The Making of a Transatlantic Market in Metals, 1870-1930

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COPPER CAPITALISM: THE MAKING OF A TRANSATLANTIC MARKET IN

METALS, 1870-1930

NATHAN DELANEY

Submitted in partial fulfillment of the requirements

For the degree of Doctor of Philosophy

Department of History

CASE WESTERN RESERVE UNIVERSITY

April 2018

CASE WESTERN RESERVE UNIVERSITY

SCHOOL OF GRADUATE STUDIES

We hereby approve the dissertation of

Nathan Delaney,

candidate for the degree of Doctor of Philosophy*.

Committee Chair

David Hammack

Committee Member

Kenneth Ledford

Committee Member

John Flores

Committee Member

David Clingingsmith

February 23, 2018

*We also certify that written approval has been obtained

for any proprietary material contained therein. iv

CONTENTS

LIST OF TABLES v

ACKNOWLEDGMENTS vi

ABSTRACT viii

INTRODUCTION 1

CHAPTER 1. THE FIRST GLOBAL COPPER ECONOMY 33 The Origins of the LME and Metallgesellschaft

CHAPTER 2. THE DEFEAT OF A COPPER CARTEL, 1887-1889 69 Secrétan, Rothschild, and the London Metal Traders

CHAPTER 3. THE TRANSATLANTIC COPPER, 1890-1914 105 Metallgesellschaft in America and Europe

CHAPTER 4. THE COPPER TRADE DURING THE WAR YEARS 142 Shifting from Markets to Hierarchy

CHAPTER 5. THE POST WAR COPPER TRADE 176 The Arrival of Big Business in Copper

CONCLUSION 203

BIBLIOGRAPHY 206

LIST OF TABLES PAGE

1.1 Germany, US, and UK Real Copper Prices, 1870-1887 40

1.2 German Copper Production and Consumption, 1879-1890 41

1.3 Copper Supply in Great Britain, 1854-1884 44

1.4 US Foreign Trade Balance in Unmanufactured Copper, 1864-1882 57

1.5 Nominal (%) Difference NY and London, 1870-1880 58

1.6 US Copper Production, 1875-1887 65

2.1 LME Copper Spot and Futures Prices, 1880-1890 81

2.2 Copper Stocks of Britain and France, 1887-88 89

2.3 London Price, Backwardation 1887-1889 100

2.4 Metallgesellschaft Net Earnings, 1881-1910 101

3.1 Concentration of Mine Ownership, 1890-1912 108

3.2 LME Spot Copper, 1890-1900 126

3.3 Copper Consumption Leaders, 1892-1913 138

5.1 Anaconda Assets and Net Earnings, 1920-1932 183

5.2 US, Germany, GB, Fr Copper Consumption Per Capita, 1921-1929 186

5.3 US Copper Consumption by Industry, 1921-1929 186

5.4 LME Copper Price, 1926-1930 193

5.5 LME Price Spreads, 1926-1930 193

5.6 Top 5 Copper Companies Assets and Profits, 1927-29 194

ACKNOWLEDGMENTS

I have many people to thank who helped me finish this dissertation. Within the history department at Case Western Reserve, I must first thank four people who have given me so much of their time and sound advice. David Hammack, my

Doktorvater, taught me the virtues of being a splitter, not a lumper. He also stressed the importance of historical context and the role of intuitions at a time when such concepts were out of fashion. Ken Ledford, was a mentor and Betreuer of the highest caliber. I owe him a great deal for his encouragement to explore the intersections of German and American history. John Flores also taught me the value of transnational interpretations of the past, and importance of leaving no stone unturned in the pursuit of truth. David Clingingsmith of the CWRU

Economics Department was gracious with his time and gave me very useful criticism that made the dissertation much stronger as a result.

So many others in the department and around the campus supported me both financially and socially and made coming to work a pleasure. Walking down from the Heights to campus, putting my lunch in the fridge and chatting with

John Broich about the craft of history or work out routines was always a great way to start the day. Running into Alan Rocke, Jay Geller, Ted Steinberg, Peter

Shulman, or Mariam Levin often resulted in laughs and lessons. John Grabowski is a Cleveland institution and taught me a great deal about the rich history of my adopted city. My graduate colleagues were a joy to be around – dull moments were rare. Thank you, E.P Miller, Corey Hazlett, Sam Duncan, John Baden, and vii

Jon Kinser for your insights and recommendations. Scotty really did not know.

God bless Mike Metsner for putting up with all my jokes and bullshit in the ECH

office – an office we appropriated for many years (thank you John Grabowski for not kicking us out!). I owe Jesse Tarbert big time for reviewing so many course

essays, journal articles, and thesis chapters. Jess will always be an intellectual

advisor and a great friend.

Outside of Cleveland, I have dozens to thank. Todd Michney who taught me how

the game works. Todd is a true professional and an innovative thinker. Thanks to

Sebastian Conrad of the Free University Berlin for sponsoring my DAAD

Research Grant application. Thank you to Hartmut Berghoff for the opportunity

to work at the GHI Washington DC as a research fellow. Thanks to Tim Rupli for

housing me in DC while I was researching there. Helping out on the Hill was a

pleasure, so were the great hunting adventures in MD and VA on the weekends.

Thank you to the archivists all over North America and Europe who gave me

money, time, and advice. Special mention to the staff at the Hessisches

Wirtschaftarchiv at Darmstadt where the Metallgesellschaft business papers are

housed. Also thank you to the excellent legal and archival staff at Freeport

McMoRan for permitting me to review the American Metal Company records.

Most importantly, thank you to my family for all their support over the years.

Above all thank you to the love of my life, my wife and best friend, Maureen.

viii

Copper Capitalism: The Making of a Transatlantic Market in Metals, 1870-1930

Abstract

NATHAN DELANEY

THE FOLLOWING DISSERTATION analyzes the development of the

transatlantic copper market at a time when copper was a key ingredient of the

second Industrial Revolution (1870-1930). Its findings suggest that international

metal trading companies (in conjunction with the London Metal Exchange)

functioned to effectively check oligopolistic efforts by large copper producers

during an era when other producer industries like oil and steel came to be

defined by such competition. Time and time again, dominant producers of copper

(e.g., Anaconda, ASARCO, and Rio Tinto) sought ways to manipulate supply and

prices to their advantage, and time and time again, nimble trading firms – most notable among them Metallgesellschaft – were well positioned to undermine such anticompetitive efforts, and profit in the process. More than just a capitalist game of cat and mouse, the producer v. trader struggle over profits and copper supply is a novel insight as it explains why cartels and monopoly-minded firms struggle to achieve super-normal profits when subjected to the competitive dynamics of futures markets. While the intense competition emanating outward from the London Metal Exchange defined the state of the copper trade through

1914, economic nationalist policies and increased vertical integration in the industry allowed American producer’s to wrestle control of the trade from the ix international dealers, which ultimately fed concerns of mineral insecurity among

European nations by the 1930s.

INTRODUCTION

AT THE HIGHEST LEVEL, this work engages a fundamental economic question related to international trade and market organization, namely how are commodities like copper, which are vital to economic progress and human welfare, best distributed? The following case study of copper between the mid- nineteenth century and World War II offers an example in which a public, relatively open market proved more effective than the vertically-integrated corporation. The chapters to follow will show how this was so in each of several distinct periods, and will offer an explanation of the reasons why the copper market and its firms developed as they did at the times they did. In pursuit of this goal, the dissertation analyzes the industry as it expanded in the world’s three largest economies, the United States, Great Britain, and Germany. It does so, through the lens of the most influential multinational metal trading company at the time, Metallgesellschaft A.G.

Since the commencement of Industrial Revolution, modern western states have come to rely on a diverse and ever increasing supply of commodities. Atop the list of durable commodities most important to the first industrial revolution were undoubtedly coal, iron, timber, wheat, and cotton. Such goods were essential inputs for manufacturing groups at the fore of the industrialization process. With the development of electric power and advancements in communication and transportation technologies, the list of commodities needed 2

to sustain this development grew to include the likes of steel, petroleum, rubber,

and copper.1

In order to gain and maintain access to needed commodities, many nations relied on merchant-traders to develop supply chains linking producers with consumers from around the world. Throughout the nineteenth century, the largest consumer markets for these materials were in the Western Europe.2 By

1870, European demand began to outpace domestic, regional supply. While some

commodities such as coal, iron ore, zinc, and bauxite could be produced from

Continental sources at significant scale, other raw materials had to be imported from abroad. Some European states – most notoriously Britain, France, Spain,

Belgium, and Germany – overcame certain raw material shortcomings through

conquest and colonization.3

However, not all materials were gotten through colonization. In many

instances, supply chains were sustained through liberal trade among nations on

1 Steven C. Topik and A. Wells, Global Markets Transformed (Harvard University Press, 2014). 2 Most notably the economies of Great Britain, Germany, France, Austria-Hungary, and Italy. The US was the largest consumer of raw materials, but collectively, Western Europe took in more. Jan De Vries, The Industrious Revolution: Consumer Behavior and the Household Economy, 1650 to the Present Cambridge University Press, 2008). 3 Sven Beckert, Empire of Cotton: A Global History (Knopf Doubleday(Cambridge ; Publishing New York: Sweetness and Power: The Place of Sugar in Modern History Group, 2014); Sidney Wilfred Mintz, –Indian Trading Firms, 1813– 1870,” Enterprise(Penguin & Society Books, 1986); Michael Aldous,– “Avoiding" Negligence and Profusion": TheDas Ownership Kaiserreich and transnational: Organization Deutschland of Anglo in der Welt 1871-1914 17, no. 4 (2016): 752andes,762; The Sebastian Unbound ConradPrometheus: and Jürgen Osterhammel,Technological Change and Industrial Development in Western Europe from 1750 to (Vandenhoeckthe Present & Ruprecht, 2004); David S. L

(New York: Cambridge University Press, 2003). 3

relatively equal footing.4 By the late nineteenth century, the single largest supplier of raw materials to Western Europe was the United States.5 Among the

most valuable the US produced was copper, an industrial metal of the highest

strategic importance.6

Copper’s wide ranging utility as a conductor of electricity and heat, its anti-

corrosive properties, and its malleability made it essential for industrialization

and urbanization. From 1880 to 1914, as numerous North Atlantic cities were

making the transition to electric power and lighting, global copper consumption

increased by a factor of ten.7 In Europe, however, Continental copper production

was in a state of rapid decline, while production in the other most important

suppliers, including Australia, South Africa, Cuba, and Chile, had stagnated.8 In

this context, the United States and its producers filled the void. At times, as much

as seventy percent of the globe’s copper was mined and/or processed in the

4 J Journal of Global History –98. eremy Adelman, “Mimesis and Rivalry: EuropeanGlobalization Empires and and History: Global Regimes,” The Evolution5 of a Nineteenth10,-Century no. 01 Atlantic (March Economy2015): 77 2001).Kevin H. O’Rourke and Jeffrey G. Williamson, 6 According to the HSUS data, copper exports ranked(Cambridge, behind cotton, Mass: wheat, MIT meatPress, products, and (sometimes) petroleum in terms of value to US producers. Copper exports were on average more valuable than iron, coal, steel, timber, and tobacco. Historical Statistics of the United States - - 7 From 100,000 metric tons to 1,000,000, “Exports metric tons.of selected commodities: 1870 1989,”8 Table Ee569 589. Revolution, 1830–70,” Journal of Global History –26. CopperChris Evans had been and minedOlivia Saunders,in Europe “Aand World the Mediterranean of Copper: Globalizing since the the Roman Industrial Empire. The world Copper is in fact a derivation of Cyprus10, or no. Kúpros 01 (March. The island2015): was 24 the center of Roman copper production and has been producing the red metal since 4000 BC. 4

United States.9 On average more than half of all US copper was exported to four

countries: German, England, Italy, and France.10

At first glance, this copper trade dynamic would appear to strongly favor

the position of the United States and its domestic producers. It would seem that

U.S. producers, who controlled the world’s largest copper mines and refineries,

should have been able to work together to control output, impose conditions of

sale, and set the global price. 11 After all, oligopolistic market arrangements had been pursued by American oil, steel, and aluminum producers who consolidated first horizontally, then vertically, and achieved a substantive advantage over the more numerous consumers when it came to negotiation.12

The copper industry went a different route. In copper, the market

contained many producers and industrial consumers of varying sizes.

Furthermore, it contained traders and brokerage houses which acted as

intermediary agents which added an additional layer of competition. 13 These

“middlemen” or “speculators” – as they were sometimes called – helped connect

9 states. 10Nearly Production the same data percentage retrieved from (70) of the globe’s copper wasWorld consumed Non-Ferrous by European Metal Production and Prices, 1700-1976 –70. figures retrieved from MetallstatistikChristopher J. Schmitz,-9. 11 Much as the British smelters in (London:Swansea hadCass, during 1979), the 65 eighteenth; Consumption and nineteenth century. (July, 1913): 8 12 Alfred Dupont Chandler, The Visible Hand: The Managerial Revolution in American Business Evans and Saunders, “A World of Copper,” 5. 13 ores and (Cambridge,who take the Mass: metal Belknap ores and Press, refine 1977). them into raw metals of standard purity A definition of terms related to copper industry supply chain: Those who mine the manufacturing or fabrication of finished metal products are referred to in the are called “producers.” Those who take these raw metals andes betweenuse them the in theproducers

industry as “consumers.” The men who act as intermediari and the consumers are “traders.” In historical literature, the trader is also referred to as “dealer,” “broker,” “merchant,” “middleman,” or “factor.” 5 buyers and sellers from around the globe who might otherwise have not found each other. They also held bought and held metal as a speculator and sold metal

“on the spot” to consumers in need at a premium. In doing so, traders made the entire market more liquid and prices more flexible. In order to make this work, however, traders needed a commodity exchange to help offload the risk of buying, selling, and holding metal. For this reason and others, traders created the

London Metal Exchange in 1877.

Throughout the 1880 to 1930 period, copper prices were set (or

“discovered”) at this futures exchange in Britain, commonly known as the LME.

Unlike the producer’s pricing systems in oil and steel – in which producers were most often price makers, not takers – the London exchange price reflected the cumulative sale of copper (both physical and fictitious) made daily by metal traders “in the ring” via open outcry. The exchange had the effect of increasing competition in the industry by keeping barriers to entry low for new producers and consumers of copper, as anyone could trade their metal on the market.

Increased competition helped to drive up production and drive down real prices.14 How these forces – traders and futures markets – profited by opposing and undermining producer oligopolies is the central theme of this work.

Historiography

Understanding the interaction between futures markets, traders, and big business is fundamental to understanding the history of copper and the history of

14 World Non-Ferrous Metal Production and Prices, 1700-1976, 69– Clemens Herfindahl, Copper Costs and Prices, 1870-1957 Schmitz, 73; Orris (Baltimore: Johns Hopkins University Press, 1959), 175. 6

industry more broadly. Yet, framing business history in such a manner is

exceedingly rare.15 As historians have written, during the late nineteenth and early twentieth centuries, many US producer firms became vertically-

integrated.16 In dozens of examples – railroads, meat-packing, oil, iron and steel,

and automobiles – business firms integrated multiple stages of production and

distribution under one roof and coordinated product throughput with

professional managers. This rise of large firms and the ascendency of the

manager marked the replacement of Adam Smith’s concept of the invisible hand

by the “visible hand of management” and in the process bypassed the leveling

power of the futures market and the merchant trader.17 Just who were these

traders and how did they operate? What have historians had to say about traders

and futures markets?

Historians have explained how wheat and cotton used market mechanisms

and merchant traders to coordinate the flow and exchange of goods.18 According

to Alex Engel, as older merchant networks of distribution were enhanced by the

revolution communication and transportation technologies after 1860, futures

15 Review of Industrial OrganiJohnzation Howard Brown and Mark Partridge,– “The Death of a Market: Standard Oil and16 the Demise of 19th Century Crude Oil Exchanges,” Manufacturing,13, 1899 no. 5-1948,” (1998): The 569 Journal587. of Economic History – Harold C. Livesay and Patrick G. Porter, “Vertical Integration in American 17 Chandler, The Visible Hand, 1. 29, no. 3 (1969): 494 500.18 Cotton and wheat are two classic examples of industries whose buyers and sellers

production and distribution. Agriculturalutilized commodity History futures exchanges to –coordinated economic activities related to Cotton Exchange and the DevelopmentJeffrey C. Williams, of the Cotton “The Futures Origin of Market,” Futures Business Markets,” History Review 56, no. 1 (1982):– 306 316; Kenneth J. Lipartito, “The New York Storage of Cotton and Wheat,” The Journal of Political Economy – 57, no. 01 (1983): 50 72; Lester G. Telser, “Futures Trading and the , 1958, 233 255. 7

markets like the Chicago Board of Trade and the Liverpool Cotton Exchange were

established by traders to help producers and consumers manage the risk of

pricing and exchanging goods.19

The top trading firms conducted their intermediary business through two channels – traders out in the field and brokers in the exchange. When traders did deals for physical goods with (or on behalf of) producers/consumer clients, they would cable the details of that deal to their firm’s brokers on the exchange who could then use the information for speculative or hedging purposes, or both.

Brokers did so through by buying or selling different kinds of derivatives like futures contracts. It was these broker transactions that generated commodity

prices.

Interpretations of the utility of futures markets can be segmented along economic vs. social historian fault lines. Social historians – many affiliated with

the history of capitalism school – have tended to view derivative markets as little more than dens of gambling where “no physical goods were exchanged.”20 While business and economic historians have taken a more nuanced position, recognizing that futures markets were financial spaces for buyers and sellers to hedge (or speculate) in both physical and incorporeal standardized

19 - Century Global Commodity Markets,” Journal of Global History Alexander Engel, “Buying Time: Futures Trading and Telegraphy in Nineteenth 20 10, no. 02 (2015): 285. n Financial Markets, 1880– 1920,”David The Hochfelder, Journal of “‘Where American the History Common People Could Speculate’:– The Ticker, Bucket Shops, and the Origins of Popular Participation i – The American93, no. 2 (2006):Historical 335 Review358; 1Jonathan Ira Levy, 307“Contemplating– Delivery: FuturesNature’s Trading Metropolis: and theChicago Problem and ofthe Commodity Great West Exchange (WW in the United States, 1875 1905,”–147. Cronon is much more even-handed11, no. in 2his (2006): 335; William Cronon, Norton & Company, 1991), 97 depiction of the grain futures dealing than Levy or Hochfelder. 8

commodities.21 Futures markets put pressure on producers and farmers to

constantly compete – not only with themselves but also with traders – and this

they hated. However, the result was lower essential commodity prices for the rest

of society.22

The difference in these two interpretations may have something to do with

the primary source base used. While economists have looked to the numbers for

clues on macro behavior, social historians have relied on voice of the farmer- producer who would have preferred to set their own price, rather than accepting whatever the brokers on the exchanges were offering.23 Political entities

responded to producers’ complaints in Europe and North America around the

turn of the century. Only in Germany were restrictions put in place to limit

trading activity in agricultural commodities on futures exchanges.24

Non-ferrous metals markets developed along similar lines to that of cotton

and grain, and yet the literature on the history of this is quite thin. Histories of

the London Metal Exchange include one published by the Exchange itself, a

21 The Economic Function of Futures Markets

ExchangEngel, “Buying Time”; JeffreyA Treatise Williams, on Markets: Spot, Futures, and Options, vol. 237(New (AEI York: Press, Cambridge 1979). University Press, 1989); Lipartito, “The New York Cotton 22 e”; Joseph M. Burns, Prices,” Explorations in Economic History –362. 23 C.David W. Smith, S. Jacks, International, “Populists versus Commercial, Theorists: and FuturesFinancial Markets Gambling and in the Options Volatility and of Futures: The Economic Ruin of the World 44, no. 2 (2007): 342

–1920,” IEEE History(London: Center, P. S. KingRutgers & Son, 1906); David University.(UnpublishedHochfelder, “Partners in Paper) Crime:, 2001,The Telegraph Industry, Finance Capitalism, and Organized Gambling, 1870 24 Securitieshttp://ieeeghn.org/wiki/images/5/5b Markets? Pre-World War I Germany/Hochfelder.pdf. as Counter-Example,” Enterprise & SocietyCaroline Fohlin, “Does Civil– Law Tradition and Universal Banking Crowd outThe North American Review –748. 8, no. 3 (2007): 602 641; G. Plochmann, “The German Bourse Law,” 187, no. 630 (1908): 742 9

dissertation by Frank Specht from 1923, and a more recent (1989) by economist

Gibson-Jarvie.25 Of the three the one published by the Economic Intelligence

Unit is by far the most thorough in its account of the early history. Establish in

1877, the London Metal Exchange was a futures market for copper, tin, and pig

iron. Though pig iron trading declined precipitously after 1890 with the coming

of vertical integration in steel, contracts for copper and tin thrived. Its structure

proved very similar to the cotton exchanges at Liverpool and New York,26 in that

its contracts served as both a source of insurance (hedging) for manufacturers

and a source of finance to producers who often had trouble securing loans through banks. The transactions that took place were the basis of the LME daily price announcements and in short time the institution became the world’s copper and tin price authority. The LME, like other exchanges at the time, was only as effective as its member – and yet when it comes to metal traders and their firms

even less has been written. 27

Because we know that the London Metal Exchange was founded as a

market for Chilean “Chili bar” copper – which by the 1860s was coming into

Britain duty-free and competing with the copper produced by the smelter cartels

The Economic Intelligence Unit, The London Metal Exchange 25 -Jarvie, The London Metal Exchange: A Commodity Market - (London:Die Whitefriars Volks- UndPress, Weltwirtschaftliche 1958); Robert Gibson Bedeutung von Aluminium, Blei, Kupfer, Zink Und Die Metallboersen, 3rd ed New (Cambridge: York, London, Woodhead Hamburg,Faulkner, Und Berlin 1989); Frank Specht, 1923). 26 (Cologne: Ph.D. Dissertation, 27 Members of exchanges were also referred to as subscribers. Entire brokerage housesThe LME’s could firstbelong director to an exchange,was the former but only head a selectof the numberLiverpool of Cottonagents Exchange.from any one brokerage house could deal or trade with other agents. Brokers typically worked for a small percentage or commission of what they traded on floor of the exchange. The history and details of how commodity exchanges functioned is reviewed in chapter 1. 10

at Swansea – we can look to histories of that explore merchant activity in Chile to

find out more about the Exchange membership. Through histories by Mayo and

Bill Culver, we can deduce that the most influential metal traders at the time of

the LME’s founding were English and Welshmen who had once served as sales

agents for Swansea producers and Cornwall mining families. 28 But as more

Continental European traders made their way to London to purchase metal from

abroad, historians have indicated that it was the Germans who emerged as the

most influential force at the Exchange. 29 Among those most dominant in the trade was Metallgesellschaft A.G., a central force in this dissertation.

