The standard price of cotton

Front matter

17 2.

A3

PRICE

Chapter I. The Gold Standard

The reported discovery of new gold fields and the rush of an adventurous people to gain new fortune, with the excitement and adventure that follow, is perhaps the most interesting news in the daily history of the civilized world.

Why should news from gold fields be more exciting and more interesting than similar news from cotton fields, or from new manufacturing territory? Gold must be extracted from the soil and rocks by the most arduous human labor; much money is wasted and few succeed; but in new gold fields each one has an equal chance at the hazard of new fortune, which chance does not obtain in cotton or in manufacturing.

Gold is said to be an exception in nature, and for this reason has been called the natural money metal, and it has been given a standard price above cost by law, which is denied to all other products.

The price of gold does not fluctuate on account of the increase in the supply, because each ounce of the new supply may be coined into twenty dollars, which buys the gold.

The more gold produced, the more money is produced; each exactly balances the other at a standard price fixed by a law which allows the owner of gold to coin it into money at twenty dollars an ounce.

Gold economists need to be asked about the law of supply and demand, which they assert is the cause of price and which the human law cannot change.

If gold is able to buy itself at a fixed standard price with the mone}^ it produces, why may not cotton be given a similar standard price and buy itself with the money the value of cotton creates ?

Supply and demand would operate with equal force if cotton had a standard price, and because prices do or do not fluctuate is no evidence in favor of or against supply and demand.

Supply and demand is not the cause of price, but is price itself; when supply and demand operate at all, a price appears, and to say that supply and demand controls price is to argue in a circle and say that price controls price.

The cause of price must be the cause of the difference between different prices for the same commodity, and must be the cause of different prices for different commodities, and it is self-evident that supply and demand is not the cause of differences in prices, but is price itself.

The coinage law which creates money from gold at a standard price does not change the fact that gold is produced from the soil like cotton and although gold has a fixed standard price, such price does not alter the risks or hazards of new production from new gold fields.

The standard price for gold may only fix a limit to the number of paying mines, and leaves untouched vast oceans of gold that cannot be produced because the cost exceeds the standard price.

Human law may establish a standard price for gold and make it profitable to mine gold in particular fields, but the human law cannot override the natural law, which equally fixes standard prices for all commodities and equally limits the fields to be worked.

If coinage laws were repealed, gold would continue to have a standard price which might be higher than the price now fixed by coinage laws, but which price would then fluctuate for the same reason that other prices now fluctuate.

When the price of cotton falls from a fourteen-cent level to a nine-cent level, the producer wants to know why he is selected to bear so heavy a burden and suffer alone such enormous loss.

If gold can be maintained by law at a profitable standard price by selling for the money it creates, may not cotton be given a profitable standard price, and sell equally for the money cotton itself creates?

In gold fields the cost of production limits the supply to the standard price, the same as any other price limits the supply, but the difference between cotton and gold is that the price of cotton may fall to absolute cost in favorable fields, while gold cannot fall below its highest cost of production. Gold does not depend upon coinage laws for a standard price, but depends upon coinage to prevent changes in its standard price. Commerce accommodates itself to this standard, and serious disaster would result if the price of gold was permitted to communicate its fluctuations in price to the value of money. If a standard price for cotton is fixed by natural law, and if human interference with natural law causes the low price of cotton, may it not be true that stability in commerce demands a stable price for cotton, and fluctuations in the price of cotton are also communicated to the value of money?

When the price of cotton falls to the cost of production, it does not do so because cotton is less valuable or less able to sustain more money in circulation, but the price falls because the outside market fails to supply the volume of money a higher price demands.

When the price of cotton falls below a profitable standard, it is falsely assumed that the public gets the benefit of the lower price, but the truth is apparent that a fall in price is immediately followed by planting less acres of cotton in order to restore the necessary price by giving the consumer less cotton.

The continued restriction of the fields of production which follows declines in prices below a profitable standard, demonstrates that nature seeks to maintain a standard price at all hazard, although the people may starve from a failure of the supply on this account.

This truth is conclusively demonstrated by the history of every extinct civilization, where poverty and idleness increased while fertile lands were abandoned; where cities became vacant ruins without tenants, and people lived in caves, and where commerce declined and money refused to circulate, although golden ornaments and golden coins were in great abundance among the few rich.

