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COTTON
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COTTON .) A " corner " in an exchangeable See also:article is an abnormal See also:condition of the See also:market for it, in which, owing to a serious °Gorners.i, miscalculation of probable See also:supply, many traders who have made contracts to deliver at a certain date are unable to fulfil them. In most cases the fact that the market is " oversold " becomes known some See also:time before the date far the completion of the contracts, and other traders take See also:advantage of the position to raise the See also:price against those who are " See also:short " of the article. A corner is therefore usually a result of the failure of a See also:speculation for the fall. Theoretically a trader who has undertaken to deliver roo tons of an article, but cannot, after every endeavour, obtain more than 90 tons, could be made to pay his whole See also:capital in See also:order to be relieved from the bargain. In practice he gets off more easily than this. Frequently when many traders have sold largely " forward " other traders deliberately try to use that position as a basis for creating a " corner." Generally, however, they only succeed in causing See also:great inconvenience to all parties, themselves included, for as a See also:rule they are only able to make the " corner " effective by buying up so much of the article that when they have compelled their opponents to pay largely to be relieved of contracts to deliver, they are See also:left with so big a stock of the article that they cannot sell it except at a loss, which is sometimes big enough to absorb the gain previously secured. In the See also:case of very small markets " corners " may be See also:complete, but in big markets they are never complete, something always happening to prevent the full realization of the operators' plans. The See also:idea of a " corner" is, however, so fascinating to the commercial mind, especially in the See also:United States, that probably no See also:year passes without an See also:attempt at some operation of the See also:kind, though the conditions may in most cases prevent any serious result. " Corners " have what is called a " moral " aspect. It is curious to See also:note that the indignation of the " market " at thedisturbance to prices which results from operations of this kind is generally directed against the speculators for the fall, while that of the public, including See also:trade consumers, is directed against the operator for the rise. The operator for the fall, or " See also:bear," is denounced for " selling what he has not got," a very inaccurate description of his See also:action, while the " See also:bull " or operator for the rise is spoken of by a much wider circle as a heartless See also:person who endeavours to make a profit out of the necessities of others. From a strict ethical standpoint there is really nothing to choose between the two. The See also:Money Market.—There is one market which presents features of so See also:peculiar a See also:character that it is necessary to describe it more particularly than other phenomena of the kind, and that is the money market. The See also:term money is here used to denote " money-market money " or " bankers' money," a See also:form of See also:wealth which has existed from See also:early times, but not in great abundance until within the last two or three See also:hundred years. Immense wealth has existed in certain countries at various epochs, owing to the fertility of the See also:soil, success in trade, or the See also:plunder of other.communities, and all states which have been great have at the time of their greatness possessed wealth; but the wealth which the countries, or a few fortunate individuals belonging to them, owned consisted largely of what is still called real See also:property —that is, See also:land and buildings—and of the produce of the soil or of mines. The See also:balance consisted partly of merchandise of various kinds and See also:shipping, and to a large extent of the See also:precious metals in the form of See also:coin or See also:bullion, or of precious stones and See also:jewelry. Where no settled See also:government was established no one could become or remain very wealthy who was not in a position to defend himself by the strong See also:hand or allied with those who were; and as a rule the only See also:people who could so defend themselves were possessors of large areas of See also:rich land, who were able to retain the services of those who dwelt on it either through their See also:personal military qualities or in virtue of See also:habit and See also:custom. The inhabitants of wealthy cities were able to protect themselves to some extent, but they nearly always found it necessary to ally themselves with the neighbouring land-owners, whom they aided with money in return for military support. A money market in the See also:modern sense of the word could only exist in a rudimentary form under these conditions. There was a sort of money market, for there was a changing See also:rate of See also:interest and a whole See also:code of See also:law See also:relating to it (See also:Macleod, Banking, 3rd ed., p. 174) in republican See also:Rome; but although large lending and borrowing transactions were See also:part of the daily See also:life of the See also:Roman business See also:world, as well as of those of the See also:Greek cities and of See also:Carthage and its dependencies, none of these communities presented the phenomena of a highly organised market. Money-lending was also a See also:regular practice in See also:Egypt, Chaldea and other See also:ancient seats of See also:civilization, as See also:recent discoveries show. It was only in comparatively recent times, however, when See also:Europe had formed itself into more or less organized states, with conditions fairly favourable to the steady growth of trade and See also:industry, that organized money markets came into existence in places such as See also:Venice, See also:Genoa, See also:Augsburg, See also:Basel, the Hanse towns, and various cities in the See also:Low Countries, See also:Spain and See also:Portugal, as well as in See also:London. The See also:financial strength of these rudimentary money markets was not very great, and as it depended a See also:good See also:deal on the See also:possession by individuals of actual See also:cash, the existence of these markets was See also:precarious. " Hoarded ducats " were too often an attraction to needy princes, whose unwelcome attentions a rich See also:merchant, even when an influential burgher of a powerful See also:city, was less able to resist than the