Coffee: The Epic of a Commodity

by H. E. Jacob

  In these circumstances, speculators began to play for a rise in prices, especially in the prices of imports. King Louis XVIII, in his Speech from the Throne, had declared that French naval stations were adequately fortified, and that a number of cruisers had been equipped to protect marine commerce. Among all the rhetorical flourishes in the speech of this obese and undependable man, this seemed the most alarming. Almost as alarming, however, was the next, to the effect that “if war should prove unavoidable, its area will be restricted and its duration shortened as much as possible.” What did that really mean? Perhaps that England was planning to withdraw from any sort of collaboration with the Alliance, Prussia, Russia, Austria, France, and to make common cause with revolutionary Spain? In that case the war might last for a very long time. As early as January 30, mounted couriers were galloping across Europe from exchange to exchange, to Amsterdam, Hamburg, Vienna, St. Petersburg, Berlin, Frankfort-on-Main, and, on the western side of the Channel, to London. “Buy coffee!” was the watchword. “Within a few weeks there will be no more to be had, since the sea-routes will be closed!” Even if there was not to be a naval war between equally matched forces, the danger of privateering was very great. Neither Spanish nor French merchantmen freighted from coffee-growing countries would dare to keep the seas. While there was a general fall in securities, the price of coffee rose rapidly. Large sums were invested in coffee on the exchanges.

  But what had become of the presupposition upon which these transactions had been based: the war? After all, there was no war! The faithless Chamber, which had so recently applauded the king, was now listening, with malicious delight, to the speeches of the opposition. Duvergier de Huranne proved that intervention in Spain would be unpatriotic and scandalous. Sebastiani outdid the previous speaker by asking the nation what interest it could have in espousing the cause of the Holy Alliance, the former enemy of France, which had so unexpectedly shown an interest in Spain. Lainé, Lesaigneur, and Cabanon laid stress upon the injury which a war would do to trade. In the upper house, too, there suddenly appeared many adversaries of the war. Talleyrand, now seventy years of age, roused himself out of his apathy to show, with shrewd arguments, that absolutism in Spain was not genuinely legitimist or, rather, was not strictly lawful, since popular councils had already existed in Aragon of old. Napoleon, said the Emperor’s sometime right-hand man, had really ensured his downfall through fighting a war with Spain, and the restored French monarchy would do well to avoid following his example. He himself, Talleyrand, Prince of Benevento, had, in 1809, warned Napoleon against the Spanish adventure. Perhaps King Louis would pay heed to a similar warning now!

  This speech, delivered by Talleyrand in his caustic and intentionally tedious manner, produced an immense effect. It seemed barely credible that after hearing such words the Chamber would vote the war credits. On February 25 there was an oratorical duel between Chateaubriand, who belonged to the extreme Right, and Manuel, the leader of the Left Manuel went so far as to rail not only against the advocates of war, but against the Bourbons themselves and Louis XVIII. Until this sitting of the Chamber, coffee speculators had, in fear and trembling, maintained the price of coffee. They had been hoping for a war; but now, exactly four weeks after the king’s Speech from the Throne, they believed that there would be no war.

  WHAT THE ARMY NEEDS MOST . . . provided Prussia should become involved in the Crimean War. (Cartoon, 1855)

  Instead of a war, something else came. Coffee! Coffee from all directions! The seas were no longer dangerous, so, during March, trading ships in abundance arrived from America. Supplies of coffee were shipped from Mexico, the Antilles, Jamaica; and the vessels brought news that a huge Brazilian harvest was expected. Prices, which had been artificially sustained, fell with a rush. There were failures in London, Paris, Frankfort, Berlin, and St. Petersburg; a mercantile crash of gigantic proportions led to hundreds of suicides. Millionaires became paupers.

  Then, when the earth was still fresh upon the tombs of these victims of speculation, war was, after all, declared between France and Spain. A short, local war, such as the king had predicted. An almost bloodless war, in which the British took no part. On April 7 the Duke of Angoulême’s army crossed the Bidassoa, which, for twelve miles of its course, forms the boundary between France and Spain.

