One of the most difficult of all tasks is beginning. While this may hardly seem a profound statement, it is important to remember that a best-selling novel had to start with a writer sitting down and beginning to type. Each skyscraper started with a blank sheet of drafting paper and many a life-saving serum began as a flash of inspiration on a scratch pad.

But before that writer, architect or doctor could begin, he/she had to have a unifying idea of what was the problem to be solved was and the approach to use. Starting a project without a goal is like sending a loaded ship out to sea with no port of destination. Once a direction of travel has been established, all of the other factors necessary for success fall into place.

There is also something said for the right approach. For every problem there are a myriad of solutions, many of them unworkable simply because they are the wrong approach. Solving the world’s solid waste problem by shooting the trash into the sun may be technically workable but it is the wrong approach. To begin with, it would cost too much. Secondly, once the trash is gone, the world loses precious material that could have been recycled. Third, there are cheaper, more environmentally friendly alternatives.

The right approach is not just one that will solve the problem; it is one that will open the door to a vista of new possibilities. Take the case of a young man approaching a miser for the hand of his daughter in marriage. How is this man going to convince the miser that he is not a fortune hunter? While the direct approach might work, the young man came up with a better alternative. Confronting the skinflint, the young man stated confidentially, “I know a way, Sir, whereby you can save a lot of money.” Note the infinite possibilities this approach as afforded that brash young man.

At the end of the Eighteenth Century, America had a wide range of problems that desperately needed resolution. There were a variety of possible solutions but what was needed was the right approach. From a commercial standpoint, America was an economic wilderness. With the end of the American Revolution, the United States of America discovered that it had achieved independence but was still economically tied to Great Britain. The population was large, 4.6 million, but the land impoverished. Those natural resources which could be exploited — timber, fish, indigo and tobacco — were being exported but had not proven to be profitable. In the northern states, cod and haddock sold poorly and agricultural products were meager. Selling American products to the Orient was profitable but trading excursions were so long it required merchants to tie up their money for several years at a stretch which limited the amount of cash in local markets to stimulate local industry.

In the middle states there was a shortage of marketable products and in the South, ravaged by years of guerrilla warfare, the land was devastated. Slaves had been killed or run off, the dike system for the rice industry damaged beyond repair, barns and bridges burned, and docks destroyed. It took the rice industry decades to recover. American indigo was replaced on world markets by East India production and tobacco, once one of America’s largest cash crop, had exhausted the soil. America’s economic outlook was so bleak that one Englishman commented that “The staple of America at present consists of land.”

The establishment of the United States Constitution did little to spur economic development. Americans were widely scattered and communication was poor. Transportation networks were not much better. Newspapers were few and far between and the cost of postage was so high that many men became postmasters simply to avoid paying the high fee of mailing letters. Cooperation among businesses was ephemeral.

Then the United States received an unexpected economic boost. The British clothmaking, textile, industry boomed. The industry had been operating successfully since 1733 but in 1785 there had been a profound change. Technology, innovation and the expiration of a number of important patents allowed the British industry to blossom. The boom was so great that the demand for cotton products so outstripped the British supply of the fiber that English merchants began to look for new sources of cotton.

Prior to 1790, cotton had only been an experimental crop in the United States. But with the sudden British interest in the plant, American agriculture had the opportunity to expand. There was good reason. Between 1783 and 1790, British importation of cotton jumped 300 percent, from 9 million to 28 million pounds per year. Suddenly it appeared that southern plantations could be expanded to grow more cotton and northern ships could carry the cotton to the British market. After ten years of depression, the United States stood at the threshold of an economic boom beyond its wildest dreams — IF one little problem could be solved.

Unfortunately that one little problem was not exactly little. The cotton plant produces a flower which blooms in the form of a puffball of fiber with seeds. The fiber is the marketable product while the seeds must be used for replanting. The problem was how to economically separate the seeds from the fiber. Slaves were originally used but even the fastest man or woman could only clean about a pound a day. While the agricultural frontier for raising cotton boundless, the bottleneck was in removing the seeds.

(There were two cotton varieties: long-staple and short-staple. Long-staple was agriculturally uncooperative and would grow only along the coast. The primary advantage of long staple was that its seeds could be easily stripped from the cotton fibers. Short staple, which could be grown inland, had seeds that were firmly attached to the cotton fibers and had to be cut free.

The long-staple’s seeds did not have to be removed by hand. Employing a device from Indian known as a gurka, this variety of cotton would be stripped of its seeds relatively easily.

When short-staple cotton was run through the gurka, its broke the cylinder or jammed the device. Thus was the dilemma for the United States: long-staple that could be stripped of its seeds but could only be grown in coastal areas while the vast inland regions of the American south could only grow short-staple whose seeds were proving impossible to extract.)

The solution to the seed problem had strange roots. It came in the form of a poverty ridden, Yale graduate in South Carolina: Eli Whitney. Whitney, the product of a modest, Puritan upbringing in Massachusetts, had always had a knack for mechanical inventions. At the age of 12 he had fashioned his own violin, which made “tolerable good musick,” and at the age of 14 had established himself as a competent nail maker. There had been a ready market for the nails during the American Revolution because the supply from England had been pinched off. However, after the Revolution British nails flooded the American market forcing Whitney to switch to hat pins and walking sticks.

