The Invention that Built (and almost destroyed) America: Wells Fargo & Co (WFC), Union Pacific Corporation (UNP)

Page 1 of 2

Wells Fargo & Co (NYSE:WFC)On this day in economic and financial history…

Eli Whitney received a patent for his cotton gin on March 14, 1794. For the first time, American plantation owners would be able to harvest large amounts of cotton profitably. This invention — which was copied an astounding number of times before Whitney gained any measure of patent compensation — is perhaps more responsible for America as we know it than any other invention in the nation’s history.

Historian Gene Dattel, writing in The New York Times some material from his book Cotton and Race in the Making of America, paints a stark picture of profound change:

In 1787, there was virtually no cotton grown in America. Two things, however, quickly changed that. Eli Whitney’s cotton gin allowed cotton production to go from a process limited by manual labor to an industrial machine, allowing a person to “clean” 50 pounds, rather than one pound, of cotton a day. And of course, the cotton gin didn’t remove manual labor from the process; it just shifted it. In fact, this labor-saving device extended slavery by creating a labor shortage in the cotton fields.

The mass production of cotton was accompanied by a dramatic 90% drop in the price of a cotton textile garment. This in turn led to a consumer revolution whose raw material was slave-produced cotton — 80% of which was produced in the South. As a result, American cotton production exploded from almost nothing in 1787 to over 4.5 million bales, at 500 pounds a bale, by 1860. On the eve of the war, cotton comprised almost 60% of America’s exports.

Slavery expanded accordingly. The number of slaves increased from 700,000 in 1787 to over 4 million on the eve of the American Civil War; approximately 70 percent were involved in some way with cotton production. Indeed, so closely tied were cotton and slavery that the price of a slave directly correlated to the price of cotton (except during years of excessive speculation).

Economists Samuel Williamson of the University of Illinois and Louis Cain of Loyola attempted in 2011 to quantify the value of slavery to the South in modern monetary terms:

The average slave price in 1850 was roughly equal to the average price of a house, so the purchase of even one slave would have given the purchaser some status. Comparisons based on economic status are measured by the relative ratio of GDP per capita. Consequently $400 [the average price of a slave] in those days corresponds to nearly $175,000 in economic status today. … Total slave wealth was immense. … While it varies with the price of slaves over the period [1805 to 1860], it is never less that seven trillion 2011 dollars and, at the time of Emancipation, was close to ten trillion 2011 dollars.

By comparison, the American Petroleum Institute estimated in 2007 that the oil and gas industry’s total annual impact on the U.S. economy was between $10 trillion and $11 trillion. Considering the far greater population and the more global nature of the oil and gas industry, it is truly staggering that it barely exceeds the aggregate value of the slave economy in antebellum America.

Whitney, the man who had almost single-handedly perpetuated this economic system, saw little benefit from his transformative invention. His gin business was bankrupt three years after he earned the patent, as high fees for use and a relatively straightforward mechanical design pushed many tinkerers to simply copy Whitney, rather than obtain licenses. Whitney spent much of the rest of his life as a gunsmith for the federal government.

A prewar collapse of epic proportions
The Dow Jones Industrial Average suffered an 8.3% decline — the second-worst of the pre-Depression era — on March 14, 1907. The Chicago Daily Tribune reported:

Stocks closed in a panic on the exchange today and the last 15 minutes of the session left all Wall Street in a “brain storm” it will not forget for many a day. Not since the wild Northern Pacific swirl of 1901 has there been such a scene. Brokers were driven to the point of frenzy by the avalanche of selling orders, while the street teemed with excitement. Prices dropped from 10 to 20 points and the battering of values still was going on as the day’s business finished.

Page 1 of 2
blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

The 5 Most Expensive Cars To Insure in the World

The 10 Most Common Genetically Modified Foods

10 Self-Made Billionaires Who Came From Nothing

The 10 Most Expensive Cities to Live in North America

The 13 Most Expensive Headphones in the World to Represent

The Top 20 Wealthiest Soccer Teams in 2014

4 BuzzWorthy Cannabis Stocks And Some Smoking Derivative Plays

The 10 Healthiest Fast Food Chains in America to Dine At

The 5 Most Expensive Cat Food Brands You Can Spoil Your Kitty With

The 6 Best eCommerce Platforms for Small Businesses

The 10 Worst Mistakes an Entrepreneur Can Make

The 5 Most OP Characters in League of Legends to Carry Games and Crush Foes With

The 5 Best Foods to Eat Before Running that Will Help You Pound the Pavement

10 Glaring Plot Holes in The Walking Dead that a Zombie-Filled Bus Could Drive Through

The 5 Biggest Celebrity Stoners Who Love Their Reefer

The 10 Most Overrated Movies Of All Time by Out-of-Touch Critics

Top 6 Least Expensive Cruise Destinations For 2015 that Will Take You to Paradise

10 States with Lowest Substance Abuse Rates in America

The 14 Most Watched TV Finales Ever

The 10 Best Selling Role Playing Games of All Time for PC

10 Most Influential Papers In Economics

Top 8 Biggest Charities in the US

10 Worst Celebrity Career Moves Ever

Top 10 Best Paid Tennis Stars in the World

10 Cities with High Demand for Nurses

6 of the Worst Greeting Card Messages Ever Crafted

How to Make Money in ArcheAge and Build Your Empire

10 Foods To Eat To Lower Cholesterol Levels

The 10 Most Hated Television Characters of All Time

The 30 Worst Halloween Costume Ideas Ever Brought to Horrible Life

10 Vocational Skills in Demand Today with Jobs Waiting to be Filled

10 Best Places to Visit in Central and South America

The 10 Greatest Empires in History Which Nearly Conquered the World

The 6 Cheapest Boarding Schools In America 2015

5 Clear Reasons LoL is Better than DotA, Continues to Rule MOBAs

The Only 9 Teams with a Chance to Win the Super Bowl

The 15 Most Common Phobias in America that Induce Fits of Panic

Top 6 Least Expensive Tourist Destinations in 2014

Jim Goetz, Peter Fenton, Jim Breyer: Top 6 Venture Investors for 2014

Top 15 Billionaires in 2014

5 Pitfalls To Avoid When Buying a Franchise

Top 20 Medical Schools in the US – 2014 Rankings

4 Business Strategies that Turned Jamie Oliver into the World’s Richest Chef

6 Qualities That Make You A Good Team Player

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!