Bible Encyclopedias
Cotton

Nyasaland (British Central Africa)

The cultivation of cotton on a commercial scale is quite new in Nyasaland, and although general conditions of soil and climate appear favourable the question of transport is serious and labour is not abundant. The exports were equivalent to 2 bales of 50o lb in 1902-1903, 114 bales in 1903 - 1904, 570 bales in '904 - 1905, 1 553 bales in 1905-1906 and 1052 bales in 1906-1907. In the lower river lands Egyptian cotton has been the most successful, whilst Upland cotton is more suited to the highlands.

British East Africa and Uganda

In these adjoining protectorates wild cottons occur, and suitable conditions exist in certain localities. Experimental work has been carried on, and in 1904 Uganda exported about 43 bales of cotton, and British East Africa about 177 bales. In 1906 the combined exports had risen to 362 bales, including a little from German East Africa. In 1904-1905 there were some 300 acres under cotton in British East Africa. Lack of direct transport facilities is a difficulty. Some of the native cottons are of fair quality, but Egyptian cotton appears likely to be best suited for growing for export.

India is probably the most ancient cotton-growing country. For five centuries before the Christian era cotton was largely used in the domestic manufactures of India; and the clothing of the inhabitants then consisted, as now, chiefly of garments made from this vegetable product. More than two thousand years before Europe or England had conceived the idea of applying modern industry to the manufacture of cotton, India had matured a system of hand-spinning, weaving and dyeing which during that vast period received no recorded improvement. The people, though remarkable for their intelligence whilst Europe was in a state of barbarism, made no approximation to the mechanical operations of modern times, nor was the cultivation of cotton either improved or considerably extended. Possessing soil, climate and apparently all the requisite elements from nature for the production of cotton to an almost boundless extent, and of a 1 Approximately.

useful and acceptable quality, India for a long series of years did but little towards supplying the manufactures of other countries with the raw material which they required. Between the years 1788 and 1850 numerous attempts were made by the East India Company to improve the cultivation and to increase the supply of cotton in India, and botanists and American planters were engaged for the purpose. One great object of their experiments was to introduce and acclimatize exotic cottons. Bourbon, New Orleans, Upland, Georgia, Sea Island, Pernambuco, Egyptian, &c., were tried but with little permanent success. The results of these and similar attempts led to the conclusion that efforts to improve the indigenous cottons were most likely to be rewarded with success. Still more recently, however, experiments have been made to grow Egyptian cotton in Sind with the help of irrigation. Abassi has given the best results, and the experiments have been so successful that in 1904-1905 an out-turn of not less than ioo,000 bales " was prophesied in the course of a few years " (Report of Director, Land Records and Agriculture). The average annual production in India approximates to 3,000,000 bales. The area under cotton in all British India is about 20,000,000 acres, the crop being grown in a very primitive manner. The bulk of the cotton is of very short staple, about three-quarters of an inch, and is not well suited to the requirements of the English spinner, but very large mills specially fitted to deal with short-stapled cottons have been erected in India and consume about one-half the total crop, the remainder being exported to Germany and other European countries, Japan and China. In 1906 the United Kingdom took less than 5% of the cotton exported.

Cotton Production in British India.' About 50% of the cotton produced is consumed in Indian mills and the remainder is exported.

China

Cotton has not been cultivated in China from such early times as in India, and although cotton cloths are mentioned in early writings it was not until about A.D. 1300 that the plant was grown on any considerable scale. There are no figures obtainable as to the production, but it must be very large, considering that the crop provides clothing for a large proportion of the population of China. During recent years a considerable quantity of cotton has been exported, but more than a compensating amount of raw cotton, yarns and textiles, is imported. An estimate of the crop puts it at about 1,500,000 bales.

Korea is stated to have originally received its cotton plants from China some 500 years ago. Conditions are well adapted to the cultivation of the plant, and since the cessation of the RussoJapanese War the Japanese have undertaken the development of the industry. Figures are difficult to obtain, but an official report from the Japanese Residency General in 1907 estimated the crop at about 214,000 bales, all being used locally. In the future Korea may become an important source of supply for Japan, especially if, as appears likely, Korea proves suited to the cultivation of American cotton.

Japan received cotton from India before China, and the plant is extensively grown, especially in West and Middle Japan. The production is not sufficient to meet the home demand; during the five years of normal trade before the war with Russia Japan imported annually about 800,000 bales of cotton, chiefly from British India, China and the United States, and during the same period exported each year some 2000 bales, mainly to Korea.

Dutch East Indies

In Java and other Dutch possessions in the East cotton is cultivated. A considerable amount is used locally, and during the six years ending in 1907 the surplus exported ranged from about 24,000 to 40,000 bales per annum.

