now, demand seems to be catching up with supply, but a lot of startups got clobbered, some wineries closed, and a lot of money vanished into the haze. As these things go, this was fairly mild unless you happened to be one of the people who lost a fortune.
Something similar could easily have happened to cotton in the 1860s, but the Civil War reduced the supply and kept prices up while world-wide demand continued to grow. Southern planters were generally cash-poor, heavily invested in capital items (land & slaves) with fixed costs. They tended to borrow money (usually from Northern banks) and pay it off with the proceeds from the next crop (if short-term) or over several years (long-term borrowings such as mortgages). That makes them very vulnerable to short-term reversals. If those are bad enough, things can quickly get out of hand.
In a really bad downturn (a "Panic" in those days, a recession or Depression today), things can spin downward with frightening speed. Planters faced with crop failure or a major drop in prices can find they need cash to pay depts and have no cash on hand. Then they need to sell assets (slaves or land) to raise cash. If too many are in that situation, they flood the market with available slaves or land -- and prices drop further. Then you need to sell more slaves or land to raise the money, so the market is saturated and prices drop further. If you can't raise it, then the loan holder can foreclose, and you lose your slaves and plantation.
It probably would not get that bad for cotton and the South -- but it could. Bursting economic bubbles can be spectacular. Anyone remember the "Oil Patch" bubble in Texas about 20 years or so back, with all those empty high-rises in Houston and such, and people mailing the keys to their houses to the bank as they moved out to find work?
Every recent century has some scenarios like this. My favorite is the Tulip Craze in the Netherlands in the 1630s. People there went so crazy buying contracts on Tulips they had invested all their savings and mortgaged their houses. One day the market woke up and realized the wealth of the country was invested in a bunch of flower bulbs -- and the market crashed with a vengenance, wiping out investors wholesale.
Cotton was both a economic boon and a political/economic curse.
Too much cotton was shipped to England in 1860, causing a recession in cotton fabric sales.
By the war years, the U.S. was shipping tons of wheat and corn to Europe, due to crop failures there, in British merchant ships. Cotton was no longer king for the British.
The Confederate founding fathers had made the great economic, political and diplomatic error. Cotton would not bring Great Britain to either recognize the Confederate States, or assist them, directly, militarily.
The Confederacy could produce tons of cotton in 1860; they never were able to produce many steamboats or ironclads.
By mid-1862, steamships were headed North, moving up the Mississippi and Ohio Rivers with bales of cotton from Memphis.
The South had the cotton; the North had the steamboats.
A critical error the Confederacy could not survive.
Cotton was both a economic boon and a political/economic curse.
Too much cotton was shipped to England in 1860, causing a recession in cotton fabric sales.
By the war years, the U.S. was shipping tons of wheat and corn to Europe, due to crop failures there, in British merchant ships. Cotton was no longer king for the British.
...
Corn and wheat didn't compete with cotton, though, unless things were so bad the British had to make a choice between eating and being clothed.
The bumper cotton crops of 1859-60 led to the inventory surplus in Europe of cotton and fabric. That would have lessened demand for the 1861 crop, which might have meant unsold cotton, but would probably have meant a lesser selling price for cotton sales at the US end.
This would probably have been a short-term problem, until demand caught up with the supply of goods being produced and caused another supply shortage. That is how most commodity markets work, in boom-and-bust, undersupply/oversupply swings. The South had been living through a prolonged boom and sooner or later would experience a downturn. The only question is when and how severe. If it had happened in 1861, in peace conditions, it probably would have been mild worldwide -- but might have been disastrous for many individual planters in the South (usually the ones who were overextended in expansions, or trying to get by on a shoestring.)
This isn't something that just happens to agricultural products, either. In the late 1840s and early 1850s, British iron and steel production had outpaced demand, so the British were dumping product on the American market at low prices. This in turn led to many failures of American iron furnaces (again, usually shoe-string operators and those startups who were over-extended). That in turn was one of the reasons PA iron-and-steel manufacturers were looking for tariff protection against foreign imports in the Morrill tariffs by the late 1850s. (This was also one of the causes of the death of the Virginia iron industry and the growth of The Wilderness.)
Same thing happened with shipping. The California Gold Rush led to a huge surge in shipbuilding, since the voyage around the Horn took so long. By the mid-1850s there were too many available ships, and the technology was changing from sail to steam. Suddenly, shipping rates dropped like a stone, a lot of ships were laid up because they couldn't find cargoes, and the Panic of 1857 made things even worse. Shipowners were writing off big debts -- and a few unscupulous men started putting those empty ships to work quietly in the illegal slave trade, with some officials winking at the regulations.
Now Southern planters were spending a lot of time talking about "King Cotton" and laughing about the problems of the rest of the country during the Panic of 1857, because they were little harmed by them. Something similar might have happened with cotton for a year or two in the 1860s if there had been no Civil War, and I imagine the rest of the country wouldn't have had much sympathy.