Distribution depends upon the price of goods above cost, and commerce fails and all progress is at an end when the standard price" falls to cost and destroys the profit of industry.

With cotton selling at fourteen cents a pound in 1910 and fifteen cents in 1909, the years of profitable prices had extended the area of cultivation and extended the use of fertilizer in an effort to supply the world with more cotton. The encouragement of a profitable price resulted in an exceptional yield of fifteen million bales in the favorable season of 1911, but this greater yield was not offset by a lower cost of supply, as is usually the case.

Had fire, flood and earthquake visited a similar loss upon the population of the cotton territory, the sympathy of the entire world would have been aroused.

But a low price of cotton is looked upon as a blessing to the consumer of fabrics, and the South is supposed to forcibly contribute this loss for the general welfare.

The theory that a price of cotton below a profitable standard is a blessing to the consumer is without the shadow of a fact to sustain it, but, on the contrary, such a loss to the South visits an equal loss upon other markets by the failure to consume other products on account of the low price of cotton.

The total consuming power is fixed, not by cost of production, but by a standard price high enough above cost, so that the surplus from one class of laborers may sell for enough money to buy the surplus from other classes of labor.

The fall in the price of cotton in 1911, from the fourteen-cent level of 1910 to a nine-cent level per pound, is a total loss of power to exchange a surplus of cotton for other goods, by destroying the power of the South to buy the other goods.

It may be asserted that cotton could not be valurized and maintain a uniform price of fourteen or fifteen cents a pound on a gold basis, for the reason that successive inflations of currency from coining each crop into money would soon destroy the integrity of the financial system.

Marketing annual crops requires an annual inflation of credit, on account of the well-known demands upon credit for crop-moving purposes, and if this inflation of credit may come newly into existence with each crop at a standard price and be cancelled each year as the crop reaches the consumer, there can be no objection to securing a standard price for cotton at fifteen cents a pound if cotton itself coins the money for its own standard price and cancels the money when the crop reaches the consumer.

Prices and Values.

Writers upon the subject of prices and values have taken for granted, and accepted without question, the theory that value is intrinsic and is a part and quality of the commodity itself.

There is absolutely no truth in the theory of intrinsic value ; there are no facts of any kind to support the absurd intrinsic proposition, and the truth is unquestionable that the value of anything is expressed by the money it will sell for. Because a product must be useful in order to become valuable the usefulness and the value of it have been confused, the writers forgetting that air, for example, may be infinitely useful, but without value, and that usefulness and valuableness are not identical. Value in commerce has a meaning which the simplest intelligence need not mistake, a meaning familiar to any child who spends money for any object it may desire.

There is but one correct theory of prices and but one correct explanation of them, and this correct explanation must be selected from a number of theories, which are partially correct, or which are wholly false.

Two theories of prices may each be false and may differ radically from each other, and thereby provoke endless discussion, because each may prove the other wrong, while neither may advance the truth in a single particular.

A Standard Price.

It is generally admitted that every commodity offered for sale in the retail market is sold at a standard price above cost for the reason that the lowest cost under the most favorable conditions would prevent all production and employment where conditions were less favorable.

There is a variety of costs for different units of the same supply offered for sale, and a standard price must arise so that identical parts of the same thing will sell at the same price.

If cost governed prices, the market would become irregular and impossible; the first buyer would get the advantage of the lowest cost and each succeeding buyer would pay a higher price for the same supply, and no margin of profit could arise.

The writers who hold to the intrinsic theory of value claim that the level market price, above the various differences in cost, arises from the most costly installment of the supply, fixing the price for the total supply, which price allows a profit to arise on account of the intrinsic value of the product. Ricardo based his law of rent upon this fallacy, and claimed that the pressure from an increasing population forced poorer lands into use at greater costs of cultivation, and the standard price was determined by the cost of the supply from the poorest lands where the cheapest labor was employed, thus basing a high price upon the lowest possible wage for labor.

This economic superstition has had a powerful influence in directing the literature of politics, and while it did not deserve a moment's serious consideration from intelligent men, it became the sink of iniquity in political economy by providing an excuse for every form of abominable oppression and poverty.

The standard price is derived from the forces distributing wealth, and does not arise from the forces of production, and since it is admitted that every commodity must necessarily acquire a standard price, the inquiry narrows down to the question of whether the standard is determined by natural law, so as to keep all commodities in equal relation to each other, or whether price is a haphazard condition of every chance market.

