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Stock Ownership in the Early New England Textile Industry*

Published online by Cambridge University Press:  24 July 2012

Lance Edwin Davis
Lance Edwin Davis
Affiliation:
Assistant Professor of Economics atPurdue University
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Abstract

The unique features of ownership patterns in the early New England textile industry have long been recognized. Hitherto it has been the interlocking or horizontal relationships that have been studied. This article deals, instead, with the vertical pattern — describing ownership in terms of occupational groupings of all the investors rather than the kinship of the dominant owners. Conclusions are drawn in respect to such important points as the principal sources of textile capital, the rate of mercantile capital reinvestment in manufacturing, the relationship between investment and industry integration, and the increasing importance of nonbusiness and institutional vested interests.

Type
Articles
Information
Business History Review , Volume 32 , Issue 2 , Summer 1958 , pp. 204 - 222
Copyright
Copyright © The President and Fellows of Harvard College 1958

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References

1 Students of the period divide textile producers into two categories. The small single-operation mills that were the American heirs to the English development are termed Rhode Island Type mills. These firms are typified by the Slater enterprises near Providence, Rhode Island, and by the development at Fall River in Massachusetts. The Massachusetts Type is the name given to the large integrated mill that grew out of the development of the Boston Manufacturing Company at Waltham, Massachusetts.

2 The Census of Manufactures in 1860 reported that total capital in cotton textile production in the United States amounted to $93,143,759. Of this amount more than two-thirds ($65,947,819) was invested in the six New England states. The total estimated capital in all industry in the entire U.S. was $1,009,855,715. Thus New England textiles represented about 7 per cent of the total. These official figures probably underestimate the total actual investment. United States Secretary of the Interior, Manufactures in the United States in 1860 (Washington, D.C., 1865), pp. 679, 735 and 742.Google Scholar

3 Davis, Lance E., “Sources of Industrial Finance: The American Textile Industry, A Case Study,” Explorations in Entrepreneurial History, Vol. IX (April, 1957), pp. 190–192.Google Scholar

4 The figures displayed in Table l represent the par value of all outstanding stock, and no allowance has been made for purchases at prices above or below the par value nor has any attempt been made to deduct the shares received as stock dividends. The paucity of data on stock prices as well as the complexity of stock transactions make it all but impossible to adjust the figures for price changes. At the same time, without stretching the facts very far, stock dividends can be looked at as voluntary reinvestment in the business, since the typical stockholder then had much more to say about dividend policy than does the average stockholder today. The mill records, from which these figures and other data in this article come, are on deposit in the manuscript collection of the Baker Library, Graduate School of Business Administration, Harvard University.

5 If the occupational composition of the small stockholders differed greatly from that of me large purchasers the conclusions may be subject to some revision; however, a spot check on the small investors in particular mills does not seem to show any marked departure from the pattern established by the large investors.

6 Throughout this article, major dependence is placed on four measures of contribution. First, the relative proportion of the total equity that was held by the members of each occupational group included in the survey. Second, the relative proportion of the total number of stockholders represented by each group included in the survey. Third, the average investment per stockholder per firm for each occupational group. And fourth, the average total investment of the individual members of each occupational group in the eleven firms. Some reliance is also placed on the estimates of total absolute contribution as displayed in Table 3; the reader should bear in mind that the latter are estimates only.

7 See Tables 4 and 5.

8 Estimates of the absolute amounts of equity owned by each of the occupational groups are shown in Table 3; they are less reliable than the estimates of proportionate shares shown in the text, because of the problems created by the changing number of firms and incomplete data. Most of the discussion of capital contributions has, therefore, been limited to the proportions of equity contributed. The estimates in Table 3 are based on the eight firms for which there are records for more than one-half the selected years. Data missing for these firms were estimated by a method based on Yates' “missing plots” technique. See Yates, F. W., “The Analysis of Replicated Experiments Where Field Results are Incomplete,” The Empire Journal of Experimental Agriculture, Vol. I (1933), pp. 129–142.Google Scholar From the information displayed in Table 3, it appears that the decline in mercantile holding referred to above was only a relative decline caused by the industries' equity issue increasing more rapidly than the merchants' holdings. (Possibly for no other reason than that the number of merchants was increasing less rapidly than the population in general.) The estimates of absolute contribution show that the mercantile holdings increased in every year (except 1854) from 1829 to 1859.

9 Since only those merchants who could positively be identified as trading primarily in textiles are included, the category probably underestimates the actual contribution of this group.

