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Chapter 1: Textile Conglomerate
A proper history of Berkshire Hathaway prior to Warren Buffett taking control in 1965 could occupy an entire book unto itself. When we think of the conglomerate that is Berkshire Hathaway today, we think of a widely diverse enterprise spanning a multitude of different industries. The 1965 version was a large textile company comprised of many companies with stories of their own.
The Rise and Fall of an Industry
What gave rise to those textile companies and the industry itself is fascinating and instructive. We must therefore start at the beginning. Samuel Slater brought the first water-powered textile mill to the United States in 1789. Slater snuck out of England with the know-how to build a viable water-powered mill and did so with financial backers in Pawtucket, Rhode Island. By 1809 there were twenty-seven Slater-type mills in New England.
The next major innovation was financial and operational. Francis Cabot Lowell, a wealthy Boston merchant used a joint-stock corporation to create the Boston Manufacturing Company in 1813. He was the first to integrate his mills, the first of which was in Waltham, Massachusetts. It housed all operations needed to turn raw cotton into finished cloth. They were profitable almost immediately. Lowell had thus discovered the optimal combination of size and integration to generate economies of scale out of the cotton mill. Not surprisingly, this innovation spread rapidly.
Having wrested all the power they could out of the Charles River in Waltham, the investors in the Boston Manufacturing Company (sometimes referred to as the Boston Associates) turned their sights on a new location. They chose a site on the Merrimack River in what was East Chelmsford, Massachusetts, and formed the Merrimack Manufacturing Company. In Lowell, the company was more than just mills; it was a company town that by the 1840s had over 8,000 employed. They used the surrounding farmland to build a boardinghouse, churches, company stores, and other infrastructure for the many workers required to operate the mills. Many of the workers were women.
The next major improvement in textile mill operations came from the Amoskeag Manufacturing Company, formed in the late 1830s in Manchester, New Hampshire, along the Merrimack River. Whereas the Lowell-type mills were individually owned, the Amoskeag mills operated under one corporate umbrella. This allowed for bulk purchasing, sales, and other economies of scale.
Why the North?
The early mills in the United States were thousands of miles from cotton fields, which raises a key question: Why develop the textile industry in the North? In short, the South did not find it immediately economical to do so, and the North had some distinct advantages, at least initially. Two initial Northern advantages were access to capital and a cheap power source.
Availability of capital was possibly the deciding factor as to why the textile industry first took hold in the Northeast. When Francis Cabot Lowell formed the Boston Manufacturing Company, he was already a successful businessman. He and his Boston Associates had access to capital from the whaling business. By the mid-1800s, a large store of capital accumulated during the boom times of whaling was unleashed as whaling declined and the textile business grew.
Other early advantages of the North were geographic. New England has many strong-flowing rivers that unleashed vast amounts of power as they descended to the ocean. These rivers also provided a convenient means of transporting goods to and from the mills. Secondly, the Northâs pro...