Surplus Cotton.

The world needs to know why a cotton crop of twelve million bales in 1910 sold for fourteen cents a pound and the fifteen million bale crop of 1911 may sell for only nine cents a pound. The selling price of cotton above cost represents the sum of money the cotton producer may spend as surplus, in buying surplus products from other fields.

The average cost of cotton may be safely estimated at eight cents a pound, and the surplus will be fixed by the sum remaining after the cost has been deducted from the selling price.

Thus the crop of twelve million bales, for example, at fourteen cents a pound, cost eight cents, leaving six cents a pound or six-fourteenths of twelve million bales surplus, a surplus of about five million bales.

In 1910 the South gained in wealth by selling more than five million bales of surplus cotton at fourteen cents, or selling twelve million bales at six cents a pound profit, a total gain of three hundred and sixty million dollars.

On the other hand, the greater crop of 1911, consisting of fifteen million bales, sold at a price which cut the surplus cotton to less than two million bales, and the South gained but one and two-third million bales at nine cents a pound, or seventy-five million dollars in 1911, as against a surplus of more than five million bales at fourteen cents a pound out of a twelve-million-bale crop in 1910, or three hundred and sixty million dollars.

This gain is only apparent because, when the selling price of cotton fails to rise to its natural standard price, the entire fall below the standard is a loss that will be equalized by an increase of debts.

Thus, for example, if half the total labor in the South is engaged in producing cotton, and the other half of labor is building railroads, towns and cities and is employed as school teachers, government servants and at other work, then the selling price of cotton must be double the cost, to pay all this labor.

The reason why the standard price is exactly double the cost is to keep each commodity in equal relation by doubling the cost of each in the volume of money but to allow each product to attract its own proportion of the total demand.

The South did not gain as much as it spent, when cotton sold at fourteen cents; if cotton cost eight cents, it should have had a standard price of sixteen cents.

But what of competition if nature is to thus establish a standard price for every commodity? Is the claim made that nature abolishes competition when a standard price is established? Not at all; the standard price is secured by competition; but competition may be constructive or destructive — constructive when it is lifting prices to the level of the standard, or when it is reducing higher prices to the standard; but competition becomes destructive when it is used to destroy goods and drive them from the market by reducing the price below the standard, thus intending to prevent or reduce the supply of them.

Herbert Spencer long since discovered that competition was positive or relative; as a positive force it was destructive and operated between parts of the same aggregate, using one part to destroy another.

Thus when cotton cannot find a market at its standard price, it begins to suffer from positive competition by cotton combatting with cotton and destroying the surplus by destroying the price, and ending the combat by reducing the area under cultivation.

Kelative competition regulates prices by attraction — any price seeking to rise above its standard meets the attraction of other prices held to the standard, which would thereby become relatively cheaper, and any price rising above the standard will pull its price out of its true relation to other standard prices.

Let us suppose, for example, that sugar sells at its standard or monopoly price. If this price seeks to rise above the general standard, or general monopoly level, all other prices related to sugar must also rise or they become relatively cheaper than sugar and will attract demand from sugar, and thus they hold its price to the level of the general standard. When cotton dropped suddenly from fourteen cents a pound in 1910 to nine cents a pound in 1911, there was no general decline in wealth over the entire civilized world, which might compel the South to bear its share of the general loss. While wealth is generally increasing all over the world, there is no excuse or reason for declines in prices of goods, and cotton producers are entirely within their rights when they demand an explanation of the enormous loss in price of cotton which they alone are called upon to suffer and which damage is increased by the higher prices for other things they are forced to pay.

The Natural Law of a Standard Price.

The fact that nature seeks at all times to secure a standard price of twice the cost for all labor products, is so important, if true, as to demand the most sincere and careful consideration of every intelligent citizen.

The price of cotton above cost is both cause and effect, and for this reason it is quite difficult to explain; the labor that is not engaged in producing cotton, but which must be paid from the money derived from the sale of cotton, makes the price above cost, but the money put into circulation by employing this labor, makes this money become the cause of the price above cost.

The advance in price above cost is demanded in order to circulate the quantity of money necessary to employ the laborers who buy the surplus cotton, and this money is scattered broadcast when such labor has been employed.