Historians have taken some notice of Metallgesellschaft, however only

German scholars seem to have recognized the firm’s enormous influence in the copper trade. Stephanie Knetsch has written on Metallgesellschaft with the goal

of explaining the complex nature of its organization as it evolved in the early

twentieth century.30 Knetsch also wrote an essay discussing MG’s foreign direct

28 –80,” Journal of Latin American Studies – WiJohn Mayo, “Before the Nitrate Era: British Commission Houses and the Chilean Economy, 1851-Century World Copper Competition,” Comparative11, no. 02 Studies (1979): in Society283 302; and Historylliam W. Culver and Cornel –J. Reinhart, “Capitalist Dreams: Chile’s Response- to AnatomyNineteenth of a Relationship,” Journal of Interamerican Studies and World Affairs 23, 31, no. 04 (1989): 722– 744; John Mayo, “Britain and Chile, 1851 1886: 29 Godfrey Harrison, Vivian, Younger & Bond: A Century of Metal Brokering, 1859- 1959no. 1 (February 1, 1981): 95 120, https://doi.org/10.2307/165544. Sons, 1809- (University(London: College Vivian, of Swansea,Younger &1980), Bond, Ltd., 1959); Robert R. Toomey, “Vivian and 1924: A Study of the Firm in the Copper and Related Industries” 30 Stefanie Knetsch, Das konzerneigene Bankinstitut der Metallgesellschaft im http://ethos.bl.uk/OrderDetails.do?uin=uk.bl.ethos.639253.Zeitraum von 1906 bis 1928: programmatischer Anspruch und Realisierung “Multinationalität hat verschiedene Gesichter”: Formen internationaler Unternehmenstätigkeit der Société anonyme des mines(Franz et Steiner Verlag, 1998); Susan Becker, 11

investment in Britain (H.R. Merton & Company) but never investigated the

relationship of the company to the London Metal Exchange even though H.R.

Merton & Co. held the number 1 seat at the exchange!

Susan Becker’s work – by far the best on metal traders and MG – does

point to the internal contributing factors of “knowledge” obtained by the traders

as well as the unique “administrative structure” of the German metal trading

firms during the pre-war years of the metal trade. While correct in pointing out

the entrepreneurial and organizational strengths of these companies, Becker

nevertheless stops short of discussing the institutional factors that shaped

decision-making at Metallgesellschaft (and other metal trading firms) outside the

acknowledgement that the WWI dramatically weakened MG. This dissertation

builds on Becker’s excellent work dissecting the structure of MG but then pushes

out in an attempt to place MG in the context of the copper industry and the

broader economy.31 In a later published version of her dissertation, Becker

investigated the history of Metallgesellschaft’s business strategy through the lens

of one its Belgian subsidiaries involved in zinc refining. Both Knetsch and Becker

appear content to flesh out the complex nature of Metallgesellschaft’s structural

design, but also leave the reader wondering just how MG came to be thought of

fonderies de zinc de la Vieille Montagne und der Metallgesellschaft vor 1914 Steiner Verlag, 2002). 31 G. Jones, Ed., The(Franz Multinational Traders Susan Becker, “The German Metal Traders before 1914,” , no. Routledge (1998): 81. 12

by policy makers in Britain and the US as “the most powerful metal concern in

the world?”32

Literature on the history of copper is patterned when it comes to analyzing

the of merchants and futures markets in shaping the industry. In the 1910s and

1920s, German historians interested in metal were quite aware of importance of

these institutions and helped shed much light on how they functioned.33 Most of

the authors on the subject are former traders themselves, who have a sense of

their own historical importance in shaping history.34

Business histories of copper tend to be written about individual companies

and associate company success with strong leadership or innovative technologies

and methods they developed or adopted. Works on Anaconda, Phelps Dodge,

32 Alien Property Custodian Report, 1918-

19, p. 64; Internal Report on The International33 Organization of the Frankfurt Metal Trade from 1 July 1915, National Metallhandels,”Archives at Kew, Weltwirtschaftliches Foreign Office (FO) Archiv382/462, doc. 87137 – Die VolksRobert- Und Liefmann, Weltwirtschaftliche “Die Internationale Bedeutung Organisation von Aluminium, Des FrankfurterBlei, Kupfer, Zink Und Die Metallboersen New York, London, Hamburg, 1Und (January Berlin 1, 1913): 108Die22; Organisation Specht, Und Die Funktionen Des Deutschen Metallhandels Der Kupfermarkt; Artur Adey, Unter Dem Einflusse Der Syndikate Und Trusts (Koeln, Germany: Universitaet It is noted in SpechtKoeln, Ph.D.and Adey Dissertation, of just how 1930); many Rudolf layers Lenz, of metal dealers existed in Germany. MG was by far the most influential(Berlin: and Verlag was described Fachliteratur as a GmbH,Grossmetalhä 1910).ndler, while smaller retail dealers existed in every city. These smaller dealers counted on MG to supply them with metal, as they could not afford to purchase directly from any producers. Consequently, MG was not only supplying large German manufacturers

accounts which were less lucrative. and34 electrical equipmentDr. Moritz producers; (Don Mauricio) it utilized Hochschild, small merchant 1881- 1965:traders The to Manhandle and His Companies: A German Jewish Mining Entrepreneur in South America, vol. 14 Helmut Waszkis, The Leo Baeck Institute Yearbook – (Vervuert, 2001); SiegfriedBabylon M. Au toerbach, Birmingham: “Jews in An the Historical German Survey Metal Trade,”of the Development of the World’s10, Non no.- Ferrous1 (1965): Metal 188 and203; Iron Harry and George Steel Industries Cordero and of Lesliethe Commerce Herbert inTarring, Metals Since the Earliest Times (Quin Press, 1960). 13

ASARCO, Calumet & Hecla, Rio Tinto, and America Metal Climax – some of

which were sponsored by the respective companies – all have elements of the

“great man” historical approach.35 This has of course been ridiculed by many

“institutionalists” who see “environment” factors as being of greater consequence. Nevertheless, many of these “insider” works offer solid insight as to why leaders made decisions they did at the time. For instance, Marcosson’s work on Anaconda confirms many of my suspicions that the company’s strategy after

the war was in large part a response to the power trading companies like

Metallgesellschaft and other “speculators” had over the European markets.36

Most of these works lack any detailed footnotes with the exception of Gates’

excellent Boston Dollars and Harvey’s Rio Tinto. Both works offer glimpses into

the marketing challenges many American producers faced in Europe and

confirms that producer’s had a very low opinion of the so called speculators on

the LME.37

More recent history of the industry, however, has focused almost

exclusively on technology shaped the transformation of copper. As Timothy

LeCain, C.J. Schmitz, and others have argued, the electrolytic refining process

(1891), the open-pit mine (1907), and froth flotation technology (1915) made

Carlos A. Schwantes, Vision & Enterprise: Exploring the History of Phelps Dodge Corporation35 A History of Phelps Dodge, 1834-1950 Metal Magic: The Story of the(Tuscon: American University Smelting of &Arizona Refining Press, Company 2000); Robert Glass Cleland, Red Metal:(Knopf, The Calumet 1952); and Isaac Hecla F. Marcosson, Story (Univ. of Michigan (New York: Farrar, Straus, 361949); Isaac C. Frederick Harry Benedict, Marcosson, Anaconda – 37Press, William 1952). B. Gates, Michigan Copper and Boston Dollars The Rio Tinto(New Company:York: An Dodd, Economic Mead, H 1957),istory of158 a Leading75. International Mining Concern, 1873-1954 (Alison Hodge (Cambridge,Publishers, 1981). Mass: Harvard UP, 1951); Charles Harvey, 14

mass production of copper more cost effective and incentivized miners, refiners,

and manufacturers to vertically integrate.38 While these claims are not entirely unreasonable – most notably froth floatation – it is important to keep in mind the reality that skyrocketing production went far beyond domestic levels of demand, making the trader’s role in coordinating trade between American producers and European consumers even more essential.39

The timing of the vertical integration of copper or as Schmitz phrased it

“the coming of big business” remains to be explained more fully. The industry did

not see a large-scale shift like that in oil, steel, or aluminum well before 1914.

Instead, copper sees all out integration “from mine to consumer” in the 1920s

and 1930s. C.J. Schmitz largely skips over this fact, as does Naomi Lamoreaux in

her work on mergers in mid-century American business.40 The most obvious

explanation as to why Schmitz and others overlook this fact is that it does not

square very well with their respective conclusions. Interestingly, Chandler

38 Mass Destruction: The Men and Giant Mines That Wired America and Scarred the Planet Timothy LeCain,- the U.S. Copper Smelting(Rutgers Industry,” University Environmental Press, 2009); History Timothy LeCain, “The 336Limits– of ‘Eco Efficiency’: Arsenic Pollution and the Cottrell Electrical Precipitator in Business in the World Copper Industry 1870-1930,” The Economic5, no. 3 (July History 1, 2000): Review 39, no.51, 3 https://doi.org/10.2307/3985480;(August 1, 19 – ChristopherCopper Schmitz, Mining “The and Rise of Big Management The Visible Hand. 39 Mass Destruction86): 392 410; Thomas R. Navin, ld Copper Industry 1870(University- of Arizona Press, 1978); Chandler, LeCain, –1986,”; Schmitz, Resource “The andRise Energy of Big BusinessEconomics in the Wor – 1930”; Margaret E. Slade, “The Rise and Fall of an Industry: Entry in 1830US Copper–70,” TheMining, Welsh 1835 History Review –131. Interestingly,42 (2015): 141 a number169; Chris of Evans,these technologies “El Cobre: Cuban were Oreexported and the from Globalization Europe to Americaof Swansea via Copper,metal trading firms like MG, who not only handled27, no. 1 copper (2014): but 112 also acted as consultants and financial backers for many young producers. 40 The Great Merger Movement in American Business, 1895- 1904 Naomi R. Lamoreaux, (New York: Cambridge University Press, 1985), 155. 15

observes the fact in The Visible Hand, that copper enterprises were not highly integrated before WWI.41 Chandler is descriptive in his analysis and does not

bother to explain why copper was so late in following the trend. However, one of

his observations in Chapter 11 on the “integration of mass production with mass

distribution” is worth noting: “the nature of the market was more important than

the methods of production in determining the size and defining the activities of

the modern industry corporation.”42

The implication being that the copper industry was functioning without

“administrative coordination” well after electrolytic refining and open-pit mining and been applied in copper. My contention is that the reason vertical integration and industry concentration (which according to Chandler and others went hand in hand) did not occur before WWI has more to do with the disruptive nature of trading firms and futures markets. Futures markets and traders made capital expenditures of this sort too risky given their enormous expense. It was only when merchants were taken out of the picture, when their networks were disrupted by the war (and other political factors) that we see vertical integration begin to make sense as a strategy for the largest producers and manufacturers in copper. From 1870-1914, the industry was periodically under attack from

41 Chandler, The Visible Hand, 362. manufacturing firms to move backward into mining and in the non-ferrous industries for mining firms to reach“The forward pattern into in manufacturing. iron and steel wasBefore for World War I, however, few primary metal enterprises had integrated forward into the fabrication of finished products. When they did, the motive again tended to be largely defensive. Their aim was to have a more certain outlet for their products.

companies and the fact that they did not coordinate the flow of materials from the supplierThe relatively of raw small materials size of to the the buying final consumer and selling meant organizations that their ofmanagerial primary metals

42 Chandler, 363. organizations were smaller than those in other industries.” 16

producers seeking to establish oligopolistic control over prices and production.

Technological advancements during that time led naturally to vertical integration as they had in other industries. Only after the war do we see major advances toward integration and industry concentration. The difference between the pre- war and the post-war contexts seemingly lies in the adoption of more nationalist economic policy, in both North America and Europe.

Main Theme and Research Questions

While the historiography of the copper industry during the period 1870-

1930 includes numerous studies, some of them superb, the literature review

reveals some striking oversights. We have some rich accounts of individual

production firms and some solid overviews of how the copper industry expanded

on a national level in Britain, Chile, and the United States. Yet for an industry so

export-oriented, and so complex in terms of the trade of goods, it makes little

sense that no recent international history of copper exist. As a result, any work

that attempts to study the industry in only a national context without playing

proper attention to the centrality of futures markets, supply chains, and trading

firms will be lacking. The existing literature is simply too limited in scope to

provide an adequate framework for analyzing the relationship between the

dominant copper producers, the fridge players, and the role of the London

futures market. Although the main objective of this dissertation is to analyze the

rise and decline of London Metal Exchange and the influence trading companies

like Metallgesellschaft, the present work must also, by necessity, study the growth

of big business in copper. 17

To date, there have been no in-depth studies of connecting the growth of

the American copper industry with the most important copper markets in

Europe, during what is arguable the metals most defining period, the age of

electric power. A central aim of this thesis is to bridge the broad historiographical

gap between the regional company histories of copper with the transnational

nature of their product. Some works such as Alex Skelton’s essay in International

Control in Non-Ferrous Metals (1937) and Evans and Saunders (2014) essay on

pre-1870 “World of Copper” have emphasized the degree to which the copper

trade has been restricted at the international level, but have ignored the very the

merchants and market mechanisms such combinations were created to fight

against. 43 Furthermore, recent writings on the rise of big business in copper have overvalued the role of technology in prompting integration and undervalued the competitive nature of the industry as the stronger force that has lured corporations to combine. The few works of trading firms in the copper industry have done well in dissecting the internal functions of the firm, but have largely avoided explaining how such firms functioned in the broader copper economy.

The primary focus of this dissertation is on the transnational nature of the copper industry in the North America and Western Europe, and the main theme is the interplay between the US producers and the international metal traders. The industry’s development is analyzed at three levels:

1. The competitive strategy of trading companies and their function between

copper producers and copper consumers.

43 Evans and Saunder

s, “A World of Copper.” 18

2. The organizational structure of the international copper market (producer

pricing vs. exchange based pricing).

3. The role of states in shaping the organizational structure of the copper

trade.

The first level of analysis concerns the strategy of American producers,

European consumers, and the trading firms who profited by connecting the two groups. As the literature review makes clear, the dominant producers at the time were (almost) all based or owned by American firms. The largest consumer centers were the East Coast of the United States and the major cities throughout

Western Europe. The domestic trade within the US was important in to the profitability of copper producers, and yet on average, more than half of US refined copper was shipped to Europe, and the vast majority of it passed through the hands of metal traders and the London Metal Exchange.

The central topic in this first-level analysis is the relationship between the metal trader and his three points of contact: the producer, the futures market in

London, and the industrial consumer. Why were metal traders so important to

the copper trade? Why would not the American producers and the European

consumers simply bypass the merchant middleman and do business directly?

What value did the metal trader add to the supply chain? How important was the

futures market in London to his work as an intermediary?

The second level of analysis concerns the manner in which the copper trade was regulated by the major producers, consumers, and traders intra- industry. The centrality of the futures market as a harbinger of competition and 19

market discipline was strongest during the years 1880 to 1914. Outside of that

window of time and periodically during that time span, cartels, syndicates, and

large vertical combinations reformed the basic “supply and demand” character of

the trade. In order to simplify the complex organizational structure of the trade,

this work makes use of the terms “producer-pricing system” and. “exchange-

based pricing system.” What was the difference between these two pricing

systems? Was there a middle ground or “third way” in organizing the market?

What events prompted a shift in the organization of the copper trade from one to

another?

Some of the business history literature deals with the rise and fall of collusive arrangements made by copper producers over this time period. What

has been lacking are explanations of why these collusive arrangement – let us call

them cartels44 - consistently failed after only a short time (always under 3 years).

Economists provide insight here on theories as to why cartels fail, and opinions

range from lack of discipline among members, to anti-trust legislation, to

technology advancements, to new industry entrants or the substitution of similar

products by buyers.45 Furthermore what benefits do cartels provide for their

members? Are they in fact as Adam Smith asserted “a conspiracy against the

public?” Or were they actually serving the public interest?

Other names for collusive industry arrangements include associations,al lines union, through somecombinations, formal or trusts, informal syndicates, pact or contract gentlemen’s that agreements,seeks to shape and the pools. collective The general behavior ofcharacteristic the group in of some a cartel way. is that organizes an industry along horizont The Journal of Political Economy, 1964, 4445 – HBSGeorge, 2006, J. 1Stigler,–33. “A Theory of Oligopoly,” 61; Jeffrey Fear, “Cartels and Competition: Neither Markets nor Hierarchies,” 20

The third level of analysis examines the relationship between the copper industry and the underlying political economy. Previous literature has viewed copper through the lens of a single nation and thus has interpreted the policing of the copper economy on a nation by nation basis. However as this dissertation makes clear, copper was a globally-traded commodity subject to multiple governing institutions and their respective rules. This “institutional multiplicity” helps explain why copper was quite different from other producer-goods industries at the time. In examining the trade and competition law as it developed in multiple states, this work limits its analysis to the largest and most influential states involved in the copper trade, namely the United States,

Germany, and Great Britain.

Between the years 1880-1914, most national policies by all three major copper economies largely supported the free trade of copper and thus bolstered the business of the futures exchange in London and the position of the trader.

However transatlantic trade and the influence of the London Metal Exchange declined after the First World War and throughout the 1920s. What sorts of policy measures were put in place to inhibit the trade? What was the political justification behind these measures? Furthermore, what have foreign policy theorists had to say about the intersection of free trade, cartels, and national security?

Conceptual Design: Framing Business History

The dissertation is designed as a historical analysis of international markets and firms and is written within the field of business history. Business 21

history can be defined as the study of “the historical evolution of business

systems, entrepreneurs, and firms, as well as their interactions with their

political, economic, and social environment.”46 In some ways, this study follows

the practical and highly useful examples set by Alfred D. Chandler, whose classic

works dealt with big business and its impact on the American economy.47 This

work also draws on methods from Chandler’s international works in which he

compares the development of big business enterprise in the US, Germany, and

Great Britain, most notably his analysis of the way competition law influenced

horizontal and vertical business relations.48

Additionally, this dissertation has also benefited from works critical of

Chandler’s approach. Included on this list is Naomi Lamoreaux’ early work, The

Great Merger Movement, which questioned whether vertically-integrated firms

were as logical and “inevitable” as Chandler had made it seem.49 More important

to this dissertation framework was the landmark essay by Naomi Lamoreaux,

Daniel Raff, and Peter Temin “Beyond Markets and Hierarchies.” In this, the

authors argued that new business histories must “move beyond the simple

46 Geoffrey Jones and Jonathan Zeitl The Oxford Handbook of Business History 47 Chandler, The Visible Hand in, “Introduction” inStrategy Jones and and Zeitlin, Structure: eds., Chapters in the History of the Industrial(Oxford: Enterprise Oxford, M.I.T. University Press Research Press, 2008), p. 1. ; Alfred Dupont Chandler, 48 Alfred Dupont Chandler, Scale and Scope: The Dynamics of Industrial Capitalism Monographs (Cambridge: M.I.T. Press, 1962). Daems, eds., Managerial Hierarchies: Comparative Perspectives on the Rise of the (Cambridge,Modern Industrial Mass: Enterprise Belknap Press,, Harvard 1990); Studies Alfred in DupontBusiness Chandler History and32 (Cambridge, Herman

49 The Great Merger Movement in American Business, 1895-1904, 7–8. Mass:She suggests Harvard that University the merger Press, movement 1980). and the vertical integration era that followedLamoreaux, were the result of unique historical context marked by deflationary economic conditions and policy shifts that eventually resulted in the merger movement and the subsequent period of integration. 22 markets versus hierarchies model that underpins Chandler’s analysis to focus attention on the broad range of techniques that business people have developed over time to coordinate their activates.”50 Building on these ideas, my work also wanders outside the field of business draws inspiration from perspective of economic theorists who focus on markets, cartels and trading companies that effectively define the space between perfectly competitive markets and strict authoritarian hierarchy. Below I review the different theories which have helped structure my approach to answering research questions listed in the previous section.

On one level of analysis concerns the competitive strategy of the intermediary traders who carved out market space between copper producers and copper consumers in the North Atlantic.51 It is often the case, most observers of business operations typically focus on the relationship among direct

(horizontal) competitors who are looking to serve the same market. Yet, as

Michael Porter perceived in his work, Competitive Strategy, “competition in an industry is rooted in its underlying economic structure and goes well beyond the behavior of current competitors.” Porter goes on to explain that there are five driving forces that drive industry competition which include not only (1) rivalry among existing firms, but also (2) the threat of new entrants, (3) the substitution of new products, (4) the bargaining power of suppliers, as well as (5) the

50 Naomi R. Lamoreaux, Daniel MG Raff, and Peter Temin, “Beyond Markets and Hierarchies: Toward a New Synthesis of American Business History” (National 51theBureau basic of long Economic-term goals Research, and objectives 2002), 2, http://www.nber.org/paof an enterprise, and the pers/w9029.adoption of coursesThe classic of action Chandlarian and the allocation definition of of resources business strategynecessary is for“the carrying determination out thes ofe goals.” See Chandler, Strategy and Structure, 13. 23

bargaining power of buyers.52 By recognizing these sources of competitive

pressure and applying them to the various groups, one can begin to see the

strengths and weaknesses of each competitive group along the supply chain.

Being aware of the diversity of competitive pressures is particularly important when analyzing a supply chain (sometimes called the value chain) as complex as copper’s. Briefly, the copper supply chain is made up of producers, industrial consumers, and intermediary traders. Within the producer category there are three groups: the miner, the smelter, and the refiner. Typically speaking, the miner sells his ore53 to the smelter,54 who in turn sells his smelted

ingots, to the refiner.55 Collectively, the miner, smelter, and refiner are referred to

as “producers.”56 From the refinery, the purified copper is then sold to a manufacturer, brass fabricator, or wire mill all of which are commonly referred to in the industry as “consumers.”57

Michael Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors52 980), 3. The grade of copper ore is typically 1-10 percent. If the miner has a mill, which breaks53 up the(New copper York: ore The rock Free into Press, smaller 1 pieces and then rinses them in a water- chemical solution, he can improve the copper ore grade to 10-40 percent purity. The milled product is known as copper concentrate. Smelting is the process by which copper is separated from other elements 54 smelting has three stages (1) roasting, (2) smelting, (3) converting. In the convertingthrough the stage application an infusion of heat. of oxygen Sometimes causes referred iron and to assulfur “pyrometallurgy”, to separate, leaving

silver which require the added stage of refining. almost The refiner pure copper. can purify Sometimes the smelted the copper copper is via left fire with refining “impurities” or by electrolytic such as gold and 55refining (after 1890s). The copper material is traded downstream and becomes increasingly more 56purified at each stage until it reaches over 99 percent copper in its refined form. For an excellent review of the supply chain see Chapters 1- Copper Mining57 and Management. 5 in Navin, 24

Because the copper supply chain was rarely integrated “from mine to

consumer” by any individual company before 1930, metal trading companies

have always played an active role in the marketing and distribution of copper. A

trading company has been defined by Geoffrey Jones as an intermediary business

whose core function involves “the linking of buyers and sellers.” This “trade

intermediation” can be performed by “brokering or reselling” of commodities or

other goods and is often conducted across national borders.58 As Jones further

notes, it can be a tricky process when defining a trading company because so

often these groups have “exhibited tendencies to perform activities other than

trade intermediation. They frequently diversify into related services, including

shipping and insurance, and into manufacturing and resource exploitation.”

Thus, as Mark Casson argues in Chapter 2 of Jones’s edited volume, traders

should be distinguished as either “pure” or “hybrid” trading companies which

engage in economic activities beyond trade.59

In the world of copper, metal trading firms worked on both commission and as resellers. If the trader was operating as a long-term representative for a miner, smelter, or a refiner, he was also referred to as “sales agent.” Additional functions of the trader included hedging or speculating with his metal or hedging/speculating on behalf of his principal on the London Metal Exchange.

