In the Old South, did cotton factors typically travel to Britain to sell cotton and buy merchandise for their clients?

betgo

Ad Honorem
Jul 2011
5,500
#21
Yeh, I would think the cotton broker or factor would sell the cotton in New Orleans to the British mill or the exporter. Traveling back and forth to England every year would take a lot of time. I know my relative traveled to Chicago to sell cotton, which was presumably then shipped via the Great Lakes and Erie Canal to Albany and then to New England mills.
 
Oct 2017
102
United States
#22
Would you know whether this applied to the overall plantation systems across the Atlantic side of the New World? Including all the cash crops of the 17th & 18th centuries, being tobacco, sugar, rice, indigo, cotton & mining? Or whether this is exclusive to the 19th century south? Surely it can’t be?
 

Chlodio

Ad Honorem
Aug 2016
3,062
Dispargum
#23
Would you know whether this applied to the overall plantation systems across the Atlantic side of the New World? Including all the cash crops of the 17th & 18th centuries, being tobacco, sugar, rice, indigo, cotton & mining? Or whether this is exclusive to the 19th century south? Surely it can’t be?
The most difficult part of the Trans-Atlantic trade was moving money back and forth between Europe and the Americas. As mentioned in previous posts, already in the Middle Ages, European merchants had figured out that it was easier to send bills of lading and other accounting statements back and forth rather than money. This was the birth of modern banking. The banking system that was already working well in Europe was simply replicated to the Trans-Atlantic trade. In post 12 Nemowork mentions that the system was also in place in 18th century British India.

Interesting that you mention mining. Other metals could be traded the same as agricultural commodities, but gold and silver were often minted into coins while still in the New World. The Spanish opened a mint in Mexico as early as 1536. Gold and silver was also sometimes shipped to Europe in bars. (No, not the kind you drink in).
 
Sep 2013
750
Chattanooga, TN
#24
I don't really understand the last paragraph of Alfred Holt Stone's The Cotton Factorage System of the Southern States at Edratman's link from www.jstor.org.

Stone writes, "The beginning of the end of the seaboard system did not come until some years after the Civil War. The two most potent instrumentalities in its final dissolution were the railroads and the land-mortgage companies. The development of railroads made it possible for cotton to be shipped direct from the field of its production to that of its foreign or domestic consumption, which in turn made possible a real interior market. The advent of land mortgage companies made possible a refunding process whereby the whole, or a large part, of a planter's obligations could be financed on a basis of the land alone. His current business could then be transferred on the security of a crop lien and personal property to smaller interior merchants and factors, whose capital, though limited as compared with the old institutions, had become large enough to meet the necessities of the business after the loan companies had assumed a large part of the burden. The country merchant had frequently become a factor through natural gradations, and he was at hand to take care of smaller business at first, and gradually to extend the field of his operations. Largely from his ranks was developed the country banker, who was an indispensable feature in the slow process of modifying and finally revolutionizing the ancient system. The country factor did business along the same general lines as his city prototype. But where he has taken over the factor's business at all, and this he has largely done, the country banker has practically abandoned the last vestige of the old system. He lends on the same security as the factor, but the business is on the same basis as any other commercial transaction. The railroad and the country merchant and factor, the country compress and the country bank, have been followed by the country buyer, who furnishes the last link in the chain between raw cotton production and consumption. The elimination of the entrepreneur has by no means been accomplished, but the industry has been relieved of a large part of the load which it carried for the greater portion of the first century of its existence."

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I don't fully understand the entire paragraph. However, I am especially interested in the two sentences in the paragraph that I enlargeed the text and colored in blue. I can think of two general interpretations of the text that is in blue. Here is my first interpretation of what is written in blue: The advent of land mortgage companies made possible a process whereby the whole, or a large part, of the general merchandise that a planter sought to buy could be loaned to the planter with a lien on the planter's land. His current crops could then be transferred to pay the debt on the security of a crop lien and personal property to smaller interior merchants and factors who would transfer the planter's crops to the land mortgage company or sell the crops to give the money to a land mortgage company.