In 1783, Whitney decided to go to college. As he could not depend upon his father for financial support, Whitney worked his way through school. Nine years later he graduated and made preparations to go to New York to work and study law. But fate sent him off in another direction. The job in New York fell through and, in its place, was a tutoring assignment in South Carolina. In rigid financial straits he had no choice but to accept the assignment.

Shortly after his arrival in South Carolina, Whitney was introduced to the problem of cotton seeds. He was intrigued at the problem and within ten days had designed what became known as the “Cotton Gin.” His design was based on the concept of the gurka but was much more effective with short-staple cotton. It was a smashing success. In ten days he had produced a device so revolutionary that it was to change America forever.

The impact of the cotton gin would be hard to understate. Between 1793 and 1820, the production of cotton in the South skyrocketed from 2 million pounds to 80 million pounds per year with almost 1/3 of the world’s cotton coming from the American South. As production of cotton went up, so did the demand for slaves to pick the cotton. While Whitney may have ushered in the Industrial Revolution in America, he may very well have also unwittingly watered the seeds for the American Civil War.

As an historical footnote, Whitney never made much money on the cotton gin. It was copied and patented under other men’s names with blatant disregard to even the lax tax laws of that time. There were also rumors — untrue it should be added — that Whitney’s gin damaged the cotton fibers. The rumor was so widespread that for a while Whitney was unable to sell cotton in England.

Whitney filed lawsuits where he could, but met with no success. Even the slave laws of the day kept Whitney from reaping the profits of his invention. Since slaves couldn’t testify in court, a cotton gin could be installed in an attic where no white people could see it. Thus, in the eyes of the law, that hidden cotton gin did not exist. Whitney, writing to his friend and fellow inventor, Robert Fulton, noted that on one occasion as he was standing on the steps of a Georgia courthouse he could hear three or four cotton gins working in a nearby building. Then he went inside the building and vainly tried to prove that there were working cotton gins in Georgia. “An invention can be so valuable as to be worthless to the inventor,” Whitney remarked in his letter of Fulton. “The use of this Machine being immensely profitable to almost every individual in the Country all were interested in trespassing & each justified & kept the other in countenance.” It appeared that if one developed a better mousetrap, it was far more likely that someone would steal the design rather than let the world beat a path to the inventor’s door.

As the South produced more and more cotton there was, naturally, more and more cotton on the market. Under normal circumstances, according to the LAW OF SUPPLY AND DEMAND, the price should have gone down. After all, with more and more cotton on the market, the price is supposed to go down. But this did not happen. English appetite for cotton was insatiable and every pound of cotton produced in the South had a ready market. Unfortunately for the northern states, in 1793 there was no way to take advantage of the increasing supply of cotton.

But this was to change. In 1790, Samuel Slater built America’s first cotton-spinning mill in Pawtucket, for a local merchant, Moses Brown. The supply of cotton was limited in 1790 since Eli Whitney had not invented the cotton gin yet. The Slater mill was very small, employed nine children to watch the 72 spindles and was powered by water.

(There were significant geographic differences between the North and South which inevitably led to economic different and, finally, a civil war. During the last Ice Age, glaciers had advanced from the ice cap as far south as Pennsylvania. These glaciers were giant tongues of ice that pushed massive amounts of rocks and boulders before them. Then, when the glaciers receded, the rocks and boulders were left where they had been pushed. The North, consequently, had a rocky soil which made large-scale farming impossible. For an idea of how many rocks there were per acre in the New England states, consider that all of the stone fences were made from rocks pulled out of the field. As a result of the glaciers, northern rivers were swift and boulder filled. While this made river traffic difficult, there was potential for using the rapidly moving rivers as a source of power to drive water wheels. The North, as a consequence, became an industrial powers.

In the South, far from the southern-most reach of the glaciers, the land was rock-free and the rivers smooth and lazy. This made the land ideally suited for large-scale farming ventures for cotton and tobacco. The rivers were ideally suited for barge traffic. Thus geographic features made the South an ideal agricultural area.)

Samuel Slater had been a textile apprentice in England who had become disenchanted with his occupational outlook. Well aware that the rapid expansion of the British textile industry would downturn, Slater took advantage of America’s need for technology and emigrated to the United States. At that time in English it was illegal for anyone from the textile industry to travel overseas so Slater was forced to list himself as a “farm laborer” and after 66 days at sea, landed in New York on November 18, 1789.

Shortly after his arrival, Slater made contact with Moses Brown who wanted Slater to make his textile mill profitable. Slater looked at Brown’s mill and advised him to scrap it and rebuild his company from the ground up. Brown was hesitant but after Slater proved he could make the mill profitable, Brown agreed to the renovation. Brown would never regret the expense.

Neither would America.