violence of a housebreaker, against whom strong vaults and well-secured chests situated in defensible mansions were a good See also:protection. The necessitous potentate could often urge his See also:desire for a " See also:loan " by very persuasive methods. Occasionally, if his predecessors had acquired the confidence of the banking class sufficiently to induce them to See also:place their cash reserves in one of his strong places " for safety " an unscrupulous ruler could help himself, as See also: (3) Discount houses and bill-brokers. B. (4) Certain members of the Stock See also:Exchange. (5) Certain great merchants and See also:finance houses. The institutions included in See also:group A are the most constantly active organs of the money market; those included in group B are intermittently active, but in the case of See also:section (4), though their activity is greater at some times than others, they are never wholly outside the market. Even in the case of (5) a certain amount of qualification is needed, which is indicated by the fact that most of the great merchant houses are " registered" as bankers, though they do not perform the functions usually associated with that term in the United See also:Kingdom. Several of the great houses were originally and still are nominally merchants, but are largely concerned with finance business—that is, with the making of loans to foreign governments and the issue of capital on behalf of companies. These powerful capitalists often have large amounts of money temporarily in their hands, and lend it in the money market or on the Stock Exchange; one or two of them are large buyers of bills from time to time, and generally the members of this group may be said to be in sufficiently See also:close See also:touch with the active organs of the money market to form part of it. The actual working of the money market has been described by See also:Walter See also:Bagehot in his Lombard See also:Street, a See also:work which has The Work- attained the See also:rank of a classic. Most of what he said lag of the in 1873 is true now, but in certain See also:minor respects Money developments have taken place, the most important Market. being the greater extent to which money is " used up " every day, or rather every See also:night. In Bagehot's time the discount houses only quoted " See also:allowance " rates for " loans at See also:call and short See also:notice," based on the rate " allowed " by the banks for loans at seven days' notice; but since then the bill-brokers have been obliged—(1) occasionally to See also:fix their terms independently of the banks, and (2) to " allow " a rate for " money for the night." This latter practice became usual about 1888 or 1889. The See also:change it introduced was not a vital one, but has some importance from the point of view of the historian. A good deal of the " money " thus dealt with is derived from the group of traders included in class (5). It is (a) money which is temporarily in the hands of houses or institutions which have just received subscriptions to loans or other capital offered to the public; (b) balances left temporarily with finance houses or banks on behalf of foreign governments or other parties who have payments to make in London. In the former case the " money " is almost invariably only available for a short time, probably only for a few days; in the latter case also it probably will be only available for a few days, but may be available for months. Money derived from either of these See also:sources is usually to be had cheap, but is not, in the See also:slang of the City, "good," because it is uncertain how See also:long loans at call obtained from either of them will remain undisturbed. Nevertheless, there has been at times so much " money " of this fugitive character, and derived from such varied sources since about 1888, that its cheapness has been an attraction to the less wealthy bill-brokers, who have occasionally been able to go on using it profitably for many continuous See also:weeks, or even months, in their business. The See also:risk run by employing it is, of course, the certainty that it will be " called " from the borrower sooner or later, and probably at a time when it is very inconvenient to repay it. The more wealthy houses take money of this kind when it suits them, but never rely on it as a basis for business. Since Bagehot wrote the growth of the big joint-stock banks has been enormous, not so much through the increased business done by banks generally, though the expansion in banking has been considerable, as by the absorption Banks. (See also:heat . of a great number of small banks by three or four large institutions (see BANKS AND BANKING). The growth of these large institutions tends to facilitate See also:combination for purposes of See also:common concern among banks generally—e.g. to support the Bank of England in maintaining its reserve, which is the See also:sole reserve of all the banks, at a proper level, and thus render the money market more See also:stable. Two or three of the banks have for a long time, owing to their large holding of bills, had much more influence than the Bank of England over the foreign exchanges, on which the foreign bullion movements chiefly depend; and since 1890 persons of See also:weight in the joint-stock banking See also:body have implicitly, though not explicitly, admitted a certain degree of responsibility in the See also:matter on behalf of their institutions. It is, however, characteristic of See also:British business arrangements that the question of the responsibility for the reserve of the Bank of England, the ultimate reserve of the whole See also:country, is still in as nebulous a condition, so far as explicit See also:acceptance of responsibility by any institution is concerned, as it was in 1870. There has been no improvement in theory, though in practice there has been real improvement, since Bagehot's time. The tendency is, indeed, decidedly in the direction of closer combination between the Bank and the banks. On more than one occasion the Bank has, not merely by borrowing " in the market," but by more or less private negotiations with the big banks, obtained temporary See also:control of large sums belonging to the banks in order to take cash off the market. This proceeding, and its concomitants, did not meet with universal approval; but the results were satisfactory on the whole, and on the later occasions when the measure was carried out there was little or no See also:friction. The enormous See also:war loans raised by See also:Japan in 1904, 1905, r906 exemplified aptly the more modern methods of dealing with the disturbance to the money market which such operations produce. The loans were issued by