Part 10

What, then, we may profitably inquire next, has actually happened to price movements generally as the market has developed? This question can readily be answered as regards the past forty years or so, for which material has been collected, but the reader must bear in mind that if improvement can be traced it cannot logically be attributed unhesitatingly to the perfecting of the machinery of speculation, whereby a larger use has been made of "futures," since many other economic changes have taken place concomitantly and they may have wrought the major effect. The world may be steadying and steeling its nerves. Now, turning to the actual effects, we discover somewhat remarkable facts. Expressed both absolutely and as percentages of the price averaged from the 1st of October to the 31st of July, the range of movement, standard deviation, and mean weekly movement calculated between the times mentioned above (October 1st to July 31st), after diminishing significantly for some years after the later 'sixties, have risen appreciably on the whole of late years. The figures in the table below are from the _Journal of the Royal Statistical Society_, June 1906: quotations for August and September were omitted to avoid the transition movements between the price levels of two crops.

In this table measurements of price movements stated both absolutely and as percentages of price levels are given, because authorities have expressed doubts as to whether the former or the latter might be expected to remain constant, other things being equal, when price rose. On the one hand, it is argued that speculators are affected only by the absolute variations in price, while on the other hand it is contended that a movement of one "point," say, is less influential when the price is about 8d. than when it is about 4d. In response to the first view it might be argued that if speculators are influenced only by the differences for which they become liable, a "point" movement would have a somewhat slighter effect on their action, other things being equal, when price was high, because, supplies being relatively short, each of them would tend to be engaged in a smaller volume of transactions measured in quantity of cotton, than when supplies were larger. But the point need not be discussed further here, since both percentage and absolute indices of unsteadiness have risen of late years. The explanation of this change in the direction of indices of steadiness cannot be proved to consist in any peculiarity in the supplies of recent years. But the dealing syndicate has probably been of late more common and more powerful--that is, the syndicate which exists to make profits out of manipulating the market--and the public has probably been speculating increasingly. It is plausible, then, to suppose that the dealing syndicate primarily, and the speculations of the public secondarily (secondarily, because in all likelihood the effect of its operation would be much less in magnitude), may account for the change.

Table calculated from Weekly Prices between the 1st of October and the 31st of July in each Year.

