I'm not quite sure slaves don't work in factories, it's just that I don't think the planters of the day had trust in their slaves to handle delicate machinery properly. Whether or not this was true is something I don't know.
Slaves work just fine in factories, as demonstrated by the fact that they
were used in a variety of factories in OTL. The classical example is the Tredegar Iron Works, which at one point had up to half its workforce as slaves. And the owner was disappointed that rising slave prices meant that he couldn't afford more. Slaves were also widely used in a variety of industrial pursuits related to some of their cash crops (steam sugar presses, and in factories for spinning hemp into rope, for instance).
In terms of planter resistance to using slaves in machinery, nope, it wasn't significant. A few individual planters preferred an agricultural lifestyle, but that's not the same thing.
Also, I figured this would take away jobs from whites, not a very popular move.
Well, yes and no. Free whites in the South mostly didn't work for wages, and slaves thus couldn't take their jobs off them. Native-born whites tried to be self-employed, for the most part. In both the North and South, most of the labour for the early factories came from immigrants. So slaves would be competing mostly against immigrants, at least at first. Guess who's likely to win that particular battle?
On the other hand, indentured servitude would probably be a practice rarely used. Why free a valuable skilled worker when you can keep him for life and take his earnings for yourself?
Yup. Indentured labour was gradually turned into a system of slavery back in the early colonial era. Slavery offered greater control and was self-sustaining in a way which indentured servitude wasn't.
Oh, and I have a few general thoughts about broader aspects of slavery development in your TL, I have a few suggestions.
Firstly, the South is still going to be concerned about any threat to slavery, come what may. No matter what protections are given
now, the moment that it looks like those protections are going to be compromised, there's trouble afoot.
Conversely, the North is going to be suspicious about anything which looks like a move to extend slavery. This is precisely why the Kansas-Nebraska Act was so divisive, and it was that, more than anything else, which led to the Civil War in the first place.
So, in your timeline, it doesn't look like those tensions have really been stopped. In other words, I disagree with the statement in one of your earlier posts that the issue of slavery has stopped becoming divisive. It still is, and it still will be for a long time. Suitable distractions (especially a foreign war) may help to put it to one side for a while, but it's going to be coming back every election. So while I don't have any particular problem with the picture of the civil war being averted in 1860, that doesn't mean it's been averted forever. Or that slavery has really been resolved.
More generally, you had this description of what happened with cotton slavery:
When Spain invaded, the Democrat-Republicans agitated to invade the country. Seward was favorable to this action, citing the Monroe Doctrine, Seward urges the very sick Steven Douglas to introduce a bill to “allow the US to intervene upon the island of Hispaniola, to create a colony for the export of free negros. Said colony shall never become a state but instead will remain a territory until its eventual independence.” Slavery would be outlawed, but the colony would not have any representation in Congress, thus allaying Southern fears of a free state in the heart of the Caribbean.
This bit looks rather difficult, since it's already plain that the South is going to be outnumbered by free states in the Senate very quickly. Splitting Texas isn't actually that good an option, since unless slave prices crash, slavery's only going to viable in the south-eastern portions of the state. (This was why Texas wasn't split in OTL). There's all sorts of free states going to be formed out of the northern territories... and the South has already had its numbers unbalanced in the Senate by California and subsequent northern states.
In other words, the South will be pressing very, very hard for expansion into somewhere which will give them extra slave states. This basically means that Caribbean, and allowing U.S. ruled territory in the Caribbean to become free-soil sets a very, very bad precedent. The South wants Cuba, for starters, preferably Puerto Rico as well, and possibly other areas. They don't want a free Dominican Republic as an example.
The cotton harvest of 1862 was one of the largest on record, reaching 6 million bales of cotton that year. Cotton production had been increasing for years, and the record harvest of the last five years had induced many farmers to devote even more land to cotton. This would have disastrous effects for the year to come. The English textile mills had a surplus from the previous year, and a vast oversupply was created.
To nitpick, this would probably happen in 1861, not 1863. In 1861, Britain already had a year's worth of cotton sitting in its warehouses. If not for the outbreak of the Civil War, cotton prices would probably have slumped anyway.
This led to a slump that was almost a reverse of the panic of 1857. Many planters and small farmers were hit hard, while Northern businesses were relatively untouched. This further accelerated the flow of slaves from the Upper South to the Deep South, where cotton was cheaper to produce.