three s feForeign banks, one of which was a See also:Japanese institution and Loans. represented the Japanese government in the oper- ations connected with the various loans. Of the other two, one was a leading London bank and the other the See also:principal British bank doing business in See also:China. These large loans were issued with the minimum of disturbance to the London money market. The very large amounts of cash which were suddenly withdrawn from other banks, and deposited with the institutions issuing the loan as " application money," were See also:lent out again in the short loan market as soon as possible, usually on the afternoon of the day of issue. The work involved was very heavy, as a great number of cheques had to be cleared in a brief space of time, but by skilful organization this was done. Similar promptitude was displayed when the successive instalments on the loans The Early Money Market. became due and were paid, most of the cash being available for borrowers a few See also:hours after it was paid in by the holders of the See also:scrip which represented the loans until the definitive bonds were ready. The task of dealing with cash forming instalments of the loans was not, however, the only problem before the banks which issued them. As the scrip of each loan gradually became " fully paid " the proceeds of the loan in the hands of the banks became a very large sum. The Japanese government held the whole of it at its disposal, and might have seriously embarrassed the London money market if it had not dealt with its huge balances considerately. The Japanese government had promised not to withdraw any portion of the loans raised in London in See also:gold, but it was under no restrictions as to how it should employ the money lying to its See also:account. It might have kept it locked up until it had a bill for See also:ships or clothing to pay. As might be expected, the government from the outset transferred a portion of what was deposited with the banks to the Bank of England, finding it advantageous on various grounds to do so. The See also:remainder was lent for short periods by the banks, but for some time no means were available for lending for any considerable length of time, though the Japanese government had no immediate use for the whole of it. It was suggested to the government by its advisers that it would be a convenience . to the money market, and no inconvenience to Japanese policy, if any balances which were not likely to be wanted for some months were invested in British See also:treasury bills, and the government, after fully acquainting itself with the nature of the operation, agreed to it. The See also:plan was found to work well; it released for definite periods money that would otherwise have been of little use to the money market, and it was of pecuniary benefit to the Japanese See also:exchequer to the extent of the interest earned by the portion of the balances so employed. Incidentally it suited the British treasury; the Japanese demand, which became a See also:constant feature in connexion with treasury bill issues, lo'lvered the discount rates at which " sixes " were placed. The Japanese not only applied for treasury bills and bought them in the market, but they also took up some of the exchequer bonds issued in connexion with the See also:South See also:African war towards the end of their currency, thus relieving the money market of a further part of the weight of British government See also:paper which it would otherwise have had to take on itself. A further important development of Japanese management of its London balances took place in r906, when a portion of these balances was placed under the control of agents of the Bank of England, to be lent, or not lent, in the market as suited the Bank's policy, which was at that time directed to raising the value of money in order to protect and increase its reserve. The plan worked very well on the whole. It was merely an See also:adaptation of a practice initiated some years before, whereby the Bank sometimes obtained temporary control of moneys belonging to the See also:India See also:Council. The same idea, that of " intercepting " market funds, which were beating down the discount rate, depressing the foreign exchanges and depleting the Bank's reserve, has been employed in regard to the clearing banks themselves, the banks having on more than one occasion agreed to lend the Bank of England a certain portion of their balances. . The discount houses, though an important body of institutions, are not of so much importance as they were before 1866, when they suffered a serious See also:blow through the failure of The ~unt " Overend's," from which as a body they have never Houses. fully recovered. The five large concerns which still exist are, however, very powerful and exercise See also:con- siderable influence on the market. They hold considerable quantities of bills at all times; occasionally their holdings are very large, but they turn out the contents of their bill cases readily if they think See also:fit. Their business is different in practice from that of the smaller " bill-brokers," who usually are what their name suggests, namely, persons who do not hold many bills, but find them for banks who need them, charging a small See also:commission. The small bill-brokers See also:borrow from the Bank of England much more freely than the big discount houses. The latter only " go to the bank " in See also:ordinary times perhaps once or twice a year. During the South African War, which disturbed the money market very much, they obtained See also:accommodation from the Bank more frequently than usual. The small brokers almost always have to borrow from the Bank at the end of every quarter, when money is scarce owing to the regular quarterly requirements of business, and also, to some extent, because certain of the banks make it a practice to call in loans at the end of each See also:month in order to show a satisfactory cash reserve in their monthly balance-See also:sheet. This practice is not approved by the best authorities, for although it does no great harm in quiet times, the banks who follow it might find it difficult, or even impossible, to call in their loans in times of severe stringency.
AUTHOxtTIES.—Walter Bagehot, Lombard Street (1873) ; See also:Arthur See also:Ellis, Rationale of Market Fluctations; See also:Robert See also:Giffen, Stock Exchange Securities (1879); W. See also:Stanley See also:Jevons, Theory of See also:Political See also:Economy (2nd ed., 1879), pp. 91 seq., and Investigations in Currency and Finance; See also: Additional information and CommentsThere are no comments yet for this article.
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