Russia

Some cotton is produced in European Russia in the southern Caucasus, but Turkestan in central Asia is by far the 1 Cotton Production 1906, U.S.A. Bureau of the Census, Bulletin No. 76.

more important source of Russian-grown cotton. In this region cotton has been cultivated from very early times to supply local demands, and to a minor degree for export. Since about 1875 the Russians have fostered the industry, introducing American Upland varieties, distributing seed free, importing gins, providing instruction, and guaranteeing the purchase of the crops. The Trans-Caspian railway has been an important factor; almost all the cotton exported passes over this line, and the statistics of this trade indicate the progress made. The shipments increased from 250,978 bales in 1896-1897 to 495,96 2 bales in 1901-1902 - part, however, being Persian cotton. The production of cotton in Russia in 1906 was estimated at 675,000 bales of Soo lb each. About one-third of the cotton used in Russian mills is grown on Russian territory, the remainder coming chiefly from the United States.

Asia Minor. - Smyrna is the principal centre of cotton cultivation in this region. A native variety known as " Terli," and American cotton, are grown. The general conditions are favourable. According to the Liverpool Cotton Gazette, Asiatic Turkey produced in 1906 about ioo,000 bales, and Persia about 47,000 bales. Cotton was formerly cultivated profitably in Palestine.

Australasia

The quantity of cotton now produced in Australasia is extremely small. Queensland, New South Wales and South Australia possess suitable climatic conditions, and in the first-named state the cotton has been grown on a commercial scale in past years, the crop in 1897 being about 450 bales. Considerable interest attaches to the " Caravonica " cotton raised in South Australia, which has been experimented with in Australia, Ceylon and elsewhere. It is probably a hybrid between Sea Island and rough Peruvian cotton, but lacks most of the essential features of Sea Island.

In Fiji the cotton exported in the 'sixties and 'seventies was worth £93,000 annually; but the cultivation has been practically abandoned. In 1899 about 60 bales, and in 1900 about 6 bales, were exported. During 1901-1903 there were no exports of cotton, and in 1904 only 70 bales were sent out.

Into the Society Islands Sea Island cotton was introduced about 1860-1870. Up to the year 1885 there was an average yearly export equivalent to about 2140 bales of 500 lb, after which date the export practically ceased. The industry has, however, been revived, and in 1906 over ioo bales, valued at £1052, were exported. (W. G. F.) Marketing And Supply In the days of slave-grown cotton, the American planters, being men of wealth farming on a large scale, consigned the bulk Moving of their produce as a rule direct to the ports. Now, however, a large proportion of the crop is sold to local store-keepers who transfer it to exporting firms in neighbouring cities. The cultivators, whether owners of the plantations, as is usual in some districts, or tenants, as is customary in others, are financed as a rule by commission agents. The decline of " spot " sales at the ports, partly but not entirely in consequence of the appearance of the small cultivator, has proceeded steadily. Hammond 1 has constructed a table from information supplied by the secretaries of the cotton exchanges at New York, Charleston, Savannah, Mobile, New Orleans and Galveston, showing the sales of " spot " cotton at those ports for the twenty-two years between 1874-1875 and 1895-1896, and in all cases an absolute decline is evident. The receipts of cotton in the season 1904-1905 at the leading interior towns and ports of the United States are given below.

Receipts of Cotton at 28 Interior Towns. (In Thousand Statistical Bales of 500 lb each.) 1 Cotton Culture and the Cotton Trade, p. 298.

Receipts of Cotton at American Ports. (In Thousand Statistical Bales of 500 lb each.) Galveston and Savannah have risen considerably in relative importance of late years.

Before the Civil War each planter would have his own ginhouse. Now, however, ginning is a distinct business, and one gin willserve on an average about thirty farmers. Moveable gins were tried for a time in some places; they were dragged by traction engines from farm to farm, like threshing machines in parts of England, but the plan proved uneconomical because, among other reasons, farmers were not prepared to meet the cost of providing facilities for storing their cotton. In addition to the small country ginneries, large modern ginneries have now been set up in all the leading Southern market towns. The cotton is pressed locally and afterwards " compressed " into a very small compass. The bales are usually square, but cylindrical bales are becoming more common, though their cost is greater. In the latter, the cotton is arranged in the form of a rolled sheet or " lap." Owing to complaints of the careless packing of American cotton, attention has been devoted of late to the improvement of the square bale.

London used to be the chief cotton port of England, but Liverpool had assumed undisputed leadership before the 19th century began. Some arrivals have been diverted to Manchester since the opening of the Manchester ship s canal; shipments through the canal from the 1st of entry, September to the 30th of August in each year for the decade 1894-1895 to 1904-1905 are appended - six to eight times as much is still unloaded at Liverpool.

