If slavery was the corner stone of the Confederacy, cotton was its foundation. At home its social and economic institutions rested upon cotton; abroad its diplomacy centered around the well-known dependence of Europe…upon an uninterrupted supply of cotton from the southern states.
Frank L. Owsley Jr.
On the eve of the American Civil War in the mid-1800s cotton was America’s leading export, and raw cotton was essential for the economy of Europe. The cotton industry was one of the world’s largest industries, and most of the world supply of cotton came from the American South. This industry, fueled by the labor of slaves on plantations, generated huge sums of money for the United States and influenced the nation’s ability to borrow money in a global market. In many respects, cotton’s financial and political influence in the 19th century can be compared to that of the oil industry in the early 21st century.
Mississippi, the nation’s largest cotton-producing state, was economically and politically dependent on cotton, as was the entire South. Indeed, it was the South’s economic backbone. When the southern states seceded from the United States to form the Confederate States of America in 1861, they used cotton to provide revenue for its government, arms for its military, and the economic power for a diplomatic strategy for the fledgling Confederate nation.
King Cotton diplomacy
The diplomatic strategy was designed to coerce Great Britain, the most powerful nation in the world, into an alliance with the Confederacy by cutting off the supply of cotton, Britain’s essential raw material for its dominant textile industry. Before the American Civil War, cotton produced in the American South had accounted for 77 percent of the 800 million pounds of cotton used in Great Britain. After Britain had officially declared its neutrality in the American war in May 1861, the president of the Confederacy, Jefferson Davis – a Mississippi planter, Secretary of War under U.S. President Franklin Pierce, and former U. S. senator – strongly supported what became known as King Cotton diplomacy. Confederate leaders believed an informal embargo on cotton would lead Great Britain into formal recognition of the Confederacy and to diplomatic intervention with other European countries on behalf of the South.
To begin King Cotton diplomacy, some 2.5 million bales of cotton were burned in the South to create a cotton shortage. Indeed, the number of southern cotton bales exported to Europe dropped from 3 million bales in 1860 to mere thousands. The South, however, had made a pivotal miscalculation. Southern states had exported bumper crops throughout the late 1850s and in 1860, and as a result, Great Britain had a surplus of cotton. Too, apprehension over a possible conflict in America had caused the British to accumulate an inventory of one million bales of cotton prior to the Civil War. The cotton surplus delayed the “cotton famine” and the crippling of the British textile industry until late 1862. But when the cotton famine did come, it quickly transformed the global economy. The price of cotton soared from 10 cents a pound in 1860 to $1.89 a pound in 1863-1864. Meanwhile, the British had turned to other countries that could supply cotton, such as India, Egypt, and Brazil, and had urged them to increase their cotton production. Although the cotton embargo failed, Britain would become an economic trading partner.
Weapons, ammunition and ships
The failure of King Cotton diplomacy was merely a tactical blunder with no reflection on the power of cotton. The imaginative and brilliant financing of the cotton-backed Erlanger bond, launched in Europe in March 1863, epitomized the potential of cotton credit. The Erlanger bond, named after the powerful French banking house Erlanger & Cie., was a dual currency, one commodity bond. Through it the Confederate States of America attempted to borrow 3 million pound sterling or 75 million French francs for 20 years, priced at 7 percent. Investors could receive coupon and principal payments in either pound sterling or French francs, and were given the additional option of taking payment in cotton at a fixed price. The high-risk Erlanger bond was oversubscribed, and the price fell within a few months. The Erlanger bond quickly became one of history’s most important junk bonds.