While remaining a “pure” trading company had the advantage of keeping capital costs to a minimum, as we shall see with the example of Metallgesellschaft,

Geoffrey Jones, The Multinational Traders (Routledge, 1998), 1. 58 G. Jones,59 Ed., The Multinational Traders Enterprise and Leadership:Mark Casson, Studies “The on Economic Firms, Markets, Analysis and of Networks Multinational (Edward Trading Elgar Companies,” Publishing, 2000). , Routledge, 1998; Mark Casson, 25

working in space beyond brokering or reselling metal was not uncommon. When

traders did integrate into the production or manufacturing space, it was usually

as a minority investor. Sometimes traders were offered equity in exchange for

their consulting services. Because of the limited nature of such activity the phrase

“quasi-vertical integration” will be used in this dissertation in order to distinguish

the trader’s more limited investment activity from large producer asset

acquisition (i.e., vertical integration).

Another important level of analysis concerns the role that futures markets

and trading companies play in promoting and maintaining vertical and

horizontal disintegration in commodity markets. Ronald Coase recognized in his

essay “The Nature of the Firm” that markets and firms are effectively different

ways of carrying out transactions.60 When markets become cheaper to use,

certain transaction which formerly took place within an integrated firm (e.g., the

supply of copper from a smelter to a refinery) can be transacted at arm’s length

via the market. This kind of market dis-integration took place in copper in the

1980s as upstream and downstream parts of integrated firms became separated.

Likewise, metal traders beginning in the 1880s effectively kept the copper market

disintegrated by facilitating efficient market transactions among miners,

smelters, refiners, and manufacturers.

The efficiency of metal traders in coordinating the distribution and

marketing functions of producers was bolstered by the appearance of the futures

exchange in London in 1877. The futures exchange at London, known as the

60 Firm,” Economica 386. Ronald Coase, “The Nature of the 4, no. 16 (November 1937): 26

London Metal Exchange, published price quotations that formed the basis of

what I call an “exchange-based pricing system.” The establishment of the London

Metal Exchange helped centralize the authority of the trader and expand his

influence in the market. An exchange-based pricing system contrasts from a

producer pricing system, which ruled the world of copper when the industry was

highly concentrated in the hands of a few large producers. According to Margaret

Slade, producer prices are set by major firms in primary industry. Producer’s

price changed “only at discrete intervals” and “represented a common set of price

quotations for delivery, [and] was based to a large extent on production cost.”61

While in competitive markets, producer firms are “price takers,” when producer oligopolies have control over pricing, they make the price. Under a producer pricing system, because of the high fixed costs incurred by large producers, there is an incentive to “adjust prices infrequently but by large amounts.” From the consumer’s perspective, it can be costly to stay informed of the “relative prices of inputs” that contribute to the producer’s overall cost structure and as a result,

“consumers often prefer frequent, small prices changes” as dictated by exchanges. Thus in a world were commodity prices are set by producers, all purchasers of goods are consumers. When commodities are sold on exchanges,

“new actors are introduced: brokers and speculators.”62

The final analytical level is concerned with the role of government and business relations or the political economy of copper. As Richard John argues in his essay, “Bringing Political Economy Back in”, that business activity is

61 The Quarterly Journal of Economics, 1991, 1316. 62 Slade,Margaret 1312. E. Slade, “Market Structure, Marketing Method, and Price Instability,” 27

“embedded” in the transnational political economy.63 This was certainly the case

in copper as more than half of all red metal was exported from producer

countries at a time when copper was effectively a “rare earth element” that was

crucial to modernization of state infrastructure and military.

Primary Sources

This dissertation is the result of extensive research in primary source material taken from multiple archives. I have consulted corporate archives,

university archives, private papers, and government records in the United States,

Germany, and Great Britain.

In the United States I found material on large copper producer firms,

materials on the American subsidiaries of German trading companies, and

documents related to government oversight of the industry. My Anaconda

research was conducted at the American Heritage Center at the University of

Wyoming. It was there that I gained some insight into the elaborate, vertically-

integrated nature of the world’s largest copper company. While at AHC, I also

found materials donated by former American Metal employee Seymour Bernfeld.

The files he preserved and then donated to the American Heritage Center

contained useful primary documents he had saved from his years working for the

metal trader turned integrated producer. In Phoenix, I was hosted by the legal

department of Freeport-McMoRan, and given complete access to their files on

Metallgesellschaft and American Metal Company. They provided me with a near

63 l Economy Back In,” Enterprise & Society 9, no. 3

Richard R. John, “Bringing Politica (2008): 489. 28

complete set of American Metal Company Board of Directors’ Company Minutes

from 1887 to 1940. These were particularly useful since a great majority of

Metallgesellschaft’s economic activity was conduct in the US and Mexico through

American Metal subsidiary. At the Library of Congress and National Archive and

Records Administration in Washington and College Park, MD, I found a great

deal of documents related to copper and the First World War. The Eugene Meyer

Papers at the LOC were particularly insightful for understanding the connections

that existed between new copper mining development and financiers in New York

and London in the early twentieth century.

In Germany, I conducted a thorough investigation of the files preserved by

the Kaiser’s natural resource administration while at the Bundesarchiv-

Lichterfelde outside Berlin. The files confirmed my suspicion that the German government through its foreign consul offices kept a close eye on most of the major mineral developments from 1871-1914, and especially after 1900.

Communication between Metallgesellschaft executives and Government officials was not readily apparent in the period pre-dating the War. Also while in

Germany, I was able to visit the Hessisches Wirtschaft Archiv (HWA) in

Darmstadt. While there, I accessed the Metallgesellschaft (MG 119) business archival collection which was extraordinarily large and had an antiquated catalogue system. Research was made even more difficult by the fact that company structure was highly complex and intertwined with hundreds of other businesses by the twentieth century. Thankfully, staff members were exceedingly helpful and with their assistance found many personal and business letters of the 29

Merton family were found. Company records regarding profitability and asset acquisition were also tracked down, painstakingly.

The National Archives at Kew Gardens held many good documents on the

London Metal Exchange, including lists of founding members and the original articles of incorporation. More information was located at the London Metal

Exchange located with the City proper. Their archive was a bit disorderly and not complete, but nevertheless a great number of archival gems were located. Finally, the Rothschild Archive of London was kind enough to provide me copies of letters between members of the family and individuals in the copper community around the turn of the century.

Structure of Dissertation and Argument in Brief

The chapters of this dissertation are ordered chronologically and the research questions are discussed throughout. In general the dissertation narrative follows the trajectory of the rise and fall of the London Metal Exchange and its top member, Metallgesellschaft, from 1877 to 1930. Although neither the

LME nor Metallgesellschaft ever failed over the course of the twentieth century, the influence of metal traders and the LME waxed and waned in influence over period.

The first chapter explores the origins of the London Metal Exchange and the development of the major producing firms as they appeared from 1860-1887.

The impact of the exchange and the influence of metal merchants and traders in breaking producer oligopolies in both Britain and the United States by financing new mining operations is a major theme of the chapter. It is also a theme that is 30 repeated throughout the dissertation. The result from such market-based efforts was a period of high production growth and declining prices at a time when electric lighting and power were just beginning to transform the economies of the

West.

In Chapter 2, I document the formation of an international cartel agreement between American and European producers following a price war between Michigan and Montana producers. Alarmed and teetering on the verge of bankruptcy, a number of large producers around the world devised a plan to resuscitate the market. From these plans emerged a Paris-based sales syndicate headed by prominent brass manufacturer turned speculator Pierre Secrétan in conjunction with the French branch of the Rothschild family. The Secrétan

Syndicate, as it was called, successfully cornered the world’s copper supply.

Seeking to break this corner, metal traders in Europe and the US began investing in new production and buying up huge amounts of scrap copper. Eventually the traders broke the Syndicate’s monopoly and the result was a return to cheap copper.

In Chapter 3, I demonstrate how trading companies like MG consistently undermined producer attempts in the US to establish a “producer price” and in the process achieved high earnings. With the establishment of its American subsidiary, American Metal Company, Metallgesellschaft solidified its central position within the triangle of American producers, European consumers, and metal speculators in London. By investing in small and mid-sized mines and independent refineries, MG and American Metal Company helped keep the industry competitive by maintaining and even increasing the flow of supply even 31

as large firms sought to reduce their output to drive up prices.64 After 1907, MG

was increasingly challenged by American producers who attempted to close off

market space to intermediaries by integrating first downstream into refining and

then into international sales.

In Chapter 4, I discuss the producers’ effort to counter the European

“buying combinations” of metal traders through government policy – efforts that

were disrupted by the war. The chapter then examines the effects of the war on

the copper trade through the devastating post-war depression that followed the

treaty of Versailles. This period was a turning point in the industry, and is

marked by four major events which empowered American producers while

simultaneously disadvantaging the market based metal economy.

In Chapter 5, I document the arrival of big integrated business in copper,

and how the American producers magnified that power through the Copper

Exporters, Inc. cartel after 1926. The cartel exerted extreme influence over the

price and supply of copper. By 1929, one can clearly see the power of the

American firms, now integrated “from mine to consumer,” combined and firmly

in control of an industry of strategic and military consequence. The cartels’ grasp

on the price lasted into 1930 and was broken by the depressed economy.

Nevertheless, there is strong evidence that this show of national economic power

contributed to the feeling of mineral insecurity among states like Germany, Italy,

and Japan.

64 This is very similar scenario to the oil markets of the present time (2017-18). supply, small shale producers Even as OPEC members and other affiliates seek to help raise prices by reducing houses to market their supply inabroad. Texas and North Dakota are pumping even more and eating up OPEC market share. The shale oil and gas producers use trading 32

The dissertation conclusion summaries my findings which are that central

the copper industry was more or less governed by the market forces of supply and

demand from 1880 to 1914, which resulted in a relatively equitable and non-

contentious distribution of copper among industrializing nations. Only when

government action changed the international “rules of the game” following WWI

were copper producers able to gain the upper hand. The firm grip of American

producers reinforced the post-war anxiety of “dissatisfied powers” whose lack of mineral security contributed to aggressive Lebensraum language and territorial

conquest in the coming decade.

CHAPTER 1

THE FIRST GLOBAL COPPER ECONOMY, 1860-1886

The Origins of the LME and Metallgesellschaft

FOR MUCH OF THE NINETEENTH CENTURY the production and distribution of copper was controlled by oligopolistic cartels of producers in Great Britain, the

United States, and to an extent in Germany as well. In Britain, the Swansea

Copper Smelters’ Association maintained firm control of the industry until 1870.

In Germany, the Mansfeldische Kupferschmiede had supplied Continental

Europe with copper since the middle ages and its smelters held their own through

1870. In the US, the Michigan Copper Producers’ Association proved a formidable force from 1869 into the 1880s thanks to high grade “native” ores and a tariff protected (capture?) home market.65

In all three cases, one finds that producers were best ability to “make” the market as they saw fit when protectionist barriers shielded them from competition. And in all three cases, when duties were lifted on foreign copper ores and bars, producer control over the supply and price was gradually whittled away by competitive forces.66 Competition was welcomed by consumers who

65Swansea District, 1826–1921,” Business History – ChancenEdmund Und Newell, Grenzen “‘Copperopolis’: Wirtschaftlicher The Entwicklung Rise and Fall Im of Prozess the Copper Der Globalisierung: Industry in the Die Kupfermontanregionen Coquimbo Und Mansfeld32, no.Im Vergleich3 (1990): 183075 97;-1900 Alf Zachäus, Michigan Copper and Boston Dollars. 66 protections(Frankfurt am in placeMain: until Peter 1 894,Lang, but 2012); duties Gates, were lowered on copper ore significantly in Britain1880. ended its copper protections in 1860; Germany in 1870; the US kept some 34

sought cheaper inputs, and typically scorned by producers and manufacturers.67

Among those helping usher in competition in the metal industry were members

of the merchant classes, who were by the late nineteenth century increasingly

referred to as traders.68 These traders specialized in buying, selling, and

brokering non-ferrous metals like copper.69 The trader was always on the lookout for new opportunities and he often found them plentiful when nations

opened up segments of their economy to foreign competition. As this chapter will

demonstrate, in all three cases – Britain, the US, and Germany – it was the trader

who figured out alternative ways of bypassing the entrenched interests of the

producers.70

From 1856 to 1880, new opportunities for traders emerged with the

introduction of free(er) trade policies and the increased efficacy of long distance

cable communication. Such momentous shifts in trade policy and communication

technology cleared the way for traders to develop new networks of contacts that

spanned the globe. As the speed of information accelerated, older merchant halls

and guilds were replaced by more specialized markets for commodity exchange.

of Adamthis whole Smith mercanti recognized the folly of protectionism, but in his day it was known as mercantilism: “It cannot be very difficult to determine who have been the contrivers attended to….” Adam Smith,le system; An Inquiry not the into consumers, the Nature we and may the believe, Cause ofwhose the Wealth interest of Nations,has been Book entirely IV, chapterneglected; VIII but (1776) the producers, whose interest has been so carefully 68 For definitions on all the different names for merchants – factors, traders, jobbers, brokers, middlemen, speculators, etc. – and why they are often interchangeable, see Stanley Chapman, Merchant Enterprise in Britain: From the Industrial Revolution to World War I (Cambridge University Press, 2003), 3– 69 Copper was a good material to trade because it had high value relative to its shipping volume, unlike pig iron or lead, which was less5. valuable and very bulky. 70 Typically the producer is the miner. But in the British case, I mean the smelter.

The refiner is also often referred to as the “producer”. 35

Such exchanges helped organize the vast volumes of information that came in over the telegraph wire and also direct the flow of commodities and goods that followed. Indeed, it was the trader’s ability to recognize new and profitable opportunities and then the capability to act with speed which set him apart from other players in the copper space. The following chapter investigates how a number of European trading firms – most notable among them the Mertons and

Metallgesellschaft – undermined the market advantages of copper cartels in the

North Atlantic and in so doing sent the price of copper tumbling just as large scale electrification was becoming possible.

1.1 Great Britain at the Center of the World of Copper, 1850-1880

For most of the nineteenth century, Great Britain was the world’s leading producer of copper. Its mines in Cornwall fed the world famous smelters at

Swansea, who in turn fed the tool makers of Birmingham, the locomotive manufacturers of Manchester, and the shipbuilders of Liverpool and London.

Of all the producer groups along the copper value chain, it was the

Swansea smelters who commanded the greatest share of market power. The roots of the Swansea copper industry can be traced to the late seventeenth century, when copper and tin were in high demand by the British Navy which used copper alloys like bronze (copper and tin) for cannons and brass (copper and zinc) for sheathing the hulls of ships. Cornwall was rich with copper and tin ore while just across Bristol Bay, the port of Swansea was near the coal needed as fuel to smelt the ore. 36

Swansea smelters were the vital “go-between” for Cornwall miners and

Northern English manufacturers and their influence was further enhanced by the establishment of cartel in 1844 known as the Copper Smelters’ Association. By that time, Swansea was not only receiving copper ore from Cornwall, but increasingly from Chile and Australia. The cartel agreement remained in effect until 1867, when it was dissolved by its members. The reasons for its disillusion are well-known among British historians, namely the development of smelting facilities in Chile.71 Yet that is only a portion of the story of the collapse of

Swansea. Much less well-known was how those facilities were established in Chile and the connection of those smelters to London merchants who were looking to break Swansea’s hold on copper prices.

Throughout the course of the mid-nineteenth century, British liberals in

Parliament began instituting reforms to old protectionist trade laws like the Corn

Laws and the Navigation Acts. This affected the copper industry in the 1840s when import duties on copper ore were reduced and then in 1853 when

Gladestone’s budget abolished them altogether. By that time, numerous merchants had established trade houses in Valparaiso, Chile and were doing a good deal of business importing ore for British copper smelters.

A few enterprising merchants started smelting operations in Chile. Most notable among them was the firm Henry Bath & Company.

Eventually, these metal merchants opened an exchange to facilitate the marketing of copper and copper contracts from suppliers all over the world. The exchange was founded in 1876 and was incorporated in the city of London as The

Newell, “‘Copperopolis,’” 84. 37

London Metal Exchange Company, Limited. The LME as it was referred to then, is still in existence to this very day and remains the price setting institution for the world’s most important industrial metals. From that day, 23 November

1876 through 1 March 1916, trade on the floor or the “ring” was open to subscribers looking to buy, sell, hedge, and speculate in copper, tin, lead, zinc, and pig iron. And from that day forward, those individuals who produced

(mined, smelted, and refined) red metal were forced to account for the trade activity and price announced by the London Metal Exchange on a daily basis.

Signing as one of the 11 founding members was managing partner, Rudolf

Zunz of Henry R. Merton & Company. At the time, HRM was the London affiliate and metal broker for another metal firm based in Frankfurt. Over the next thirty years, these companies collectively known as Metallgesellschaft rose to become the world’s most influential metal traders – dominating the trade in copper, zinc, lead, nickel, and molybdenum.

During the 1870s and 1880s, advancements in technology and infrastructure initiated significant changes to preexisting industries and cleared the way for new industrial possibilities. The expansion of the railroad into less populated regions opened up new frontiers in production. A natural complement to rail was the telegraph. Telegraphy not only allowed for the safer coordination of rail traffic, but more broadly it allowed information to travel faster than the speed of physical goods. With the successful laying of submarine communication wires across the English Channel in 1850, then from New York to London (1866), and later from India to London (1870) and Valparaiso to London (1874), the window of possibilities continued to widen. Additionally, steamship technology, 38

which had made tremendous strides midcentury, continued to improve in speed,

safety, and consistency with which shipments of people, goods, and information

arrived in port.72

Like many industries, copper benefited from greatly from such advancements. Initially, it was steam power and shipping that caused the greatest disruption in the industry. As steamships replaced sailing vessels, shipments of copper ore or matte (partially smelted ore) from distant lands like Chile,

Australia, and the US, displaced the mining operations in the UK. All major mines prior to 1880 were located on or very near a major body of water.73 These

included major copper mines of Cornwall, Northern Chile, Southern Spain, and

Northern Michigan. Any copper mining operation located near or on a large body

of water reduces transit costs exponentially as shipping is by far the cheapest way

to move heavy and bulky commodities to processing facilities, which were

naturally located near a fuel source, preferably coal. Land locked copper mines

like those in Saxony and Austro-Hungary were processed at nearby timber fueled

smelting facilities. The copper from produced in Central Europe was consumed

regionally.74

As rail track penetrated the wilderness of both core and peripheral nations,

new, interior-based large-scale mining projects became economically feasible and

profitable. Prior to rail, the development of waterways, canals, and national roads

had increased productivity in farming and mining and remained viable well into

the late nineteenth century so long as the areas of raw material production were

72 The Unbound Prometheus. 73 74 Landes, Chancen Und Grenzen. Newell, “‘Copperopolis.’” Zachäus, 39

not too distant and their products not too bulky. Gold and silver ore for instance,

could be profitably mined, milled, and transported by donkey with the proprietor

still able to fetch a profit by 1890. Yet, when it came to mining copper, a metal

that might only yield (at best) 100-200 pounds per ton of ore, rail proved to be critical. Sending loads of copper downstream on a barge was risky. Rail provided lowered the risk of transporting the good. Railcars could handle up to 25 tons of ore or metal. Rail also raised the speed at which the good could be transported to a port for processing and sale.

Of all the technologies, however, telegraphy was perhaps the most impactful when it came to reducing transaction costs related to information asymmetries that had long hindered the large scale sales and coordination of copper.75 Telegraphy affected the copper trade at every interval. First, it made

coordinating the supply of equipment, men, and capital fast and convenient between the mining cite and the central offices. Second, telegraphy improved the communication channels for the sale and specificity of goods by providing advanced notice as to the price, supply, grade, shape, and date of delivery.

Finally, the telegraph connected the producer to international commodity markets and financial centers located in London, Paris, and New York. By 1880, the evidence of improvement stemming from the technology could be seen in the growth of very specific institutions and companies.

1.2 European copper consumers and the metal traders who supplied them

75 Engel, “Buying Time.” 40

In 1879, the same year that three important mining discoveries were made

in Montana and Arizona, Thomas Edison was busy figuring out how he could

finance and profit from lighting nine city blocks in New York. He calculated that

he would need “800,000 pounds of copper” which he guessed would cost him

over $200,000 for the materials alone. “To light all of New York City would cost

billions!” he wrote in his journal. Many experts were even more pessimistic at the

prospect of electrification. Some argued that there simply was “not enough

copper in the world” to make Edison’s dream a reality.76

Halfway around the world, Werner Siemens was building his electrical

equipment empire in Berlin and was running into similar supply problems. His

invention of an efficient electrical generator in 1867 had put Siemens & Halske on

the map, but the country was experiencing high prices relative to its trading

partner, Great Britain. Although Germany produced more copper domestically

than GB, its import networks were not nearly as developed.

Real Copper Prices 120.00

110.00

100.00

90.00 Germany

Ton 80.00 UK 70.00 US

60.00 2010 Metric /English Pounds 50.00 1870 1871 1872 1873 1874 1875 1876 1877 1878 1879 1880 1881 1882 1883 1884 1885 1886 1887

76 Quentin R. Skrabec Jr, The Metallurgic Age: The Victorian Flowering of Invention and Industrial Science

(McFarland, 2005), 205. 41

As Siemens was preparing to unveil his newest invention, the electric streetcar at the Berlin Trade Fair, it appeared that new or improved sources of supply would

be necessary if the company was going to expand.77

One person who understood the necessity of new sources of copper and

the opportunity it represented was Wilhelm Merton. Merton was the director and

part owner of a regional trading company known as Philip Abraham Cohen & Co.

P.A. Cohen & Co. had traded metals, most notably copper, zinc, and silver, for

over 50 years, and the company leadership was beginning to shift their focus

from domestic to international opportunities. The decline of productive

capability of the “old world” copper deposits had become all too apparent and

Merton, more than anyone else in Germany at the time understood that the

growing needs of the electrical and munitions industries could no longer be

satisfied by the copper mines of the Harz Mountain region.78

German Copper Production and Consumption, 1879-1890

5000040000

30000

20000

10000

Metric Tons (2204 lbs) Tons Metric 0 1879 1880 1881 1882 1883 1884 1886 1887 1888 1889 1890

Production (domestic ores) 1885Consumption of Raw Copper

77 Georg Siemens, History of the House of Siemens, vol. 2 (Arno Press, 1977). 78 Hans Achinger, Wilhelm Merton in Seiner Zeit

(W. Kramer, 1965), 43. 42

Wilhelm Merton had come from a long line of distinguished metal traders

and the lessons passed down helped shape his entrepreneurial vision for MG.