A Manchester cotton-importing company was recently formed for increasing deliveries direct to Manchester, and establishing a " spot " market there, an end to which the Manchester Cotton Association had directed its efforts for some time past. The latter association was established at the end of 1894, with a membership of 265, in the interests of those spinners who desired importations direct to Manchester. The objects of the association are officially stated to be: (1) to frame suitable and authoritative forms of contract, and to make rules and regulations for the proper conduct of the trade; (2) to supervise and facilitate the delivery of the importations of cotton at the Manchester docks to the various consignees; (3) to provide and maintain trustworthy standards of classification; (4) to procure and disseminate useful information on all subjects pertaining to the trade; (5) to act in concert with chambers of commerce and other bodies throughout the world for mutual protection; (6) to establish a hiarket for cotton at Manchester. Spinning members preponderate, but almost all the Manchester cotton merchants and cotton brokers have also joined the association. The importance of the original spinners' representation on the association is shown by the fact that they worked over 14,000,000 spindles: in December 1905 the spindles represented by members had risen to nearly 20,000,000. Some 73,000 looms are also represented. As most of the Lancashire cotton mills lie far from Manchester, direct importations to that city do not usually dispense with a " handling," and frequently save little or nothing in freight rates, though in some cases the economy derived from direct importation is considerable. One gain accruing to Lancashire from the Canal, however, is that its competition has brought down railway rates.

Fundamental alterations have been made in the structure of the leading cotton markets, and in methods of buying and selling cotton, in the last hundred years. We shall not attempt to trace the changes as they appeared in every market of importance, but shall confine our attention to one only, and that perhaps the most important of all, namely, the market at Liverpool. This selection of one market for detailed examination does not rob our sketch of generality, as might at first be thought, since broadly the history of the development of one market is the history of the development of all, and on the whole the economic explanation of the evolution that has taken place may be universalized.

with less easy terms for payment than were usual in Manchester, prevented any great numbers from departing from the beaten track. Cotton dealers up to this time had regularly financed the spinners, who were frequently men of little capital, by allowing long credit, and had even employed them to spin on commission. As men of substance increased among the ranks of the spinners, the Manchester cotton dealers found it impossible to retard a movement set on foot by the prospects of such appreciable advantages. Ultimately many of the old Manchester cotton dealers became brokers for their old customers. In 1875 there were said to be upwards of loo cotton dealers in Manchester, but from that time onward their members steadily declined. It is interesting to observe that a later development of transport between Manchester and Liverpool, namely, the Manchester Cotton landed at the Port of Manchester since the Canal was opened. (In thousand Bales.) The season is from the 1st of September to the 31st of August each year.

Evolution Manchester dealers, who retailed it to the spinners. of broking. This statement is, of course, only roughly correct.

Some Manchester dealers imported themselves, and some spinners bought direct from Liverpool importers, but the rule was the arrangement first described. Early in the 19th century it became customary for Manchester dealers and Liverpool importers to carry on business with one another through representatives known as " buying " and " selling " brokers. About this time the broker of cotton only began to specialize from the ranks of the brokers who dealt in all kinds of colonial produce. Previously there had not been enough business done in cotton to make it worth any person's while to devote himself to the buying and selling on commission of cotton only. The evolution of the distinct business of cotton broking is readily comprehensible when we remind ourselves that the requirements, as regards raw material, of all spinners are much alike generally, and that no spinner could afford to pay an expert to devote himself entirely to purchasing cotton for his mill.

So far change had been gradual, but the success of the Manchester and Liverpool railway undermined beyond repair the old system of doing business. Spinners could easily run over to Liverpool and buy their cotton from the large stocks displayed at that port. Before the railway was opened some spinners had been in the habit of making their purchases of raw material in Liverpool, but the great inconveniences of the journey, combined 1 Commercial crop.

A cantar is 99.05 lb avoirdupois.

Ship Canal, has drawn back into Manchester a part of the cotton market which was attracted from Manchester into Liverpool by the famous improvement in transport opened to the public three-quarters of a century ago.

The centralization of the cotton market in Liverpool fixed firmly the system of buying through brokers, for the Liverpool importer, or his broker, was in no sense a professional adviser to the spinners, informally pledged to advance the latter's interests, as the old Manchester dealers had been. The system was rendered comparatively inexpensive by the drop in commissions from 1 to 2% which had followed the adoption of selling by sample. This custom of buying and selling through brokers continued unshaken until the laying of the Atlantic cable tempted selling brokers occasionally, and even some buying brokers, to buy direct from American factors by telegraph and thus transform themselves into quasi-importers. The temptation was made the more difficult to resist by the development of " future " dealings. When the agents of the spinners, that is, the buying brokers, by becoming principals in some transactions, had acquired interests diametrically opposed to those of their customers, the consequent feeling of distrust among spinners gave birth to the Cotton Buying Company, which, constituted originally of twenty to thrity limited cotton-spinning companies, represents to-day nearly 6,000,000 spindles distributed among nearly one hundred firms. Its object was to squeeze out some middlemen and economize for its members on brokerage. This company, it is said, helped to attract the brokers back to the spinners, and an informal understanding was arrived at that the buying broker should not figure both as agent and principal in the same transaction.