The standard price must include the wages of this secondary labor, so as to gather in the scattered money so that it may be used over again to employ secondary labor.

It should be perfectly clear that the money paid out for labor and material to produce cotton, must be collected back when cotton is sold or cotton can not be produced. It should be equally clear that taxes, and the labor and material for all building purposes, for railways and roads and other services within the same territory, must also be collected back from the price of cotton above cost.

There is a difference in collecting the cost of cotton and collecting the price above cost, because the cost of cotton is more readily secured in the open market than the addition of price above cost.

The question then arises, why should the price of cotton hesitate in finding its true level, which includes the wages of all kinds of labor?

The difference in collecting back the cost of cotton and the price above cost, is based upon the fact that the price above cost demands a temporary inflation of currency derived from the trade of surplus cotton with an equal surplus of other products.

This inflation of currency is derived from credit, and this credit may be offset and cancelled by debt, and debts may arise when prices are normal and cancel the required volume of credit, and a low price year will follow a year of good prices, because the increase in debts has prevented the inflation of money demanded by a standard price.

Trade in Surplus Goods.

The trade of our surplus product for another is not as simple as it may at first appear, owing to the fact that the standard price requires the surplus to be coined into a quantity of new money equal to the price of the surplus.

Nature exchanges cotton with pig iron, for example, by requiring each of them to exchange for something else in order to divide each of them into equal units, according to the rule that things which are equal to the same thing are equal to each other.

In the North, for example, two apples may exchange for one orange, equalized by the fact that in the South two oranges will exchange for one apple. Before a surplus of apples can trade with a surplus of oranges, the exchange must give rise to a standard of value, and apples must sell for twice their cost measured in oranges.

But, to secure the profit from the price of each above cost, a rouudabout method is required in order to create the standard of value ; a unit of ten oranges, for example, must be selected to trade for twenty apples, which have then cost ten oranges; the twenty apples must then exchange for forty oranges to be able to pay for the apples which consume ten oranges, leaving a remainder of thirty oranges costing twenty apples, and then a unit of ten oranges must again exchange for twenty apples to pay the cost and extract twenty oranges profit as the difference between the cost and the selling price.

Trading apples for oranges and trading oranges for apples, is an illustration of every trade, and such exchanges are greatly simplified when the currency may be inflated so that each surplus may be coined into money at its trading price, and for this purpose a surplus currency is developed from bank deposits, which saves the bartering back and forth of one surplus for another to create a standard of value.

Banking.

A very slight examination of banking will prove that a great volume of credit is available for all purposes of trade by which wealth may coin itself into the required volume of money at its standard price.

The total bank deposits are limited by natural laws to a sum about equal to five times the volume of primary money, and with three billion dollars of cash in circulation, bank credits reach their limit at fifteen billion dollars.

Coining the surplus of every crop into credit money at a standard price is the very foundation of national wealth and is the source of civilization.

The quantity of any product becoming surplus is not determined by the forces of production, and the surplus does not vary with the quantity produced, as would appear to be true without examination.

The part of any particular product which becomes surplus is split off from the main supply by laws of distribution, by laws which the consumer puts into action.

The standard price is composed of two parts ; one part is the cost of labor directly engaged, and the other is composed of the price above cost and should equal the cost of secondary labor.

The standard price separates the portion of any crop which is to become surplus from the whole crop by the proportion which the price above cost bears to the total price, and the smaller the crop and the higher the price above cost the greater will become the credit surplus.

Thus, for example, in 1910 twelve million bales of cotton cost eight cents a pound and sold for six cents above cost, or for fourteen cents a pound ; hence the proportion of six-fourteenths of twelve million bales determined that five million bales should become surplus and sell for fourteen cents a pound.

In 1911, the crop was three million bales greater than in 1910, but the price of nine cents a pound was only one cent above cost, and this one cent price determined that the surplus derived from fifteen million bales should be less than two milion bales selling at nine cents, whereas the twelve million bales of cotton made five million bales surplus.

Commodities and manufactured products succeed each other so rapidly, that a cash market is required for their benefit, which market in turn demands a quantity of money directly in proportion to the cash price.

For the reason that a cash market demands a corresponding volume of money, any failure in coining the quantity of money is instantly compensated by a fall in price to equalize price with the lower quantity of money.