Merton’s metal trading heritage stemmed primarily from his mother’s side of the

family. Henrietta’s family name was Cohen, and beginning in the early eighteenth

century they had been involved in the financing and sale of Harz mountain

metals.79 In 1821, Wilhelm’s grandfather, Phil. Abraham Cohen, moved from

Hanover to Frankfurt am Main and began dealing exclusively in metals and dropped the banking side of the family business. Frankfurt at that time was considered a “free city” which meant that it had a greater degree of autonomy and thus greater control over trade rules. Cohen benefited from living in such a city where Jews also enjoyed a greater degree of freedom relative to other cities. 80

Years later in 1835, a Londoner by the name of Ralph Moses immigrated to

Frankfurt am Main. Moses who soon changed his last name to Merton, had come

from an English family of merchants and eventually found work in the office of

Philipp A. Cohen. Merton and Cohen must have gotten along well because

Merton ended up marrying Cohen’s daughter, Sarah in 1843. By the 1856, Ralph

Merton had assumed ownership (along with Philipp Ellinger) of Firma P.A.

Cohen.81 In 1860, Ralph Merton sent his eldest son, Henry, back to London to

79 In the eighteenth century, the silver and copper mines of Clausthal (near Goslar) fell under the control of the House of Hanover, which also happened to be part of the Great Britain after 1714. The Cohens (and their ancestors the Behrens) served as advisors (Hofjuden) to the Hanoverian Prices for several generations, with some members receiving the title Koeniglich Hannoversche Bergfaktor.79 Part of their commercial responsibility was to sell that silver to different mints around Europe. Any copper that was extracted and smelted was sold to foundries, typically in Bavaria. 80 81 Achinger, Wilhelm Merton in Seiner Zeit, 27–31. Auerbach, “Jews in the German Metal Trade,” 192. 43

start a metal brokerage firm that would give Firma Cohen greater access to new

sources of copper arriving from the Americas. According to Wilhelm Merton’s

memoirs, Ralph Merton invested as much as half his entire fortune in order to get

the London branch up and running. Though the company had trouble breaking

into the London copper trade, it was a move that paid off very well by the

1870s.82 A few years later, Wilhelm joined his brother and accepted a permanent

associate position at Henry R. Merton & Co., which he held until 1876. The timing

of his tenure in London could not have been better for a man interested in metals, particularly copper, and the business of trading them.

The domestic supply issue that Germany was facing at the time was a problem the British had previously navigated during the 1860s. Like Germany,

Britain had historically produced enough copper to meet demands of both the state and industry during the eighteenth and nineteenth centuries. But as demand increased with industrialization, many merchants found it profitable to begin hauling copper ore back with them from places like Chile, the US, and

Australia. They sold this ore to the smelters at Swansea, who in turn sold it manufacturers in Birmingham and Manchester. One can see in the graph below that by 1860 foreign ore eclipsed domestic ore in production. Later merchants ceased hauling ore and focused on Chile Bar copper, a move which dramatically reduced the power of the Swansea Producers’ cartel.83

82 B. W. de Vries, Of Mettle and Metal: From Court Jews to World-Wide Industrialists

83 16(NEHA,-21. 2000), 91. “Returns Relating to Foreign Trade,” Parliamentary Papers (1882), vol. LXVII, pp. 44

Copper Supply in Great Britain, 1854- 1884 60000 50000 40000 30000 Imported Bar

Axis Title 20000 10000 Production (Domestic Ore) 0 Production (Foreign Ore)

1854 1857 1860 1863 1866 1869 1872 1875 1878 1881

Wilhelm Merton settled in London to work for his brothers firm, Henry R.

Merton & Company in 1872, and it proved a particularly good year to be trading

copper in London. The city had become, in the words of notable local dealer

Henry Rogers & Company, the “holder of the world’s production of copper.” The

red metal poured in from all corners of the world feeding the enormous appetite

of the locomotive and telegraph industries around the Atlantic as well as the

speculative appetite of metal brokers like Henry R. Merton & Company.84 In the annual report for the Economist, London metal brokers Vivian, Younger & Bond noted that “the year 1872 has been one of great activity in all branches of the metal trade and notwithstanding extreme fluctuations in price, difficulties with workmen, and scarcity of fuel, the copper trade has had its share in the general prosperity.”85

84 Exchange Archive, Box 1. “Henry R. Rogers & Sons London Price Current,” 6 JuneEconomist 1872, London Metal 8534. “Commercial History and Review of 1872: Metals,” (15 March 1873), 45

Just as young Wilhelm was arriving, “the City” was emerging as the undisputed center for international metal finance and trade. In 1875, total British foreign direct investment in non-ferrous metal mining was about £11.3 million

with two-thirds of it going to Spain and the United States. Within twenty years,

the figure would reach £85 million and was spread out to 415 different companies

around the world.86

It was no coincidence that Britain came to lead the world in overseas mining investment and trade. The foundation of having led the world in the

production of copper, tin, and lead for most of the eighteenth and nineteenth

centuries had not only brought financial success but also contributed to an

immense accumulation of knowledge of management techniques as well as in of

mining and refining technology.

Indeed new technologies were changing the way copper was bought and

sold at the same time he was living in London. As the first transoceanic cables

from Valparaiso and Australia reached England in the mid-1870s, news of tin and copper production and shipments from Southeast Asia and Chile were now readily accessible. This meant that metal could be secured in advance of its arrival. Vital information regarding grade, shape, and quantity, facilitated trade between foreign producers and domestic consumers, prompting new systems of marketing known as futures markets. In the middle of this was Wilhelm Merton,

86 –1914,” Business History The most notable investment in copper duringCharles that Harvey period and came Jon in Press, 1873 “Thewhen City merchant and International bankers Matheson Mining, &1870 Company 32, no. 3 (1990): 102. in southern Spain that would become Rio Tinto Company, a group Merton would do muchteamed business up with with the Londonin the 1880s. Rothschild Exploration Company and purchased mines 46

who was able to observe firsthand how telegraphy and futures exchanges in

London came to revolutionize the trade in commodities like copper.

1.3 The Founding of the London Metal Exchange and how it worked

Of all the nations in the West, Britain was the first mover in harnessing the advantages of futures trading. Futures markets (a.k.a. commodity market exchanges) where an adaption of earlier public markets where buyers and sellers

congregated to exchange physical goods for cash or other physical goods (i.e.

bartering). Over time, as trading norms developed many commodities became

standardized in quality and measurement, allowing traders to leave the physical

commodity in a public warehouse and instead merely carry a contract (aka

warrant) that indicated his holdings and that had been approved by a reputable

third party. In London, the Royal Exchange functioned as the central market for

wholesale traders and producers for centuries with certain corners of the

exchange designated to certain types of trade. Copper merchants met at the Royal

Exchange and at nearby coffeehouses like the Jerusalem Café to buy or sell their

goods before 1868. As trade in Chile copper and Malaysian tin began to build

momentum, a number of metal merchants (including HR Merton & Co.) started

their own exchange. This was known as the Lombard Exchange and it was in

operation until 1876. That year, a group of 12 metal merchants and brokers left

the Lombard and opened the London Metal Exchange. Henry R. Merton &

Company was one of the original 12 members of this institution.87

The London Metal Exchange Article of Incorporation, National Archive at Kew, London, England, 47

Founded in 1877 in the financial district of London,88 the LME quickly

rose to become the center of the world of copper and tin by offering a twice daily

“open outcry” bidding session for affiliated metal brokers and traders.89 The

Exchange or “’Change” as it was (and still is) referred to by the traders, took place in the morning from 11.30 to 12.15 and again in the afternoon from 3.30 to 4.00.

News of tin and copper shipments from Malaysia and Australia were received in the morning before “Morning ’Change.” Afternoon ’Change was immediately preceded by a meeting of a pricing committee, which published a daily price quote for both cash (spot) and 3 month copper and tin. Those prices were then quickly wired to all the major financial newspapers around the world – available

in the US at midday just as sales agents for producers and metal merchants all

with offices near Wall Street were taking lunch. As the midway point between the

largest producing countries and as the gateway to the largest industrializing

nations of Europe, London maintained its supremacy in the world of copper.90

Before the LME, prices had been inconsistent. Major producers, above all those in Swansea, Wales, set a general “list price” but what consumers actually paid was unknown. Additionally, those metal merchants who published weekly

“price currents” also diverged from one another in their price listings. Prices began to converge starting in 1872, a few years after the founding of the Lombard

Exchange, the precursor to the LME. It was there that in addition to “spot” or

88 relocated in 1882 to Whittington Ave where it remained until the 1970s. 89 First Exchange was above Christy’s Hat Shop on Lombard Court. They then

“Memorandum of Association of the London Metal Exchange Company, Limited,” 2290 Godfrey November Harrison, 1876, BoardVivian, of Younger Trade (BT) & Bond: 31/2286/11010, A Century of Metal National Brokering, Archives 1859 at- Kew 1959Gardens, London, England.

(London, 1959), 29. 48

“cash” transactions made for immediate delivery, three month “to arrive” copper

became an option for buyers. This was largely a manifestation of reliable

telegraphic connections with Valparaiso, Chile and Australasia, which

appreciably widened the time intervals between news of the delivery and actual

physical delivery of goods.91

“To arrive” or forward delivery of copper enabled dealers to take advantage of good prices in the present; thus immunizing themselves from the possible effects of a subsequent fall in price. In 1883, a new financial instrument was introduced at the LME known as a “time bargain” or “futures” contract. Trading in futures was a concept pioneered by grain merchants at the Chicago Board of

Trade in the 1860s and quickly adopted by cotton dealers in New York and

Liverpool.92

The trade in futures contracts effectively applied the concept of

standardization to the trade in goods.93 It was the standardization of terms and

agreements for delivery (times and places), of the acceptable metal grades and

brands, and also the expected units or lots: together, these elements create a

trading environment in which buyers and sellers only need discuss the price and

the date of delivery. Thus the “standard” futures contracts on the LME greatly

increased the speed with which buyers and sellers could locate one another –

reducing transaction costs in the process.94

91 The Economic Intelligence Unit, The London Metal Exchange, 33. 92 Agricultural History, 1982, 306– 93 Burns,Jeffrey AC. TreatiseWilliams, on “The Markets Origin. of Futures Markets,” 94 The316; Economic Lipartito, Intelligence “The New Unit, York The Cotton London Exchange.” Metal Exchange, 39–41. 49

This price differed from the “spot” price in that it reflected the obligation

to deliver an agreed upon shipment for a specific date in the future at a

predetermined price. The future price, therefore contained (theoretically) not only the value of the metal, but also the carrying costs (i.e. warehousing costs and interest) accrued over the course of three months. Whether the physical copper was ever delivered depended upon the buyer. If the buyer demanded physical delivery then it must be done otherwise the seller would lose his license to trade at the LME. This became a major issue for some LME firms during the Secrétan copper corner in 1888 (see chapter 2). Often times, the metal was not delivered because delivery of goods was not important. What was important was the ability of the contract to “insure” or hedge a separate private commitment to buy or sell physical copper.

The futures contract could be used as a method of money lending. Buying forward 50 tons of copper at £80 per ton to be delivered in three months for

£4000 also meant that the seller who would have received a security note for

£4000 on that first day to do (invest/speculate) with as he wished for the remainder of the term (three months) until the date of maturity. When the contract did mature, he owed 50 tons (or the monetary equivalent) of standard copper. Whether he had profited or lost from the contract depended on the spot market price on the date of maturity.

This was possible thanks to the standardization of expectations in terms of quality, quantity, as well as the time and place of delivery. The rules of the 1883

“landing” contract state that all copper imports are to be issued in warrants “for

25 tons each.” The contract permitted only the delivery of Chili Bar Copper 50 brands for ninety-six per cent pure copper and “a pro rata allowance to be made should the assay prove less than ninety-six per cent, but no excess to be paid for.”

The place of delivery could be at any of the approved warehouses in London, or to

Henry Bath & Sons warehouse in Liverpool as well.95 An extensive rules list was printed on the back of every contract covering payment methods, the verification of weighing and assaying of metal, as well as the arbitration procedure for those who failed to deliver on their end of the contract.96

Perhaps the most important rule, and what a marked point of difference from many grain and cotton commodity markets at the time, was that delivery of goods was mandatory if the contract reached its maturity date. The notion of

“setting off” was not an option until the inauguration of the LME Clearing Room

(a.k.a. clearinghouse), which commenced on 20 November 1890 in the wake of the Secretan Syndicate corner, an event considered in detail in Chapter 2. It was often the case however that delivery was not necessary through the contract at the exchange for two reasons: First, copper was freely available on the spot market in London and could be gotten quickly for the fulfillment of industrial need or contract within a matter of 24 hours. Second, most contracts, then as now, were used to hedge a private contract arrangement, and thus the physical lot was never really desired. Typically, the only time physical delivery took place was if copper stocks were tight or in “backwardation.”97 In fact it was necessary to

- 95 , Box 1, Blue Folder, page 2. 96 For“London list of Metal rules Exchange,of 1883 Contract 1877 1926: see ”Chili Notes Bar on – Membership Contract D,” andThe RuleJournal Changes,” of the SocietyThe London of Chemical Metal Exchange Industry Archival Collection -63. 97 Backwardation is when spot prices are higher than futures prices. The normal state of futures trade is Contango,, volume with 5 (27 futures February prices 1886), higher 62 than spot prices 51 have stored in warehouses a good amount of readily available stock for the instances when delivery was necessary.

The challenge and major feat of the LME Subscribers’ Committee was in their ability to design a contract that both enticed buyers and sellers to deal in actual metal via the exchange at least some of the time, while also designing a contract whose prices correlated the prices of ore, matte, and refined metals that were being sold privately amongst miners, smelters, refiners and fabricators. The beauty of the Chile Bar was that it was still used in industry by some fabricators of pipes and tubes, but was not the most desired copper commodity because of its purity level. Thus most private contracts between brass or wire manufacturers and producers (i.e. smelters and refiners) were made for a precise quality and quantity of copper while the futures contract they executed in conjunction was based on Chile Bar. The price of Chile Bar fluctuated in conjunction with the price of other purer brands from the US, Spain, or Australia, but of all the brands available Chile Bar was the only one approved for delivery during its early years of the Exchange. 98

because interest rates and warehousing fees are natural costs that come with holding metal over a period of time. 98 and lead could not be guaranteed within a reasonable margin of error prior to the Unlike copper and tin, which were typically of uniform quality, the quality of zinc customarily stored in warehouses or wharves prior to delivery. These non-ferrous metalsintroduction were tooof electrolytic bulky in relation refining to techniques.their value andBoth thus zinc too and expensive lead were for not storage. directly and dispatched to consumers by rail. The warrant used referred to a specific lotTypically, of metal lead consigned and zinc to (i.e. a named Spelter) destination were sold and for wascash not and negotiable usually unloaded during transit. For both metals, since they were not held as warehouse stock, the unpredictable essentially markets in physical metal. Pig Iron was first offered at nature of delivery made hedging impossible. Thus the lead and zinc markets were the Lombard in the 1870s and at the LME beginning in 1890. Most dealers specialized in Pig Iron or 52

1.5 Merton from London to Frankfurt

In the midst of Merton’s tenure came what many in Germany referred to as the “Gründerkrach” period or in the English-speaking world was the

Depression of 1873. At that time, liberal lending policies, the over development of rail, as well as new political boundaries in the aftermath of the Franco-Prussian

War combined to create the catalyst for a massive depression that lingered for years, and in the case of GB for decades to come. In the world of copper, competition amongst producers in Great Britain, Spain, Chile, the US, and

Australia had been fierce and as the general western economy slowed so too did metal orders and prices. Merton was thusly exposed to both the realities of an interconnected world economy that could go from boom to bust quite rapidly.

Nevertheless it was his opinion that mining companies and manufacturers were often more exposed during depressions than were the intermediaries, who while losing business were often given shares in mining firms to whom they had previously lent money.99

As the Depression wore on, it became clear to Wilhelm the Frankfurt

branch of the Merton concern that held more opportunities. Foremost was the

Copper and Tin, but usually not both. Pig Iron had its own unique trade features. very

London did not have a pig iron physical holding capacity and therefore deli thetrade business. (spot) was Arbitrage mainly was in Manchester, not a factor Leeds,because and delivery Birmingham. anywhere Glasgow between and London were many used byroughly hedgers the and same speculators, cost and time. with TheGlasgow market getting remained most of until 1914, but vertical integration in the steel industry dramatically reduced the London and Glasgow was Metal Exchange, 1877- rship and Rule Changes,” Metalamount Exchange of pig iron Archival in storage Collection and thus, Box the 1, marketBlue Folder, in warrants page 2 -decline.3. “London 99 Achinger, Wilhelm Merton1926: inNotes Seiner on Zeit Membe, 31. The London 53

fact that Wilhelm’s father Ralph was growing older and looking to retire. It was

also clear that little room for upward movement existed at H.R. Merton & Co.

with both Emil and Zachary Merton “an der Spitze” of the London firm. The

decision was in the end an easy one for someone with the desire to lead; Wilhelm

returned to Frankfurt and took over as leader of P.A. Cohen & Company in

1876.100

Both the London and Frankfurt firms had reciprocal stakes in each other’s

firms. In order to take over at Firma Cohen, Wilhelm had to purchase shares

from the London firm for about M1,000,000.101 With a two-thirds majority

ownership of the Frankfurt firm (he received his father’s share while Leo Ellinger

owned one third), Wilhelm began considering the advantages of forming a joint

stock corporation under the German Incorporation Law of 1870.

On 17 May 1881, the former family partnership of Phil. Abr. Cohen was

converted into a joint-stock company (“Aktiengesellschaft”) under the new title of

“Metallgesellschaft”. Metallgesellschaft literally translates as “Metal Company.”

The central office was located in Frankfurt on Junghofstrasse 14, and was rented

from Bankfirma E. Ladenburg, the same Ladenburg family with whom MG

conducted business with in New York. The capital stock of the company was

M2,000,000 (or $500,000) with one share equal to M500. The only

shareholders were Ralph and Wilhelm Merton with M662,500 each, Leo Ellinger

with M662,500, and the company’s head consular Dr. C. Hamburger with

M12,500. The Board of Directors (der Aufsichtsrat) was made up of Chairman W.

100 Achinger, 21–22. 101 Antje Hagen, Deutsche Direktinvestitionen in Grossbritannien, 1871-1918 Steiner Verlag, 1997). (Franz 54

Merton, Leo Ellinger, Dr. C. Hamburger, and Zachery Hochschild. The aim

(Zweck) for the company as described in its bylaws was “the trade in and the

fabrication of metals and metal ores.”102

For Merton, the key to building an international firm was not necessarily

to grow in size in terms of capital or employee numbers, but rather to grow their

“knowledge of the metal marketplace.”103 Initially, Merton confined his

operations to continuing the trade of copper and other non-ferrous metals by

expanding the trade agencies he inherited from P.A. Cohen. The trade of the

Cohen firm was largely concerned with distributing copper produced in Saxony in

the Harz Mountains to metal fabricators in Bavaria. Merton chose to expand his

agency network into other parts of Germany like Berlin, Cologne, Leipzig,

Dresden, and Hamburg, while also establishing trade houses throughout greater

Europe in Vienna, Paris, Lille, Basel, Amsterdam, Brussels, Milan, Stockholm, St.

Petersburg, and Moscow. In addition, Merton also insisted on maintaining a tight

relationship with Henry R. Merton.

The relationship between these two firms was described by Merton as a

“Meta-Geschäfte” or a joint business venture. In 1882, both companies purchased minority shares of each respective firm and shared in the profits as well when dividends were distributed. This effectively kept each company out of the other’s

domain, incentives both groups to uphold their agreements that MG would

102 Fünfzig Jahre Metallgesellschaft, 1881-1931 (Frankfurt am Main, 1931), 69. 103 Walther Däbritz,

“Wohl wurde der aus der Kenntnis der Marktlage.” Däbritz, 75. 55

handle sales in Europe, while H.R. Merton & Co had exclusive rights to the UK

markets.104

Yet, as valuable as this relationship was between the London and

Frankfurt firms, Wilhelm Merton began to sense that his connections to the US via Ladenburg, Thalmann & Company might prove even more profitable in the long run.

1.6 The US Producers: The Michigan Pool, 1870-1880

The dynamic growth experienced by the US copper industry began in

1845 with the discovery of the Cliff lode and then the Minesota Mine (1848) at the

northern tip of the Upper Peninsula in Michigan. The Michigan “native” copper

ores were exceptionally rich, and was mined in nuggets – like gold.105 After a slow

beginning, the Civil War jumpstarted the Michigan industry and became the

primary copper producer for the Union.106 Manufacturers and fabricators of

bronze goods, brass-handled swords, belt buckles, medals, and brass ammunition

cartridges all required significant volume of copper and the dividends of

companies like Calumet and Hecla (then two separate companies) were

substantial. The good times came to an end, however, with the conclusion of the

war. The slack in demand prompted many firms to close up or consolidate.107

104 Hagen, Deutsche Direktinvestitionen in Grossbritannien, 1871-1918. also responsible for carrying out the company hedging strategy. Gates, Michigan Copper and Boston Dollars, 29. London was 105106 The Confederacy, on the other hand, received its copper from Ducktown, Tennessee. 107 Gates, Michigan Copper and Boston Dollars

, 45. 56

At the international level, miners in Chile, Australia, and Cuba and

smelters in Swansea, Wales and Liverpool proved much more efficient in the cost

of production. Most Michigan producers could simply not compete at that level.

Gradually, the copper mining communities of Michigan (and their investor base

in Boston and Pittsburgh) began lobbying political leaders for increased

protections against imports. Protections already were in place for brass and wire

manufacturers in New England, they argued, why not provide Michigan

producers the same convenience? Opposed to any kind of duty on copper imports

were of course smelters and refiners in Baltimore and New York, Maine

shipbuilders, as well as the Connecticut brass fabricators. Any increase in the price of copper would come directly off their bottom line. Fortunately for the

Michigan miners, the Reconstruction Era was dominated by a Republican Party largely made up of northern industrialists and workers in favor of protectionism.

Eventually, the pro-tariff forces garnered enough support amongst western members to override Andrew Johnson’s veto and in 1869 the Copper Tariff Act passed by a margin of 38 to 12 in the Senate and 115 to 56 in the House.108 The new law raised taxes on imports of all types of copper.109

While it is possible that the US copper industry could have developed

regardless of the tariff protections, the tariff seemingly catalyzed the fledging

copper industry and within a decade the US went from an importer of raw

108 Frank William Taussig and Harry Dexter White, Some Aspects of the Tariff Question: An Examination of the Development of American Industries under Protection (Harvard University Press, 1931), 161. 109

Tariff Rates: Copper Ores (3 cents per pound of fine copper content); Regulus (4 cents per pound); Old copper, recycled (4 cents per pound); Bars, ingots, and plates (5 cents per pound); Brass and wrought copper (45 percent ad valorem). 57 copper, to an exporter (see table 1).110 To what degree the tariff helped the United

States to develop its domestic copper industry is debatable, what is not debatable is the fact that Michigan producers, now thoroughly protected against imports, quickly rallied to organize the Michigan Copper Producers’ Association in the hopes of maximizing profits from their largely captive American market.111

Table 1: US Foreign Trade Balance in Unmanufactured Copper, 1864-1882 Year and Balance in Pounds of Copper

- 1864 15,895,000 1874 -968,000 1866 -2,690,000 1876 12,578,000 1868 1,071,000 1878 11,857,000 1870 7,237,000 1880 -1,350,000 1872 -4,580,000 1882 3,105,000

Throughout most of the 1870s, Michigan producers maintained their cartel by limiting competition among the Lake Michigan firms.112 With the tariff in place dissuading European and Chilean copper from entering the US market,

American consumers were obliged to pay a premium of about 25.0% above the

London (European) price during the 1870s.113

110 111 Gates, 243n66. 112 Gates,Pettengill, Michigan “United Copper States and Foreign Boston Trade Dollars in ,copper,” 46. Michigan dissertation, producers pp. often 57b, 89b.dumped copper on the European market whenever domestic demand neared its saturation point with the tariff giving them a fair amount of cover from the competition abroad. 113 - data from Martin Stuermer of the Dallas Federal Reserve suggests that the Gates claims the difference was between 5 10 percent on average. Nominal price difference between the New York and the London price was substantiallyin the higher. appendix.Note that in this dataset, the cost of insurance and freight (cif) of 5 percent has been subtracted from the London spot price. Nominal pricing data is listed 58

Percentage Difference NY - London Price 60%

40%50%

30%

20%

10%

0% 1870 1871 1872 1873 1874 1876 1877 1878 1879 1880

1875 The Michigan Pool sold their copper to brass and copper manufacturers and only

in large blocks of between 7,000,000 and 8,000,000 lbs. (3500-4000 short

tons). Many manufacturers did not like to purchase in such bulk (many others

could not afford to buy in such quantities) and often sought to offload their

excess to smaller manufacturers or merchants. In the case of the metal merchant

(or middlemen as he was sometimes called), he worked as a kind of metal

retailer, buying the manufacturers extra copper in bulk (maybe 50 tons at a time)

and then selling it to foundries and custom fabrication shops by the pound.