Originally cotton was imported by the Liverpool dealer as an agent for American firms or at his own risk, and then sold by private treaty, auction, or through brokers, to Cotton market methods. By 1876 " forward " operations had become so vast and complicated that a cotton-clearing house had to be established cottc? to deal with the confusing networks of debits and clearing credits created by them. Its principle was exactly house, that of the clearing houses used by the railways and the oat to n nk an d banks, the cancellation of indebtedness and discharge periodic s i mply of balances. The final settlement of a " future " settlement contract involved usually a crowd of persons, and the of " differ= passage of large sums of money backwards and for e"ces." wards, so that the amount of cash required for circulation on the exchange became unreasonably excessive and an annoying waste of time was entailed. The cottonclearing house substituted book-keeping for the bulk of these payments. The establishment of the Cotton Bank naturally followed. Now debts are discharged in the first instance by vouchers. Dealers pass their debit and credit vouchers into the Cotton Bank and pay or receive the balances which they owe or are entitled to. In order to protect dealers against the losses due to the insolvency of those with whom they have had transactions, weekly settlements on the exchange have been made compulsory; between brokers and their clients they are also usual. At the settlement, every member of the exchange receives the " differences " owing to him and pays those which he has incurred. Thus if a person holds futures for 10,000 bales which stood at 5.20 on the last settlement day and now stand at 5.30, and in the course of the previous week has sold 5000 bales of " futures " at 5.1 o, he receives 10,000 X - i ce o d. on his old holding, and has to pay 5000 X o° 0 d. on his sales, and therefore on balance neither receives nor pays. Differences may be very large sums. The unit of a " future " being too bales, an alteration in the price of cotton of. old. causes a difference on each unit of £2. Periodic settlements are obviously periodic tests of the solvency of dealers. If the test of the settlement were not frequently applied, speculators who were unfortunate would be tempted to plunge deeper until finally some became insolvent for large sums. As it is, the speculator who has incurred losses beyond his means tends to be discovered before his creditors are heavily involved. Settlement days fall on Thursday, and the closing prices on the preceding Monday are taken as the basis of the settlement. From all differences interest at 5% is deducted for the time between settlement day and the tenth day of the second month on which the " future " elapses, since settlement terms mean that money is paid in instalments before it is actually due. To the admission of periodic settlements there was for a time vehement opposition on the ground that the door would be opened to gambling on " differences." Hence at first, in 1882, they were used only by a section of the market constituted of members who had voluntarily agreed to do business with one another upon these terms alone. By 1884, however, the advantages of " settlement terms " became so evident that they were adopted by the Cotton Association, at first for fortnightly periods, with the saving clause originally that they should not be compulsory.

As soon as the clearing house was set up it became evident that " futures " were an impossibility away from it. At the same time of " futures " were becoming an increasing necessity to Origin Liverpool importers, because through " futures " alone could they cotton hedge on their purchases of cotton, or buy when the Associa- market seemed favourable, and they were not prepared tion . y P P to assume heavy risks. Now from the clearing house importers were rigorously excluded, and on invoking the aid of " futures," therefore, they were penalized to the extent of double broker's commission, one commission being charged on the sale of the " futures " and one on their purchase back. The importers, therefore, found it necessary to establish a club of their own, the Liverpool Cotton Exchange, which they as rigorously guarded against brokers. The split in the market so caused was so damaging to both parties that a satisfactory arrangement was eventually agreed upon, and both institutions were absorbed in the Liverpool Cotton Association.

A condition of specialist dealers working to the public service is that they should not act in the dark. They must watch demand, be able to form reasonable anticipations of its move ments, and at the same time know the existing stocks of cotton, the sales taking place from day to day, and the best forecasts of the coming supplies. A man accustomed to devote the whole of his time to the study of demand and supply in relation to cotton, after some years of experience, will be qualified ordinarily to form fairly accurate judgments of the prices to be expected. His success depends upon his ability to interpret rightly the facts and intangible signs with which he is brought in contact. The information at the disposal of dealers has steadily enlarged in volume and improved in trustworthiness, though some of it is not yet invariably above suspicion, and the time elapsing between an event and the knowledge of it becoming common property has been reduced to a fraction of what it used to be, in consequence chiefly of the telegraph and cables. All sales that take place on the Exchange must be returned. Estimates are published of the area under cotton cultivation, and conditions of the American crop are issued by the American agricultural bureau at the beginning of the months of June, July, August, September and October of each year. To represent the standard of perfect healthiness and exemption from injury due to insects, or drought, or any other causes, one hundred is taken. The estimates for 1901 to 1905 are given, to illustrate their variations: - These estimates are the averages of separate estimates which are published for the states of North Carolina, South Carolina, Georgia, Florida, Alabama, Mississippi, Louisiana, Texas, Arkansas, Tennessee. The official figures are supplemented from time to time by numerous private forecasts, for instance those in " Neild's circular." Ellison, in his work on the cotton trade of Great Britain, traces in detail the increase in the volume of information collected and made public. At the close of the 8th century there was a tacit understanding among brokers to supply one another with information. There were no printed circulars, except the monthly prices current of all kinds of produce, but brokers used to send particulars of business done to their customers in letters. These letters were the origin of circulars. Messrs Ewart and Rutson pioneered in 1805 by issuing a weekly account of the sales and imports of cotton, and three years later three such circulars were on the market, though Hope's alone was confined to cotton. For the first associated circular of any importance, the market had to wait until 1832. The issue of this circular by subscribing firms, on the basis of particulars collected by brokers appointed at a weekly meeting, gave rise in 1841 to the Cotton Brokers' Association, to which the development of the market by the systematizing of procedure is largely due. The rest of the tale may be told in Mr Ellison's own words: " Down to 1864 the leading firms continued to issue weekly market reports, but in that year the association commenced the publication of an associated circular. This was followed in the same year by the Daily Table of sales and imports, which in 1874 was succeeded by the present more complete Daily Circular. To these publications were at various times added the annual report, issued in December, the American crop report, issued in September, and the daily advices by cable from America, issued every morning." 1 We shall now enter upon a detailed analysis of " forward operations. The term " futures " is used broadly and narrowly: broadly it is a generic term denoting " futures " in the Futures. narrow sense, and also " options " and " straddles "; narrowly it implies merely contracts for future delivery at a price fixed in the present. Again we must distinguish between the " future " contracts for the delivery of a particular kind of cotton, which may be entered into by spinners and their brokers, and are real purchases in the sense that the spinners want delivery of the cotton referred to, and the "futures," which always relate 1 The Cotton Trade of Great Britain, by Thomas Ellison, p. 186.

