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 Movement 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 1906: 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 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.
Table calculated from Weekly Prices between the 1st of October and the 31st of July in each Year.
| Expressed as Percentage of Average (1 Oct. to 31 July) Weekly Prices. | |||||||||
| Year. | Average Price. | Lowest Price. | Highest Price. | Range of Movement. | Standard Deviation. | Mean Weekly Movement. | Range of Movement. | Standard Deviation. | Mean Weekly Movement. |
| d. | d. | d. | d. | d. | d. | d. | d. | d. | |
| 1867-1868 | 95⁄8 | 73⁄8 | 127⁄8 | 5½ | 1.74 | 0.31 | 57.1 | 18.1 | 3.22 |
| 1868-1869 | 11½ | 10½ | 125⁄8 | 21⁄8 | 0.58 | 0.19 | 18.5 | 5.0 | 1.65 |
| 1869-1870 | 111⁄8 | 7¾ | 123⁄8 | 45⁄8 | 0.92 | 0.23 | 41.6 | 8.3 | 2.07 |
| 1870-1871 | 81⁄8 | 73⁄16 | 93⁄16 | 2 | 0.65 | 0.17 | 24.6 | 8.0 | 2.09 |
| 1871-1872 | 107⁄8 | 93⁄8 | 11½ | 21⁄8 | 0.75 | 0.15 | 19.5 | 6.9 | 1.38 |
| 1872-1873 | 9¾ | 8¾ | 105⁄16 | 19⁄16 | 0.53 | 0.10 | 16.9 | 5.7 | 1.08 |
| 1873-1874 | 85⁄16 | 7¾ | 91⁄8 | 13⁄8 | 0.32 | 0.10 | 16.5 | 3.9 | 1.20 |
| 1874-1875 | 711⁄16 | 615⁄16 | 8 | 11⁄16 | 0.26 | 0.07 | 13.8 | 3.4 | 0.89 |
| 1875-1876 | 6½ | 57⁄8 | 71⁄8 | 1¼ | 0.37 | 0.08 | 19.2 | 5.7 | 1.23 |
| 1876-1877 | 65⁄16 | 57⁄8 | 7 | 11⁄8 | 0.33 | 0.11 | 17.8 | 5.2 | 1.74 |
| 1877-1878 | 6¾ | 57⁄8 | 69⁄16 | 111⁄16 | 0.21 | 0.07 | 11.0 | 3.4 | 1.12 |
| 1878-1879 | 6 | 415⁄16 | 73⁄28 | 2¼ | 0.67 | 0.13 | 37.5 | 11.2 | 2.17 |
| 1879-1880 | 7 | 610⁄16 | 73⁄8 | 1¾ | 0.24 | 0.12 | 10.7 | 3.4 | 1.71 |
| 1880-1881 | 65⁄16 | 5¾ | 613⁄16 | 11⁄16 | 0.34 | 0.08 | 16.8 | 5.4 | 1.27 |
| 1881-1882 | 65⁄8 | 63⁄8 | 71⁄16 | 11⁄16 | 0.15 | 0.07 | 10.4 | 2.3 | 1.06 |
| 1882-1883 | 513⁄16 | 57⁄16 | 65⁄8 | 13⁄16 | 0.31 | 0.07 | 20.4 | 5.3 | 1.20 |
| 1883-1884 | 61⁄16 | 5¾ | 67⁄16 | 11⁄16 | 0.20 | 0.08 | 11.3 | 3.3 | 1.32 |
| 1884-1885 | 513⁄16 | 57⁄16 | 61⁄8 | 11⁄16 | 0.19 | 0.07 | 11.8 | 3.3 | 1.20 |
| 1885-1886 | 51⁄8 | 4¾ | 58⁄16 | ¾ | 0.18 | 0.07 | 14.5 | 3.5 | 1.35 |
| 1886-1887 | 57⁄16 | 51⁄8 | 6 | 7⁄8 | 0.28 | 0.05 | 16.1 | 5.2 | 0.92 |
| 1887-1888 | 5½ | 53⁄16 | 511⁄16 | ½ | 0.14 | 0.05 | 9.1 | 2.5 | 0.91 |
| 1888-1889 | 5¾ | 55⁄16 | 63⁄16 | 7⁄8 | 0.23 | 0.06 | 15.0 | 4.0 | 1.04 |
| 1889-1890 | 61⁄8 | 59⁄16 | 611⁄16 | 1⁄8 | 0.34 | 0.08 | 18.4 | 5.5 | 1.31 |
| 1890-1891 | 5 | 43⁄8 | 5¾ | 13⁄8 | 0.36 | 0.06 | 27.5 | 7.2 | 1.20 |
| 1891-1892 | 41⁄8 | 36⁄16 | 415⁄16 | 13⁄8 | 0.36 | 0.07 | 33.3 | 8.7 | 1.70 |
| 1892-1893 | 4¾ | 41⁄8 | 515⁄16 | 13⁄16 | 0.37 | 0.09 | 25.0 | 7.8 | 1.89 |
| 1893-1894 | 4¼ | 329⁄32 | 411⁄16 | 25⁄32 | 0.22 | 0.04 | 18.4 | 5.2 | 0.94 |
