The Cotton Kings: Capitalism and Corruption in Turn-of-the-Century New York and New Orleans by Bruce E. Baker and Barbara Hahn (review)

The Cotton Kings: Capitalism and Corruption in Turn-of-the-Century New York and New Orleans uses the analytical frameworks of the history of capitalism to demonstrate how the actions of individuals, institutions, and nature constitute global markets. Bruce E. Baker and Barbara Hahn demonstrate how members of the New Orleans and New York cotton exchanges used networks of information and capital to fight for control over the price of cotton at the turn of the twentieth century. This story demonstrates why the exchanges’ self-regulatory measures were insufficient to curb the negative effects of speculation. Baker and Hahn also demonstrate how price volatility whet the appetites of market actors, not to mention Congress, for government regulation of the cotton exchanges, culminating in the Cotton Futures Act of 1914.

The New York and New Orleans cotton exchanges were central institutions in the global market for cotton. The authors deftly explain how futures markets allowed farmers and cotton mills to hedge against price changes while the holder of the contract assumed the risks and the profit potential of price volatility. The New York Cotton Exchange (NYCE) and the New Orleans Cotton Exchange (NOCE) facilitated these trades, but with key institutional differences. The NYCE was populated by bearish traders who worked to keep prices low, while the NOCE was home to bullish traders who sought to raise cotton prices.

Information is a central focus of the analysis. Buyers and sellers required information about supply and demand: crop yield, mill orders, weather events, and boll weevil infestations. The cotton exchanges acted as sources and interpreters of this information. Those interpretations informed their trading activities, which in turn provided additional information to the market. Much of the available information, however, was unreliable and vulnerable to manipulation. Bears promoted sources that overestimated crop sizes in the fall, keeping prices paid to farmers low. The bulls took advantage of summer shortages and better information about local conditions to bolster prices. The United States Department of Agriculture’s (USDA) efforts to provide a neutral and widely available source of information failed largely because of corruption (real and perceived) within the USDA.

Institutional differences between the exchanges allowed the bears and bulls to execute their separate strategies. Different rules and norms governed traders’ actions in the market across exchanges, and each exchange enforced its own rules. Only members could trade futures contracts, and misbehavior would result in expulsion. This self-regulation of the cotton exchanges was the only regulation they faced before 1914.

This was the environment in which the exchanges battled as bulls cornered the market in 1903 and 1910. The New York bears leaned on the social and political networks that connected them to powerful federal officials. They attempted to exhaust the bulls’ financial resources and initiated antitrust litigation. The bulls leveraged their superior information about prevailing conditions and mobilized personal and professional networks in New Orleans and beyond to amass sufficient capital to achieve the corner.

The New Orleans traders are the heroes of The Cotton Kings because they broke the influence of the NYCE, which had impoverished farmers with sustained low prices. However, Baker and Hahn demonstrate that the market volatility produced by the conflict between bulls and bears was harmful to farmers and millers. Regulation was necessary to impose standard, enforceable practices across exchanges. Congress responded with the Cotton Futures Act of 1914, which addressed the institutional conditions that facilitated manipulation of information and abusive speculation. The act instituted rules about the characteristics of cotton delivered in fulfillment of contracts and provided the secretary of agriculture more control over price variations across exchanges.

The Cotton Kings argues the Cotton Futures Act adopted many of the practices of the victorious bulls and was the result of cooperation and information-sharing between...