+--------------------------------------------------------------+--------------------+ | | Expressed as Per- | | | centage of Average | | |(1 Oct. to 31 July) | | | Weekly Prices. | +---------+---------+---------+---------+--------+------+------+------+------+------+ | | | | |Range of|Stan- | Mean |Range |Stan- | Mean | | Year. | Average | Lowest | Highest | Move- |dard |Weekly| of |dard |Weekly| | | Price. | Price. | Price. | ment. |Devia-|Move- |Move- |Devia-|Move- | | | | | | |tion. | ment.|ment. |tion. | ment.| +---------+---------+---------+---------+--------+------+------+------+------+------+ | | d. | d. | d. | d. | d. | d. | d. | d. | d. | |1867-1868| 9-5/8 | 7-3/8 |12-7/8 | 5-1/2 | 1.74 | 0.31 | 57.1 | 18.1 | 3.22 | |1868-1869|11-1/2 |10-1/2 |12-5/8 | 2-1/8 | 0.58 | 0.19 | 18.5 | 5.0 | 1.65 | |1869-1870|11-1/8 | 7-3/4 |12-3/8 | 4-5/8 | 0.92 | 0.23 | 41.6 | 8.3 | 2.07 | |1870-1871| 8-1/8 | 7-3/16 | 9-3/16 | 2 | 0.65 | 0.17 | 24.6 | 8.0 | 2.09 | |1871-1872|10-7/8 | 9-3/8 |11-1/2 | 2-1/8 | 0.75 | 0.15 | 19.5 | 6.9 | 1.38 | |1872-1873| 9-3/4 | 8-3/4 |10-5/16 | 1-9/16 | 0.53 | 0.10 | 16.9 | 5.7 | 1.08 | |1873-1874| 8-5/16 | 7-3/4 | 9-1/8 | 1-3/8 | 0.32 | 0.10 | 16.5 | 3.9 | 1.20 | |1874-1875| 7-11/16 | 6-15/16 | 8 | 1-1/16 | 0.26 | 0.07 | 13.8 | 3.4 | 0.89 | |1875-1876| 6-1/2 | 5-7/8 | 7-1/8 | 1-1/4 | 0.37 | 0.08 | 19.2 | 5.7 | 1.23 | |1876-1877| 6-5/16 | 5-7/8 | 7 | 1-1/8 | 0.33 | 0.11 | 17.8 | 5.2 | 1.74 | |1877-1878| 6-3/4 | 5-7/8 | 6-9/16 | 1-11/16| 0.21 | 0.07 | 11.0 | 3.4 | 1.12 | |1878-1879| 6 | 4-15/16 | 7-3/28 | 2-1/4 | 0.67 | 0.13 | 37.5 | 11.2 | 2.17 | |1879-1880| 7 | 6-10/16 | 7-3/8 | 1-3/4 | 0.24 | 0.12 | 10.7 | 3.4 | 1.71 | |1880-1881| 6-5/16 | 5-3/4 | 6-13/16 | 1-1/16 | 0.34 | 0.08 | 16.8 | 5.4 | 1.27 | |1881-1882| 6-5/8 | 6-3/8 | 7-1/16 | 11/16 | 0.15 | 0.07 | 10.4 | 2.3 | 1.06 | |1882-1883| 5-13/16 | 5-7/16 | 6-5/8 | 1-3/16 | 0.31 | 0.07 | 20.4 | 5.3 | 1.20 | |1883-1884| 6-1/16 | 5-3/4 | 6-7/16 | 11/16 | 0.20 | 0.08 | 11.3 | 3.3 | 1.32 | |1884-1885| 5-13/16 | 5-7/16 | 6-1/8 | 11/16 | 0.19 | 0.07 | 11.8 | 3.3 | 1.20 | |1885-1886| 5-1/8 | 4-3/4 | 5-8/16 | 3/4 | 0.18 | 0.07 | 14.5 | 3.5 | 1.35 | |1886-1887| 5-7/16 | 5-1/8 | 6 | 7/8 | 0.28 | 0.05 | 16.1 | 5.2 | 0.92 | |1887-1888| 5-1/2 | 5-3/16 | 5-11/16 | 1/2 | 0.14 | 0.05 | 9.1 | 2.5 | 0.91 | |1888-1889| 5-3/4 | 5-5/16 | 6-3/16 | 7/8 | 0.23 | 0.06 | 15.0 | 4.0 | 1.04 | |1889-1890| 6-1/8 | 5-9/16 | 6-11/16 | 1/8 | 0.34 | 0.08 | 18.4 | 5.5 | 1.31 | |1890-1891| 5 | 4-3/8 | 5-3/4 | 1-3/8 | 0.36 | 0.06 | 27.5 | 7.2 | 1.20 | |1891-1892| 4-1/8 | 3-6/16 | 4-15/16 | 1-3/8 | 0.36 | 0.07 | 33.3 | 8.7 | 1.70 | |1892-1893| 4-3/4 | 4-1/8 | 5-15/16 | 1-3/16 | 0.37 | 0.09 | 25.0 | 7.8 | 1.89 | |1893-1894| 4-1/4 | 3-29/32 | 4-11/16 | 25/32 | 0.22 | 0.04 | 18.4 | 5.2 | 0.94 | |1894-1895| 3-3/8 | 2-31/32 | 3-7/8 | 9/32 | 0.30 | 0.06 | 26.9 | 8.9 | 1.79 | |1895-1896| 4-3/8 | 3-3/4 | 4-27/32 | 3/32 | 0.28 | 0.07 | 25.0 | 6.4 | 1.60 | |1896-1897| 4-3/16 | 3-25/32 | 4-11/16 | 29/32 | 0.22 | 0.07 | 21.6 | 5.2 | 1.67 | |1897-1898| 3-13/32 | 3-3/16 | 3-13/16 | 5/8 | 0.18 | 0.05 | 18.5 | 5.3 | 1.47 | |1898-1899| 3-9/32 | 3 | 3-15/32 | 15/32 | 0.15 | 0.04 | 14.3 | 4.6 | 1.22 | |1899-1900| 4-15/16 | 3-29/32 | 6-1/16 | 25/32 | 0.63 | 0.12 | 43.6 | 12.8 | 2.48 | |1900-1901| 5-1/8 | 4-5/16 | 6-1/2 | 2-3/16 | 0.53 | 0.13 | 42.7 | 10.3 | 2.54 | |1901-1902| 4-3/4 | 4-9/32 | 5-11/32 | 1-1/16 | 0.24 | 0.09 | 22.4 | 5.0 | 1.89 | |1902-1903| 5.35 | 4.42 | 7.12 | 2.70 | 0.78 | 0.13 | 50.5 | 14.6 | 2.43 | |1903-1904| 7.04 | 5.78 | 8.92 | 3.14 | 0.91 | 0.33 | 44.4 | 12.9 | 4.83 | |1904-1905| 4.86 | 3.63 | 6.01 | 2.38 | 0.71 | 0.15 | 48.9 | 14.6 | 3.09 | +---------+---------+---------+---------+--------+------+------+------+------+------+

Price movements in different markets.

