In the Spring of 1921, the following conversation might have been
overheard between an American and a German.
A.: You see the consequences of the war are worse for the victor
than for the vanquished.
G.: Only apparently, and for the moment. The future, I fear, will
teach us something different.
A.: Nobody can look into the future. At the present minute, we
witness the biggest economic collapse that the world has ever seen,
all countries suffer from it, except Germany. All states had made
preparations for peace, now the stored up goods are lying there and
nobody wants them, not even Germany. We thought, that Germany, bare
of everything, would swallow anything.
G.: The reason is, that Germany cannot pay. Her gold and tangible
gold values have been taken from her. Why do not the other
countries buy? Their peace production has been lying idle for
years, consequently, the shelves must be fairly empty.
A.: Quite right, but prices have risen to an unreasonable height.
During the war, a most wasteful regime prevailed; everybody made
big profits or received huge wages, and accustomed himself to a
most sumptuous life. Now, vengeance is upon them, for nature does
not allow herself to be ravished, nor does she present gifts for
extravagant living.
G.: If prices have been driven to an unreasonable level by wasteful
workings, then, a big decline in prices is the only remedy.
A.: We are in the midst of a phenomenal collapse of prices. Cotton
is a barometer for all other goods. The price in America is,
to-day, 11 cents, a short while ago, it was 40 cents.
G.: What does the planter say to this?
A.: The cost of production is for him this season about 25-30 cents
per pound. He has worked for nothing, and besides, loses a good
deal of money, as his means are small, he will be heavily in debt.
G.: And the further consequences?
A.: The planter is absolutely unable to produce a similar crop. It
is the old story, when prices are too low the crop will be
curtailed.
G.: We have always experienced that low prices are followed by high
ones. What other consequences is this collapse in prices likely to
have?
A.: All cotton goods fall in the same proportion as the raw
material, this means a bad crisis for commerce and industry, and an
unprecedented amount of unemployment. Besides, this collossal drop
in prices has caused other very peculiar situations.
G.: Of what nature?
A.: It is well known that cotton is rarely bought at a fixed price,
but generally, at the "future" price of the day on which the buyer
"calls" his cotton, plus or minus the agreed upon difference for
the quality bought. Now, several American houses sold low qualities,
at 12.50 cents "off". At that time, "futures" were 40 cents, so
that the seller calculated to receive about 27.50 cents, to-day,
"futures" are 11 cents, so that, if the buyer "calls" his cotton
to-day, he receives it for nothing, and can claim 1.50 cents per
pound as well.
G.: Impossible! No German law would permit a buyer to demand his
goods, without paying a price at all, and be justified in claiming
money in addition from the seller.
A.: What decision would the Bremen Cotton Exchange give? Two
possibilities are to be taken into account. If the seller has taken
a "future" contract as cover, he has no loss, even if he gives the
cotton for nothing, and pays 1.50 cents in addition, because the
difference in the "futures" indemnifies him. But if he has no
"futures", what then? to part with valuable cotton for nothing, and
pay good money as well, would exceed the demands of Shylock.
G.: The "Bremen Cotton Exchange" would probably decline to
adjudicate, it has the right to refer it to the ordinary law
courts.
A.: A hard nut to crack for the law!
German and American agree on the following:
It is a peculiar thing that cotton has always new riddles in store
for us. The fluctuations in prices are enough to drive a man mad.
Woe to him, who is drawn into that maelstrom. The hedges are a
safe guard against price fluctuations. The careful merchant thinks
he is on solid ground, when, all of a sudden, the premium for the
quality begins to rock and he wonders what is worse? the
fluctuation of the "future" market, or those of the premiums.
Hundreds of thousands of bales have been sold, at a premium of 10
to 15 cents for goodmiddling, to-day, the premium is 3 cents, that
spells hard times for the cotton market. It is a consolation, that
bad times are quickly followed by good ones, and that the darkest
hour is before dawn. Cotton typifies life and death, joy and
sorrow. It is like an untamed animal, it deals serious wounds, it
indulges in "buck jumps", that none can foretell, nobody has ever
driven it in harness. And yet, he, who deals with it quietly,
carefully and pluckily, will always remain fresh and full of life.
Cotton is king!