  But the victims of the coffee crisis did not hear the martial tramp of the French regiments as these entered Madrid.

  20

  Overseas Harvests, World Markets, and Prices

  THE happiness of countless thousands in Europe, their lives, their wealth, and their health, depended upon the harvest in coffee-growing countries.

  Vacillations in the price of this staple were not due exclusively to the machinations of speculators. They depended also upon the nature of the coffee-shrub and upon the nature of man. The mutual relationships between these respective natures, the way they reacted upon each other, determined whether, as far as coffee was concerned, a year should be a year of plenty or a year of famine.

  It worked as follows. The harvest was sold for cash. The planter, naturally, had a strong motive for investing as much as he could of this cash in new plantations. His material benefit from the harvest was like money won at the gaming-table, which always incites gamesters to hazard it once more. In extending their plantations, planters took no heed of the commercial side of the question, forgetting that since markets first existed they have always been subject to the iron law of supply and demand.

  Thoughtlessly, therefore, the planters extended their enterprises, with the inevitable result of over-production. Confident that prices would be maintained, they grew more and ever more coffee, to learn, in their despair, that each new million sacks had the effect of reducing profits instead of increasing them.

  Was this the immediate effect? Unfortunately not. The planters were given time to persist in their mistaken courses. Had they been taught within a year that they were on the wrong track, the crisis would have been less catastrophic.

  The nature of the coffee-shrub is such that it does not begin to bear fruit until after the lapse of four barren years! During these four years, in which no return could be expected, the planters had no direct evidence that their reckless extension of plantations would recoil upon their own heads, so they continued to put more and more land under cultivation. It was after the lapse of four years that over-production became manifest. In the fifth, sixth, seventh, and eighth years, larger and ever larger quantities of coffee were poured into the market. Prices thereupon crashed. In the seventh year, the psychological consequences became manifest. There was a panic among the planters; the new plantations were neglected; workers were discharged; coffee fell into disrepute because “it did not pay”; landowners turned their attention to maize, cotton, or stock-raising. Then the price of coffee began to recover. Supply was falling short of demand. The planters found, to their astonishment, that their worthless coffee could once more be sold for good money. Here was a stimulus to fresh plantation, and the cycle was resumed—da capo.

  Approximately every seven years the life of a coffee-planter completes this predestined cycle. Seven years are a long time, and memories are short. Men forget their mistakes, and make them once more. Again and again this happened. Throughout the nineteenth century we can trace the history of this anarchic succession of over-production and under-production of coffee. Delight in a year when prices have been high is translated into an undue extension of planting, which, four years later, leads to the recurrence of rock-bottom prices. Then there is a panic. In the seventh year, the pendulum swings back once more towards the side of extended planting.

  In 1790, when the revolution put an end for a time to coffee-planting in Santo Domingo, there was a shortage of coffee in the world. Prices rose, so that there might have been expected extreme over-production towards 1799. The Napoleonic wars prevented this. Although prices were high, the planters did not venture to go on producing a commodity that was continually exposed to capture upon
the high seas. This state of affairs lasted until 1813. Very soon after sea traffic had been freed from its hazards, under-production took effect in a rise of prices, and, at the beginning of the eighteen-twenties, over-production in the West Indian plantations was the inevitable consequence. Except for the perturbations produced by wars, and especially by the American Civil War, decade after decade was characterized by a regular succession of over-production and under-production, with intermediate years when, for a brief period, there was a balance.

  In the year 1903, at a congress of representatives from coffee-producing lands, held in New York, a retrospect of nineteenth-century experience was drawn up, to the following effect: “Very remarkable is the way in which, for some decades, at least since the War of Secession, but before this as well, crises of over-production and underproduction have regularly alternated; periods of very high profits and periods disastrous to the planters. This anarchy is, in both cases, the outcome of extravagant views; of enthusiasm, which leads to excessive planting, and then to moral depression, the result of which is that large areas are left uncultivated. . . . The coffee-planter’s life is characterized by decennial crises. For what reason? The planters do not know one another, and do not take counsel together. . . . They make no attempt to consolidate the market.”