Actually, I'd expect the reverse: slaves to move out of the cotton south, either back north or into urban pursuits. This is what happened every other time there was a slump in cotton prices. During every cotton boom, slave prices rose high enough to suck slave labour out of the cities and, to a certain degree, out of other cash crops as well. (It's actually a bit more complicated, in that it was mostly the growth in slave labour which was sucked out.)
So, if cotton prices fall, and slave prices fall right along with them, this is actually very good news for Virginian tobacco planters. Ditto Maryland. I suspect that slavery is moribound enough in Delaware that it won't matter much for production there, although I'd still expect slavery to hang on in Delaware for a very long time anyway.
Apart from tobacco, rice planters may get a bit more of a chance, although rice prices were in a long-term slide too. Some of the more marginal areas in Louisiana, Mississippi and Florida will be converted to sugar, rather than cotton. This may even prolong the slave hemp industry a bit.
The other big use for slaves will be industrial pursuits, of course. The Tredegar Iron Works will start buying up slaves again, and this won't be the only example. Virginian slave wheat plantations may even get a bit of a boost, although that's not a given.
As the 60’s continued it was apparent that the economic trends of the 50’s continued. Despite the contraction of 1862 – 1863, the agriculture of the South was marked by the monocultures of cotton, rice, and sugar. Tobacco and hemp production already declining declined further over the next ten years. Hemp production almost became non-existent in Kentucky, where in earlier years it had been a valuable cash crop. This decline was due to foreign competition especially Indian and Scottish cordage. Tobacco only slightly declined and in the years 1868-1870 increased due to unrest in the Caribbean.
Okay, cotton prices are going to slump in the 1860s - they did in OTL, due to oversupply, and nothing's appeared to change things ATL. Cotton production is likely to decline in relative terms.
Tobacco, though, is a different story. Demand for tobacco started to rise after the Crimean War with the introduction of cigarettes, and it is going to continue going up. I'd expect to see more slaves employed in tobacco production, not less.
Hemp is iffy. Hemp as an export crop is going to be in trouble, due partly to competition from other hemp producers but also other tropical fibres. What may save it is, ironically enough, the mechanization of wheat farming. Once the reaper-binder's been invented, hemp will have some potential use in making binder twine, and conveniently near to the wheat farming areas, too. Kentucky may have some small-scale revitalization of hemp for that industry, but the biggest days of hemp production are over.
Chewing tobacco factories increased, though these almost exclusively employed slaves. The number of cotton mills also declined due to Northern competition as well as local conditions. The average worker of the south was much less productive than northern workers, whether they were free or slave.
Why? This wasn't remotely the case in OTL; what's changed here?
The low tariffs continuing from the 1850’s did not help to encourage manufacturers and many like mills, like those of William Gregg in South Carolina (who established the first cotton mills of the South) were shut down. Pig Iron was another industry in decline, battered into submission by Northern competition.
Iron production in areas of the OTL South (mostly Kentucky and Tennessee) was exhausted in OTL due to running out of supplies of iron ore, not so much the Northern competition. Birmingham, Alabama is the best site in the USA for production of cheap steel - it should be cheaper than anything made in Pittsburgh or elsewhere in the North.
A few bright spots were evident however. The Tredegar Iron Works was prosperous throughout the decade, supplying much of the South with finished iron. Other bright spots of Southern industry included lumber and the milling of cereals. The fact was that the Southern capitalist could make more money in agriculture. In fact, at the eve of 1870, the South was less industrialized than it was in 1850.
This part, I really, really doubt. From 1840 to 1860 in OTL, during the height of the cotton boom, Southern manufacturing and commerce actually grew twice as fast as agriculture. The South isn't going to industrialise as fast or as intensively as the North, but it's still going to industrialise.
An insightful person would have seen that this state of affairs could not have continued, but to the platers of the 1860s, Cotton was King!
Hmm. This isn't the way the planter mindset worked in OTL. They were businessmen looking to maximise their rates of return. They planted cotton because it gave them the best rates of return. When that changed, they planted something else, or sold/rented their slaves to someone else who would. Virginian planters switched back and forth between wheat and tobacco depending on what world commodity prices were like. Indigo was mostly abandoned for the same reason.