"Corn and wheat didn't compete with cotton, though, unless things were so bad the British had to make a choice between eating and being clothed."
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Reply To:
"Every autumn brought bumper crops of wheat and corn, and since England and Europe suffered a series of poor harvest, they turned to the United States, whence over 40 million bushels of wheat and flour were exported in 1862, as compared with less than 100,000 in 1859. Although the lack of cotton threw many English factory operatives out of work, it was evident that any attempt to break the blockade, and consequently fight the United States, would bring the British Isles face to face with famine.
"Old King Cotton's dead and buried, brave young Corn is King," went the refrain of a popular song."
p669 The Oxford History of the American People. Samuel Eliot Morison. 1965.
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"Many of the immigrants went west. They were tempted by the ease and cheapness with which land could be acquired: the wise Homestead Act fostered the development of the West and the growing of food so important for the army and the people who were sustaining it. There was always a surplus of grain which was shipped largely to Great Britain where it was badly needed because of deficient harvests from 1860–62. This movement was beneficial to the exchanges between America and Europe."
"If accurate statistics could be obtained, it would surprise no student of the subject to find that the North received more cotton from the internal commerce than did Great Britain from the blockade-runners; "
James Ford Rhodes (1848–1927). History of the Civil War, 1861–1865. 1917.
Chapter XI
"Corn and wheat didn't compete with cotton, though, unless things were so bad the British had to make a choice between eating and being clothed."
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Reply To:
"Every autumn brought bumper crops of wheat and corn, and since England and Europe suffered a series of poor harvest, they turned to the United States, whence over 40 million bushels of wheat and flour were exported in 1862, as compared with less than 100,000 in 1859. Although the lack of cotton threw many English factory operatives out of work, it was evident that any attempt to break the blockade, and consequently fight the United States, would bring the British Isles face to face with famine.
"Old King Cotton's dead and buried, brave young Corn is King," went the refrain of a popular song."
p669 The Oxford History of the American People. Samuel Eliot Morison. 1965.
Sure, but I think this is an apples and oranges argument. If there was no war, cotton would have been available for export freely. The British still would have been buying US food -- and they would have also have ben buying cotton to use in manufactures. The products do not compete with each other in the market.
Quote:
Originally Posted by whitworth
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"Many of the immigrants went west. They were tempted by the ease and cheapness with which land could be acquired: the wise Homestead Act fostered the development of the West and the growing of food so important for the army and the people who were sustaining it. There was always a surplus of grain which was shipped largely to Great Britain where it was badly needed because of deficient harvests from 1860–62. This movement was beneficial to the exchanges between America and Europe."
Agreed. My only point is that money spent on US food does not take away from money spent on US cotton. The food business is new and growing; the cotton business is there first, but still growing alongside the food business.
Quote:
Originally Posted by whitworth
"If accurate statistics could be obtained, it would surprise no student of the subject to find that the North received more cotton from the internal commerce than did Great Britain from the blockade-runners; "
James Ford Rhodes (1848–1927). History of the Civil War, 1861–1865. 1917.
Chapter XI
Yes, very true, particularly as 1862 turned into 1863, 1864, and 1865.
No one could tell you when a correction in the cotton market would have come about, only that one was inevitable unless growth in demand continued to exceed growth in supply. If we studied the history of cotton prices through the last 150 years, we would probably see a pattern of them, but it would have changed if there had been no Civil War.
Why do you think post-war cotton prices would be much different than had there been no war? World prices were dependent on foreign supplies and foreign demand, all of which I cannot see much affected by the ACW, as compared to the economic circumstances in each country. Post-war production stumbled for a few years, I assume as a result of the war's destruction and the chaos of credit and workforce, and I imagine this prolonged the high market prices the textile industry endured since 1862, but by 1870, production was again at record levels, and the infrastructure to get it to market was rebuilt better than ever.
Quote:
We do know that there were times in the late 19th century when natural events struck at cotton and tobacco (and probably other crops essential to the South. The impact of the flea beetle on tobacco was growing throughout the 19th century, to the extent that it killed half the US tobacco crop by 1876, and a viable method of controlling it was not found until 1880. The Boll Weevil would still have arrived in Texas and migrated north to all US cotton areas. I have no reason to believe that would have changed. Inevitably, those events would have caused grave economic impact to those they struck.
US cotton growers really kicked into high gear in the 1880s and production rose by between 50% and 100% over 1850s levels. I can only assume by considering the record plantings each year that markets prices remained somewhat stable. Its hard for me to imagine that this decade anyway would have been a good time for what by now would have been a more highly concentrated and aristocratic planter society to capitulate to those bottom-feeding yankee abolitionists and overturn their labor system. Perhaps more efficient machinery would have made cotton growing less labor intensive enough that keeping slaves made no economical sense - I don't have any idea. But to make that choice, planters would then create their problem of "what to do with all these negroes."
Cedarstripper
Last edited by cedarstripper : 06-06-2007 at 12:48 PM.
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