COTTON AND WAR.
[Part of an address delivered by Mr. Hobson before the Cotton Growers’ Association last January.]
By Richmond Pearson Hobson.
The price of cotton, like other prices, is settled by the relation of supply and demand. In face of the sudden depression, due to the increased volume of supply in the large crop, we are liable to overlook and underestimate the importance of the factors influencing the demand. Sojourning about the world has convinced me that the factors of demand are more pliable and more accessible than those of supply. In truth, a single factor reducing demand, the war in the Orient, is responsible for depression amounting to from 7 to 8 cents a pound, while the total depression due to the big crop is scarcely more than 3 cents a pound.
Furthermore, the question of adjusting the supply for the next year, cannot be intelligently settled until after investigation of the probable demand.
Therefore, I invite your attention for a few minutes to the question of demand, and especially to the factor of war, since we are now in the presence of the great struggle in the Orient.
The old sources of demand, Europe and America, have gone on slowly increasing with the increase of population, and the rise of the standard of comfort, though a check was sustained by the outbreak of the Boer War, which saw a falling off of over one million bales in the consumption of the united commodities. This slow increase in demand has been more than balanced by the steady increase in supply, coming chiefly from the larger acreage and larger increase of commercial fertilizers in the South. Consequently, for several decades the price of cotton has had a steady trend downward. It was only when new demands came from new markets that the price started upward. The chief of the new markets are those of the Orient. Japan has made great strides in the cotton mill industry, until at the outbreak of the present war, she was consuming over $50,000,000 worth of cotton annually.
But more important even than Japan, has been the new market of China, which, when the present war came, amounted to $90,000,000 annually, chiefly coarse cotton goods, of which a large part has been furnished by Southern mills.
These two markets have come to consume more cotton than is produced by Alabama and Mississippi combined. It is not surprising, therefore, that in spite of the steadily increasing production, the price has steadily risen. The rise has been especially marked since the Boxer disturbances that were followed by a new impulsion in the opening up of China.
As great as this new market has become, it is only in its infancy.
If China were opened up, free to the commerce of all nations, its four hundred and thirty millions of industrial people, would rise from a five cent wage basis to a 20 cent, 30 cent, or even 40 or 50 cent basis, and the average man, instead of having his present outfit of about a half suit of cotton clothes, would have four or five whole suits, which are pulled on in multiple numbers, according to the coldness of the day. This would so increase the world’s demand for cotton that even with a 20,000,000 bale crop, the price could be hardly kept down to 20 cents per pound.
The picture here disclosed is not visionary. Thousands of Chinese worked under my inspection for months reconstructing gun-boats at Hong Kong. The above estimates of their industrial capacity are conservative. Knowing both peoples, I do not hesitate to say that the industrial capacity of a Chinaman is far greater than that of a Japanese, while there are over ten times as many Chinese as Japanese. Moreover, the facilities for communication are advancing. The eyes of the world have been thrown upon China, and the point of the wedge has been entered. A few decades can see marvelous growth in this young giant of a market. I estimate that before this century is half turned, China, properly opened up, will add more than $5,000,000,000 annually to the world’s commerce, and one of the chief staples of this commerce will be cotton, first the goods, then the raw materials, creating a consumption as great as that of all Europe combined.
But this greatest of all coming cotton markets is the most sensitive and the most exposed. When war broke out in the Orient last year, it was clear that Japan and Russia, under the exhaustion, would decline in buying power, and that the thriving cotton trade of Manchuria would be cut off entirely, while the fate of China might become involved and endanger the whole Chinese market. Consequently, the day after war was declared, cotton slumped 5 cents a pound, and started on its downward path, going off nearly 8 cents a pound before indications came in of the large crop, which brought about a further decline of about 3 cents a pound.
The grievous depression we are passing through must be attributed to the war in the Orient. Without war cotton would now be from 12 to 15 cents per pound, even with the big crop. Think what prosperity this would have meant. Can anyone contend that the United States should be indifferent to this war? It may be pointed out that our diplomatic moves were masterful, both in getting the powers to commit themselves to limiting the war zone, and to preserving the integrity of China, and also in negotiating, by cable, treaties with China, not Russia, opening up Mukden, Dalny and Antung, in Manchuria, thus recognizing Chinese sovereignty, and placing the United States in the same attitude as Japan, in standing for the evacuation of Manchuria. Unfortunately, our diplomatic moves had but little deterrent effect, not being backed by an adequate navy. Had we possessed an adequate navy, I am bold to say that Manchuria would have been evacuated and the war would not have come to disturb the earth and bring the present depression over the Southern people.
