Speculation and Debt

Old habits die hard. In January 1836, Savage Manufacturing Company was in severe permanent debt of about $70,000 to the following:

·         Heirs of John Savage: $20,000.00

·         Heirs of Robert Watson: $15,000.00

·         A.D. Weld: $4,000.00

·         Bank of Baltimore: $11,000.00

·         Cumberland D. Williams: $10,021.41

·         George Williams: $10,195.80

·         Nathaniel Williams: $459.00

The most consequential debts were to the Heirs of John Savage and Heirs of Richard Watson, as well as to the Bank of Baltimore.  Robert Watson was the President of the Warren Cotton Mill and close friends with Nathaniel Williams.  The practice at the time was to focus on paying the interest while refinancing or restructuring the capital on the loans every few years. 

The interest SMC paid in 1835 was $11,786.94, more than the principal debt owed to the Bank of Baltimore.  Amos started two expensive new ventures during this time that limited the ability of the Company to pay down their debt: the Savage Rail Road and a Blast Furnace to make pig iron.  His brother Cumberland supported Amos, but George did not, warning Amos not to take on anything outside of the core functions of cotton manufacturing. 

Worried about the debt being accumulated, letter George wrote to Amos in February 1835 and cautioned:

“After giving you the statement of the account of the Savage manufacturing company this day at my store, in the course of our conversation you naturally asked how we were to avoid paying much interest, I could then have made the same answer that I am now about to make; stop spending money at the factory for anything except what is necessary to keep our works going, do not let one cent be expended from any other purpose, and then not without the authority of the company; or a majority of them, we shall then prosper. If we do not, we will submit to our fate…”.

George continued his concerns noting Amos’ plans to build a “costly bridge at our expense of $2,500 or $3,000” and build a lateral line to the B&O Washington Branch rail and charge SMC 6% per annum to cover the capital costs. He was also concerned about Amos’ plans to connect the grist mill to a flour mill and continued :

“How can you expect that we can ever extricate ourselves from debt while such extravagant enterprises are undertaken, how can we expect other than that this property after a struggle of 12 years must go into other hands, in that at no very distant day”. 

He then admonished Amos in a very personal and heated tone for not having the authority to conduct these new affairs and putting their family’s futures at risk.  But Amos went ahead with the plans anyway, formed the Savage Rail Road Company, and charged SMC 10% of the capital cost of $15,000 each year.  The railroad used freight cars drawn by horses owns and stabled by SMC.  He essentially built the bridge and railroad with SMC paying it off over 10 years, getting SMC more in debt.

Knowing of the plans to build a blast furnace George and Nathaniel wrote to Amos in November 1838 and objected to the project as a large financial risk and being outside of the purview of the Savage Manufacturing Company despite the SMB Board approving it.  Amos and Cumberland had planned to start a new banking venture called the “Hamilton Bank” to loan the company money to construct and operate the furnace.  The letter noted that “If money could be borrowed we recommend it being applied to building of another cotton mill, we now know what that business is, Iron works we do not know anything about them…”  They also expressed concern about adding new sources of water to power the furnace, especially through diversions that could expose them to legal actions.

Amos and Cumberland ignored their brother’s concerns and went ahead with establishing the short-lived Hamilton Bank, building a blast furnace on the Company’s property, building a rail connection to the Savage Rail Road from the furnace, and pursued plans to building a second cotton factory by signing a contract for the lumber.  Perhaps the final straw was the building of a blast furnace in 1838-1839 for making pig iron and rolling iron that cost SMC $13,731 and was only used for 41 days. More debt and no opportunity to pay off the capital of the permanent debt making a default to the Bank of Baltimore inevitable.