Here is my second interpretation of what is written in blue: The advent of land mortgage companies made possible a process whereby a land mortgage company would pay a planter for the planter's cotton with a lien on the planter's land until the planter delivered the cotton to the land mortgage company. His current crops could then be transferred on the security of a crop lien and personal property to smaller interior merchants and factors. The land mortgage company would sell the planter's crops to smaller interior merchants and factors.

Is either of my interpretations of the sentence in blue correct? If so, which interpretation is correct? If neither of my interpretations is correct, what does the sentence in blue mean exactly?

Furthermore, what does the entire paragraph mean? Stone writes about the end of the seaboard system. It sounds to me like Stone is claiming that the advent of railroads and the advent of land mortgage companies caused the end of a system in which cotton was transferred over the seas. But cotton and other products have always been transported over sea from antebellum times to the present day. What is Stone's point in this entire paragraph?
 

Chlodio

Ad Honorem
Aug 2016
3,062
Dispargum
#25
I think your first interpretation is more correct.

These plantations were very large businesses. They generated their entire annual revenue in one narrow window - harvest time. The planters had costs year round, but they only had income once a year. When you realize that all of the plantations in a region were selling their crops at the same time, that means that for a few weeks a very large amount of cash is in very few hands. Just before harvest the factors would have to accumulate large amounts of cash, and then as the harvest was delivered to the factors, the factors would give that cash to the planters as payment for the harvest. With all of that cash controlled by the factors and the planters, the rest of the economy could not function for want of cash. Very early on people realized it would be better to use a system of credit rather than cash.

Each month the planter had expenses: supplies, mortgage payments, payments on other loans (slaves were expensive and usually bought on credit). Originally the factor covered these expenses and recorded a debt in the planter's account. When the harvest came in, the factor recorded a credit in the planter's account. The first thing the factor did was apply credit against all of those monthly debts. Only if there was still credit left over would the planter get any cash. The planter also had the option to leave credit on his account to cover the next year's monthly expenses. The planter could also make one-time purchases through his factor since there was already a system of credit and debit established.

What Stone is saying is that after the CW the factor disappeared and was replaced by banks. In the spring, or whenever, the planter took out a loan, securing it with colateral in the form of either land or the crop. At harvest time, the planter sold his crop and paid off the loan. If for some reason the planter could not repay the loan, the bank siezed the land or the crop as payment. It's possible that the bank took possession of the crop as soon as it was harvested so that the planter did not have to find a buyer. The bank sold the crop. The corner grocery store might work on the same principle - extending credit to the planter throughout the year in exchange for payment at harvest time. That payment might come in the form of cotton rather than cash. The grocery store owner would then sell the cotton. It sounds like large bills were handled through land mortgage companies while smaller purchases were paid for with crop loans.

I'm guessing the role of railroads was to facilitate the connections between planters and their creditors on one hand and the cotton consumers on the other thereby making it easier for people to extend credit on the promise of future cotton harvests. Did Stone mention buying and selling cotton on futures contracts? That would seem to be the next logical step in the process. Before railroads the only people who could connect planters with consumers were the big factors who based out of the major seaports. Railroads connected everyone to the national and global marketplace.
 
Likes: grey fox
Sep 2013
750
Chattanooga, TN
#26
I think your first interpretation is more correct.

These plantations were very large businesses. They generated their entire annual revenue in one narrow window - harvest time. The planters had costs year round, but they only had income once a year. When you realize that all of the plantations in a region were selling their crops at the same time, that means that for a few weeks a very large amount of cash is in very few hands. Just before harvest the factors would have to accumulate large amounts of cash, and then as the harvest was delivered to the factors, the factors would give that cash to the planters as payment for the harvest. With all of that cash controlled by the factors and the planters, the rest of the economy could not function for want of cash. Very early on people realized it would be better to use a system of credit rather than cash.

Each month the planter had expenses: supplies, mortgage payments, payments on other loans (slaves were expensive and usually bought on credit). Originally the factor covered these expenses and recorded a debt in the planter's account. When the harvest came in, the factor recorded a credit in the planter's account. The first thing the factor did was apply credit against all of those monthly debts. Only if there was still credit left over would the planter get any cash. The planter also had the option to leave credit on his account to cover the next year's monthly expenses. The planter could also make one-time purchases through his factor since there was already a system of credit and debit established.