"Futures" are not used in all markets--for instance, they are not to be found at Bremen; and in those in which they are used they play parts of different prominence--at Havre, for instance, the transactions in "futures" are of incomparably less relative importance than they are at Liverpool. But it is futile to seek the effect of much dealing in "futures" in the differences between price movements in the various markets, because (1) demand expresses itself in different ways--in Germany, for example, spinners buy to hold large stocks--and (2) the markets are in telegraphic communication, so that their price movements are kept parallel. Mr Hooker has shown with reference to the wheat market how close is the correlation between prices in different places,[7] and the same has been observed of the cotton market, though the correlations have not been worked out.[8] It is worthy of note that Liverpool "futures" are largely used for hedging by continental cotton dealers.

+----------------+-----+------+------+------+------+------+------+-----+-----+------+------+-----+------+ | | | Jan.-| Feb.-| Mar.-| Apr.-| May- | June-|July-|Aug.-| Sep.-| Oct.-|Nov.-| Dec. | | |Spot.| Feb. | Mar. | Apr. | May. | Jun. | July |Aug. |Sep. | Oct. | Nov. |Dec. | Jan. | +----------------+-----+------+------+------+------+------+------+-----+-----+------+------+-----+------+ |Nov. 18th, 1895 | 4.34|27 |28 |28-1/2|29-1/2|31 |32 |3 | .. | .. | .. | 27 |27 | |Jan. 18th, 1899 | 3.8 | 6-1/2| 6-1/2| 7-1/2| 8-1/2| 9-1/2|10-1/2|1-1/2| 12 |12-1/2| .. | .. | 6-1/2| |Sept. 14th, 1899| 3.36|24-1/2|25 |25-1/2|26 |27 | .. | .. | 30 |28 |26-1/2| 25 |24-1/2| +----------------+-----+------+------+------+------+------+------+-----+-----+------+------+-----+------+

Differences between the prices of near and distant "futures."

Conceivably some indication of the working of "futures" might be gleaned from observation of the relations of near and distant "futures" to one another and of both to "spot." The complete explanation of changes in these relations is still a mystery.[9] Probably an infinitude of subtle influences came into play, and among these there seems reason to include the intentional and unintentional "bulling" or "bearing" of the market. Some examples of the diverse relations to be found, even when all the "futures" fall in the same crop year, may be quoted here--quotations running into the new crop year are obviously affected by anticipations of the new crop.

As we pass from the "future" of the month in which the quotation is made to the most distant "future" it will be observed that in the first and second cases price rises continuously, in the second case even passing "spot," whereas in the third case it falls first and then rises. Instances might be given of its falling unintermittently. It seems a plausible conjecture that if "futures" were "bulling" the market in the first case, they were at least "bulling" it less in the second case _ceteris paribus_, and probably "bearing" it in the last case. A closer examination will reveal further that the magnitude of these gaps varies a great deal; and if the "futures" do "bear" and "bull," as has been supposed, they probably influence these magnitudes. It might be thought that the "futures" of different months, being substitutes in proportion to their temporal proximity to one another, should vary together exactly; but it would seem to be a sufficient reply that as they are not perfect substitutes they are in some slight degree independent variables. The "spot" market might be judged generally as too high, in view of crops and the probable normal demand of the year, but it might not therefore drop immediately, owing partly to the pressure of demand that must be satisfied instantaneously. "Current futures" would be affected more than "spot" by this impression as to the relation of "spot" to a conceived normal price for the year, and they might therefore be expected to drop more than "spot" when this impression was at all widely entertained. But the fall of "current futures" would be checked by the demands that must be satisfied in the near future. Probably the prices of the more distant "futures" are determined in a higher degree by far-reaching imagination than the prices of nearer futures. This explains what has been called above the unintentional "bearing" of "spot" by "futures." And it is immediately evident that the deliberate "bear" works by selling "futures," and that the effect of his sales is propagated to "spot." These statements are equally true of "bulling." The influence of expectations of the new crop on "futures" running into the new crop is plain on inspection; but owing to the gap between the two crop years it would be astonishing if "futures" against which cotton from a new crop could be delivered were not appreciably independent of "spot" at the time of their quotation. However, it is noticeable that they are still so closely bound up with "futures" culminating in the old crop year that the daily movements of the former are closely correlated with those of the latter. Concluding cautiously, we may admit the probability of the relations between near and distant "futures" and "spot" (even in respect of "futures" running out in the same crop year) indicating sometimes at least the intentional or unintentional "bulling" or "bearing" or "spot" by "futures." But nothing has yet been proved from these facts as to the effect "futures" are having upon the steadiness of prices. In the case of any crop year, if the relations which are suggested as indicating the "bulling" work of "futures" usually corresponded with "spot" prices being below the normal price of the crop year, or of what was left of the crop year, while the relations which are suggested to indicate the "bearing" work of "futures" on the whole corresponded with a relatively abnormal height of "spot," it would be a legitimate inference that "futures" were tending to smooth prices. However, it is made clear as the result of an elaborate examination that the generality of these correspondences cannot be affirmed.[10] The outcome of the whole matter is that the investigator is still baffled in his attempt to discover what effect the use of "futures" is having upon prices to-day. The sole piece of evidence, from which probable conclusions may be drawn, is that three separate measurements of price fluctuations over some forty years reveal a growing unsteadiness of late, whether they be expressed absolutely or as percentages of price.

