In the late 1890s, millions of cotton farmers in the American South were in a fix. Everything they needed, from cotton seed to the fertilizer to make it grow, from the plow to the mule that pulled it, from the meal and meat they ate to the clothes on their backs, all of it was getting more and more expensive. Most found themselves locked into cycles of debt to the crossroads merchant, this year's crop never quite paying off last year's debt. Each year, they seemed to produce more cotton, but the price kept declining, so they faced the irony of making more cotton and less money. "Five cent cotton and forty cent meat," went a song popular across the South, "how in the heck can a poor man eat?"
The problem, everybody knew, was overproduction. Too much cotton was being produced, so the price went down, and as everyone tried to raise more, all they did, collectively, was dig themselves deeper in the hole. In response to this dilemma, southern farmers began to organize through the Farmers' Alliance and then a new political party, the Populists. Despite some scattered successes, by the beginning of the twentieth century, this political response had fizzled out, mostly because white farmers would not cooperate with black ones. The South's farmers were doomed to another thirty-five years of misery, until the New Deal and the mechanical cotton harvester changed everything.
This is a common story, found in every textbook and repeated in history classes year after year (even, we must admit, by the authors of this book). But it isn't right, not by a long shot. The story in the paragraphs above focuses too much on the farmers themselves and the commonsense idea of overproduction. It became popular in the late twentieth century when historians wanted to emphasize the role of poor and powerless people in history, and when historians tended to rely on overly reductionist and doctrinaire ideas about economics, whether those of Milton Friedman or Karl Marx. This simple story of hard-pressed farmers following their mules and putting their hands in empty pockets says very little about those who dealt in the cotton after they carried it to the gin to be cleaned and baled. As The Cotton Kings: Capitalism and Corruption in Turn-of-the-Century New York and New Orleans will demonstrate, these were the people who had the greatest influence on the price of cotton in the last decades of the nineteenth century and the beginning of the twentieth century. The reason cotton farmers in Alabama were poor was not that they and their neighbors in Mississippi and Georgia were planting too much cotton. It was that powerful interests in New York were actively conspiring to enrich themselves at the expense of these cotton farmers. The problem was not overproduction. The problem lay in the system by which cotton was marketed, the series of complex transactions that brought cotton from the boll in the field to the spinning room of the mill.
The Cotton Kings tells the story of a struggle between two great American economic institutions, the New York Cotton Exchange and the New Orleans Cotton Exchange. With the end of the Civil War, financing for the South's cotton crop quickly came to be dominated by the banking system of Wall Street. This fact, along with the establishment of a transatlantic cable making it possible to communicate quickly between New York and Liverpool, led to the creation of the New York Cotton Exchange in 1870. This exchange was for ten years the only place in the country to buy and sell futures contracts in cotton, and the networks of cotton traders, financiers, and shipping interests in New York made the New York Cotton Exchange the dominant force in the American cotton trade. Another exchange, though, had its own set of advantages and soon challenged the New York Cotton Exchange's position. New Orleans sat at the mouth of the Mississippi River and in the middle of the cotton belt, and it, too, began trading in cotton futures in 1881. Over the 1880s, less and less physical cotton was traded at the New York Cotton Exchange; it came to deal almost entirely in futures contracts rather than the cotton bales they represented. The New Orleans Cotton Exchange, on the other hand, expanded the volume of physical cotton it handled, which put it in a good position to usurp the futures business from New York. As the New York Cotton Exchange saw its grip on the cotton trade start to slip, it changed its practices to maintain its supremacy, but in doing so, it introduced practices that served cotton brokers at the expense of the producers and consumers of the cotton itself.
A story about competing institutions and changing business practices may be important, but it could be rather difficult to tell in a way that would engage readers' attention. Fortunately, however, a wealth of fascinating individuals and dramatic incidents frames the story of the development of cotton futures trading. The main character in the book is William P. Brown, a farmer's son from Mississippi who went to New Orleans to trade in cotton and grow rich. He and his business partner, Frank B. Hayne, an aristocratic Charlestonian by birth, cornered the market twice, in 1903 and 1910, making millions and changing the trade forever. The 1903 corner raised the price of cotton permanently, bringing hundreds of millions of extra dollars to the South over the next decade. Their sometime ally, sometime foe Daniel Sully is a study in hubris, rising high and falling fast. The 1910 corner was cut short when Brown and Hayne were prosecuted under the Sherman Anti-Trust Act, a case that eventually saw the Supreme Court rule that corners in commodities were inherently illegal. The New York Cotton Exchange initiated the prosecution, which illustrated the intertwined interests and outright corruption of Wall Street in the early twentieth century: the New York Cotton Exchange's attorney was Robert W. Taft. His brother was the president, and his former law partner was the Attorney General who pursued the case.
More than just the account of individuals and institutions in conflict, The Cotton Kings is an account of the federal government's attempts to regulate a complex financial market the shaped the lives of millions of Americans. Farmers had long wanted to ban futures trading completely, not grasping that this would leave them even worse off than before. By the late 1890s, the U.S. Department of Agriculture tried to level the playing field by making authoritative information on crop conditions available to everyone so the New York Cotton Exchange broker would have no advantage over the Georgia farmer in estimating what the cotton supply would be in the months ahead and hence what was a fair price. This strategy failed when public trust in the U.S. Department of Agriculture was shattered by a scandal involving insider trading by a government statistician. Congressmen increased their attempts to pass legislation to rein in the cotton futures trade, and in the summer of 1914 they succeeded in passing the Cotton Futures Act, the federal government's first successful regulation of a financial derivative.