This “dealing” was not acceptable to the Michigan Copper Producers

Association. By the mid-1870s, Michigan producers went to great lengths to keep

their product out of the hands of brokers, traders, and merchants. Their fear was that floating copper in the hands of traders could be accumulated and later sold at a price different than the Association or “producer’s price.”114 By undercutting

114 association. It is not necessarily reflective of the actual price customers pay, only a ballparkThe “producer price provided price” voluntarilyis the price by quoted industry by the leaders. lead producer This is differen or producers’t than the 59

the producer price, enterprising traders and speculating manufacturers created a

less predictable, free market, thereby reducing the purchasing power of the cartel.

Built into each supply contract was a clause stating that manufacturers were

prohibited from reselling the copper domestically. Whether the clause was legal

was another matter. What was made clear to the manufacturer was that such

“speculative” behavior would not be tolerated; the consequence of violating this

agreement was that a buyer might be blackballed from doing business with the

Association in the future. This was a common tactic used well into the 20th

century.

The producers’ threat had an impact. Disgruntled New York metal traders aired their grievances in the Engineering & Mining Journal, then the country’s premier weekly newsletter, on the business of mining and metals. As one metal trader complained in a letter to E&MJ, “the bulk of the trade is now done directly between producers and large consumers and the metal in many cases does not even get to the great centers of distribution. This makes our market here so lifeless.”115 Compared to the trading that was going on in London, it most certainly was.

Some traders found ways of getting around the Michigan producers’ anti-

competitive contract by selling metal overseas and then re-importing it. The

American producers’ contract allowed for such sales, as they often used

merchants when selling overseas as well. Thus, some merchants would be sold

market base price published by open market dealings at commodity exchanges. Transparency is the key difference. See -Ferrous Metals,” Resources Policy –220. E&MJ, Margaret E. Slade, “The Two Pricing Systems 115for Non 15, no. 3 (1989): 209 “Metals: Copper,” vol. 34 (5 Aug. 1882), 76. 60

copper directly from the producer but with explicit instructions to only sell it in

foreign markets. Bold merchant groups like the Lewisohn Brothers who were

originally from Hamburg were never very good at following rules. Adolph

Lewisohn recalled this experience exporting and then re-importing Lake Copper from abroad years later:

In the year 1878 we availed ourselves of an opportunity to buy and reimport Calumet and Hecla copper which had been exported to Europe in order to relieve the American market. The import duty on foreign copper at that time was five cents a pound, but American copper which had been shipped to Europe could be reimported without payment of duty if certain customs regulations were complied with. These regulations, however, present singular difficulties. For instance, the copper had to be reimported in the original package – meaning the ingots and their original casks . . .. The regulations also required that the party who originally received the copper in Europe should give a certificate to those who intended to reimport it. The people [in Europe] who sold us the copper could not furnish this certificate. However, we took a chance that the government would not exact duty on this copper, as it could easily be ascertained that it was an American copper, there being no copper like it produced anywhere else in the world. Therefore, in spite of these adverse conditions, there was a fair opportunity for speculation, for if we could avoid the duty we could get three or four cents per pound profit by shipping the copper back here. We were successful in this operation.116 The Lewisohn Brothers went on to find another way to disrupt the copper market. A year later, in 1879, the Lewisohns invested in an argentiferous copper mine in Montana. Around that same time, dozens of other miners were digging around and laying claim to parcels of Butte Hill and even some adventurous souls were heading down to Arizona in search of copper, silver, and gold. As the railroads continued to expand these areas became viable competitors to the

Michigan producers and helped break their hold on the copper trade in the US.117

Before continuing on to development of Montana mining and the looming price

116 -

117 E&MJ“The Citizenship of Adolph Lewisohn: An Autobiography,” 105 106. John L. Loeb Collection, AR 6558, Leo Baeck Institute, Center for Jewish History, New York. , vol. 34 (16 September 1882), 145. 61

war, our discussion will turn to the way markets for copper were developing in

Europe in order to maintain a level of chronological adhesiveness.

1.4 New competition in America and a global price war erupts

Up until 1870, the only minerals considered worthy of excavation in the western parts of the US were gold and silver. The precious metals were of such value that they could excavated from a lode of ore or panned by placer miners in river beds in small quantities, and then shipped out in sacks on donkeys and still turn a profit. Copper, on the other hand, sold at one hundredth the price of silver and was typically not worth the hassle.118 The key for copper production out west

was rail access, and by 1880 the US had exceeded 100,000 miles of track.119

Although a number of small copper producers existed by the late 1870s, three groups that came to break the combination of the Michigan producers emerged in Montana. These groups were led by William A. Clark, Marcus Daly, and the Lewisohn Brothers of New York – all of which ended achieving

tremendous success and notoriety by the centuries end.120

William Andrews Clark came west in the early 1860s after abandoning his

post as a Confederate soldier. Raised in Iowa, he began laboring as a miner

during the rousing days of the Montana gold rush. After sub-prime earnings as a

gold miner, Clark saw opportunity in selling dry goods and equipment to those

less prepared fortune seekers arriving west in search of precious metals. By 1872,

118 Michael P. Malone, The Battle for Butte: Mining and Politics on the Northern Frontier, 1864-1906 119 Copper Mining and Management, 112. 120 Copper Mining, vol. 4and (University Management of Washington. Press, 1985), 10. Navin, Navin, 62

Clark had amassed enough gold through his merchant activities that he opened a bank near Butte at Deer Lodge, Montana. Clark’s First National Bank gave out loans to those seeking to develop silver mines in the region. Often these mine owners would default on their loan and thus the property was turned over to the

First National Bank. By 1879, Clark had accumulated a number of silver mines that turned out to be excellent copper mines as well, and it was not long before he was had an army of men working them.121

Marcus Daly was miner born in Ireland who had worked his way up the ranks as a prospector by being able to “see further into the ground” than most metal men at the time. He initially had made a name for himself by working with

George Hearst. Daly had recommended to Hearst a silver mining property in

Utah called the Ontario and the mine became the basis for the great Hearst family fortune. While Hearst went on to develop gold mines in North Dakota,

Daly found his way to Montana in search of silver.122 Daly was offered the rights to a promising silver mine known as the Anaconda for a sum of $30,000. He did not have that kind of money readily available, and so he sought out the help of his former benefactor and friend, George Hearst who then brought in two other San

Francisco elites, Lloyd Tevis and James Ben Ali Haggin.123

While silver had drawn Daly to the area, it was not long before he realized that copper was also abundant in the same orebody, a feature that is not uncommon in nature. Upon reaching a depth of 100 feet, Daly found a copper

121 Malone, The Battle for Butte –16. 122 Copper Corner,” The Pacific Northwest, 4:10 Quarterly –14. 123 Kenneth Ross Toole, “The Anaconda Copper Mining Company: A Price War and a 41, no. 4 (1950): 313 Toole, 315. 63

streak a few inches wide running through the vein. The following year, at the

300-foot level, the streak had turned as wide as standard gauge rail track. It was

at this point that he invited Haggin and Hearst to visit what he hoped to convince

them was a serious copper mine. This would not be an easy feat given the

transportation limitations in Montana in 1882. In order to replicate the kind of

profitable copper mines that existed in other parts of the world, the Anaconda

crew would need to import a great deal of mining and milling equipment. They

would also need a smelter and a serious fuel source to at least reduce the ore to

matte in order to make transit costs. While 7000 people were mining in the

region, all Hearst saw when he arrived in 1882 was lonely, emptiness in every

direction. Hearst needless to say was skeptical, doubting Daly could compete with

the likes of the Superior mines, with their water transportation, high grade

“native” copper, smelting advantages, not to mention their cooperative selling

arrangement. Daly responded that the quantity of copper in Butte was so great

that, given the proper funding, he could transform the area into the largest

copper mine on the planet.124 Haggin sided with Daly and the two of them soon convinced Hearst to go along.

Anaconda began shipping copper ore to Swansea in 1882. Plain ore was rarely shipped at that time (usually a concentrated version called matte was shipped), but the Butte product was rich enough to make up for the high transit costs. Additionally, Butte copper ore contained large amounts of silver - a feature not uncommon in non-ferrous oxide ore. The returns from sales to Swansea were

124 Malone, The Battle for Butte –28.

, 4:26 64

impressive. During the year 1883, Anaconda Copper Company earned more than

$1.7 million in gross profits from the 23,000 tons of or they shipped to Wales.125

In March of 1883, Engineering and Mining Journal reported a significant

drop in the per pound price of copper. From 1882 until the spring of 1883, copper

sold for around 18 cents a pound. When the price unexpectedly sunk to 15 cents,

many speculated that the mines in Montana as well as those in Arizona were

destined to fail. It turned out the source of the drop in price could be traced to the

Lake Producers, who had begun to view the miners out west as unnecessary

competition riding the coattails of the Michigan pricing agency.126

Marcus Daly, mine manager of Anaconda decided to invest more for mine expansion and also build a large smelter in order to lower costs in response to the price cutting efforts by Calumet & Hecla. The smelter was finally up and running in early 1884 and was consuming 150 tons of coal and 70 cords of wood on a daily basis. The increased production was wreaking havoc on the European markets, driving down prices as more American copper was dumped on London,

Liverpool, and Le Havre. At the same time, technical journals were running articles on the superiority of copper use in telegraphy and the possibility of electrification. With New York prices dropping again in the fall of 1884 to 12 cents per pound, so too did the “sub-luxury” status of copper.127

125126 EMJ 127 Toole, “The Anaconda Copper Mining Company,” 318.316. , Vol. 35 (7 April 1883), 187. Toole, “The Anaconda Copper Mining Company,” 65

US Copper Production, 1875-1887 90,000 80,000 82,300 70,000 71,600 60,000

40,000 50,000

Tons Metric 30,000 21,300

20,000 10,000 32,500 0

The Lake mines produced nearly 35,000 metric tons of copper in 1885.

That same year total production at Butte was 30,800 metric tons. Between the two regions, they were producing 87 percent of America’s new copper that year and nearly a third of the global supply.128

Michigan’s attempts to eliminate the competition through drastic price cuts affected producers in the US and around the world. In the spring of 1886,

Engineering & Mining Journal reported that “the decline of Calumet and Hecla copper to 10 cents fell in this camp [Butte] like a bomb shell, and created quite a disturbance among the copper prospectors. However, when it was known that

our copper companies would continue to run regularly . . . a better and more

hopeful feeling returned.”129 In the Butte region, only the Anaconda continued to

run its mine and smelter, most other areas were shut down. Small mines in

128 World Non- Ferrous Metal Production and Prices, 1700-1976, 69. 129 EMJWorld copper production in 1885: 229,000 Metric Tons. Schmitz,

(5 June 1886), 407. 66

Arizona suffered a similar fate, with the Phelps, Dodge & Company finding that it

was a good time to buy up insolvent properties.130

The competition in the US roiled copper markets around the world. In a

letter to the Reichs Kanzler Bismarck of Germany, the Mansfeld Copper

Company reported that “due to the competition of high grade copper from North

America . . . domestic production is likely to come to a standstill” unless new

“tariff protections are put in place.”131 Such lobbying efforts proved futile in the face of electrical equipment manufacturers like Siemens & Halske and

Allegemeine Elektrisitaets Gesellschaft (AEG). Also, in strong opposition to such protectionist legislation was Metallgesellschaft, which at the time was very happily importing large amounts of copper from Rothschild projects in Spain and

Mexico, as well as from New York and London.132

In Britain, there was less concern over falling prices since production at

Cornwall had long ceased. The smelters at Swansea were doing quite well as their

profit margins matter less on the price of copper and more on the amount of

incoming ore. The Economist noted that “there is no doubt that some of these

new mines have been losing decidedly at recent prices, and some of them have

shut down, it may be for a lengthened period. . . . It is almost certain that the

Anaconda and other similar mines can scarcely produce copper with any profit at

present prices.”133

130 Schwantes, Vision & Enterprise, 74– 131 - 75. 132 “Mansfeldische KupferschieferbauendeFünfzig Jahre Metallgesellschaft Gerwerkschaft,”, 1881-1931 R 901 (Frankfurt, 7886 (12 1931), 77November-80. 1885) Bundesarchiv Lichterfelde, Berlin, Germany. 133 Walter Drabitz, The Economist

“The Position of the Copper Market,” (9 Oct. 1886), 4. 67

In August 1886, the Anaconda Mine, one of the few mines to have remained open throughout the entire period of the price war closed down. Prices were now hovering around 10 cents a pound and most assumed that Daly and

Haggin had closed because of costs. It was soon learned the owners had decided to halt production to make improvements to the mining and smelting equipment.

New crushers were installed at the mills, machinery was repositioned for greater efficiency, and chutes in the mine were rebuilt for improved extraction.134 Far from closing up permanently, the executives of Anaconda were confident they could compete with any copper concern in the world. However, given the costs of their new capital investment, if prices remained too low these efficiency upgrades could be in vain.

Conclusion

As this chapter has shown, the disruptive technological changes that took place during the 1870s and 1880s created new prospects in the copper industry and beyond. First, we begin by exploring how producers in the US sprouted in

Michigan, Montana, and Arizona during the late 1870s as improved connections to port cities via rail and telegraph made such mining projects feasible. We then considered the viewpoint of the developing copper consumer needs in Europe and the enterprising traders and companies like Metallgesellschaft that worked to supply them. Furthermore, the establishment of a global metal market known as the London Metal Exchange (LME) as an intermediary market that connected

American producers with European consumers greatly reduced transaction costs for both producers and consumers. The end result was a fast growing and

134 –21.

Toole, “The Anaconda Copper Mining Company,” 320 68 competitive producer environment and a slower growing consumer demand that was just beginning to take off thanks to cheap copper.

CHAPTER 2

THE DEFEAT OF A COPPER CARTEL, 1887-1889

Secrétan, Rothschild, and the London Metal Traders

MUCH TO THE DELIGHT of electrical equipment manufacturers like Edison,

Westinghouse, Siemens, and Rathenau, the price war between Michigan pool and

the Montana miners had forced copper prices to a twenty-year low. By the spring

of 1886, manufacturers of copper products were thrilled at the prospects of low

prices on raw materials, while at the same time municipal governments with

infrastructure expansion projects also began to push beyond the planning

stage.135

Realizing the potential profits that were at stake, copper producers in the

US and Europe started to consider how they might reverse the downward price

trend. In short order, the owners of the world’s largest copper mining companies,

Anaconda, Calumet and Hecla, and Rio Tinto got together in London to discuss a

plan of action. Leading these talks were the French and British Rothschilds who

also happened to be heavily invested in Rio Tinto. Out of these talks, an

Thomas Parke Hughes, Networks of Power: Electrification in Western Society, 1880135 -1930 93), 100–

(Baltimore: Johns Hopkins University Press, 19 105. 70

international cartel agreement which later became known as the Secrétan

Syndicate - was born.136

The Secrétan Syndicate – named after a charismatic metal manufacturer

and financial speculator Eugene Secrétan – is perhaps the most elaborate corner

in the history of copper and nearly ruined the London Metal Exchange.137 The

collaborative arrangement was headquartered in Paris and for nearly two years, changed the trade dynamics of the copper industry and by extension the political economy of Western Europe. Some historians have argued that the Syndicate delayed mass electrification by two years given the centrality of copper to

electrical equipment production.138 Others have suggested that it motivated

electric power and lighting companies to abandon direct current (DC)

technologies in favor of alternating current (AC), which required less copper. 139

The following chapter analyzes how the Secrétan group directly challenged

the London Metal Exchange as the global price maker in copper. It did so by

forming an alternative sales outlet in Paris, and at the height of its power,

controlled more than 80 percent of the world’s copper supply. The French

Syndicate, however, did not go unchallenged. As this chapter demonstrates, the

boldest challenge originated from international metal merchants and traders.

136 -1889,” Journal of Economic and Business History I –428. 137 PierreM. A. Abrams,-Cyrille Hautcoeur,“The French Angel Copper Syndicate, 1887 V (1932): 409 Journal of Monetary Economics –119. o Riva, and Eugene N. White, “Floating a ‘Lifeboat’:138 Toole The Banque de France and the Crisis of 1889,” Syndicate, 188765 (2014):-1889.” 104 139 , “The Anaconda Copper Mining Company”; Abrams, “The FrenchProceedings Copper of the IEEE –43, T. S. Reynolds and T. Bernstein, “The Damnable Alternating Current,” 64, no. 9 (September 1976): 1339 https://doi.org/10.1109/PROC.1976.10324. 71

One of the most successful firms at doing this was Metallgesellschaft of

Frankfurt along with its two subsidiaries, H.R. Merton & Company of London and American Metal Company of New York. These three companies acted in opposition to the Syndicate by financing new sources of mine supply (largely in the US) while also using financial institutions like the London Metal Exchange to put pricing pressure on the Syndicate. Additionally, MG (and other trading companies) supplied European manufacturing – the main victim of the Syndicate

– with scrap metal to help them hold out during periods when prices were most oppressive. In the process, Metallgesellschaft turned a tremendous profit and up- ended the producer’s attempt at copper monopoly. The Syndicate threatened to undermine the trader’s position by taking over his function as intermediary in the market and replace him with a singular centralized sales syndicate or agency.

Had the Syndicate achieved its goals, a producer-based monopoly over the pricing and distribution of copper – much like the DeBeers Syndicate that dominated the diamond market – would have determined the trajectory of the copper industry.140

2.1 The Origins of the Syndicate

Industry and political leaders from copper producing and consuming nations around the world responded to the price war in different ways. Chilean financiers, for instance, began to scale back their investments in copper and

140 1889–1914,” Business History –26. Colin Newbury, “The Origins and Function of the London Diamond Syndicate, 29, no. 1 (1987): 5 72

redirected capital to further develop the nitrate industry.141 In Germany, copper

producers at the 400-year old mine at Mansfeld lobbied to renew duties on copper imports in order to isolate themselves from falling prices.142 At the same

time, German industrial manufacturers based in large cities like Berlin fought

against such protectionist legislation. They wanted copper as cheap as possible.

German metal traders based in Frankfurt were of a similar opinion;

protectionism would only stifle trade.143

In Britain and France, some savvy minds saw an opportunity, most notably the Rothschilds – who were large shareholders invested in the enormous

Spanish mining firms Rio Tinto and Tharsis Copper Company. Seeing dividends

reduced to almost zero by 1886, Rothschild’s sought to persuade leading

American firms Anaconda and Calumet & Hecla to back off production.144

With copper prices hovering around 9 cents per pound (or £42 per long ton), most American mining operations were no longer profitable by 1886 and it did not take long to convince their manager’s to slow production. As the price war between Michigan and the western producers effectively concluded, representatives from Montana set – most notably J.B.A. Haggin president of

141 142 Mayo, “Before the Nitrate Era.” - Signatur“Brief R901von Mansfeldische 7886, 1-2. Kupferschieferbauende Gewerkschaft nach Reichs Kanzler143 Bismarck,”Chancen 12 Und November Grenzen .188 5, Bundesarchiv Lichterfelde, Berlin, Germany, 144 Robert Vicat Turrell and Jean- ExplorationZachäus, Company and Mining Finance,” Business History – Jacques Van Helten, “The Rothschilds, the 28, no. 2 (1986): 181 205. 73

Anaconda – then set off to meet the Rothschilds in London to chart a new

strategy course for beleaguered copper producers.145

The initial meeting between the Anaconda group and the Rothschilds was

highly secretive. What is known is that at the meeting, Anaconda and Rio Tinto

executives agreed to reduce their overall production for the following year (1887).