Publication of information relating to demand and supply. to the same grade of cotton, and are drawn up according to certain forms and circulate on the exchange as media for the shifting of risks connected with purchase and sale. The latter are not " real " purchases in the sense given to that term above, but fictitious because delivery of the cotton is not desired. It will no doubt aid the understanding of the functions of the latter if some explanation is offered of the needs met by the former, which are sometimes known technically as " deferred deliveries." When a spinner is required to quote prices of yarn for delivery in the future he is fixed on the horns of a dilemma. If he does not at once buy cotton, but quotes on the assumption that The price will remain steady, he may be involved in serious loss through his estimate being mistaken. If he de termines to buy cotton at once, others who risk more, and trust their judgment of the future, may secure the contract. On first thoughts it would seem desirable that all spinners should buy cotton outright to cover their contracts, but on second thoughts the social disadvantage of their doing so becomes apparent. Much buying might take place when stocks were scanty, with the result that prices would be needlessly forced up; and when stocks were plentiful demand might be weak and prices, therefore, be unduly depressed. It is evident that the buying of cotton on the principles suggested would be calculated to cause great unsteadiness of prices, especially as cotton is not continuously forthcoming, but is produced periodically in harvests. Demands for yarn cannot be expected to come always at the most favourable time socially for the distribution of the cotton. One way out of the difficulty is that the spinner should exercise his judgment and buy his raw material at what seems to him the most suitable times. But to this course there are three objections. The first is that spinners would be performing the two functions of industrial management and cotton buying (together with others perhaps), and that in consequence the best industrial men would not necessarily be able to maintain their position in the trade because as buyers of cotton they might be unfortunate. The second is that spinners being required to give attention to two distinct classes of problems would be less likely as a body to become complete masters of either. The third, which is not distinct in principle from the two preceding, is that such limited speculation in cotton buying on the part of spinners worried with other matters would not be likely to steady the cotton market in any high degree. It maybe assumed as desirable that the demand for cotton should be so spread as to keep its price as steady as possible - " steadiness " will be defined more exactly later - and that to this end it is essential that specialists should devote themselves to the task of spreading it. Such specialists have appeared in the cotton brokers and dealers who make their living out of bearing the risks connected with anticipating demand and supply in relation to cotton. To-day a spinner who is asked to quote for deliveries of yarn for, say, the next six months, may obtain from a broker quotations for deliveries of the cotton that he needs, in quantities as he needs it, for the next six months, and upon these quotations he may base his own for yarn. If a spinner is pressed by a shipper to make quotations with refusal for two or three days to give time for business to be settled by cable, it is evidently not impossible for the spinner to shift the risk involved by getting in turn from his broker refusal quotations for cotton. But spinners do not try always to take the safest course.

Now it is evident that brokers in turn require some means of passing on the risks that they are bearing, or some portion of them from one to another, or of sharing them with other market experts, as they find themselves overburdened, and as their judgment of the situation changes. The means have been provided in the " futures " which circulate on the Cotton Exchange. The risks of anticipating are carried by those who create or hold " futures " without a hedge. In order to facilitate business, " futures " are all drawn in the same unit (loo bales), and are all based on the same class of cotton, namely Upland cotton of middling grade of " no staple " (i.e. with a fibre of about 4 in.) and of the worst growth. American cotton, we may remind the reader, is graded into a number of classes, both on the Liverpool and New York Ex changes, and an attempt is made in each market to keep the grades as fixed as possible. But what, it may be inquired, is the value of " futures " relating to " middling " cotton to a broker whose contracts with spinners are not in " middling " cotton? The answer is that though the ratios between the prices of the various grades alter, the prices of all of them move generally together, and that the " futures " of the Exchange at least provide a hedge against the latter movements. Other things being equal, the broker would be better off if he could hedge with equal ease against all his risks. But other things are not equal: the market would be more confusing and quotations would be complicated if " futures " were in use for all grades.

