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ON COMMERCIAL CORNERS.'
The word "corner,' intelligible in its original sense and usage to English-speaking people, bears in its American application a significance of different character and of no mean import in commercial circles. To corner' or 'sap' an individual or an entire commercial
. community, means a piece of speculative engineering, ingenious, clandestine, and effective as any attempt in siege operations to undermine and blow up an enemy's citadel before he is aware of what his besieging adversary is up to.
The effect of corners' or attempts to corner' markets is without doubt highly detrimental to all the great manufacturing industries of the world; but the man who makes the corner' is not the sole offender-his opportunity would not exist were it not for the Bear, who, by selling what he has not got and then by depressing prices by further artificial sales, does, in the long run, work infinitely greater harm to trade interests. The purpose of this article is to show the harmfulness of the unrestricted operations of interested speculators in purely paper contracts,' a system of doing business which has been very greatly extended of late years.
The axiom that speculation is the soul of trade is perfectly defensible. The vigour and enterprise required to set a steam-engine in motion may be taken as an illustration of the forces required to start the movements of commerce, and experience has proved that speculation as a rule keeps cost within reasonable bounds to the consumer. Speculation, therefore, in the ordinary acceptation, and such as our commercial forefathers understood and practised, was justifiable enterprise based in the main upon substantial capital, ard always with something tangible attached to it. The speculator embarked on his venture and waited on the outturn of the actual stuff, or he bought and held the actual goods. If the article happened to be in curtailed production, he realised in due course his profit on his enterprise. If the supply he was adding to, or became interested in, proved superabundant, he lost his money; but in either instance he benefited the consumer in the first case by setting the springs of supply in motion, and preventing possible scarcity and famine prices; and, secondly, by bringing abundance when barren supplies were probable. But the operations of any one individual or body of speculators were kept within reasonable bounds by the fact of personal capital and established credit being essential in the enterprise; by the time most of the ventures required to bring them to a result, and by many other restrictions.
Speculation of the present day, however, though in some cases requiring more or less capital for its conduct, is a very different thing, for it need not be based on actual goods, but it is, as in the great bulk of the transactions now entered into, a mere transfer and dealing in 'paper contracts.'
The development of telegraph and steam communications and of limited joint-stock bank enterprise, and the unbounded license given to speculators, have driven almost all sobriety from commerce, and given to clever men a power well-nigh incredible of controlling markets, and manipulating prices to their own profit, and the confusion and ruin of others; or, if they fail in their schemes, then of producing a disorganisation of trade without the smallest thought or consideration for the interests of others, or the gigantic manufacturing industries concerned in the article that is being manipulated. Unfortunately the general want of individuality which is a human characteristic, and is as marked among commercial men as it is in every other profession, gives the lead to men with exceptional talent and force of character, and puts in their hands a power in commercial speculations vastly increased by the altered condition of things which science has brought about during the past twenty years more especially.
There is no necessity to heap abuse upon such men, when no restriction exists upon gambling contracts, for every one is entitled to exercise his abilities to the best of his own advantage, and some of the most respectable citizens of the commercial centres of America and Europe, who pride themselves upon their moral standing, excel in the modern pastime of dealing in futures. It may be held, that if a wolf finds sheep ready to his call he has justification in satisfying his natural appetite, for the wolf has no moral code to restrain his appetite. Again to pursue natural history illustrationif one sheep jumps a fence, the usual course is that the whole flock follows suit, regardless of the profit or loss involved, so long as the • boss' sheep led the way.
What has to be objected to is this, that whereas in former days an individual or group of speculators could not do unrestricted harm, the existing system and connecting facilities enable him or a ring of bulls' or bears’to upset the commercial operations of the whole world.
Cornering' in gold and railway stocks was for long a favourite pastime of American operators, and the last will doubtless ever be looked upon as a convenient instrument for squeezing profits; lut
speculations in such stocks cannot do universal harm. The holder, unless of impressionable character, can hold on to his securities whilst they are being played with, knowing that, however much the little game' was temporarily affecting the market value, a certain dividend will be paid in due course. But the place of gold and stocks' has been largely occupied by produce, aud the system of dealing in * future deliveries' of cotton, sugar, grain, and iron has arisen-dealing based in the great bulk of transactions upon nothing, and in the necessary settlements merely involving the putting up of differences. The system would not have achieved its present extended character but for the increased facilities provided by the electric telegraph and rapid steam communications.
At the present time, no matter whether the seed has not yet been sown for the new crop of cotton, purchases can be made early in the year of a winter delivery' of that cotton; wheat you shall have for any month named; pork, bacon, or lard will be sold for delivery when the very pig has not yet been slaughtered, and, may be, is but a suckling; or iron when the rough ore has not even been extracted from the vein! It has even been recorded that one dealer, bolder than the rest, sold the 'catch' of a certain salmon-river in Oregon two years ahead, when probably the salmon whose capture was concerned had not obtained the dignity of a grilse.
The system, once started, rapidly found supporters everywhere, and has been an important factor in revolutionising the course of commerce.
Taking cotton as the leading example, it has now come to this: that whereas the total production of the world available for European and American consumption is some 7,000,000 bales of 425 lbs. each, the turn over of future delivery contracts in American, English, and Continental markets amounts, it is estimated, to the stupendous total of 80,000,000 bales, of the value of nearly 1,000,000,0001. sterling.
