Origins of the New South, 1877–1913: A History of the South

XI: The Colonial Economy

C H A P T E R X I THE COLONIAL ECONOMY HE vision that inspired the Southern businessman was that of a South modeled upon the industrial Northeast. The Richmond banker and railroad president John Skelton Williams, for example, said in 1898 that he was "hoping to see in the South in the not distant future many railroads and business institutions as great as the Pennsylvania Railroad, the Mutual Life Insurance Company, the Carnegie Steel Company or the Standard Oil Company." * It was assumed, of course, that as such corporations developed, Southern counterparts of the Morgans, Carnegies, and Rockefellerswould rise with them. Pending the realization of these hopes, it behooved good Southerners to do all in their power to attract the attention and the investments of Northeastern capitalists southward. Deploring "the populistic tendencies of some Southern people" which gave offense to such interests, Williams held up for admiration several of the dominant Northeastern corporations of the day. Southerners, he declared, "ought to be proud of the strength and magnitude of these and similar concerns as the Englishman is of the Bank of England." Richard H. Edmonds of the Manufacturers' Record joined with Colonel D. B. Dyer, Augusta industrialist, in organizing the Southern Development Association, the purpose of which, according to Dyer, was "to promote the colonization and improvement of the South." 2 The two ideas were identical in the minds of these gentlemen. The headquarters of the association was in New York. As the old century drew to a close and the new century progressed 1 Quoted in Manufacturers' Record, XXXIV (September 9, 1898), 101. 2 Richmond Dispatch, June 22-23, 1894. 291 T ORIGINS OF THE NEW SOUTH through the first decade, the penetration of the South by Northeastern capital continued at an accelerated pace. The Morgans, Mellons, and Rockefellers sent their agents to take charge of the region's railroads, mines, furnaces, and financial corporations, and eventually of many of its distributive institutions. Southern counterparts of the Northeastern masters, however, failed to appear. The number of Southern businessmen increased steadily, and some of them waxed in fortune. But the new men, as well as many of the old, acted as agents, retainers, and executives—rarely as principals. The economy over which they presided was increasingly coming to be one of branch plants, branch banks, captive mines, and chain stores. Northeastern control over the vast, sprawling railway system of the South wasvirtually completed within the decade following the Panic of 1893 by a series of large-scale reorganizations. J. Pierpont Morgan, mightiest of the Northern empire builders, opened the era of reorganization and consolidation by creating the Southern Railway out of the ruins of the Richmond and West Point Terminal Company in 1894. Plundered, mismanaged, and insolvent, the Terminal system was left in great confusion in 1893. Upon undertaking the reorganization , Morgan imposed terms which 'Virtually meant that the security holders accepted in advance any proposals which he might make." 8 The New York banker took over 4,500 miles of railroad and 150 miles of water line formerly operated by more than thirty separate corporations. The new company owned all but 491 miles of the road, and Morgan retained control. Within a few months the Southern Railway swiftly expanded its holdings to a total of 7,500 miles of rail. In the course of the reorganization "$120,000,000 of common stock was issued to persons who paid not a single dollar in actual value for it"—a transaction that has been called "the classic example" of stock jobbing and watering.4 The New York Sun said of the reorganization "that the event is the most notable that has taken place in the history of American railroads, and that its bearing upon every Southern business is of 3 Campbell,Reorganization of the American Railroad System, 150. * Maxwell Ferguson, State Regulation of Railroads in the South, in Columbia University Studies in History, Economics and Public Law, LXVII, No. 2 (New York, 1916), 52. 292 THE COLONIAL ECONOMY vital importance." B The significance for Southern mining, manufacturing , and commerce is indicated by the facts that Morgan now dominated transportation in the two great coal fields of the region; that he tapped the iron industry from Knoxville to Birmingham, with thirty furnaceson the western division of the system; and that his lines laced the Piedmont cotton-mill country, penetrated the tobacco country of Kentuckyand North Carolina, spread branches...