Bruce E. Baker, Barbara Hahn, The Cotton Kings: Capitalism and Corruption in Turn-of-the-Century New York and New Orleans, Oxford/New York: Oxford University Press 2015, 232 pp, £19.99, ISBN 9780190211653.
Reviewed by Catherine Davies, FernUniversität in Hagen
In 1903, the American business journalist Edwin Lefèvre predicted that ‘[t]he history of the bull speculation in cotton of 1903 will never be fully written, because, though the men who influenced it are very interesting, their operations are interwoven with bloodless statistics and tiresome technicalities’ (p. 1). It is, indeed, hard to imagine a history of futures trading entirely devoid of statistics and technicalities. In recent years, however, historians have begun rising to the challenge of writing histories of futures markets that, far from being dry and bloodless, successfully integrate the story of their nature and development into broader legal, economic, political, and cultural contexts. The Cotton Kings, by Bruce E. Baker and Barbara Hahn, which explicitly sets out to prove Lefèvre wrong, is a welcome addition to this small but growing field. Relying on a large amount of primary source material (mostly newspapers and government reports), the authors of this well-researched book reconstruct the history of the market in cotton futures in New Orleans and New York at the turn of the twentieth century. Baker and Hahn narrate their story by combining approaches of ‘business history, southern history, social history, political history, [and] environmental history’ (p. 146). Urban historians will appreciate the occasional foray into the history of New Orleans (New York history, by contrast, is dealt short shrift); overall, though, the immediate physical and material environment of cotton speculation is not the book’s main focus of interest. Transnational and global aspects are acknowledged in the form of brief but incisive sketches of Liverpool’s role in the worldwide cotton trade.
In the late nineteenth century, there were two exchanges in the United States, one in New York, the other in New Orleans, on which cotton futures were officially traded. While bear speculators in New York – whose aim was to drive prices down by shorting the market – dominated futures trading in cotton at the end of the nineteenth century, they were repeatedly challenged in the following years by southern speculators with an interest in higher prices (the bulls). Producers regarded the practice of futures trading with suspicion, believing that bear speculators manipulated prices which appeared to fluctuate with no relation to actual supply and demand. Efforts to outlaw the practice however failed repeatedly, much as they had in previous decades. A large part of the problem, Baker and Hahn argue, was the supply and quality of information on cotton production. The federal United States Department of Agriculture (USDA) relied on a network of correspondents to calculate the expected crop, yet prominent bear speculators often put out competing projections of high yields, thus driving prices down. Before long, however, the bears found their match in a group of New Orleans businessmen, headed by William Brown and Frank Hayne. Both Brown and Hayne were transplants, having arrived in New Orleans from Mississippi and South Carolina respectively. Both had married into families of the New Orleans business elite, thus securing important contacts for their own endeavors. Just as importantly, their arrival in the city in the late nineteenth century coincided with a seminal phase in its development: the construction of an underground drainage system, the electrification of streetcars and, crucially, the expansion of storage and shipping facilities for cotton all contributed to an increasingly favorable business environment. Given their city’s newfound prominence and growing role in the cotton trade, Brown and Haynes decided that the New York exchange’s sway over the cotton futures market was ripe for a challenge. As members of the New Orleans Cotton Exchange (NOCE), Brown and Hayne had access to superior information about southern cotton production. This, they realized, they could leverage to their advantage, given the right circumstances. In 1902, with demand for cotton rising, it seemed as though the time was right for a corner. Having summoned the financial support of several wealthy local institutions, the two partners set out to drive up the price for cotton. By the summer of 1903, they had succeeded: the price for cotton stood higher than it had for years, and Brown and Hayne had both made a fortune.
The effect proved short-lived, however, and by 1905, the cotton futures market was at a deadlock, with neither bears nor bulls dominating. Two scandals in this and the following year suggested that the market still suffered from a lack of transparency. In 1905, a statistician working for the USDA was exposed as having leaked crop statistics to speculators, thus allowing them to once again rig the market. In 1906, the federal Bureau of Corporations investigated the New York Cotton Exchange (NYCE) and found that one of its bodies had acted improperly in order to benefit members who held short positions. Amid a public outcry and general distrust of corporations and speculators, the Brown/Hayne clique attempted a new corner in 1910, believing that adverse meteorological conditions would produce a smaller than average crop. When the New York bears realized they were once again being squeezed, they resorted to a different tactic, and reported the New Orleans clique to prosecutors, alleging a restraint of trade in violation of the Sherman Antitrust Act. In 1913, the Supreme Court of the United States finally found that a corner did, in fact, amount to a restraint of trade. Ultimately, however, the bears lost out. Following the New Orleans corner, cotton prices remained stubbornly high, and, with the Cotton Futures Act of 1914, which standardized cotton futures trading in line with the more flexible and transparent New Orleans regulations, the New York bulls saw themselves deprived of some of their most important techniques of manipulation.
Although the authors explicitly state that The Cotton Kings is not meant to be ‘economic history as such’ (p. 146), they do make a broader economic argument: the corrupt practices of the New York bears, we are told, distorted the market, ultimately hurting southern farmers, both black and white (p. 143). This broader claim, while not implausible, does not seem sufficiently substantiated by empirical evidence. The authors argue that manipulations by the New York bears obfuscated the relationship between supply and demand to the detriment of producers, while the New Orleans bulls helped correct this distortion. Given that the Cotton Futures Act reformed regulations in accordance with the more transparent and flexible New Orleans practices, one would expect some data to show that prices became less volatile and more responsive to the relationship between supply and demand, thus improving the material conditions of southern farmers. No such data, however, is provided. Presumably, higher prices for cotton did help farmers to some extent, yet one can also imagine that the larger share of the price increase went to brokers, not producers. Here, too, some data would have been useful. These are minor quibbles, however. The Cotton Kings is a carefully researched and skillfully narrated account of an important episode in the history of the cotton trade which provides new and relevant insights into the development of American financial markets and their regulation.
Catherine Davies is assistant professor of history at FernUniversität Hagen. She earned her PhD at FU Berlin in 2015 and is currently working on a book that explores the 1873 financial crises in a transnational perspective.