All labor is not producing goods so quickly consumed, the price of which must respond so sensitively to the quantity of money, and as a result more time may be given a smaller volume of money circulating in the capital market by postponing cash payment.

On account of the slower manner in which capital is consumed, cash is not required in the capital market and the circulation of credit may take longer time than cash and may thereby substitute a credit market with time payments for a cash market with cash payments.

This difference in time in circulating different quantities of money, divides the quantity of cash from the quantity of credit, and divides quick bank credits from the main body of credits, most of which have become extinct by being offset with irredeemable debts.

Because a volume of credit may take more time to circulate than an equal volume of cash, there is given an opportunity to destroy the quick credit upon which a cash market demands. Instead of the volume of bank checks remaining active the volume of fixed debts gains upon the volume of quick credit until the money required for standard prices cannot be set free, and prices fall in order to accommodate themselves to the money available.

The reason that prices of commodities suffer from a failure in credit rather than prices of capital, is because commodities must be quickly sold and consumed to make room for new supplies, and therefore the price of them demands a corresponding volume of money which will circulate as rapidly as goods pass from producer to consumer.

Capital, on the other hand, can postpone its cash market and sell on long time, and can maintain a standard price with a contracted volume of money by borrowing money, but when no more money may be borrowed the entire capital market will have been destroyed.

Bank Statistics.

The volume of cash in circulation in any community is always twice as great as the cost of production demands, but as bank deposits grow, this volume of outstanding cash is contracted to become a reserve in banks, and as the outside volume contracts, the circulation of bank checks must replace it.

For this reason, a part of the price of goods must depend upon a volume of credit money, and only the cost of goods can be collected in cash.

When goods are selling at retail for twice their cost, bank deposits increase very rapidly, the profit from one crop piling on top of the profit of another, but banking cannot expand credit indefinitely, and when deposits reach their limit the further increase in bank credit is cut off automatically.

Experience in banking has demonstrated that one dollar set aside as cash reserve, will protect ten dollars of deposits and make them payable in cash on demand.

The function of banks is to build up deposits and contract as much of the cash to the reserve as the demands of business will permit, and when half the cash has become a reserve the limit in volume of currency of all kinds has been reached.

There can be no disputing the fact that nature has been extremely liberal in providing an ample quantity of money to sustain standard prices.

It is evident to any one acquainted with banking, that a tremendous volume of bank checks are being issued and cancelled daily, and it should be equally clear that gains and losses in the distribution of wealth are closely associated with this daily expansion and contraction of the currency.

If this process of inflating and contracting bank credit becomes merely the cancelling of old debts and instituting new ones, instead of being a change from distributing wealth to new owners, then the benefits of this great circulation of currency may be lost.

This fact will become clearer upon a survey of banking statistics; in September, 1910, the total banking power in the United States was given as follows :

1,700 Savings Banks Deposits, 3,700 Million Dollars; Cash Reserve, 150 Million Dollars.

1,000 Loan and Trust Companies: Deposits, 3,000 Million Dollars ; Cash Reserve, 300 Million Dollars.

7,000 National Banks Deposits, 5,500 Million Dollars; Cash Reserve, 700 Million Dollars.

12,000 State Banks: Deposits, 3,000 Million Dollars; Cash Reserve, 300 Million Dollars.

900 Private Banks: Deposits, 300 Million Dollars; Cash Reserve, 30 Million Dollars.

Total 22,600 Banks; Total Deposits, 15,500 Million; Cash Reserve, 1,480 Million Dollars.

The total cash reserve held by 22,600 banking institutions to cover more than fifteen billion dollars of deposits, was a little less than ten per cent, of total deposits.

Fifteen billion dollars of bank deposits are presumably payable in cash on demand and should supply every community with a flexible and ample volume of money not only sufficient to maintain a cash market for commodities at standard prices, but to support a cash market also for all other wealth at the same standard.

The enormous volume of bank deposits should allow labor to sell its services for their value in money on demand, and allow all accumulations of labor in forms of wealth to sell for their value in money on demand. The presumption that bank deposits are payable in cash on demand is a vain presumption, and only about ten per cent, of deposits are so payable, and toe circulation of credit is limited accordingly.

The flexibility of bank deposits depends upon the loan account, and unless loans are payable in cash on demand, the deposit account has but little more elasticity than the loan account.