Recent attempts to open up new cotton-fields.

The uneasiness caused by the excessive dependence of Great Britain upon the United States for cotton, coupled with the belief that shortages of supply are more frequent than they ought to be, and the fear that diminishing returns may operate in America, occasioned the formation in England of the British Cotton Growing Association on the 12th of June 1902. The proportions of England's supplies drawn from different fields is indicated in the table below.

British dependence on American supplies is greater even than that of the continent of Europe, for Russia possesses some internal supplies, and more Indian cotton is used in continental countries than in England.

_Average Quantities of Raw Cotton imported Annually into the United Kingdom from the following Countries in the Periods 1896-1900 and 1901-1904._

+----------------------------------------+-------------+-------------+ | Country | 1896-1900. | 1901-1904. | | | Million lb. | Million lb. | +----------------------------------------+-------------+-------------+ | United States | 1436 | 1424 | | Brazil | 13.8 | 31.5 | | Peru | 8.5 | 8.6 | | Chile (including the Pacific coast of | .8 | 2.2 | | Patagonia) | | | | Venezuela and Republic of Colombia | .5 | .5 | | British West Indies and British Guiana | .3 | .6 | | Turkey (European and Asiatic) | .5 | 1.1 | | Egypt | 295.7 | 314.4 | | British possessions in the East Indies | 40.7 | 61.9 | | Australasia | .035 | .041 | | All other countries | 2.3 | 3.8 | | +-------------+-------------+ | Total | 1800 | 1849 | | +-------------+-------------+ | Re-exported | 223 | 260 | +----------------------------------------+-------------+-------------+

The annual average shipments from Bombay to the European continent and to Great Britain in 1900-1904 were as follows:--

To the continent 600 bales of 3-1/2 cwt. To Great Britain 50 " " "

At the end of the 18th century the bulk of British cotton was obtained from the West Indies. Approximately the supplies were as follows in million lb.:--

British West Indies 6.6 French and Spanish settlements 6 Dutch settlements 1.7 Portuguese " 2.5 East Indies " .1 Smyrna or Turkey 5.7

The British Cotton Growing Association works under the sanction of a royal charter and has met with valuable official support. Financial assistance and assurances as to sales and prices have been given liberally by the association where they are needed; ginning and buying centres have been established; experts have been engaged to distribute seed and afford instruction; and some land has been acquired for working under the direct management of the association. The governments of some colonies have aided the efforts of the association. Professor Wyndham Dunstan of the Imperial Institute, on a reference from the government, made favourable reports as to the possibilities of extending cotton cultivation. The results may be seen in the approximate estimates below of cotton grown more or less directly under the auspices of the association.

_Bales of 400 lb._

+-------------------+---------+---------+-----------+-----------+ | | 1903. | 1904. | 1905. | 1906. | +-------------------+---------+---------+-----------+-----------+ | Gambia | 50 | 100 | 300 | .. | | Sierra Leone | 50 | 100 | 200 | 250 | | Gold Coast | 50 | 150 | 200 | 250 | | Lagos | 500 | 2,000 | 3,200 | 6,300 | | Nigeria | 100 | 200 | 650 | 1,200 | | | ----- | ----- | ----- | ----- | | West Africa | 750 | 2,550 | 4,550 | 8,000 | | West Indies | 1,000 | 2,000 | 4,000 | 6,000 | | East Africa | 150 | 850 | 2,000 | 3,500 | | Sind | .. | .. | 500 | 2,000 | | Sundries | .. | 100 | 250 | 500 | +-------------------+---------+---------+-----------+-----------+ | Total | 1,900 | 5,500 | 11,300 | 20,000 | +-------------------+---------+---------+-----------+-----------+ | Approximate value |L29,000 |L75,000 | L150,000 | L270,000 | +-------------------+---------+---------+-----------+-----------+

