The Responsiveness of
the Great Exchanges
The great exchanges, and the New York Exchange in particular, are thus used by cotton merchants and manufacturers in every part of the world to protect themselves in their buying and selling operations. The value of middling cotton in New York is kept upon par with the value of the same cotton in any growing or manufacturing point, such factors as freight, insurance, brokerage, etc., being allowed for in the quoted price. Quotations on the Liverpool Exchange are thus higher than quotations in New York by the difference between the amount it costs to deliver cotton in Liverpool and to deliver it in New York. Thus the merchant and manufacturer is able to buy and sell hedge contracts on the New York Exchange, knowing that operations at the New York price in New York are on a parity with operations at the Liverpool price in Liverpool, or at the Havre price in Havre. Thus the hedge contract which a Southern merchant sells in Atlanta, through his broker on the New York Exchange, may be bought by a spinner in 26 Tokyo or Manchester, anxious to insure his supply of cotton at a price which would make his contracts profitable.
In normal times the selling of merchants and the buying of manufacturing engaged in actual and bona fide hedging transaction has been estimated by competent authorities to make up fully seventy-five per cent. of the trading done on the New York Exchange. The remaining twenty-five per cent. may thus be attributed to speculative operations, that is operations entered into by outsiders through brokers, on the chance of a rise or a fall in the market. Nor is such speculation without its value. It is the speculators, as a rule, who are the first to take advantage of crop reports or weather conditions, or news likely to affect the market favorably or unfavorably, and buy or sell as their judgment dictates. Their operations serve to discount such changes to some extent, or at least to make the breaks and rises more gradual than they would otherwise be.
In abnormal times, that is times of great scarcity and great demand, or bumper crops and small demand, the speculative element plays a larger part, for it is in such times that the greatest fluctuations in price take place. Merchants or manufacturers holding hedging contracts are under a greater incentive to buy or sell, as they see their opportunities for profit growing greater or less, as the case may be, and in consequence more contracts are made, and they pass from hand to hand with greater rapidity, the gain or loss thus being distributed among a greater number of persons than would otherwise be the case. It is the operations of speculators, and the manipulation that once or twice during its history has been possible by unscrupulous traders which has brought about at such times public agitation for the abolition of the Exchange. Recent changes in the form of the cotton contract have made it almost impossible for such operations, if repeated, to be successful, and thus there is little likelihood that the very important economic function of the Exchange will be interfered with by legislation.
CHAPTER IV
The Cloth Market
THE output of the manufacturer finds its way to the ultimate consumer through a variety of channels. What these are will depend upon the manner in which the various mills are organized, and their respective policies as to the marketing of their products. Some mills, usually very large organizations, will have plants completely equipped, in every department, spinning, weaving, dyeing, printing, finishing, etc., and will process all of their goods themselves in every detail, offering them on the market in their finished form. Some of these may make a wide variety of fabrics suitable for one class of trade, or for many classes of trade, while others will specialize on a few articles. A good many concerns that are not of the largest size, but which confine their production to a few articles, may also put the goods through every operation themselves.
Then there are a great number of cotton mills, many of them of very large size, which do no weaving at all, but confine themselves to spinning, finding a market for their yarns with the many weaving mills which have no spinning plants.