Their aim in doing so was to raise the price of copper by controlling its physical

supply. With new lighting and electric power infrastructure projects gaining

momentum in cities around the western world, it was only a matter of time before

demand would help eliminate the accumulated stocks of copper left over from the

massive production of the early 1880s.146

Traveling in England at this time was a metal trader named Jacob

Langeloth. Langeloth was from Frankfurt and worked as a broker and an agent for Metallgesellschaft A.G. (MG). In the fall of 1886, Langeloth had left for

Liverpool to inspect copper ore arriving from Montana (mostly Anaconda’s) on a daily basis. The ore was sent there for processing by English smelters. Langeloth hoped to learn more about the grade of ore and to see if he could arrange to have some of it shipped to Hamburg and processed by German smelters. While in

Liverpool, Langeloth learned that some executives from Anaconda were in

London. Whether he learned that they were meeting with members of the

Rothschild family is unclear. Langeloth then traveled to London himself to speak

with the company managers at HR Merton & Company. It seems likely that while

Gates, Michigan Copper and Boston Dollars, 64– 145Mining Company,” 320. 146 lliott and Donald Holmes Wallace,66; Toole, International “The Anaconda Control Copperin the Non-Ferrous Metals –96. William Yandell E (New York: The Macmillan company, 1937), 395 74

in London, Langeloth also learned of the Anaconda – Rio Tinto agreement for

production cuts in copper.147

At that time, Langeloth was Metallgesellschaft’s top salesman and he became convinced that if MG were to obtain copper at the rock bottom price of 10 cents a pound, the company stood to gain tremendously as prices rose during the cutback in production.148 In assessing the probability of the situation, Langeloth

knew that Anaconda and Rio Tinto’s combined output of copper was close to half

the world’s total production. He also knew the reputation of Haggin (of

Anaconda) and the Rothschilds (of Rio Tinto) as having deep pockets and a

penchant for big deals. To Langeloth, the upside of getting in early on this scheme

was worth the risk. Upon returning to Frankfurt that on Christmas Eve,

Langeloth suggested that Wilhelm Merton buy out the metal business of their agent in New York, Ladenburg, Thalmann & Co. It reportedly took “less than an hour” to convince Merton that the idea was a good one and within four months

Langeloth found himself in New York filing a certificate of incorporation with a state’s attorney.149

2.2 The Formation of French Syndicate Strategy

With the initial agreement in place between Anaconda and Rio Tinto,

world stocks declined from 63,000 tons to 49,000 tons throughout the early

months of 1887. Prices however remained low. The Rothschilds then decided to

147 Seymour S. Bernfeld, A Short History of American Metal Climax, Inc, World Atlas –20. 148 Achinger, Wilhelm Merton in Seiner Zeit, 48. (New149 Bernfeld, York, 1962), A Short 16 History of American Metal Climax, Inc, 8. 75

pursue a more aggressive strategy that had worked well in the past in their

dealings in mercury, lead, and nickel.150 They determined that a sales syndicate

should be formed with the goal of buying up the rights to an enormous share of

the world’s copper supply. In doing so, the Rothschilds sought to form a shell

agency to shield them from unwanted publicity.151 For this, the Paris branch of

the Rothschild family teamed up with a charismatic French industrialist known

as Pierre-Eugene Secrétan in the spring of 1887 – from which the infamous

syndicate now derives its name.152

Secrétan was the co-founder and CEO of the Société Industrielle et

Commerciale des Métaux, (hereafter referred to as the Société des Métaux) one of the largest manufacturers of brass and copper products in the world.153

Secrétan was known as an innovative engineer who guided a small fabrication company into a leading industrial firm after winning the contract to supply the

French Army with brass rifle cartridges during the Franco-Prussian War. He was also known for having donated 40,000 pounds of copper toward the construction of the Statue of Liberty.154 Like the Alphonse de Rothschild, Secrétan was an avid

art collector and risk-taker and was excited at the prospect of cornering the

- 150 -Ferrous Metals Markets, 1830–1940,” The Economic History ReviewMiguel Á López Morell and–31. José M. O’kean, “Rothschilds’ Strategies in International As Eugene NonWhite described the Rothschild enterprise – they were always the invisible151 67, hand no. inside3 (2014): the 723glove. -1889.” 152 It was originally called the Société industriel et commerciale des Métaux before he 153changedAbrams, the “The name French in 1887. Copper Syndicate, 1887 Cara Sutherland, The Statue of Liberty: The Museum of the City of New York 154 (New York: Barnes & Noble Publishing, 2003), 36. 76

copper market.155 Secrétan also had the advantage of owning an enormous warehouse for his brass fabrication business and thus could assist in storing the tremendous volumes of copper that would soon be headed to Paris.

Whether the Rothschild’s first approached Secrétan or Secrétan

approached the Rothschilds we may never know. What is known is that starting

in the February of 1887, Secrétan reorganized his Société des Metaux into a

commodities company that functioned less as a fabrication plant and more as a

syndicated monopoly that would buy up the entire copper production and then

re-sell it at a higher price to industrial manufacturers around the globe. Such a

project required an enormous sum of money.156

The initial financial backers of Secrétan’s Syndicate included a number of private investment banks (haute banque) which the Paris House of Rothschild vetted and recruited.157 The group then sought to expand their financial support

base by approaching larger institutional investors – namely a number of Parisian commercial banks with access to deposited capital. The Syndicate started by contacting M. Denfert-Rochereau, managing direct of the Comptoir d’Escompte,

France’s second largest financial organization after the Banque de France. Other commercial banks such as Credit Lyonnaise and Bank de Paris et des Pays-Bas soon joined Denfert-Rochereau and by the winter of 1887 the Syndicate had access to a hefty line of credit in excess of 62 million Francs (c. £2,500,000). The

Sutherland, 36. 155 The Economist 156 Joubert,157 Hentsch, ,Girod 3 December, and Hirsch 1887, all 1529. from Paris. Syndicate,Other investors 1887-1889,” included 418. Bamberger of Frankfurt, Bleichroeder of Berlin, and Abrams, “The French Copper 77

interest rate on the combined loans came to 7 percent and was further secured by the group’s projected copper reserves.158

After getting their financial base organized, the next step for Syndicate was

to gain control of two distinct sources of supply: copper which was in the hands of

large producers and, perhaps more importantly, the visible stocks of copper kept

mostly in English and French portside warehouses. The Syndicate thus began simultaneously to negotiate long-term purchasing deals with major European and American copper producers, and actively to purchase all copper future contracts available through the London Metal Exchange (the interworking’s of which are covered in chapter 1).159

The strategy to purchase copper contracts (both for spot and 3-month

delivery) was implemented through two brokerage firms at the London Metal

Exchange, Morrison, Kekewich & Co and Messrs. Coulon-Berthoud. Both partnerships were formed in the early 1870s and were described as “shippers of metal” before becoming subscribers (members) of the LME.160

Secrétan’s orders to both firms were to buy steadily the rest of the year in spot and forward contracts “in a gradual and deliberate manner so as to force up

Claude Jannet, La capital, La speculation et la finance au xix siècle (Paris, 1892), 158323-324. The Society also purchased a large amount of shares in Spanish and South 159 The Economist -3. African160 Samuel copper Griffiths, mining Griffiths’ firms thatGuide were to the listed Iron on Trade the London of Great Stock Britain Exchange. 230, 242. Morrison, 31 December & Kekewich 1887, 1652 both lis record exists for Coulon- (London, 1872),- 1924,” at ted in LME Notes as joining in 1882. No such Box 1, Blue Folder (no name),Berthoud. 3 Listed in “The London Metal Exchange, 1877 The London Metal Exchange Corporate Archive (LMEA), London, England, 78

the price.”161 The representatives were instructed to purchase over 300 tons of

Chilean Bar contracts every day during the fall and winter months. Secrétan sent

a letter to the groups agent James Morrison which read: “Here is what is to be

done for copper: raise the price 10 shillings until you hit £84, 10 or 15 [shillings]

at the most by the end of the year. This price will then be maintained for some

time; after which we will notify [you].”162

At that time, Chili Bar was the only brand of copper that was legally permitted to be traded for future delivery on the exchange floor.163 Indeed, no

other brands – not Michigan Lake Copper, or English Best Selected – could be

delivered to “cover” a mature futures copper contract, regardless of grade. The

reasons for this were historical and practical; historical in the sense that Chilean copper was the first to be traded in such a way when British merchants were seeking to break the monopoly of the Swansea smelter cartel. Chili bar was practical because it was consistently 96 percent pure, always the same shape, and

(generally) abundant – hallmark factors of a standardized commodity. Because of this consistency, Chili bar’s value reflected the value of purer brands (99 percent)

161 livres.” 162 Jannet, La324. capital “… en, 324.Portant graduellement et deliberement le cours jusqu’a 84

Ensuite on maintiendra “Voici ce qu’il faul faire pour le cuivre: monter de 10 shellings163 The use par of jour Chili jusqu’au bar as the cours standard de 84, metal 10 ou for 15 futuresau maximum contracts pour began la fin officially de l’annee. in ce prix pendant quelque temps; apres quoi nous aviserons.” using Chilean metal dates imported1883 with Chilean the introduction copper and of beganfutures trading aka “arrivals” it at the atRoyal the LME.Exchange. This tradition Before then, of back to the 1850s and 60s when metal merchants was effectively a cartel which tightly controlled the sale and thus the price. the only metal that was available came from Swansea Producer’s Association which 79

like “Best Select” or “Lake” – albeit at a reduced level – and thus an effective metal with which to hedge or speculate.164

By the end of the 1887, some metal traders estimated that 80,000 tons of

Chili Bar165 had been contracted by the Syndicate while the actual visible stock

was 31,500 tons, which meant about 50,000 tons was due to be delivered by

March 1888. 166 In purchasing such an enormous future supply of Chili Bar, the

Syndicate could rest assured prices on Chili Bar would continue to rise as those

futures contracts matured.167 As the Syndicate had purchased all available “on the

spot” Chili Bar and for all future production with miners in Chile, the London

market was increasingly cornered.168

At the same time, the Syndicate commenced negotiations with a number of leading producers to secure a majority of the world’s physical copper output. In the fall of 1887 copper prices held steady between about £40 and £50 per long ton (10 or 11 cents per pound). In this environment, the Syndicate began by

offering to purchase copper on a term contracts (1-3 years) at a premium price

around £60 per ton (or 13 cents per pound). According to the London metal brokerage firm, James Lewis & Sons, “contracts were concluded with the principal American companies (i.e. Anaconda, Boston-Montana, the Lake

Superior companies, and Arizona Copper), the three Spanish companies (i.e. Rio

164 with which gamblers bet. See The Economic Intelligence Unit, The London Metal ExchangeSome have, 39– 42.equated standardized commodities like Chili bar to bargaining chips Also ref 165166 EMJ, 2 Feb 1889, 114. 167 erred to in the contemporary press as “Chili Bar”. converge on the date of maturity. 168 EMJOne (24rule Dec. in economics 1887), 476. is that the futures contract price and the spot price always 80

Tinto, Tharsis, and Mason and Barry), the two Cape [Town] companies (Cape and

Namaqua Copper Co.), and several of the smaller producers elsewhere.” The

American firms agreed to provide the largest block of copper upwards of 75,000

tons annually, with the majority coming from Calumet & Hecla, Anaconda, and

Boston & Montana.169

By November, reporters and industry people observed the unusually

strong buying going on at the London Metal Exchange. The leading American metal publication of the day, Engineering & Mining Journal (EMJ) noted that

“the week has been an eventful one on the Metal Exchange. Sales of copper, which last week amounted to about 3,000,000 pounds, this week have reached

3,770,000 pounds, and prices have advanced about 1 ½ cents per pound since we last went to press . . .. Everyone asks the reason for this sudden and heavy advance, and rumors are abundant, though their foundations are something extremely unstable. [Nevertheless] the boom appears to have been commenced in

Paris.” 170 171

With world output for the year expected to approach 250,000 tons,

Secrétan went on to sign contracts with 37 mining concerns to guarantee his

access to 190,000 tons in exchange (on average) for £65 per ton annually for

three years. In every case the contract was made between the producer and the

169 EMJ (2 Feb. 1889), 114. 170 EMJ, 171 Ibid. The EMJ editors speculated that Paris was the center as city-offices were seeking 5approveNovember a massive 1887, 337.electric street car project for the city. 81

Société des Métaux and the guarantor for the latter was the Comptoir d’Escompte of Paris.172

Secrétan’s dual strategy of purchasing copper contracts through Morrison

and Coulon-Berthoud while also locking all major producers (representing 80

percent of world’s productive capacity) into long-term deals helped push the

price of copper (both spot and 3 month) to heights not seen in decades. Graph 2

(below) indicates the price of copper for the first of every month from January

1887 through 1888173:

LME Copper Prices, 1880-1890 £120.00 £100.00 £80.00

£60.00 Price £40.00 3 Month £20.00 Spot £- 1/2/1880 6/1/1882 1/2/1883 8/2/1883 3/5/1884 7/9/1886 7/23/1880 2/15/1881 9/29/1881 5/14/1885 2/10/1887 9/20/1887 4/18/1888 6/20/1889 10/10/1884 12/10/1885 11/16/1888

The Société des Métaux issued its 1887 Annual Report in March the

following year. In it the company indicated that on a capital investment of

25,000,000 francs, the total profit came to 16,900,000 francs. The company

issued a 12 percent dividend while the directors of the company received a bonus

of 1.2 million francs to split up among themselves.174 But such profits through the

172 Jannet, 324- EMJ 173 EMJ, 12 Jan 1889, 29. 174 The Economist25;, 17 March(11 Nov. 1888, 1888), 346. 433. 82

Société des Métaux only tell half of the story. The real profits came to those with

large holdings of shares in the mining companies that were traded on public stock

exchanges. The shares of Rio Tinto on the London Stock Exchange exploded as

did the shares of Calumet & Helca and other Michigan copper companies traded

on the Boston Exchange. Those who were in the know, made a lot of money those

first months and would continue to do so into 1888.

2.3 The Metal Traders Strike Back

By the time prices for copper were skyrocketing, Metallgesellschaft trader,

Jacob Langeloth had laid the organizational ground work for MG’s new

subsidiary, the American Metal Company, and was actively seeking new business.

Langeloth had guessed correctly that the owners of the two largest copper companies would collude to reduce supply and successfully raise the price of copper. He probably did not foresee, however, just how far Rothschild would go to advance such a goal. At any rate, Langeloth and his staff acted quickly and secure as much copper as possible from North American producers, large and small.175

Business during the first year was described by American Metal

Company’s general manager Bert Hochschild as “hectic, varied, international and profitable.” In order to expand the very small number of clients American Metal

inherited from Ladenburg, Thalmann & Co. (the company which had previously

handled MG’s American orders), extensive travel and the development of new

Julius Sommer, Die Metallgesellschaft: Ihre Entwicklung, Dargestellt für die Concen175 -Angehörigen (Frankfurt, 1931), 17 83

contacts for business were undertaken. Company minutes indicate that within a

short time “an active business was established with various Great Lakes and

western copper producers.” This included deals with firms in Arizona, Northern

Mexico, Michigan, and New York.176

Langeloth’s first major copper deal came in the August of 1887, when he landed a 10-month contract with Calumet & Hecla (C&H) to purchase 100 long tons per month (224,000 lbs) of Lake copper for ten months at 10 cents per pound.177 To be sure, C&H had its own marketing team for domestic sales, but sales were slow at that time. The company obviously welcomed the business even though selling to a third-party merchant was never considered optimal. So as to not compete with C&H in the domestic market, Langeloth assured the producer that all metal was intended for export to Europe. From there, the Lake copper’s final destination would be determined by Metallgesellschaft agents in Frankfurt or London who could find a suitable buyer. Lake copper, because of its reputation as a high grade and dependable product, typically fetched a premium price. The challenge is locating the right buyer whose needs match the advantages of the brand. This of course was what the Frankfurt firm was best at, finding the right buyer, a needle in a haystack of European industry.

Lake copper is a good example of the variation that existed among brands of copper. For instance, copper fabricators who specialized in rolling wire for telegraphic cable often preferred Lake copper because it contained no trace of

176 January 1888. 177 CalumetFCX Company & Hecla Archive, was produc Americaning about Metal 100 Company tons a Minutes,day or about General 2800 Meeting, tons a 2 month. EMJ (16 July 1887), p.48. 84

arsenic. Arsenic elements, which were found in Montana ores, weakened the

resistance of the metal to breaking under tension (i.e. tensile strength) during

fabrication. Because of its purity, Lake copper was much less susceptible to this

problem. It was only after the introduction and general adoption of new refining

technologies (i.e. electrolytic refining) during the 1890s that this problem was

largely solved (we cover this topic in chapter 3).

American Metal’s deal with Calumet & Hecla proved to be particularly

lucrative over the course of 1887 and 1888. Indeed, the timing could not have been better. As prices in London went up in November and December with the

Syndicate operations kicking into high gear, both American Metal and its parent firms in London and Frankfurt stood to profit. When C&H signed a contract with

Secrétan in December of 1887, it was stated that previous contracts would be honored. Thus the 10 cents a pound contract with American Metal would not be cancelled. By that time, the market price for copper had appreciated to 15 cents per pound (up from 10 cents in August) and thus American Metal was clearing

$5,000 per month profit on just that deal alone.

American Metal did not only earn by buying and selling finished

“unwrought” (read: unmanufactured) copper. The company also bought and sold copper matte – that is milled copper that is still in need of smelting and further refining. Calumet & Hecla copper was known as “native copper”. It was mined in large chunks and was very easy to refine into pure (99 percent) copper bar. Most copper ore was not “native” and instead was matched with other minerals from which it would need to be separated. This is where smelters and refiners add 85

value to the value chain of production.178 American metal often operated in these intermediary spaces – between the miner and the smelter and the refiner – linking up these groups for a brokerage fee. Usually the fee was between 1-2 percent of total cost of the transaction. It was also often the case that American

Metal had the option to purchase the finished product after it was smelted and/or refined.

In the fall of 1887, American Metal Company formed a lasting and important relationship with another firm known then as Phelps, Dodge &

Company. Phelps, Dodge (as described in chapter 1) had started out as a tinplate and copper trading company, but by the 1880s had been purchasing mining properties in Arizona. In similar fashion to the Lewisohn Brothers, Phelps, Dodge was integrating into mining and away from sales and marketing. At some point in

1887, Jacob Langeloth and his number two man, Bert Hochschild were introduced to Cleveland Dodge, then president of the Phelps, Dodge Company.179

Langeloth and Hochschild learned from Dodge that his Arizona “black” copper was usually shipped to Swansea, Wales for treatment as it contained heavy traces of sulphur which remained present in the copper even after smelting. Swansea refiners were the best at the time, and Dodge knew of no American refineries that could handle the job properly. Shipping their product all the way to Swansea for treatment was expensive (because of the treatment and freight charges) and time consuming (because of the distance), and Dodge was interested to see if the new

178 The smelting of the copper ore usually took place in an area that was both in close proximity to both the mine and a fuel source, usually coal. This was done in order to strike the right balance for transport costs of both fuel and ore. 179 Co. The two groups were introduced by Adolf Ladenburg of Ladenburg, Thalmann & 86

Frankfurt expats had any suggestions on how to solve the cost issue. In fact,

Langeloth did. Langeloth knew a Colonel Robert M. Thompson who owned a

smelting and refining plant in upstate New York. The company was known as

Orford Copper Company and it treated mostly Canadian copper that was mined

at Sudbury, Ontario. Sudbury ore was considered dirty and expensive to treat.

Langeloth guessed that Col. Thompson might be able to treat the Arizona “black”

copper mined and offered to market a quarter of Dodge’s Copper Queen mine

production. A contract was drawn up and agreed upon and American Metal went on to market metal for Phelps, Dodge for the next three decades.

Similar arrangements were made with American miners and treatment facilities all over the US during the second half of 1887. All companies involved in mining at that point were desperately trying to stay afloat and were eager to strike a deal that could generate cash flow. No one – outside of the executive offices at Anaconda – had any conception of what kind of plans were in the making in Paris. And by the time copper producers did, many had contracts established with American Metal. By the time the Paris Syndicate agents came knocking (Abbott & Co. of Boston represented the Syndicate), American Metal had secured for Metallgesellschaft and H.R. Merton & Sons a significant share of

American copper production.

In short time, American Metal Company became one of the top three leading trading firms in the United States. In six months, American Metal was handling 2,000 tons of American copper or about 2.5 percent of the US copper market. The following year (1888), AMCo was exporting as much (or more) copper from New York Harbor as both Abbott & Co. and Lewisohn Brothers – the 87

former of which was the Syndicate’s agent while Lewisohn Brothers also happen

to own a majority share of the Boston & Montana. In December 1888, the New

York Metal Exchange reported that American Metal had exported more than

6,500 long tons of fine copper or approximately 3.0 percent of the world’s supply

and 6.0 percent of total US production. The business portfolio of Ladenburg,

Thalmann that American Metal acquired certainly never approached that level of

sales or market share in terms of exports before then. Thus, American Metal

opened up a large amount of new business very quickly at precisely the right time

– before the Syndicate’s plans were executed. This would prove to be crucial in

over the course of 1888 when the Syndicate would come to control more than 80

percent of the world’s total production.180

American Metal’s first year profits were impressive. The company’s net earnings for 1887 to June 1888 were $130,000. To put that into perspective,

American Metal’s total assets were $200,000 for a return on investment (ROI) of

65 percent.181 As a result of this performance, leadership in Europe rewarded both Langeloth and Hochschild for their hard work and enterprise. On 10 July

1888, Emil Merton, managing partner of H.R. Merton & Company London, wrote: “I beg to propose that Berthold Hochschild’s salary be raised from $3000 to $4000 as from the 1st July last [1887] and that his share of the net profit be raised from 5% to 10% for the year 30 June 1888 to 30 June 1889 and to 12.5% for the following years. I also be to propose that the arrangement with Mr. Jacob

Langeloth be entered into the minutes, the conditions of which are as follows his

180 EMJ (12 Jan 1889), p. 29. 181 September 1888. Most firm managers ar FCX Archive, Company minutes, Reports from 27 e thrilled with 10 percent annual ROI. 88

salary for the year ended 30 June 1888 $5000 and 15% share of the net profits,

salary for the year 30 June 1888 to 30 June 1889 [be] $5500 and 17.5% share of

the profits. The net profit is made up after 5% interest has been paid on the share

capital.”182

By the turn of the New Year, the Paris Syndicate no longer remained a secret. As prices rose above £80 per ton, information regarding the details of contracts signed between the Syndicate and world producers became public

knowledge. By January 1888, the Economist published the names and details of

deals between the Société des Metaux and a dozen of the world’s largest mines.183

Not surprisingly, these revelations along with the high prices) dramatically

slowed new purchases of copper by manufacturers, both in the US and Europe.

Many of the large manufacturers and mills could afford to do so for a time, as

they had bought up large stocks of copper during the rising market prices of

November and December.184 With one eye, manufacturers kept their focus on

LME prices, and with the other they monitored the “visible supply” stocks as

reported in the press. During normal market times, as the law of supply and

demand predict, the price of copper fluctuated in accordance with the level of

182

(10American July 1888). Heritage Center, Seymour Bernfeld Collection, ACC 5276, Box 17, Folder183 1, AMAX Mining Directors Correspondence,The Emil Economist R. Merton to J. Langeloth -

184 AsAndrews, a rule, buyers“The Late tend Copper to be moreSyndicate,” active 509during; a rising market., 25 Feb. 1888, 249 Structure,50. Marketing Method, and Price Instability,” 1340. Slade, “Market 89

stock in public warehouses. The general rule being that an increase in visible

supply is a bearish signal; a decrease is a bullish one.185

Yet as time went on, manufacturers became frustrated by what they viewed

(rightly) as the manipulation of supply and market prices. Throughout 188, the

price of copper continued to rise, even as public stock increased with the drop off

in demand.

Chart 1: Stock in England and France and Metal Afloat186

1887 Tons 1888 Tons Tons Tons

October 48,503 January 45,492 April 64,349 July 79,187

Nov. 45,121 February 52,593 May 69,487 August 86,701

Dec. 42,301 March 58,747 June 72,243 Sept 90,754

As the internal stocks of manufacturers were gradually depleted, many

consumers turned to metal traders and scrap dealers. While only a handful of

merchants had had the wherewithal of Metallgesellschaft to get ahead of the

pending cartel arrangement, others wasted no time in roaming the towns and

countryside in pursuit of “old metal” goods and fixtures. The durability and utility

of copper are two of its remarkable qualities and thus makes it a highly valued

Warehouse reports and customs house data along with internal data all 185contributed to the market reports furbished by trading companies and metal merchants. The most informed of the day were Henry Bath & Sons, Metallgesellschaft, H.R. Merton & Company, and A. Strauss & Son. Many groups

-ferrous metal, however. specialized186 in one or two particular metals. Rarely would a dealerThe Economist of pig iron (6 also specialize in non Data collected by H.R. Merton & Company of London. See October 1888): 1249 90

recyclable good. Indeed, the red metal has been recycled since the time of the

Romans.187

By the summer of 1888, brass, bronze, and casting copper were pouring out of the woodwork by the millions of pounds. Enterprising European peddlers, dealers, and traders hauled scrap by the millions of pounds to foundries to be

cleaned, sorted, fire-refined, and eventually cast into ingots, pig, and bars. The recycled metal then was loaded onto freighters in major ports and shipped to copper-starved manufacturers desperate to fill orders for the “end line” consumer. Merchant networks also looked outside of Europe for increased supply drawing in everything from Russian table utensils to Indian Buddhas to shiploads of brass doors and church bells from small colonial outposts in Africa and South

America. All such items found their way west to the mills of Birmingham, Berlin,

Lille, Milan, and Cologne. Exact figures are difficult to determine, but some contemporary accounts put scrap consumption in 1888 at nearly 80,000 long tons – about a third of total world primary production in that same year!188

New copper mining ventures took time to get up and running and therefore were slower to respond to the price increase. However, within a matter of a half year, fringe producers – often with financial backing from metal trading firms – began operations at mines that had closed during the previous deflationary period. Copper mines in Arizona, Colorado, and New Mexico began producing even in the face of high transport costs and infrastructure challenges.