10 See Tables 6 and 7.

11 If the estimates in Table 3 are correct, the reduction in the importance of textile merchants after 1839 represents not only a relative but also an absolute decline in their holdings. The table shows an increase in the holdings until 1844, but after that date there appears to have been an absolute withdrawal of capital amounting to $355,000 by 1859.

12 The total contribution of the two groups fell below one-third of the total surveyed only in 1859.

13 See, for example, Clark, Victor S., History of Manufactures in the United States 1607–1860 (New York, 1929), Vol. VI, p. 367Google Scholar; or Ware, Caroline, The Early New England Cotton Manufacture (Boston, 1931), p. 141.Google Scholar

14 Although no precise estimates of the returns from trade do exist, such returns are probably loosely correlated with the volume of trade, for which some evidence does exist. See, for example, Smith, Walter Buckingham and Cole, Arthur Harrison, Fluctuations in American Business 1790–1860 (Cambridge, 1935), pp. 73 and 104.Google Scholar

15 An examination of the records of the nine firms possessing adequate financial data (Amoskeag, Dwight, Cabot, Perkins, Hamilton, Lancaster, Lawrence, Lyman, and Mass. Cotton) show that profits (as a per cent of total capital stock) average 10.3 per cent from 1830 to 1834; 9.4 per cent from 1835 to 1839; 6.8 per cent from 1840 to 1844; 12 per cent from 1845 to 1849; 6.1 per cent from 1850 to 1854; and 6.0 per cent from 1855 to 1859.

16 The stock subscriptions were usually first opened to the friends and associates of the original promoters and public sale was atypical.

17 Other evidence of the noncompetitive market structure is found in the continual exchange of cost, price and labor information that passed between the mills. For a full discussion of the industry's organizational structure see Shlakman, Vera, Economic History of a Factory Town; A Study of Chicopee, Massachusetts (Northampton, Mass., 1935).Google Scholar

18 The records of the New England Mutual Life Insurance Company make it very clear that stock was purchased as a part of the investment portfolio. Conversely, the records of the Provident Institution for Savings and the Massachusetts Hospital Life Insurance Company (a trust company) show that almost all of their holdings arose out of loan creation.

19 In the period under consideration, the hypothecation of stock resulted in ownership passing temporarily into the hands of the lender. The firm records, then, show the lending firm as the registered stock owner until the loan has been repaid and title again passed to the original owner.

20 See Tables 4, 5, 6, and 7.

21 See, for example, the balance sheets of the Provident Institution for Savings and the Massachusetts Hospital Life Insurance Company. In the case of the Provident Institution, security loans declined from $472,445 in Dec., 1840, to $37,500 in Dec, 1858.

22 The estimates of absolute holdings (see Table 3) also seem to bear out the contention that there is some relationship between the holdings of this group and the state of business activity. Both 1834 and 1844 show a sharp drop in the absolute holdings of the financial institutions.

23 See Table 6. The estimates of absolute contribution also show a pattern similar to that established by the textile merchants. Table 3 shows an increase until 1844 followed by a reduction in the succeeding years (except for an increase in 1859).

24 See Tables 5 and 7. Interestingly enough, however, there appear to have been no regular movements in the average size of the investment per firm (Table 4).

25 See footnote 15.

26 The Nashua and Amoskeag were located in New Hampshire, while the other nine firms were located in Massachusetts.

27 Nor for that matter does the corporate form even appear to have freed capital from personal ties in the Boston area. The records show that most stockholders regularly attended meetings and took an active part in the direction of the firm's activities. Their comments make it clear that many felt that their companies were as much their personal property as their own partnerships and sole proprietorships.

28 The estimates of absolute contribution show a steady increase throughout the period (see Table 3).

29 There is no way of estimating the number of estates that are represented by the trustee figures. The stockholder records most frequently list the trust account under the name of the trustee (followed by the note “trustee”), and the same persons often served as trustees for several estates.

30 Caroline Ware, The Early New England Cotton Manufacture, pp. 122 and 148.

31 Even if the original stock had been acquired through inheritance, it would still be possible to argue that continued ownership implied a belief in the safety and profitability of the investment. However, in the absence of a well-defined equity market, it is safe to infer that often the legatees could dispose of their shares only at a substantial loss.

32 If the equity figures had been disaggregated and those shares representing stock dividends assumed to represent reinvestment in textiles, the figures would show a substantial increase in industrial capital during the 1840's.

33 The 100 included 60 lawyers, 19 doctors, and 21 judges, ministers, dentists, and teachers.