It is hardly necessary to point out that our losses already incurred would have covered many fields over the cost of such a navy.
But as great as are these losses they cannot compare with the greater losses that may lie ahead, if the present drift of events should go unchecked and lead to a general war over the division of China.
Naturally, the Continental powers of Europe do not wish to have to compete with our industrial nation on the basis of an equal footing in this great market. They have, therefore, combined to seize China by force, and partition it among themselves, leaving the industrial nations out.
The first step taken in this direction came at the conclusion of the war between China and Japan, when the Continental powers intervened to despoil Japan of the fruits of victory, preventing the consummation of the treaty of Shimonosoki, that would have ceded to Japan part of Manchuria, including the Liaotung Peninsula with Port Arthur. Soon Russia came to occupy the same territory wrested from Japan, Germany seized Kiaochao, and part of the Shantung Peninsula, Italy attempted to seize a Chinese port, and France became active on the frontier of Indo-China.
The next step in the seizure of China is planned for the present war. Indeed, the seizure of China is the very purpose of the war, and to this end Russia is conducting her war operations.
The chief aim of this year’s campaign has been to change the public opinion of Europe. Thus it is that Russia has conducted a pre-arranged system of retreats, and that the inspired press of Europe has raised the hue and cry of “Yellow Peril,” with such success that the peoples now stand with their governments on the side of Russia. The combination is ready to move, and we can expect renewed reports of Chinese violation, of neutrality, of Chinese disturbances and Japanese intrigues in China, Russia reporting upon the affairs in Mongolia, France upon the affairs in Kwangsi, and Germany in Shantung and Chili. The agents of these powers will probably facilitate and exaggerate the Chinese disturbances, and then upon the pretext of preventing massacre and a general Chinese uprising, the armies by pre-arranged program will enter and occupy the Provinces of China, never again to leave.
Opposition on the part of Great Britain is evidently anticipated, and the inexplicable seizure of British ships, followed later by the inexplicable firing upon British fishing vessels, appears as part of a plan to excite British indignation, so that at the opportune moment, the British may be the more easily provoked to commit an act of war which would at once put into operation the Russian treaty of alliance with France, and this would be the signal for Germany, Austria-Hungary and Italy to join Russia and France.
Thus the present war is producing a grouping that imperils the balance of power, placing a heavy preponderance on the side of the military as against the industrial nations or on the side of war as against the peace forces. No thoughtful observer can fail to see here all the elements for a world war; nor can we look except with alarm upon the declination by the military powers of the interstate to the proposed second convention of The Hague, and the Russian note complaining of alleged violation of neutrality by China. It is idle to imagine that the United States, the foremost industrial power, with more at stake in the Orient than any nation, could look on with indifference.
We should awaken to the full significance of the events gathering in the Orient. The two antagonistic systems, militarism and industrialism, are gathering for a death struggle. The Orient is the battle ground—China is the objective.
If militarism succeeds in intrenching itself upon the yellow race, securing the myriads upon which to levy for men and for means, then it will perpetuate its harsh reign for centuries yet to come.
On the other hand, if thwarted in obtaining the spoils of war and left simply to a fair competition, militarism will be unable to hold its own, and will be driven to the wall, and be compelled to disarm by the great economic forces of commerce and industry, and we can then confidently expect the establishment of general and enduring peace long ere this century is gone.
What would be the effect upon cotton?
If peace is restored and maintained, cotton will start again upon its upward course and in a few years, with such a vast demand as China would create, I am conservative in saying that the price would pass the 20 cent mark, and remain above this mark, no matter how large the crop.
On the other hand, if events are allowed to drift on and a general war comes, cotton would become a drug on the market, even though reduced acreage, calamity and distress would spread over the South. Indeed, with militarism uppermost, wars and rumors of wars would continually disturb the world, nations would be exhausted and lose in their buying capacity, and the myriads of helpless peoples would pass under the military yoke and remain unable to buy clothing. The greatest source of Southern prosperity would be permanently blighted, and a serious blow would be struck at the general prosperity of America, and at the happiness of mankind.