We may now examine the exchange " futures " in minuter detail. They are quoted as a rule for about ten months ahead. Thus in January the futures quoted will be January (technically termed " current," " present month " or near month," " futures "), January-February, " February-March, March-April, April-May, May-June, June-July, July-August, and perhaps two or three more. Each group, it will be observed, except " current futures," culminates in two defined months. The rule is that on the first of the two months the seller of " futures " may, and before the last day of the second month must, deliver cotton against them, or, what comes to the same thing, buy back the " futures " on the basis of the price of " spot " cotton of middling grade. Various grades of cotton are tenderable against " futures ": if this were not so " futures " would be in danger of defeating their object, because the price of the grade upon which they were founded would probably at times be thrown widely out of relation to the general level of prices in the cotton market. The lowest grade tenderable used to be " low middling," but since October 1901 " good ordinary " has also been accepted. Arbitrators report on deliveries and award allowances on those of grades above " middling " and deductions of price from those below. A sample is taken from each bale and the " points on or off " are fixed for each bale separately. If either party is dissatisfied with the award, he may appeal to an appeals committee on paying 3:o: which is refunded to him by the other party if the appeal be upheld. The detailed arrangements described above are those of the Liverpool market. The great bulk of " futures," however, are bought back and not delivered against.

Beneath are the official Liverpool quotations of " futures," as they appeared on the morning of the 19th of April 1906: A merican Deliveries, any port, basis of middling, good ordinary clause (the fractions are given in moths of a penny). 1 Transactions of loo bales only.

Egyptian Deliveries, fully good fair (in 64ths of a penny). Egyptian futures, it will be observed, run out in single months. As the cost of dealing in " futures " is only one shilling on each transaction for a member of the Cotton Exchange (the outsider is charged in addition a commission by his broker), it is not surprising that the transactions taking place in " futures " number legion.

The methods of dealing in cotton are very intricate, and it is necessary here to interpolate an explanation of the relations between the prices paid by spinners for cotton and the quoted " spot " prices. We begin by giving the official quotations of " spot," and statement of business done, published on the morning of the 19th of April 1906.

Quotations. G.O. L.M. Mid. G.M. F.G.M. M.F.

American. 5.87 6.05 6.21 6.41 6.49 6.71 Mid Fair. Fair. Gd. Fair.

Pernam. 5.95 635 661 Ceara.. 602 6.40 6.62 Paraiba. 5.94 6.32 656 Maceio. 5.96n 6.34 n 6.56n Fair. Gd. Fair. F.G.F.

Egyptian br'n. 8; 9 a lot „„ Upper - 9 i u 91 Cotton Ships arrived. Boston: Canadian S. Hamburg: Iceland S.

Purchases for " speculation " remain in the market and therefore figure again in the sales. These official prices are sometimes prices actually paid, and sometimes prices settled by 1 Transactions of too bales only.

a committee according to their notions of the prices that would have been realized at the close of the market had business been done. The work of the committee is by no means simple, as frequently very few transactions take place p ? q ?' ?' p in the kinds of cotton of which quotations are given. As regards " middling " American, the committee fixes " spot " by allowing so many " points on or off " present month futures. The variations of the gaps between " spot " and " present month futures " are somewhat mysterious, a matter to which we shall recur. " Spot " quotations, the reader will now understand, are partly nominal, and must therefore be taken as affording a general idea only of movements in the prices of cotton. While quoted " spot " remained low, the prices paid by most spinners for the special kinds of cotton that they needed might rise. When the spinner has informed the dealer exactly what quality of cotton he needs, the dealer quotes so many " points on or off " the " future " quotations prevailing in Liverpool at the time of the purchase, which refer to Upland cotton of " middling grade," of " no staple " and of the worst growth. Then, according as the spinner wants immediate delivery or delivery in some future month, he pays the price of current " futures," or of " futures " of the month in which he requires delivery, plus or minus the " points on or off " previously fixed.

The considerations which determine the " points on or off " charged to the spinner may be taken roughly as three: - i. The grade, i.e. the colour, cleanliness, &c., of the cotton. These are of importance to the spinner owing to the necessity of his cleaning machinery being adapted to the condition of the cotton. The lower the grade the more elaborate and expensive is the machinery required to clean it, and consequently a spinner is willing to pay a certain amount extra for high grade cotton in order to save expenditure on preparatory machinery.

2. The length of the staple. This determines to a large extent the fineness of the yarn which can be spun. Only the very lowest counts can be spun from cotton with " no staple," that is, with a fibre of about three-quarters of an inch. The longer the staple above the minimum the higher the counts that can be spun.