What Stone is saying is that after the CW the factor disappeared and was replaced by banks. In the spring, or whenever, the planter took out a loan, securing it with colateral in the form of either land or the crop. At harvest time, the planter sold his crop and paid off the loan. If for some reason the planter could not repay the loan, the bank siezed the land or the crop as payment. It's possible that the bank took possession of the crop as soon as it was harvested so that the planter did not have to find a buyer. The bank sold the crop. The corner grocery store might work on the same principle - extending credit to the planter throughout the year in exchange for payment at harvest time. That payment might come in the form of cotton rather than cash. The grocery store owner would then sell the cotton. It sounds like large bills were handled through land mortgage companies while smaller purchases were paid for with crop loans.

I'm guessing the role of railroads was to facilitate the connections between planters and their creditors on one hand and the cotton consumers on the other thereby making it easier for people to extend credit on the promise of future cotton harvests. Did Stone mention buying and selling cotton on futures contracts? That would seem to be the next logical step in the process. Before railroads the only people who could connect planters with consumers were the big factors who based out of the major seaports. Railroads connected everyone to the national and global marketplace.
Excellent post.

Stone wrote "The advent of land mortgage companies made possible a refunding process whereby the whole, or a large part, of a planter's obligations could financed on a basis of the land alone." You are probably correct that my first interpretation is closer to what Stone was trying to say. However, it seems strange to me to call the general merchandise that the planter sought to buy as the planter's obligations. When I think of a planter's obligations, I think of things that the planter owes other people. The only thing that i could think of that the planter could owe someone else is cotton in exchange for money/merchandise. That's why I made the second interpretation.

Chlodio, if you are correct, your explanation of this is tremendously more clear than Stone's explanation. Wasn't Stone's explanation very ambiguous?

Would you have understood what Stone was saying if you did not have background knowledge of the system of cotton commerce in the Old South?
 

Chlodio

Ad Honorem
Aug 2016
3,062
Dispargum
#27
Is Stone an economist or economic historian? They have their own language. I think it's intentional to keep the rest of us in a state of economic confusion. I definitely would not have been able to follow Stone except that what you've posted reminded me of how Medieval merchants found it easier to shift debits and credits around instead of cash. This evolved into modern banking.

As far as planter obligations go, that's the obligation to pay off their various debts. When the planter bought general merchandise on credit he incurred an obligation to pay it off at some point in the future. Actually, rereading your post 24, I'm going to reverse myself and say that your second interpretation is better. Your first interpretation seems too complex, too many buyers and sellers involved in the process. Better to keep it simpler. Various merchants sold goods and services to the planters on credit which the planter then paid for at harvest time. Either the planter sold his crop and paid cash to his creditors or the planter delivered a promised amount of cotton to his creditors so that the creditors could then sell it. Merchants may have preferred to be paid in cotton because they could more easily discount it (credit the planter less than the cotton was worth) thereby keeping the difference between discount price and resale price as additional profit. The planters went along with it as the price of credit. Instead of paying interest on a loan they paid for their credit by delivering more cotton per dollar.

I'm guessing the only difference between a land lein and a crop lein was which colateral the planter wanted to put up. And who the creditor was. A land mortgage company would probably want a land lein, not a crop lein. A merchant would probably want a crop lein since cotton is just another form of merchandise, unlike land which is bought and sold very differently than merchandise. I think the confusion comes when the planter took out a mortgage, used the money to by general merchandise, then sold his cotton, and repaid the mortgage with either cash or cotton credits. Or he could have just repaid the mortgage with cotton (probably at a discount).
 
Likes: grey fox
Sep 2013
750
Chattanooga, TN
#28
Is Stone an economist or economic historian? They have their own language. I think it's intentional to keep the rest of us in a state of economic confusion. I definitely would not have been able to follow Stone except that what you've posted reminded me of how Medieval merchants found it easier to shift debits and credits around instead of cash. This evolved into modern banking.
Yesterday I looked up the Wikipedia page on Alfred Stone. Stone was not an economist or economic historian. The essay was written around 1914.
 

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