Mines in Saxony, some of which had not been worked in decades, were now

187 Jack Goody, Metals, Culture and Capitalism: An Essay on the Origins of the Modern World (Cambridge University Press, 2012). 188 The Economist (9 Feb 1889), 7. 91

found to be economical. According to most accounts, very little copper mined in

Germany made its way into the Syndicate’s hands. Even lead and zinc companies

found it lucrative to be extra diligent in extracting the copper by-product from

their ores and selling on the open market. Much of this new copper made its way

into the hands of traders and brokers in London, who in turn sold it at a premium

to manufacturers or often to the Syndicate itself.189

Still, even as scrap and new copper satisfied the immediate needs of most

manufacturers, the artificially high price of copper on the LME was maintained.

Given that by June of 1888, copper stocks had pushed beyond 70,000 tons, how

was it possible that the price of spot copper continued to hover at £80 per ton?

2.4 The LME, Backwardation, and the Good Merchantable Brand

(G.M.B.)

More important than controlling the majority of the world’s copper production, was the Syndicate’s ability to control the supply of Chili bar copper.

And this feat was accomplished through its aggressive buying strategy at the

London Metal Exchange. As Chile Bar was at that point the only acceptable medium of exchange on the floor of the LME, Secrétan and his agents in London were able to dictate the LME “standard” price of copper even as new production

from small mines and scrap yards around the world flooded North Atlantic ports.

Indeed, the narrowness of the Chile bar contract used at the LME allowed the

Syndicate to maintain the inflated prices.

189 EMJ (12 January 1889), p. 31-33. 92

Yet, in London, members of the LME – the vast majority of whom disapproved of the Syndicate – noticed the inflating volumes of supply. Firms like

HR Merton and others also had a good idea as to what it would cost to purchase such quantities of copper. Was the Syndicate selling any other metal it was accumulating? How could the Paris group maintain itself without actual cash revenues?

With these questions in mind, many traders started to doubt that the price of copper could be maintained at its extraordinary level. At some point, the thinking went, the expense of the whole matter would force the Syndicate to sell its stocks or go bust. With this logic, traders started to “short” the price of copper

– that is to sell a contract guaranteeing the delivery of copper in three months.

This was a speculative move that would prove profitable if the price of copper crashed to pre-corner levels on or before the date of contract maturity. At the time the contract matured, Secrétan (or whoever was on the other side of the contract) would be accepting a delivery of copper of significantly less value than when they bought the contract 3 months prior. Unfortunately for those speculators who thought Secrétan’s group was destined to fail, they were wrong.

How do we know this? While few physical contracts from the Secrétan period exist today, we cannot be sure who was buying and who was selling.

However, the daily pricing data tells the story well enough. Starting in March a curious phenomenon known as “backwardation” began to take place.

Backwardation is a term used to describe a period when spot (cash) prices are 93 higher than future prices.190 Why does this matter? In basic language, it indicates the Syndicate was in a very strong position and had a very strong handle on the available supply. Suppose you made a bet to deliver 500 tons of Chili bar copper in three months, in order to fulfill that obligation, you want to purchase that 500 tons as cheaply as possible, deliver it to fulfill the contract, and keep the difference in the process.191 A singular “play” of this sort would have been very rare. Typically, going long or short in the futures market is complimentary to another transaction or exchange. If you were selling 500 tons in three months it might be because your firm was also purchasing 500 tons of copper from a smelter that was to be delivered to you in three months for an unknown future price. By selling forward copper on the futures exchange at a pre-determined price, you can cancel out or minimize the price risk. But that kind of insurance play (also known as a hedge) is only feasible provided that physical copper is available at the exchange warehouse for purchase on the spot on the date of delivery. You of course do not want to deliver your order from the smelter which would no doubt be a very specific brand, shape, and amount that you need for your business. And it’s possible that the exchange would not even allow you to use that specific brand to satisfy your contract. Instead you would purchase the

“standard” brand – like Chili bar – to satisfy the bare minimum for you contract.

But what if there were no “standard” copper available?

190 l warehousingIn normal, and“contango” interest trading that accompanies times, the price physical of spot ownership. copper would always be 191ower For than example, the future if the priceprice becauseof copper of declined “carrying to cost” what or it thehad additional been a year cost earlier of

(£39 10s), on a 500 ton bet, the broker would receive £38,250 from the buyer for a lot of copper that would cost him only £19,750 on the spot market, for a handsome profit of £18,500 making up the difference. 94

This was the problem LME traders (like HR Merton & Co.) faced who had

shorted the Syndicates price and backwardation prices were the result.

Backwardation in the copper industry is an indication that copper “on the spot” is

difficult to find and is historically an indication of monopoly or cartel influence in

the market. As one can see in the graph below, during the month of March,

copper spot registered £81 12s 6d while the three month price was £79 15s. This

trend continued into April, as the Syndicate set the spot price at £80 per ton.

Brokers grew increasingly skeptical and began another “strong bear attack”

selling forward three-month contracts and in the process pushing the future price

down to £76 10s.192 Anyone laying down short bets after mid-March certainly had guts.

Back in London, members of the financial press seethed with disdain for the French Syndicate’s success. Some saw the copper corner as much as a political move as an economic one, as the center of the copper world appeared to

be shifting from London to Paris. Others remained skeptical that Secrétan had

the ability to keep the financial ship together given the diverse range of interests

invested in the Society. “No doubt the Société is backed by some very powerful

financiers – that is now an old tale – but people are still curious to know exactly

how far these “backers” have made themselves responsible for its operations.”193

As the months wore on, May and June saw the continuation of high prices

even as public stocks accumulated. Price backwardation remained steady at a £5

192 EMJ (12 January 1889), 33. 193 The Economist, 14 April 1888, 471. 95

difference as those covering contracts from months earlier were forced to cough

up the cash to pay the Syndicate’s premium Chile bar spot at £84.

By July, LME dealers seemingly had enough of the Syndicate’s monopoly over Chili bar. The extreme scarcity of the bar had slowed trading on the

Exchange and undermined the importance of the London market as whole;

Secrétan and his cohorts were merely extorting metal users and consumers for the benefit of their small group. One alternative was to “broaden” the current

Chili bar contract by increasing the number of brands that could be delivered to satisfy the contract. After several committee meetings between the directors and the subscribers of the Exchange, it was determined that starting August 1st, a new and broader contract would be introduced alongside the old Chile bar contract.

This proved to be the crucial step in defeating the corner.194

With the standard of the market now Good Merchantable Brands (G.M.B) of copper, almost any brand could be delivered provided it assayed not less than

96 percent and had been approved by the Subscriber’s Committee of the

Exchange after payment of £25 registration fee.195 Thanks to the liberalization of the contract, marginal producers from Arizona to Australia to Japan now had a

market to which they could send their excess without going through the

syndicate. Hedgers and speculators also (of course) stood to benefit as they could

194 The new contract was simplified. It contained terms for both spot and forward 195delivery.LME Archiv The termse, “Notes,” of the 3. contract demanded that delivery would only be

copper between 93 – wasrecognized determined in select was British 96 percent public fine warehouses. copper. Additionally, while one could deliver 96 percent at a discount, the “basis grade” on which the price 96

be confident that in the future sources of supply would be available at quick

notice while manipulation of prices through a single group would be untenable.196

The new contract did not immediately dilute the influence of Secrétan and

the Société des Métaux in the copper market as previous contracts for Chile Bar

were still useful. Thus throughout July, August, and September the bears

continued to be “squeezed without mercy” and in the process the spot price

would continue to climb from £80 to £90 and beyond.197

The Syndicate however, had gotten itself into a serious pickle. While

traders representing Secrétan did everything they could to discourage other LME

traders from selling short, they also were driving up the spot price to such heights

that anyone with copper or who could produce it or had scrap had a major incentive to get it to Europe. With Secrétan sitting on an enormous supply of

100,000 tons and more mounting every day, traders kept on selling short

knowing that by October the market would shift drastically as a much greater

volume of copper would be available to trade. Consequently, while the cash price

climbed higher and higher, the 3 month price stayed nearly unchanged at £78:

2.5 Declining LME prices and the value of Société des Métaux copper

In October, the price of spot copper came crashing down with the arrival of new sources of supply. While many producers had been locked into long term contracts with Secrétan, many new mines were established and many old one reopened their doors. Metal merchants and traders like Metallgesellschaft

196 The Economic Intelligence Unit, The London Metal Exchange, 44– 197 EMJ, 12 January 1889, 32-33. 45. 97

affiliated with the LME, had sought out these new sources of supply and helped

bring their metal to the London market.

At first the new sources of copper under the name G.M.B. were valued at a

lesser price than Chili Bar, but this changed by the end of October (as Graph 3

indicates). Pricing data from Oct. 25 reveals that in both spot and futures, Chile

bar and G.M.B. copper converged in price and remained identical from that day forward.198 As a result, Secrétan was forced to purchase both forms of copper that

were being offered at the LME.

To help mitigate the amount of metal the Society would have to purchase,

Secrétan sought to revise and extend previous contracts with large producers for up to 12 years. The new agreement proposed that producers in Montana, Chile,

Spain, and Michigan to lower their output by 25 percent and in exchange they would be compensated £2 - £3 more per ton. Only the American groups seriously considered signing this agreement. Their contracts had been made for significantly less than groups who had signed later such as the Australians and the Japanese.199

By December 31 of 1888, the price of copper had settled around £77.

Stocks in Europe and afloat amounted to 104,000 tons, more than 60,000 tons

higher than the previous year. Contemporary estimates by Liverpool metal

trading firm, James Lewis & Sons, reported that although the syndicate had sold

about 87,000 tons of copper for £6.5 million, the group still had 145,000 tons on

hand by the start of the New Year which had been purchased at a total cost of

198 In fact, Chili bar was no longer mentioned in market reports in the The Times by

199 The Economist 1890. Only G.M.B. copper was reported on thereafter. , November 10, 1888, 10. 98

£9.8 million. The advances made by the syndicate’s main banker, the Comptoir d’Escompte were £6.8 million, with more than £3.5 million unsecured. 200

As lenders began to get nervous with the increasing stocks of copper and

decreasing prices - which decreased the value of their copper securities – sources

of borrowing dried up for the syndicate. The result was that by the end of January

1889, the brokers of the Société had to cease purchasing copper for forward

delivery. The day after this occurred, The Times reported that “at the Metal

Exchange copper was firm for cash, but flat for forward delivery owing to the

absence of the usual support from French operators.”201 Prices for 3-months sales of copper fell off a cliff, while spot prices continued to hover above £75. Everyone could see the end was near. Spot prices began to collapse at the end of February as the Syndicate’s LME brokers ceased purchasing spot copper for immediate delivery. On January 3 1889, the Syndicate’s shares were selling for 840 francs; by the end of February they were being offered at 390 francs.

When the public realized that the Comptoir was deeply invested in the failing syndicate, many began to withdraw their deposits. On March 5, the

Russian government demanded a return of its deposits at the Comptoir. That afternoon, Denfert-Rochereau, director of the bank and business partner of

Secrétan, hanged himself in his Paris apartment. Within three days of his suicide,

115,000,000 francs had been withdrawn from the Comptoir.

On March 18, the Society’s brokers announced that they were unable to pay for copper deliveries, thus marking the end for the syndicate. By this time

200 EMJ, 2 Feb. 1889, 114 201 Times

, 25 Jan. 1889, 11. 99

both spot and future copper was trading at £35 per ton. The losses of the

syndicate totaled £2 million and its assets were eventually taken over by the

Compagnie Francaise des Métaux. The Comptoir was also liquidated and in the

end incurred a loss of £3.2 million.202

By May 1890, four directors of the Société des Métaux and of the old

Comptoir d’Escompte had been indicted under the French Penal Code Article 419

(1810) which prohibited interfering with the “natural play” of market forces.203

Curiously, none of the men were accused of either conspiracy, or of combination,

as was generally expected. No indictments were made against members of the

Syndicate who cooperated with the Société des Métaux and the Comptoir

d’Escompte in the corner. Pierre Eugene Secrétan was charged for “raising the

price of copper higher than it would have gone in the natural course of trade” and

for the “distribution of fictitious profits for the year 1887.” He was fined 10,000

francs and served 6 months in prison. His partners M. Laveissière and M.

Hentsch were found guilty and fined 3,000 francs and only Laveissière was

sentenced to 3 months’ imprisonment. The fourth man, Joubert, was

acquitted.204

The result of this collapse was a massive decline in copper prices and production. Not surprisingly, consumption of copper by manufacturers and electrical equipment producers picked up rapidly. The corner had slowed

consumption of new copper to a standstill by artificially inflating the price of

202 The Economist 1889. 203 French Historical Studies , 5 Oct. 204 TheCharles Statist E. Freedeman, “Cartels and the Law in France before 1914,” 15, no. 3 (1988): 464. , 17 May 1890, 591. 100 copper which would have been substantially lower had collusive action been avoided. The selfish nature of the traders on London Metal Exchange to reap massive profits through a decline in price also happened to be in the interests of the Western consuming public interested in new communication and energy infrastructure that would require massive amounts of inexpensive copper.

Graph 4: London Prices, 1887-1889

£105.00

£95.00

£85.00

£75.00 Chili (cash) £65.00 Chili (3M)

£55.00

£45.00

£35.00 9 Jan. 3 Oct. 2 July.2 2 Aug.2 1 Nov. 5 Mar. Mar.7 3 May.3 3 Sept. 3 17 Jan. 17 Jan. 24 10 10 Oct. 25 Oct. 13 Feb.13 Feb.12 Feb.18 Feb.28 10 Jan. 10 19 Dec. 19 17 July. 17 July. 27 14 Aug.14 Aug.29 14 14 Nov. 26 Nov. 14 Mar.14 Mar.19 Mar.22 24 May. 24 May. 24 11 Dec. 11 21 Sept. 11 June. 11 4 Jan.4 88 12 April. 12 April. 11 April. 16 30 March. 30 15 15 87 Nov. 3 Jan.3 1889

Metallgesellschaft’s business interests during the Secrétan affair were manifold. As mentioned early, it had the advantage of having established the

American Metal Company as a major supplier of copper. This supply allowed MG to continue to fulfill its client’s needs even during the driest days of the

Syndicate’s control. AMCo also was a source of support for MG affiliate HR

Merton on London, whose hedging and speculating operation was bolstered by having access to physical stocks of copper when most other brokerage firms were 101 depleted. For all three companies, solid profits were made during the Secrétan years:

MG Profits, 1881-1910

2,500,000.00 2,000,000.00 1,500,000.00 1,000,000.00 500,000.00 0.00 1881 1882 1883 1884 1885 1886 1887 1888 1889 1890

Metallgesellschaft Reported Net Profits, 1881-1918 ( )

Revenue from Copper Sales ( ) ℳ

ℳ

Most intriguing is that MG was tasked with the job of liquidating the copper stocks accumulated by the Société des Métaux which were then given over to the banks after its bankruptcy in 1889. Through this opportunity, MG was able to further develop its sales network and collect a solid payday in 1889 and 1890.

Pricing figures from the time indicate that the company did an admirable job slowly selling off the stocks while avoiding saturating the market and crashing the price of copper. According to MG company history, the company treasurer and top Frankfurt agent, Zach Hochschild was tasked with this important job helping MG and its affiliates turn a profit even in the aftermath of the Secrétan affair. Without question, the experience of dealing with the Syndicate, its structure and its weaknesses influenced the way MG was to operate as a metal trader going forward.

102

Conclusion

What was the lasting impact of the failure of the Secrétan Syndicate? For

Metallgesellschaft and other metal traders the Syndicate was a lesson on the dangers of concentrated producer control over the distribution and pricing of metal. The same lesson was learned by copper consumer’s whose business was threatened by monopolistic control of their most valued raw material. The core challenge was one of leverage. The seller of copper during the Syndicate’s reign had all the leverage and was able to name their price so long as they kept control of supply. The traders then sought to develop new supply to force the Syndicate into an increasingly tenuous financial position. Ultimately, the Syndicate learned, the high price for copper only incentivized others to produce (or find) new sources of copper for the market and traders were at the center of this creative- destruction process.

The syndicate’s influence on the London Metal Exchange was significant.

The corner inspired the Exchange to alter its standard copper contract from a narrow one that encouraged the exchange of physical metal to a broad one that encouraged the exchange of futures contracts. In doing so, London was able to maintain its position as the central market for coordinating and pricing global flows of copper, a position that it maintains to this very day. And second, the

LME instituted a clearing house for copper and tin contracts in 1890 which further mitigated the ability of any one group from cornering the market through the LME.

Even though the syndicate proved to be short lived and had lasting effects on the way copper markets were organized. First, the LME having passed through 103

the storm of the cartel was now firmly established as the world price authority.

Similarly strengthened were Metallgesellschaft and other trade intermediaries.

As a result, later efforts of oligopoly proved incapable of overcoming the price signaling mechanisms of the LME. In signaling mechanism had proven capable

(with the help of traders) of inspiring fringe producers and scrappers to redirect resources to markets that needed them most and in this way functioned as a check on large producers, conspiracy-minded producers.

At a geo-political level, the Syndicate helped bring clarity to the importance of free market access to metal for industrializing nations. As German leaders found out, if one country could dominate the supply of a strategically important commodity, the entire economy might be put at risk. As a result, we find the German state increasingly engaged in colonial exploration for natural resources.205 While manufacturers in Germany increasingly turned to cartel

agreements and “buying combinations” in order to pool their purchasing power

for raw materials they lacked domestically.206

In France, the legacy of the Syndicate was most apparent in the manner in

which of the French courts chose to prosecute the seemingly illegal efforts of the

collaborators. The leniency of the court was a reflection of the general

Continental view that cartels and collusive market arrangements were not

considered a serious detriment to the public welfare (interet general).

Increasingly, in France as well as Germany, syndicated sales agencies became a

the 205 - American Historical Review Sven Beckert, “American Danger:–70. United States Empire, Eurafrica, and Territorialization206 Kartell of Industrial-Und Monopolpolitik Capitalism, 1870Im Kaiserlichen1950,” Deutschland: Das Problem 122,d. Marktmacht no. 4 (October Im Dt. 2017): Reichstag 1137 Zwischen 1879 u. 1914 Fritz Blaich, , vol. 50 (Droste, 1973). 104 preferred norm to effectively bolster the bargaining power of producers, while syndicated buying combinations became an effective method of increasing the collective purchasing power of cartelized groups. Both strategies were useful methods to cope with the creative and destructive elements of capitalism.207

Other, more concrete restraints to collaboration would arise in America.

The extent to which the syndicate’s activities affected business and politics in the

US, it has been noted in the historical record that the Syndicate did come up in the hearings leading up to the passage of the Sherman Act of 1890 which essentially outlawed formal cartel contracts and even informal verbal arrangements affecting prices illegal.

The Secrétan Syndicate brought together all major producers in the US,

Spain, and Chile, and Europe’s premier financiers in order to corner the world’s supply of copper. The group raised the price to new heights, but soon found that financing the world’s supply was too expensive. In opposition to this monopoly stood metal traders, LME brokers, and consumer-manufacturers whose endgame goal was to maintain free and open access to metal supplies. Through their efforts

– both in the exchange ring and on the mine frontier – these groups were able to undermine the cartel’s efforts of monopoly. The collapse of the Syndicate is another example of the battle that would continue between metal traders and large producers for control of the copper market.

207 While in Germany, more formal Kartell contracts – which were legally enforceable in court – gained in popularityFreedeman, (and “Cartels number) and by thethe Lawend ofin theFrance century. before Cartels 1914,” in 465. Britain, meanwhile, were not illegal per se, associations and agreements in industry were permitted by the British state however, English common law made such agreements in restraint

of trade “legally unenforceable.” 105

CHAPTER 3

THE GOLDEN ERA OF TRANSATLANTIC COPPER, 1890-1914

Metallgesellschaft in America

IN THE PERIOD between the Secrétan affair and the First World War, no single company or group of companies - whether American producers, German trading firms, or large consumers generally – gained a dominant or monopolistic advantage in copper. Unlike the oil and steel industries, where the advantages of continuous production led to vertical integration, market concentration, and producer pricing,208 in copper, market share and pricing power were more evenly distributed across the entire supply chain.209

Still, the copper industry was not an example of “perfect competition.”

Like many other heavy industries at the time, copper exhibited signs of collusion through cartelization and at times oligopolistic and even monopolistic competitive tendencies. Examples include American and European producers attempts to form transnational cartels in the early 1890s; horizontal and (to a lesser extent) vertical consolidation during the Great Merger era; the continual formation of new cartels in Germany among heavy industry and especially in the ferrous and non-ferrous metal industries. And while prices in London undoubtedly responded to changes in the structure of the market, the public

208 The Great Merger Movement in American Business, 1895-1904, 187– 90. 209 SimilarLamoreaux, in structure to wheat and cotton markets, where the number of buyers and sellers was even larger, this chapter argues that copper markets functioned in competitive manner during the pre-WWI years and that this level of competition

markets. was maintained because of trading companies and their efforts to expand the size of 106 pricing and supply of copper continued and the velocity of trade only increased until 1914.

What made copper so different from these other heavy industries over this period? The answer is multivariable. The trade was international in scope and largely uninhibited by protectionist measures; the metal was increasingly necessary for industrialization and military expansion; the market was not limited in number to producers and consumers, but included hundreds of wholesale (large) and retail (small) metal traders scattered throughout the North

Atlantic. Along with the traders came the persistent growth and influence of the

London Metal Exchange as the world pricing authority. Additionally, technologies applied to mining and processing base metals before 1914 did not lead “technological interdependency” as it did in other heavy industries. Taken together, these factors helped keep barriers to entry low at a time when other industries were experiencing mass consolidation. The result was a greater level of competition among copper producers in the decades preceding WWI.

The following chapter proceeds chronologically examining the major developments between 1890 and 1914 and emphasizes the role trading firms like

Metallgesellschaft played in keeping the copper trade competitive. The first section explores how competitiveness was enhanced in the wake of the Secrétan

Syndicate via a unique combination of institutions and public policy in the three largest copper producing and consuming economies: the United States, Germany, and Great Britain. The second section examines how MG continued to expand its business network among North American mining groups while also encouraging the early adoption of electrolytic refining techniques by independent processing 107

companies on the East Coast. The third second section details the way metal

traders added value to the production process by unpacking a contract agreement

from the early 1890s. In section four, we analyze how the great mergers in copper

around the turn of the century came about and why their impact on the industry

was limited. Finally, the last two sections demonstrate how American copper was

distributed in Europe, and how Metallgesellschaft continued to have success even

in the face of growing cartelization in German industry.