In the West Indies results are most favourable, both as regards quantity and quality of the crops. West Indian grown cotton has realized even higher prices than American grown Sea Island. In West Africa also prospects appear encouraging. In Sierra Leone little success has been met with, but on the Gold Coast some cotton better than middling American has been grown, and the association has concluded an agreement with the government for an extension of its work. In Lagos crops increased rapidly. The cotton is almost entirely grown by natives in small patches round their villages, and generally it has sold for about the same price as middling American, though some of it realized as much as 25 to 30 "points on." The quality in greatest demand in England, it should be observed, is worth about 1/4d. to 1/2d. per lb. above middling American. In Southern Nigeria the association has met with only slight success; in Northern Nigeria, a working arrangement was entered into with the Niger Company, and a small ginning establishment was set to work in February 1906. In British Central Africa, the results on the whole have not been satisfactory. Though planters who confined their efforts to the lower lying grounds--of which there is a fairly large tract--succeeded, all the cotton planted on the highlands proved more or less a failure. In Uganda the association took no steps, but activity in cotton-growing is not unknown, and some good cotton is being produced. Arrangements were concluded with the British South Africa Company for the formation of a small syndicate for working in Rhodesia.

The general movement for the extension of cotton cultivation was welcomed by the International Congress of representatives of master cotton spinners and manufacturers' associations at the meeting at Zurich in May 1904. It placed on record "its cordial appreciation of the efforts of those governments and institutions which have already supported cotton-growing in their respective colonies." England is pre-eminent but not alone in the matter. Germany and France, and in a less degree Belgium, Portugal and Italy, have taken some steps. Russia, too, is developing her internal supplies.

The advantages that might accrue from the wider distribution of cotton-growing are mainly fourfold, (1) Greater elasticity of supply might be caused. It is probably easier to extend the area under cotton rapidly when crops are raised from many places in proximity to other crops than when the mass of the cotton is obtained from a few highly specialized districts. Possibly the advantages of specialism might be retained and yet the elasticity of supply be enhanced. (2) Greater stability of crops in proportion to area cultivated is hoped for. The eggs are now too much in one basket, and local disease, or bad weather, or some other misfortune, may diminish by serious percentages the supplies anticipated. Were there numerous important centres, the bad fortune of one would be more adequately offset by the good fortune of another. (3) Desirable variations in the raw material might conceivably eventuate from the introduction of cotton to spots in the globe where its growth was previously unknown or little regarded. The results of the enterprise of Mehemet Ali and Jumel in Egypt prove such an idea to be not altogether fanciful, and warn us also against hastily arguing that the plan is too artificial to succeed on a large scale. Without the

## active intervention of a strong body of interested parties it is

sometimes unlikely that new industries will be undertaken even in places well suited for them. (4) Lastly, the countries to which cotton-growing is carried should gain in prosperity.

The Cotton Supply Association.

The general difficulties in the way of the British Cotton Growing Association are many and will be sufficiently evident. Lessons of value may be learnt from the fate of similar work undertaken by the Cotton Supply Association, which was instituted in April 1857. According to its fifth report, it originated "in the prospective fears of a portion of the trade that some dire calamity must inevitably, sooner or later, overtake the cotton manufacture of Lancashire, whose vast superstructure had so long rested upon the treacherous foundation of restricted slave labour as the main source of supply for its raw material."[11] Its methods were stated to be: "To afford information to every country capable of producing cotton, both by the diffusion of printed directions for its cultivation, and sending competent teachers of cotton planting and cleaning, and by direct communication with Christian missionaries whose aid and co-operation it solicits; to supply, gratuitously, in the first instance, the best seeds to natives in every part of the world who are willing to receive them; to give prizes for the extended cultivation of cotton; and to lend gins and improved machines for cleaning and preparing cotton." Though the association brought about an extension and improvement of the Indian crop, in which result it was enormously assisted by the high prices consequent upon the American Civil War, it sank after a few years into obscurity, and soon passed out of existence altogether, while the effects of its work dwindled finally into insignificance. Much the same had been the ultimate outcome of the spasmodic attempt of the British government to bring about the introduction of cotton to new districts, after it had been pressed to take some action a few years prior to the formation of the Cotton Supply Association. A Mr Clegg, who afterwards interested himself keenly in the

## activities of the Cotton Supply Association reported that in the course

of a tour in 1855 through the Eastern countries bordering on the Mediterranean he had found none of the gins presented by the British government at work or workable.