  Often enough, in the tropics, a white coffee-planter was several days’ journey from his nearest neighbour, with whom he might have exchanged ideas. This isolation was supposed, by those who assembled at the aforesaid congress, to account for the failure to organize coffee-planting in the nineteenth century. The isolated planter, left entirely to his own devices, and connected with the outer world by nothing more than the news which reached him concerning the price of coffee, acted upon the impulses of the moment.

  He acted foolishly, to his own detriment. Nevertheless—and herein lies the tragic element—his actions were logically accordant with the laws of political economy.

  Classical economists formulated the “law of gravitation of prices.” The law finds expression in the relationship of the coffee-planter to his own product. How does the law run?

  “The market price of a product tends always to gravitate towards the natural price.”

  What does that mean? First of all, the natural price is the price determined by the cost of production. The market price, on the other hand, is the price that depends upon the number and the eagerness of buyers and sellers in the market. When supply is scanty, the market price rises. Thereupon, this high price acts like a magnet attracting capital and labour. The planters would be superhuman if their intelligence enabled them to resist what is as irresistible as gravitation. Since they do not resist, the result is inevitable. Increased application of capital and labour increases production, and thus augments the supply until there are more sellers than buyers, and prices fall. They fall so low that the returns do not suffice to pay the interest on capital and the wages of labour. Thereupon capital and labour are withdrawn from this field of production.

  In European lands, a sort of inertia prevents a too rapid change between the opening and closing of factories and workshops, between the engagement and discharge of workers. But in tropical countries (where as yet, for the most part, social legislation and labour-protection laws are unknown) such fluctuations occur with amazing speed. Coffee has always been a ticklish commodity. Its troubles have not been merely due to speculators in the European market, but to the vagaries of the coffee-planting States.

  The coffee-bean is smooth and slippery!

  When the Arabs lost the supremacy they once held in supplying coffee to the world, the Dutch were, for a long time, the chief sellers of coffee.

  Amsterdam—in this respect a suburb of Batavia—was, of course, the principal place to which produce was shipped from the Dutch Indies. Still, Rotterdam came in as a good second. How did the magnates of the Dutch East India Company dispose of their coffee? Mostly by auction. Thus, in 1712, the first shipment of coffee from Java, eight hundred ninety-four sacks, was sold by auction in Amsterdam.

  In every auction there is an element of uncertainty, of surprise. If you go into a shop to buy half a pound of coffee priced at three shillings, and cannot get it because somebody else offers four shillings, you will feel yourself back in primitive times. Are there no longer any fixed prices? Actually, it need hardly be said, in retail trade that sort of thing does not happen. For half a pound of coffee, as for other goods, there is a specified price.

  Wholesale trade is different. Here coffee is too great a dignitary to be controlled by rules and regulations. The uncertainties of sale by auction correspond to the caprices of coffee’s abundance, to the quantities that have been shipped and to the quantities that are stored in warehouses.

  Through auctions, the magnates of the Dutch East India Company secured what they wanted, which was that their warehouses should not remain glutted with coffee. Many buyers came to the salesroom, and, amid the excitement of competition, paid higher prices than they would have paid if their heads had kept cool. Still, there were disadvantages in the system. When the attendance at an auction was scanty, lower prices might prevail than corresponded to the true state of the market.

  The Dutch did not remain for ever the dictators of the market. Other colonies than those of the Netherlands came into the field. Towards the end of the eighteenth century, the French were the most important coffee-brokers. Shipments from the French Indies were sold by auction in Bordeaux. Then Havre, being much nearer Paris, came to the fore in this matter. After that, both Holland and France were outpaced by England as rulers in the coffee-market. After the close of the Napoleonic wars, London could dictate prices. Then, towards 1850, the New York market became no less important than that of London, for the United States had developed into a great consumer of coffee, absorbing a considerable part of the harvest of the new coffee-growing giant, Brazil. Now Hamburg came third in the list after London and New York. The rise of the Hamburg coffee-market to importance was closely connected with the extension of coffee-planting in Brazil.