3. The growth. The best American cotton (Sea Island and Florida cotton are always considered quite apart) is grown in the Mississippi valley, the next best in Texas, and the poorest on the Uplands (i.e. in Georgia and Alabama). Considerations of growth determine to a great extent the hardness or softness, and strength or weakness, of the fibre, and thus, indirectly, whether the cotton is suitable for warp or weft.

Some spinners cover their yarn contracts merely by buying " futures," but the cover thus provided is frequently most inadequate owing to variations in the " points on or off" for the particular cotton that they want. For example, after the size of 1904-1905 crops became known, and the Americans attempted to hold back cotton, the " points on " for many qualities rose considerably owing to artificial scarcity, though the price of cotton, as indicated by " spot," remained low. There is a tendency for cautious spinners in England to run no risks and fix the prices of their yarn in accordance with quotations for actual cotton of specified qualities made by their brokers.

We now return to exchange " future " transactions regarded as a genus. In addition to "futures" proper there are "options" and " straddles." Options are single puts" or " calls ") or double (that Swaddles." is, alternative " puts " or " calls ").

The " put " is a right to sell cotton within some specified time in the future at a price fixed in the present, which need not, of course, be exercised. The "call" is similar, but relates to buying. It will be evident that the "put" is a hedge against prices falling, and the " call " a hedge against their rising. The basis of " options " is the same as that of M. G. Broach. Bhownuggar. No. I Comra. Bengal. .

Tinnevelly .

Gd. Fr. F.G.F. Gd. G.F. Fine. S'fine.

51765Hn 5 11 l;t 1 5 41R i 11 41?11 41t111 511-6n 41? 11 411 n 41a 11 51cn 41124s 5 2 41-s 4 i 3s2 51s 4h11 4A n 332 54 51% Good. Fine.

II III 9 7 0 Ion ordinary " futures," i.e. middling American cotton of " no staple," &c. Whether the purchaser of an option gains or loses depends upon the price that he has paid in relation to the gain, if any, that he makes out of his power. The price of options of course varies: that of double options is always highest, but they are little used. A " straddle " is a speculation on the difference between the prices of nearer and more distant futures, which varies from time to time, or on the difference between the prices of different kinds of cotton. An example will make the nature of the straddle clear. Suppose a dealer buys April-May " futures " at 4d. a lb and sells the same quantity of May-June " futures " at 44 -d. a lb. Then, whether prices rise or fall as a whole, he gains if the difference between the two prices becomes less than a d., but if it becomes more, he loses. On the other hand, had the dealer bought May-June at 4 °d. and sold April-May at 4d. he would have gained in the event of the difference increasing, and lost in the event of its decreasing.

A question which has met with a good deal of attention is whether the speculation, which has been encouraged by the various arrangements made for facilitating operations in " futures," has steadied or unsteadied prices. Before we are prepared to answer this question we must be furnished with a precise conception of what is meant by " steadiness " in prices. It is sometimes assumed that this is measured perfectly by the standard deviation,' which is obtained by taking the squares of the differences between the average and the individual prices, summing them and extracting the square root. But obviously the information given by the standard deviation is limited: the frequency of movement cannot be inferred from it; two series might have quite different average oscillations and yet the same standard deviation; and the range of movement, or spread of the variations from the average price (though allowed for in the standard deviation more than in the average error), is hidden. Now frequency of movement, average daily price variation, and range of price movements are matters of fundamental importance to the public. Hence for practical purposes we require several kinds of measurement of price movements, and it is impossible to weigh exactly the one against the other in respect of importance. Observe that an increase of the frequency of movement, or even of the average daily movement, is not necessarily objectionable, since changes are less harassing when they take place by small increments than when they are brought about by a few big variations. The difference between the highest and lowest price, we may observe, is a very imperfect indication of the range of movement (though, taken in conjunction with the standard deviation, it is the best at our disposal), because either of the extreme prices might be accidental and quite out of relation to all others. An investigator must be on his guard against using quotations of this kind. There is also a difficulty about the frequency of movement, because as a rule many movements take place in one day the total over a period sufficiently lengthy to yield general results is enormous, and many are unrecorded. In one day, for instance, when the net drop was 33 points and the range of variation 59 points (namely, 8.45 to 7.86), 150 price fluctuations were recorded. However, the count of frequency of movement from daily closing prices would probably afford a roughly satisfactory comparative measurement in markets in which prices sometimes remain the same for a day or two together. The points just noted apply also to the average fluctuation and the standard deviation, but it is probable in these cases that daily or even weekly quotations would be sufficient to yield the information sought for with sufficient exactness for purposes of comparison.