| 1894-1895 | 33⁄8 | 231⁄32 | 37⁄8 | 9⁄32 | 0.30 | 0.06 | 26.9 | 8.9 | 1.79 |
| 1895-1896 | 43⁄8 | 3¾ | 427⁄32 | 3⁄32 | 0.28 | 0.07 | 25.0 | 6.4 | 1.60 |
| 1896-1897 | 43⁄16 | 325⁄32 | 411⁄16 | 29⁄32 | 0.22 | 0.07 | 21.6 | 5.2 | 1.67 |
| 1897-1898 | 313⁄32 | 33⁄16 | 313⁄16 | 5⁄8 | 0.18 | 0.05 | 18.5 | 5.3 | 1.47 |
| 1898-1899 | 39⁄32 | 3 | 315⁄32 | 15⁄32 | 0.15 | 0.04 | 14.3 | 4.6 | 1.22 |
| 1899-1900 | 415⁄16 | 329⁄32 | 61⁄16 | 25⁄32 | 0.63 | 0.12 | 43.6 | 12.8 | 2.48 |
| 1900-1901 | 51⁄8 | 45⁄16 | 6½ | 23⁄16 | 0.53 | 0.13 | 42.7 | 10.3 | 2.54 |
| 1901-1902 | 4¾ | 49⁄32 | 511⁄32 | 11⁄16 | 0.24 | 0.09 | 22.4 | 5.0 | 1.89 |
| 1902-1903 | 5.35 | 4.42 | 7.12 | 2.70 | 0.78 | 0.13 | 50.5 | 14.6 | 2.43 |
| 1903-1904 | 7.04 | 5.78 | 8.92 | 3.14 | 0.91 | 0.33 | 44.4 | 12.9 | 4.83 |
| 1904-1905 | 4.86 | 3.63 | 6.01 | 2.38 | 0.71 | 0.15 | 48.9 | 14.6 | 3.09 |
“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 Price movements in different markets. 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 (1) 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,[7] and the same has been observed of the cotton market, though the correlations have not been worked out.[8] It is worthy of note that Liverpool “futures” are largely used for hedging by continental cotton dealers.
| Spot | Jan.- Feb. | Feb.- Mar. | Mar.- Apr. | Apr.- May. | May- Jun. | June- July | July- Aug. | Aug.- Sep. | Sep.- Oct. | Oct.- Nov. | Nov.- Dec. | Dec.- Jan. | |
| Nov. 18th, 1895 | 4.34 | 27 | 28 | 28½ | 29½ | 31 | 32 | 3 | · · | · · | · · | 27 | 27 |
| Jan. 18th, 1899 | 3.8 | 6½ | 6½ | 7½ | 8½ | 9½ | 10½ | 1½ | 12 | 12½ | · · | · · | 6½ |
| Sept. 14th, 1899 | 3.36 | 24½ | 25 | 25½ | 26 | 27 | · · | · · | 30 | 28 | 26½ | 25 | 24½ |
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 in Differences between the prices of near and distant “futures.” these relations is still a mystery.[9] Probably an infinitude of subtle influences came into play, and among these there seems reason to include the intentional 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 “bearing” it in the last case. A closer examination will reveal further that the magnitude of these gaps varies a great deal; and 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 far-reaching 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.[10] 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 belief that shortages of supply are more frequent than they ought to be, and the fear that diminishing returns Recent attempts to open up new cotton-fields. 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 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.