Under these circumstances, when it is a question of 3½ cent cotton or 25 cent cotton, I do not hesitate to say that the solid influence of the South should be felt for having our country act promptly and vigorously, to use every proper means to restore the balance of the world on the side of peace, and to bring about the ending of the present war and the restoration of Manchuria to the commerce of the world.
It only remains for us to refer summarily to the factors of supply. It is practically certain that the South will continue to produce the bulk of the world’s cotton. During the Civil War, when cotton was over $1.00 a pound, persistent efforts were made all over the world to develop cotton growing, but in vain. The Gulf Stream on one side, and a vast continent on the other, produce climatic conditions for cotton culture not duplicated anywhere else in the world. We may expect some increase in the output of Egypt on account of developing irrigation, and possibly a temporary increase in the output of India, and other secondary sources due to the recent high price, but the present depression will tend to check this movement. Therefore, the South may be expected to continue to produce over 80 per cent of the world’s supply so that the question of supply lies in our own hands.
The two factors in determining the supply are the seasons and the acreage. While the general law of the average holds, history shows that the temperate zone is liable to wide fluctuations in seasons, which it is impossible to foresee. The recourse to offset the unhappy consequences of wide fluctuations is a reservoir or fly-wheel, into which the fat years can pour their supplies for making up the deficit of the lean years. The uncertainty of cotton demand, hinging upon war or peace, is now added to the uncertainty of the cotton season. Recourse to storage is therefore absolutely necessary, and a wide system of warehouse storage should be created. I will not endeavor to go into the details of such a system, but venture to suggest that it should be organized on bedrock principles, and operate on the securest lines, so that a warehouse certificate would be absolutely safe and universally negotiable. Lessons could probably be learned from the systems in use in pig iron storage, where the market is also subject to wide fluctuations. The American Pig Iron Storage Warehouse Co. would probably be the best pattern.
The factors of acreage should be carefully investigated before any radical action is taken.
I know it is best for a farmer to have a diversified crop as it is best for a city to have diversified industries, and it is wise for a farmer, like a nation, to produce the necessities required for home consumption. The present fearful depression will doubtless have a partial benefit in this direction, but I fear too much importance is now being given to this question. While I would urge the farmers to diversify their crops, I would hesitate to recommend a sweeping reduction in the world’s production. In fact, as an economic principle, there can be no such thing as over production at this stage of the world’s progress, particularly in the great world’s staples, like those of food and clothing. For generations to come mankind, on the whole, will go hungry and half naked. The true principle is not to try to reduce the product but to provide for a general increasing buying capacity and particularly for the case of the undeveloped peoples of the earth, by increasing their opportunities to work for the world’s market, and to make the wages necessary to purchase the products. If we could only be sure that peace is to prevail, so that the market of China would be restored, and could go on increasing, I would not hesitate to urge against any reduction in acreage. On the contrary, I would urge a steady increase, for no matter how great the increase, the supply would never keep up with the growth of demand. As conditions now stand, however, I believe conservative action is advisable—action that would lean rather toward the side of preparation to store up for future use the surplus, if war should come, than to materially reduce the acreage, and my advice to the individual farmer is to become independent and diversify his crop, and then plant his usual acreage in cotton.
It may be pointed out that one effective way to offset the losses from low-priced cotton is for the South to invest more and more in cotton mills, that benefit from these prices, and the logic of the situation would have cotton growers invest their available capital and saving in cotton manufacture. The true aim of the South should be not only to produce the cotton, but the clothing for the world. And every country in the South should have cotton mill industries organized with local capital and should develop and educate its labor for the high grades as well as coarse.
Summing up, the general conclusions and recommendations are as follows:
1. The cotton growers should have a wide, permanent organization with a general convention once a year.
2. A standing committee composed of, say, two members for each cotton growing state, should be appointed to investigate and report each year upon the existing and prospective conditions of supply of cotton.
3. A similar committee should be appointed to investigate and report each year upon the existing and prospective conditions of the demand for cotton.
4. There should be established a comprehensive and carefully organized storage warehouse system.
5. The great agents for increasing the price of cotton are peace, prosperity and civilization.
6. The arch-enemy of the cotton growers is war. The permanent cause of cotton must look to the peoples beyond the sea, especially China. The fate of China hangs upon peace or war—peace or war depends upon America—America’s influence depends upon her navy.