  In Hamburg, coffee was seldom sold by auction. There the produce exchange decided matters. There was a good reason for this, inasmuch as auctions of produce are difficult to arrange except as regards the products of the auctioning country’s own colonies. No doubt the example of London can be quoted to refute this dictum. The British empire produces much tea, and Britain consumes comparatively little coffee, but nevertheless large quantities of coffee were auctioned in London.

  Why? Because London was the banker of the world. At any rate it was the banker of many coffee-growing countries. There was so much capital seeking investment in the London market, that exporters of coffee could reckon with fair confidence upon the disposal of their goods. Even if no English out-and-out buyers were forthcoming, there would be London firms to bid at auction in order to reship coffee to the continent. Moreover, London was the best place in which to sell coffee on commission. It was a place where banks would lend money upon shipments, so that the shipper could get his cash without waiting for the produce to be sold.

  The earlier London auctions took place in certain coffee-houses, and were popularly known as “auction by candle.” The auctioneer had a lighted candle-stump on his desk, and continued to receive bids as long as the candle was burning. When it flickered out, the lot was knocked down to the last bidder.

  During the nineteenth century these auctions assumed very peculiar features. No outsider could take a hand in the game, because he could not understand the dialect. The auction-room had a slang of its own. One who intended to become a coffee-broker, had to serve years of apprenticeship before he could “know the ropes.”

  The coffee that was to be sold by auction was divided into lots, graded by quality and in accordance with the place of origin. Samples of each lot were exposed for inspection. Lists of these lots, containing a precise description of the wares, were sent round to the dealers. One who did not wish to bid in person at the auction would go to the salesroom, exami
ne samples, roast small quantities, make coffee and taste it, and then give a purchasing broker his instructions. The actual buyer would make secret signs to the broker while the auction was in progress.

  The genuine buyers were dealers who really wanted to get coffee in order to sell it again. But among the bidders were speculators who had no intention of buying, and only wished to keep up prices.

  A produce exchange is a market where goods are sold without being actually on the premises. A coffee exchange is such a market, where coffee is sold, although there is no coffee there. It is a part of our manifold human nature that we are influenced by absent things. A man may have a peculiarly active faith—or the reverse—in things unseen, which are known to him only by repute. The rise and fall of prices in a produce exchange depends, in the last analysis, upon the workings of the human imagination.

  A shortage in supply would, in any case, raise prices without the intervention of speculators. Still, in such circumstances, speculators seize their opportunity, combining with financiers to form a ring, in order to maintain high prices as long as possible. Before the ’seventies, when there were no submarine cables, few steamships, and the telephone had not yet been invented, such a ring would buy all the coffee in the market, and run up prices to a fancy level. Wholesale traders had to pay whatever the ring demanded. Its activities were only frustrated when unexpected shipments arrived.

  In 1823, as already related, when the tension between France and Spain did not culminate in war so soon as had been anticipated, there was for a time such a fanciful rise in prices. Then the bottom dropped out of the market, and many of the speculators, being ruined, committed suicide. In the beginning of the eighteen-seventies, there was a similar swindle, when exaggerated tidings of a failure in the coffee-crop were disseminated. The price of coffee soared to a higher level than it had reached for fifty years. When large quantities of the staple now began to pour in from across the seas, the bears in the coffee-market seized their opportunity, laid a counter-mine, defeated the bulls, and forced the price of coffee below the figure warranted by the actual situation. In 1874, submarine cables were laid down from South America to New York and from New York to London. Thenceforward, the daily receipt of messages in the market modified the technique of speculation. Prices were regulated, not by actual shipments, but by expected harvests. News from Brazil concerning frost and rainfall or favourable weather while the crops were ripening came to play a great part in the game.