This is the speculative turn over' by means of paper contracts, in one article alone. What is the turn over in grain, provisions, sugar, iron, &c., is less easily ascertained, but in the aggregate it is probably very much in excess of the dealings in cotton.
The principle of business in future deliveries' is not to be condemned hastily; it is a course rendered almost absolutely necessary to cautious planters, traders, and manufacturers under the new order of things, when, owing to one man's news being everybody's news, rapid fluctuations are the rule; but dealings in ‘futures' require comparatively little or no capital for their conduct, and it is open to any individual or to a 'ring,' by the extent of their operations or by fictitious proceedings, to raise and depress prices at their pleasure, and establish situatious of a most disorganising character-and this is done.
But to be more explicit, little business in actual cotton is now done that is not connected with a ' future' transaction ; a planter to
crop, or under
secure what he considers a fair price for a portion of his the command of his factor or banker who wishes to secure his advances, sells future deliveries' of the coming crop. The spinner, on the other hand, wishing to secure his contracts for yarns, buys a future' delivery.
So far, these transactions, or similar ones which merchants may enter into, are within the bounds of unspeculative trading ; but the fatal facility of trading in paper contracts-lying over two, four, or six months, or even for longer periods, without the dread necessity of having to provide one single penny to pay for the large value involved has developed an extent of speculation to which the term 'gambling' may be righteously applied. This is bad enough, for the irresponsibility of a great portion of the operators, unknown to the public, is continually setting home and foreign markets in courses for which no intelligible reason can be found by legitimate traders, and creating universal embarrassment and loss; but when to this is added operations of a gigantic nature, in which one man or a 'ring' deliberately sets to work to manipulate markets, effects are produced, the disastrous character of which cannot be measured, for the influences are so wide-spread, and touch so many various interests throughout the world. It is not the New York or English cotton markets which are alone affected. The electric telegraph flashes the fictitious values produced by these operations north, south, east, and west,—notifying in a few hours to the remotest corners of the globe what is going on, raising false hopes and producing needless despair—for what? The interest of one man, or a small group of men, to whom the operation may bring a profit, the value of which, as compared with the cost of the disturbance to the entire commercial world, is as a drop to a bucket of water.
In America, dealings in futures' are supposed to be covered by margins on contracts, or made secure by daily calls' for differences, and it may be supposed that the dealings are under some control as regards their extent; but such is not the case. The security of being able to enforce a call at any moment would appear to foster speculation, foritnot unfrequently happens that over 250,000 bales (paper contracts) change hands in New York in one day !—a quantity representing a value of nigh 3,000,0001. sterling. In Liverpool and in all other European markets, on the other hand, the transactions are without any restriction whatever; the system prevailing everywhere has become purely 'gambling' in produce, and brings the banished amusements of Homburg and Baden, and the existing excitement of Monaco, to our very doors.
To continue the description of a cotton corner. Suppose a'ring,' having reason to believe that the body of speculators in futures' with which all markets are now crowded, have oversold deliveries' of cotton in a certain month, and that the stock of cotton likely to be
available for declarations on such contracts in that month can be manipulated and financed without superhuman difficulty, they (the ring) quietly proceed to “sap' the enemy by buying up in every direction all the delivery' contracts for that month, and securing all the actual cotton they can lay hands on, thus putting a stop to all free movements; then, as the month in question comes round, the unwary sheep' find the walls of the fold closing round them day by day. They are unable to buy back their contracts, or purchase cotton to tender against them; prices rise daily, both of contracts and actual cotton, until the corner' is established, and the operators -having sucked the life-blood of the market--retire, and await another opportunity to twirl the market round their fingers.
Such a cotton corner' in October 1879 raised the value of cotton 11 to 13 per cent., and prices fell even a larger percentage within five days of the corner' being over. The same thing occurred in the month of August 1880, while at the present time a state of things exists which has produced widespread embarrassment. In a greater or less degree the same course goes on from month to month; but the foregoing instances are typical. The profits realised in a • corner' are not easily ascertainable, neither are the losses; but it is no difficult task to estimate what the effect on the world's trade must be of violent and unnecessary fluctuation of 12 per cent. within the compass of a few days, and it certainly is reasonable to assume that the losses involved by such disorganisations vastly exceed the profits, for nothing disturbs the course of business so much as want of confidence.
The astuteness and boldness of operators, moreover, are constantly providing fictitious positions. In such courses lie their opportunities; and as there is no restriction upon the contracts they put out, or the contracts they buy in-as there are always buyers and sellers to command—the power to work evil is immense. There is rather more than a suspicion that manufacturers, who, with their operatives, are greatly affected by the existing corner,' have intensified its effect by their own unwary operations on the opposite tack.
The system of speculating in paper contracts is reduced to a science -no combination or 'brag' in the worst gambling games of cards is more skilful as conducted by those who know how to work it; necessity has compelled the brokers' associations of Europe and America to provide machinery, to clear the contracts, of the most elaborate and perfect kind. In proof of the statement that the vast bulk of the transactions is purely paper contract' dealing, it may be stated that not infrequently the dockets of the Liverpool cotton brokers' clearing house have been known to carry 100 to 150 declarations on a single tender of 100 bales of actual cotton ; that is, transactions to the extent of 10,000 to 15,000 bales of cotton have been entered into by speculators on the basis of 100 bales of cotton from the time of its first sale to the date it goes into bona fide consumption