At first the American manufacturing business was slow, but with the War of 1812 and

Jefferson’s embargo of British goods, the American textile industry boomed. Cotton raised in South that had been destined for England was now re-routed to New England where American mills made American textiles for American clothing. By the end of the war, the number of spindles in use in America had jumped to 130,000. There was retrenchment after the war when British textiles hit the American market but by 1840 the American textile industry had recovered and there were then more than 2 million spindles operating. The industry was growing and continued to boom. From the end of the War of 1812 to 1831, the number of spindles in America tripled. Then, from 1831 to 1860, the number tripled again.

But there was a dark side to this unprecedented boom. While the agricultural boom in the South generated the need for slaves, the textile industries in the north employed children because they were quick enough to operate the spindles. In both the South and North, the Second American Revolution brought the blessings of profitable ventures; but it also brought the curse of slavery and child labor.

Slater’s mill in the North combined with the genius of Eli Whitney in the South generated a new industrial era, the so-called Second American Revolution. Now the economies of the two parts of the country boomed. The agricultural industry in the South raised more and more cotton for British and American textile makers. The American transportation industry boomed because the cotton of the South had to be transported to northern merchants and British factories. Northern factories boomed with southern cotton. America moved from a depressed country with no salable commodity to one of the most important economic powers on earth.


One of the most important aspects of developing an economy of an area is what is known as “closed system.” This is the economic system through which one industry feeds another. A good example would be a small farming community in which grain grown locally feeds local cattle which are slaughtered in the local slaughterhouse and sold to local consumers in the local grocery store. This is a system with money flowing in the opposite direction of the product. In other words, as the grain goes into beef which goes into the grocery store, the money paid to the grocery store goes in the opposite direction. The grocery store owner has to pay his bill to the slaughterhouse which must pay the rancher for the beef who, in turn, pays the farmer for the grain. The farmer will then pay the grocer for food thus closing the economic system.

On a nation-wide basis, the development of the cotton industry was a giant step forward in the development of the American economy. The South and the Middle States produced the cotton which was transported on ships from the Middle States to textile manufacturers in the North. The textile that were produced were sold to all Americans. Money flowed backwards, from the ultimate consumer to the textile manufacturers who paid the shipping companies who paid the Southern planters.

Once the cycle began it generated its own inertia. Money was suddenly available for local investment which generated a new class of entrepreneurs. As the American textile industry expanded, Americans could have a wide variety of clothes at a lower price than the imports. This left them more money to spend on other items, many of those American products which, in turn, stimulated other American industries. Though Whitney and Slater were not among the Founding Fathers of the United States of America, it can still be said that they sparked the Second American Revolution.

The saga of the Second American Revolution illustrates at least three economic laws. First there is the concept of MARGINAL COST. Basically stated, the more items that are produced, the cheaper it becomes to produce one more. With the invention of the cotton gin, cotton without seeds was suddenly available for sale on the world market. But in the early days, getting that cotton to market was expensive. There were few roads in the South, not enough wharves, and a limited number of barges. However, a decade later, the industry was booming.

Now there were roads, wharves, and barges. All of these items cost money but the expense was stretched out over decades. Every time a bale of cotton was hauled down a road to wharf where a barge was waiting, a portion of the profit from that bale went to repay the construction of the road, wharf and barge. The longer the road, wharf and barge were used, as the LAW OF

MARGINAL UTILITY states, the lower the cost per bale of cotton. While it may have taken $30,000 for the first bale to make it from plantation to barge, ten years and 30,000 bales later, it was only costing $1 per bale.

A second economic law was illustrated by Eli Whitney. As soon as Whitney’s cotton gin showed promise, everyone who could steal the idea did. To stop the theft, Whitney went to court. But it did him no good. Patent laws were weak and the court system was stacked against him.

But the risk on the part of the planter with the illegal cotton gin was very low. By the concept of DIMINISHING MARGINAL UTILITY, the cost of getting caught with an illegal cotton gin was so low — and the profits to be gained from the cotton gin were so high — that it was worth the risk. Thus, stealing the idea was a good business risk.

However, had Eli Whitney’s court case been in a Northern state, one in which slaves were allowed to give testimony, the legal outcome might have been substantially different. While it was clearly profitable for Southerners to steal the cotton gin, in a Northern court they may have been found guilty of patent infringement. Thus, illustrating the concept of DIMINISHING

MARGINAL UTILITY, the planter would have faced a greater risk of losing the case if the trial had been held in a Northern court. In that case, the planter might have been taking an unreasonable, and therefore uneconomic, risk.

Though not specifically stated in the chapter, the roots of another economic law are illustrated as well. Eventually the cotton industry met a formidable adversary: petroleum. While cotton is still a major player in the textile industry, there is a new participant in the market. That product is called by a variety of names but falls under the umbrella of “polyester.” This petroleum-based textile has many advantages over cotton, one of the most significant is that it is cheaper. Thus, by the LAW OF SUBSTITUTION, if a business can make the same product cheaper, it will.

[This chapter is from Steven Levi’s ECONOMIC HISTORY OF THE UNITED STATES available on Kindle.]



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