Bruce E. Baker and Barbara Hahn have written an important and wonderfully entertaining book on the intricate machinations of cotton futures trading at the turn of the twentieth century. For any nonbroker who has tried to delve into the mind-boggling world of “corners,” “puts,” “calls,” and “shorts,” futures trading can be an intimidating and frustrating topic of inquiry; its abstraction and complexity make it difficult to get a handle on the basic rules of the game, let alone the broader political, social, or economic ramifications. Yet with sparkling prose, an easy-to-use glossary, a colorful cast of characters, research from never-before-used archives, and a compelling New York “Bears” versus New Orleans “Bulls” framework that allows even the most financially illiterate readers to understand the stakes in play, Baker and Hahn manage to bring the airy speculation of futures trading down to earth. In so doing, they not only bring some much-needed clarity to the history of financial derivatives but also shed much light on a range of Progressive Era issues, from securities regulation, statistical manipulation, and exploited Southern sharecroppers to government corruption, Wall Street power, and boll weevil agency.
There are heroes and villains in this story. The main heroes are William Perry Brown of New Orleans and his band of brokers at the New Orleans Cotton Exchange. The villains are the brokers of the New York Cotton Exchange (NYCE) who continuously bet that cotton prices will drop and use all sorts of sordid tricks to ensure that it happens. Hahn and Baker do a wonderful job detailing the deceptive ways in which NYCE brokers—be it through shady standardization of cotton grades or the manipulation of agricultural statistical forecasts—manage to lower cotton prices. Such speculative behavior not only earns these brokers millions, but it does so at the expense of poor cotton farmers, black and white, who see the value of their crop fall each harvest.
Enter our hero Brown, who also speculates in cotton futures, but as a New Orleans Bull and not a New York Bear. Betting that future prices will rise, he aims to corner the cotton market and raise prices drastically, a maneuver that would benefit not only his own pocket but also millions of Southern sharecroppers. In two masterful chapters, Hahn and Baker deftly trace how Brown uses financial networks, political coalitions, heaps of capital, and nerves of steel to pull off the corner of the century in 1903—an important historical event that has been all but forgotten.
In the final chapters, the book details the different ways the federal government tried to regulate futures trading so as to stabilize the cotton market. In telling of corrupt government statisticians and their clever use of window shades, Hahn and Baker explain in colorful and convincing fashion why full information transparency was not enough to bring order to the cotton market and why actual laws needed to be enacted. The book ends in an upbeat mood with the Cotton Futures Act of 1914. The authors celebrate the fact that instead of outlawing futures altogether—as most Southern farmers desired—the law borrowed from the practices of the New Orleans Cotton Exchange in order to ensure that New Yorkers could no longer use various forms of subterfuge to manipulate prices. Challenging free market theories, Hahn and Baker argue that this law proves that markets work better under government regulation.
A truly excellent use of novel archival material, Hahn and Baker's greatest scholarly contribution is their granular, “case study” analysis of futures trading. As the authors rightly note, while recent historians have taken a renewed interest in futures, the best of the bunch—such as Jonathan Levy (Freaks of Fortune: The Emerging World of Capitalism and Risk in America [2012])—have been more interested in the intellectual, legal, ideological, and moral questions that surround futures than in the nitty-gritty mechanics of the trade itself. If someone wants to understand exactly how brokers influenced prices, made their money, or cornered a market, this is the book for them. Finally, the geographical focus on New Orleans is refreshing. While slavery has become a staple of the “new” history of capitalism, far less work is being done on the New South. From this addition of a previously unknown chapter to the Progressive Era South, we discover that antebellum “King Cotton” gave way to self-proclaimed “Cotton Kings.”
Yet while the book's framing as a battle between New York Bears and New Orleans Bulls is its greatest strength, allowing for a clear and digestible account of the market, it is also its biggest weakness as some things feel a bit too cut-and-dried. One reason historians such as Levy explored futures trading is that they wanted to interrogate some of the basic conceptual categories of capitalism and show that things are far blurrier and more complicated than once thought. For instance, Levy stresses how difficult it was for judges, regulators, or policymakers to actually separate socially useful forms of futures trading (that allow one to insure against price volatility by “hedging”) from socially useless or damaging forms (that simply allow brokers to gamble and add little but instability to the marketplace). In treating the New Orleans men as “the honest part of the trade” and the New Yorkers as the damaging and corrupt ones, Hahn and Baker make it seem as if regulators could very easily separate “good” speculation from “bad” (p. 143). Yet one hundred years after the Cotton Futures Act this crucial issue remains, as Levy notes, “an open question” (Freaks of Fortune, p. 263).
Despite these faults, there is little doubt that this book is a major scholarly achievement and a must-read for anyone interested in understanding not only the cotton futures of yesterday but the derivatives market—and its regulatory challenges—of today and tomorrow.