Now, supposing dealing to be confined to experts, what effects upon the course of prices would one expect from the specialism of the cotton market and improved facilities Effect specula= for dealing, on the assumption that dealers were governed wholly in their actions by the course of prices and never tried to manipulate them? The frequency of prices. of movement ought to increase because the market ' See article on " Dealings in Futures in the Cotton Market," in the Journal of the Royal Statistical Society, vol. lxix, p. 325.

would become more sensitive, but, other things being equal, the range of movement ought to diminish, and ultimately the average daily movement also, though at first the latter might not fall appreciably if, indeed, it did not rise, owing to the increased frequency of movement. These results would prove beneficial to the community. May we infer deductively that they have been attained because of the increase of speculative transactions? By no means, and for two reasons. In the first place, the public speculates to a large extent on the cotton exchange, and its speculation (taken as a whole) is sheer gambling. But, it may be replied, the outsiders, being as a whole completely ignorant of the forces at work, so that they cannot form rational anticipations, cannot have any effect either way: by the law of chance their influences would neutralize one another. This would be so if people acted independently and without guidance, but actually they are sometimes misled by published advice and movements in the market intended to deceive them, and, even when they are not, they watch each other's attitudes and tend to act as a crowd. The mass becomes unduly sanguine or weakly surrenders to panic. Hence the law of error does not apply, and speculation by the public may unsteady prices. Again, dealers sometimes try to create corners and form powerful syndicates for that purpose: the dealing syndicate of late years has become a force to be reckoned with. Many large-scale operations are entered into, not because prices are relatively high or low, but to make them high or low for ulterior purposes; i.e. the market is deliberately " bulled or beared." In consequence of this tampering with the market no certainty can be felt about the effect even of expert dealing.

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 g p y y ? of prices. 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 1 9 06: 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 Table calculated from Weekly Prices between the 1st of October and the 31st of July in each Year. 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.

"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 (I) 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,' and the same has been observed of the cotton market, though the 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 1n these relations is still a mystery . 3 Probably an the prices infinitude of subtle influences came into play, and among these there seems reason to include the in- of futures." tentional 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 correlations have not been worked out.' It is worthy of note that Liverpool "futures" are largely used for hedging by continental cotton dealers.

1 Journal of the Statistical Society, 1906.

s See paper in the Journal of the Statistical Society for June 1906.

" bearing " it in the last case. A closer examination will reveal further that the magnitude of these gaps varies a great deal; and Attempts to explain them were made in an article in the Economic Journal in December 1904, and in the paper already referred to read to the Royal Statistical Society.

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 farreaching 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.' 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.

The uneasiness caused by the excessive dependence of Great Britain upon the United States for cotton, coupled with the Recent belief that shortages of supply are more frequent than R they ought to be, and the fear that diminishing returns attempts to open 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 fields 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.

' See the paper already mentioned in the Journal of the Royal Statistical Society for June 1906, where the several points noticed briefly above are fully discussed.

Average Quantities of Raw Cotton imported Annually into the United Kingdom from the following Countries in the Periods 1896-1900 and 1901-1904. The annual average shipments from Bombay to the European continent and to Great Britain in 1900-1904 were as follows: To the continent. .. .. Goo bales of 31 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. 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 4d. to 1d. 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 cottongrowing 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 wa.s 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 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, Suppl at on As= wh i ch was instituted in April 18 J 7. According to its so 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." 1 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 The Association published a weekly paper known as The Cotton Supply Reporter. 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.

BIBLIOGRAPHY. - On the question of cotton supplies, as treated in this article, the reader may be referred to Brook's Cotton, its Uses, lc.; Dabney's Cotton Plant (Department of Agriculture of the United States); Foaden's Cotton Culture in Egypt; Dunstan's Report on Cotton Cultivation for the British government; Oppel's Die Baumwolle; Leconte's Le Coton; publications of the British Cotton Growing Association; Report of the Lancashire Commission on the possibility of extending cotton cultivation in the Southern States of North America; Watt's Lancashire and the Cotton Famine; publications of the old Cotton Supply Association (many will be found in the Manchester public library in the volume marked " 677 I. C. ii."), including their weekly paper, The Cotton Supply Reporter; Hammond's Cotton Culture and Trade. On methods of marketing to certain portions of the above must be added: Ellison's Cotton Trade of Great Britain; Chapman's Lancashire Cotton Industry (ch. vii.); articles by Chapman and Knoop in the Economic Journal (December, 1904) and the Journal of the Royal Statistical Society (April, 1906); Emery's Speculation on Stock and Produce Exchanges of the United States (small portions of which relate to cotton). Many statistics will be found in the works mentioned, and these maybe supplemented from the trade publications of different countries. Many valuable figures of cotton imports, &c., in early years will be found in Baines' History of the Cotton Trade. Recent statistics bearing upon cotton are collected annually in the two publications, Shepperson's Cotton Facts and Jones's Handbook for Daily Cable Records of Cotton Crop Statistics. For current information the following may be added: Nield's, Ellison's and Tattersall's circulars; Cotton (the publication of the Manchester Cotton Association); and daily reports and articles in the local press. Price curves are published by Messrs Turner, Routledge & Co. (S. J. C.)