Ultimately, we find that throughout the period 1890-1914, all firms remain disciplined by the pricing system set in London. As a consequence, production volumes, prices, sales, and distribution decisions were dictated to a large degree by forces beyond the control of large producers.

3.1 Institutional Factors in Copper during the 1890s

From 1890 to 1898, the global copper market saw in increased number of companies active in mining, smelting, refining, and manufacturing. We can see evidence of this in the producer figures from The Copper Handbook and other publications at the time. In 1890, there were ten mines in the entire world producing over 10,000,000 pounds of fine copper. Of that number, five were

located in the United States and none in Mexico. By 1900, the number of

10,000,000 pound producers registered 27. Of that total, 16 mines were based in

US and 1 was based in Mexico. By 1912, 60 mines were producing 10,000,000 108

pounds of copper, of which 28 were US-based, 3 Mexico-based, and one

Canadian mining company.210

Over this same period, concentration of market share remained evenly

spread (relative to other industries) among producers211:

1890 1900 1912 World Mine Production (Tons): 276,900 494,700 1,018,000 Firms 1-4 as % of World 37% 38% 39% Firms 5-8 as % of World 14% 11% 10% Firms 9-30 as % of World 25% 24% 23%

While the sustained involvement of metal trading firms were a major force

that kept competition in the copper industry high, one must also consider the

national and transnational legal context in which this trade was carried out. Of

central importance to this discussion were the divergent interpretations of among

Germany, the US, and Britain in how competition among businesses was best

regulated in the interest of the public. One of the best general studies on the

matter of comparative competition law was done by Morton Keller who began his

essay by stating that there exists “a close structural relationship between large

enterprise and the regulatory framework in which it functioned.”212 He makes

210 For 1890 data see EMJ Reed, The Copper Handbook, 1900, , v. 51 (3 Jan. 1891),The Copper p.6. For Handbook, data on 19001912 -see13 Walter H. vol. II (W.H.-26. Reed: Houghton, Michigan, 1901), p. 211365. For 1912 data see Walter H. Reed, , vol. XI (W.H. 1894),Reed: Houghton, p. 236- Michigan, 1914), p. 1325 (Houghton,Sources: Mich.,For 1890 1902), figures p. 360 see- Rothwell, The Mineral Industry, 1893 (New York, Copper Costs and250. Prices, For 1900 1870 see- H. Stevens, Copper Mines Handbook,-67. 1901, Vol. 2 212 Morton Keller, “Regulation of 370.Large For Enterprise: 1912, 1923, The and United 1928 States see O.Experience Herfindahl, in Comparative Perspective” in Chandler1957 (Balt: and Daems, JHUP, 1959),Eds., Managerial 165 Hierarchies: Comparative Perspectives on the Rise of the Modern Industrial Enterprise (Cambridge,

Mass: Harvard University Press, 1980), 515. 109

three important observations regarding the response of public policy to the rise of

the modern business enterprise in the United States, Germany, and Great Britain.

In the German example, we see that cartels among producers, distributors, and retailers had become increasingly common after the depression of the 1870s and in numerous cases the German court system legitimated these collusive tendencies. In 1888, the Bavarian Landesgericht stated that it was not against the public good for business men engaged in a common industry suffering from depression to “get together and enter into agreements regulating the ways and means of operating their industry with a view to promoting recovery.” This sentiment was again supported in the 1897 when the Reichsgericht (the supreme criminal and civil court) ruled that a wood pulp cartel in Saxony was in fact serving the public interest by maintaining prices at a higher level than they would have otherwise been. Indeed, cartel contracts were enforceable in the German court system thereafter.213

If German competition policy encouraged the formation cartels, the British

law was neutral. While the Germans thought the public good was best served by

restraining excessive competition, the British saw any law that violated the

sanctity of private contract – even those involving cartels – to be a restraint on

competition. Thus in Britain, cartels were free to develop, and equally free to fail.

The public good was best served when the government was “hands off” – that

impersonal competitive markets would prove more effective in restraining the

ability of capitalists to exploit the public through collusion than the government.

213 to 1914,” In F. Crouzet, Eds., Essays in European Economic History, 1789-1914, 1969. Keller, 517; Erich Maschke, “Outline of the History of German Cartels from 1873 110

The London Metal Exchange and its pricing system proved to be an excellent

example of how this system worked, especially since the American public policy

made cartelization unlawful.214

In contrast to the German and British view of competition law, the

American version was much more hands on and direct. The Sherman Act

adopted by the US Congress in 1890 outlawed “every contract, combination in

the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.”

While its language regarding the definition of what constituted “a restraint of

trade” was ambiguous, the law proved effective enough in intimidating most

American industrialists to avoid formal collusive agreements.215 The result was

that in most industrial sectors, horizontal mergers and vertical integration

became the common of way of avoiding the deleterious effects of direct

competition.216

The markets of most industries at the turn of the century were largely

constraint by national borders – especially with the rise of tariffs and other protections for manufactured goods. However, because copper was an internationally-traded (almost duty-free) commodity217 that was central to both

214 Keller, “Regulation of Large Enterprise: The United States Experience in Comparative Perspective” in Chandler and Daems, Eds., Managerial Hierarchies: Comparative Perspectives on the Rise of the Modern Industrial Enterprise Chandler and Daems, Managerial Hierarchies, 1980. 215216 The Great Merger Movement in American Business, 1895-,1904 519., 2– 217 Another institutional factor to be considered was the reduction of the American copperLamoreaux, tariff in 1890. The McKinley Tariff of that year reduced the duty on fine 5. copper from 4 cents per pound to 1. of protection for the mining industry. European nations had also eliminated their protections on raw non-ferrous metals5 cents like percopper pound, by then effectively as well. ending Imported any coppertrace manufactured goods, however, were still tax

ed at a high rate throughout the North 111

American and European economies, this institutional divergence in competition law created a unique situation. On the one hand, large integrated producers developed in the United States, and on the other hand, large groups of cartelized buyers were developing in Germany. In the middle, sat the metal traders of the

London Metal Exchange who – although hardly disinterested parties – played the role of moderator and as a consequence ensured that neither the producer nor the consumer behemoths would come to dominate the copper trade.

International cartels and collusion did not come to an immediate end, however. Throughout the early 1890s, attempts to restrict copper supply were made by the major American and European producers, namely the Michigan,

Montana, and Spanish producers. In the fall of 1891, the American Producers’

Association was formed with the goal of capping production both in the US and

Europe to help offset the surplus supply that had been weighing on the market since the Secrétan affair.218 The American Producers’ agreement was deemed

“arrangement of understanding” – basically an oral commitment – in order to avoid any legal entanglements with antitrust regulators in the US.219 The outcome of the whole scheme was considered a failure as it did not arrest the falling price of copper. Global production was curbed in 1893, but global stocks hardly fell.

Not surprisingly, prices fell that year by 10 percent.220 In the fall of 1893, the

Atlantic. Frank William Taussig, The Tariff History of the United States Putnam, 1914), 272. 218 179 (New York: GP banks starting in 1890. 219 The ,000agreement long tons was of to copper keep US were production slowly being below sold 140,000 off by Parisianlong tons and from London July percent from the year before. 1892220 Herfindahl, to July 1893 Copper while Costs the andSpanish Prices producers, 78. agreed to reduce their output by 5 112

American Producers’ sought to renew the agreement with European producers.

The negotiations failed because of the economic downturn.221 Further

international “gentlemen’s agreements,” failed to transpire in copper after 1895.

What did transpire an increase in the influence and market power of metal

merchants like Metallgesellschaft. As producers in the US became more

desperate during the tough years of the early 1890s, great deals could be made

which would pay dividends (both literally and figuratively) for decades to come.

For Metallgesellschaft the early 1890s proved an auspicious time to grow North

American business networks in the copper industry.

3.2 Metallgesellschaft’s (Partially) Integrates into Refining

In the early 1890s, Metallgesellschaft had plenty of cash on hand to open

new offices in North America and growth their list of clients. The realization of

good profits from 1888 to 1890 had enriched the coffers of MG and Wilhelm

Merton was eagerly looking to further strengthen his company’s foothold in the

American copper industry. Therefore he encouraged his American Metal agents

to expand their influence in mining districts across the US and Mexico.222 MG opened an office in 1890 in Mexico City for the purpose of gaining access to the growing number of copper, lead, zinc and silver mining companies.223

221 Engineering and Mining Journal 222 Seymour Bernfeld Papers (SBP), American Heritage Center (AHC), Box 17, Folder , Vol. 59, No. 1 (5 January 1895), p. 5. 223 An initial subsidiary was incorporated as Cia. de Minerales y Metales, S. A. (MyM).1, Merton Through to Langeloth, most of 17 the September 1890s, trade 1890. in non-ferrous metals from Mexican mines grew rapidly. In 1890, Mexico was producing 4300 long tons of copper. Ten years later, that figure had risen 400 percent to 22,000 long tons.223 By 1910, Mexico had become the second largest copper producer in the world at 60,000 long tons 113

During these years, MG and American Metal negotiated deals with copper

mining and refining companies that proved to have a profound effect on the

global copper trade for decades. Jacob Langeloth, president of American Metal in

the 1890s, went on to sign contracts with major companies like Orford Copper

Company (1890), Phelps, Dodge & Company (1891), Balbach Smelting and

Refining (1891), Nichols Copper Company (1891), the Rothschild-owned Boleo

(1894), Granby Copper (1894), and Augustus Heinze’s Montana Ore Purchasing

Company (1893).224

It goes without saying that Metallgesellschaft was not the first European group to trade metal in North America; Phelps, Dodge, the Guggenheims, and the

Lewisohn Brothers had all started off as this way. Yet, few had the long-standing

channels of distribution back to major European consumers or the London Metal

Exchange brokerage advantages through Henry R. Merton & Co. Because of this,

American Metals network of buyers was vastly deeper than other American metal

merchants at the time.225 Other American-based brokerage firms might have

annually, of which 10,000 was handled by Metallgesellschaft subsidiaries. See HWA,

224 MG 119, Nr. 919, “Wilhelm Merton: Historischer Abriss,” p. 28. 225 HWA, MG 119, Nr. A16, Folders 4 and 5. rt am Main, and Henry HWA MG 119, a16, “Proposed Agreement between American– Metal4. American Co., Ltd Metal of wasNew permitted York on the to onepurchase side, and and Metallgesellschaft sell copper inside ofthe Frankfu US and Mexico. However, any businessR. Merton in & Europe Co, of London, was the on sole the jurisdiction other side,” of 6 HRM July 1894,and MG. pp. In 2 other words, any sale of metal to a European-based firm was to be sold exclusively by Henry R. Merton & Co. for clients in Great Britain and the Metallgesellschaft for those in

etc. shall be quite free to both Metallgesellschaft and Henry R. Merton & Co.” Germany and Austria. “All other markets like those of France, Belgium, Italy, Russia MG], whichever asks, and without preference to either.” Interestingly, MetallgesellschaftAdditionally, “offers and shall be made by the American Metal Co Ltd, to either [HRM or

HRM were “not [permitted] to buy in America directly,” as 114

strong connections to Liverpool or London or perhaps Canton, but when it came

to Continental Europe, few others had the well-developed contacts of MG.226

The most significant business moves made by MG-American Metal came

in early 1891. Unlike the previous brokerage deals American Metal had been

engaged in, AMCo’s new ventures were more risky. They involved significant

capital investments in two East Coast refining companies that were in desperate

need of financial support. In both cases, American Metal agreed to work with

them to help solve their financial problems, but on the condition that both

refiners would use the money to upgrade their facilities.

In the early 1890s, an increasing number of base metal processors in the

US and Europe began adopting new metallurgical technology known as electrolytic refining. American Metal in conjunction with MG was an early proponent of this technology and made suggestions to business partners to consider upgrading their facilities to stay ahead of the competition. The advantage of electrolytic over traditional smelting and “fire refining” was that further purified 98 percent pure smelted copper into 99.9 percent pure copper and separated it from precious metals like gold and silver.

that would undermine the strategic advantage of American Metal while competing

226 Two notable exceptions to this were Aron Hirsch & Sohns and Beer & Sondheimewith the likesr. Both of Lewisohn were German and ASARCO.” metal trading firms based out of Frankfurt and both handled non- Aron Hirsch came closest to competing with MG in terms of volume of metal handled. Bothferrous firms, however,metals and lacked ores thefrom kind US producers.of network Ofand the business two competitors,

infrastructure of Metallgesellschaft. Neither Aron Hirschten, these nor Beer, firms Sondheimer had AMCo do had theirsubsidiary bidding offices for them in New in theYork, US. for Harrison, example. Vivian, Instead, Younger they contracts & Bond: A with Century American of Metalrepresentatives Brokering, to 1859 purchase-1959, and33– sell them metal. Of

35. 115

Electrolytic refining techniques had been known since 1865. However, because electro refining requires large quantities of electricity, it was not until the

1880s that electrical generators were powerful enough to make the process efficient. The result was a classic example of what Thomas Navin calls “historical symbiosis.” The development of an improved generator allowed for the refinement of high quality copper at a low rice. The increased abundance of electrolytic copper helped accelerate the use of wiring in the growing electrical equipment and lighting industries, which in turn further fueled the demand for the product. Before 1891, almost all copper refineries had been located near fabrication customers for ease of service. After 1891, the primary concern was access to a cheap source of power and thus was always located on a river or at a port near where oil or coal energy could be cheaply gotten.227 In sum, electrolytic resulted in a final product that was a pure as native Lake copper but had the added benefit of gold and silver recovery that was the hallmark of many ore from the West.228

In 1891, five electrolytic refineries opened in the United States. The first modern refinery was constructed at Baltimore. The Lewisohns of Boston &

Montana also had an electrolytic refinery built in Rhode Island to which they sent their Montana ores. So too did the owners of the Anaconda Mine fund an electrolytic refinery in Butte, the first of its kind to be built in the Western portion of the US. The Lewisohn refinery, known as the New England Electrolytic Copper

Refining Company, was organized as a separate company. The only captive or

227 Copper Mining and Management, 61–63. 228 Titus Ulke, Modern Electrolytic Copper Refining (J. Wiley & Sons, 1903). Navin, 116

integrated refinery was the one owned by Anaconda. Two electrolytic refineries

were constructed in Newark and Brooklyn by Balbach Smelting and Refining Co.

and the Nichols Copper Company in the summer of 1891. Both companies did so

in conjunction with American Metal Company, who in turn provided consultation

during the construction of the new processors and put up a significant portion of

the money necessary for the capital expenditure. Previously, Balbach and Nichols

had made their mark in lead and chemical processing, respectively. Both had

done business with American Metal since the late 1880s.

Nichols Copper was formerly Nichols Chemical Co., a fertilizer producer

who had signed contracts with AMCo as early as 1888 to supply sulphur for that

business.229 During the Secrétan period, American Metal had arranged for a

portion of Copper Queen mine concentrate to be smelted by Nichols. As Arizona

“black copper” contained valuable sulphur byproduct, which when separated

from copper could be made into sulphuric acid, Nichols used the acid for fertilizer

production while giving American Metal the copper to market.

Starting in 1891, AMCo executives, along with MG metallurgical experts, were consulting Nichols in the design and construction of a new electrolytic refinery at Laurel Hill, Long Island. For their part, American Metal (and by

extension MG) was compensated with common stock and preferred stock equity

shares in the newly incorporated Nichols Copper Company.230 The facility there

would go on to become the largest custom refiner in the world, processing 500

million pounds of blister copper primarily from Phelps Dodge mines in Arizona

229 230 AMAX Company Minutes, FCX Archive, 27 March 1890. Nichols Chemical later became a major part of General Chemical Company. 117 by 1914 (12 million pounds per month). AMCo held a 14 percent stake in Nichols until 1919 when it sold its shares to Phelps Dodge. 231

Balbach Smelting and Refining Company also adopted electrolytic refining techniques to improve the efficiency of their lead-silver production and expand into copper refining as well. For both firms, this proved to be a very profitable strategy which had the added benefit of keeping the smelting and refining industry in the US highly competitive. The company, formerly Balbach & Sohns, was financially in trouble by 1890 in large part because smelting operations were slow and inefficient.232 After being approached by Ed Balbach to help make improvements, American Metal Executives turned to MG for technical advice.

Wilhelm Merton sent them Professor Curtis Netto, Metallgesellschaft’s top metallurgist and one of the leading experts in German at the time. Trained in metallurgy at the famed Bergakademie Freiberg, Netto had worked for

Germany’s largest steel producer and weapons manufacturer Friedrich Krupp AG before joining MG. It was at Krupp that Netto learned the advantages of electrolysis and its application to base metals.233 Netto brought this knowledge to

231 Copper Mining and Management, 233–34. 232 EMJThe Commercial and Financial Chronicle, Vol. 100 (1915), 58. Navin, n the company, had traditionally been a lead-silver smelter for years dating back to the , 28 March 1891, p. 375. The Balbach’s, a father and son duo who ra production had always been secondary, that is, until the 1880s when import tariffs on1860s copper when reced Newarked and was increased known forproduction producing helped fine jewelry. form the Their conditions copper for a profitable refining industry. In 1890, Balbach Sr. died and left the company to his son, who then being the forward thinking man of a younger generation, sought advice from Amco, then the company 233 In 1889, on the recommendation of famed German chemist, Clemens Winkler, who had been a member of the Supervisory’s sales Board agents. of Metallgesellschaft in Frankfurt am Main since 1883, Netto was hired. By 1897, Netto was appointed to the 118

assist AMCo in upgrading Balbach’s facilities with state of the art electrolytic refining technologies.

More and more, western ores contained significant percentages of precious metals and the best way to capture these metals was electrolytic refining. Netto directed Balbach executives in how to implement this technology and the result was that within a decade Balbach became one of the top copper (and lead) refiners in the US. Balbach compensated American Metal Company in common stock shares totaling about a third ownership of the firm. AMCo was further rewarded with a seat on the Balbach management team, a position filled by Jacob

Langeloth as vice-president.234

3.3 A Typical Contract – An Example of how Metal Traders Add Value

For small and mid-sized smelters, contracting with metal brokers was valuable because it relieved them of the expensive and time consuming task of locating buyers, negotiating, and dealing with the intricate details of product distribution. This was the case in a deal with the smelting company Orford

Copper Company and Balbach Smelting and Refining Co..235 Consider the

superviso Merton - 234 ry board of MG’s research subsidiary Metallurgical Gesellschaft (Lurgi) thatalong he with had Richard taken an de interest Neufville. for Seethe compHans anyAchinger, in Balbach Smelting, 53 54. and Refining Amco Company Minutes, 25 June 1891, FCX Archive. “The President reported

Company to the extent of fifty thousand dollars. $25,000 thereofhe being US was in the to buy 235100preferred tons of shares C& H andcopper $25,000 per month thereof for in ten the months common at shares10 cents of persaid pound company. all for It is recorded that American Metal’s first copper contract in t American Metal Climax, Inc.” (1963), p. 18. export. Seymour Bernfeld Papers, American Heritage Center, “A Short History of 119

following contract arranged by American Metal for Balbach in 1893 after the

establishment of their electrolytic operation:

“… Agreement between the Orford Copper Co. of New York, for the delivery of Argentiferous [copper] Anodes, and the Balbach Smelting & Refining Company, of Newark, N.J., for the receipt, refinement and payment for the precious metals in the same, made this third day of October, 1893. First:- The Orford Copper Co undertaken to deliver about 1,000,000 lbs. to 1,200,000 lbs. per month of Argentiferous Copper in the form of Anodes to the Balbach Smelting & Refining Co on the cars of the Central Railroad of New Jersey at Newark, N.J., and to receive the Electrolytic copper on said cars. The Orford Copper Company guarantees that the Anodes delivered to the Balbach Smelting & Refining Co. shall be reasonably free from Dross or Slag [impurities], and shall average 95% wet assay of fine Copper. . . . The Balbach Smelting & Refining Co. agrees to receive about 1,000,000 lbs. more or less per month of Argentiferous Copper in the form of Anodes on the cars of the Jersey Central Railroad at Newark, N.J., in proportionate daily shipments of the contract quantity, and to deliver said cars an equivalent amount of Electrolytic Copper, the deliveries of Electrolytic Copper to be at the rate of 95% of the weight of the Anodes received, provided the assay of said Argentiferous Copper shows no deficiency, and settlement to be made once a month, and the excess of Copper, if any, to be delivered or returned in one lot.”236

The above contract detailing the terms of refinement was quite common

through the 1890s and into the early twentieth century. It highlights the

236 d, Balbach, and AMCo,” HWA MG 119,

“Memorandum of Agreement with Orfor a16 (20 November 1893), 1 120

complicated process that was necessary to produce and distribute high grade

copper for industry. As noted before, most treatment firms at this time were

independent, privately held companies that were not vertically integrated (with

the exception of a few Montana miners whose example is discussed in the next

section). The contract example highlights the ways in which MG assisted smaller

companies by helping coordinate the sales and distribution of their product.

Years later, a few large producers would choose to internalize this sort of market

transaction. After unpacking some of the finer details of this contract, it may be

worth considering why integrating this process was worthwhile in the eyes of the

large producer.

The commission contract AMCo prepared for two clients, the Orford

Copper Company of Constable Hook, New Jersey and the Balbach Smelting &

Refining Company of Perth Amboy, NJ. Interestingly, both companies treated

(smelted and refined) copper ores and concentrates and yet found it useful to

work together. Why was this so? The reason has everything to do with Orford

Copper Company and its ore supplier the Canadian Copper Company. The

Canadian Copper Company owned a mine in the Sudbury Basin of Ontario. The

mine reserve in Sudbury contained good grades of copper (2-3 percent), but more

importantly also contained high grades of nickel – a metal that when alloyed with steel, greatly increased the latter’s strength.237 Orford Copper had devised an

237 Sudbury Basin became the world's largest nickel deposit. 121

economical process for refining nickel, and its alliance with Canadian Copper

proved to be an unbeatable combination.238

While Orford Copper did have the refining capabilities to separate nickel and copper from the Sudbury ore, it did not have the capability to economically extract the silver from the argentiferous (read: silver-laden) copper anodes

(plates), which contained 95 percent copper and an estimated quantity of silver.

In compensation for fulfilling their obligations, Balbach would receive between

$35 and $40 per ton of copper anodes that they electrolytically refined depending on the amount of silver and gold they extracted in the process. Balbach then would keep a portion of the separated silver as payment for their labor. All remaining silver was to be returned to Orford in addition to the 99 percent pure copper cathodes that were the result of the electrolytic process. For this work,

Balbach could expect revenues of up to $240,000 annually. The contract was for two years and expired 31 December 1895.239

How did American Metal and parent company Metallgesellschaft collect

payment paid in the midst of all this? American Metal generated revenue a couple

238 by the growing steel industry, and managed to make inroads into the European marketOrford as dominatedwell. The U.S. the steel U.S. industrynickel business, did not supplyingfeel comfortable much of relying the metal on a neededsingle

Steel and a group of other steel men used the financial backing of J.P. Morgan to take Canadian source for one of its essential materials; so in 1902 Charles Schwab of U.S.

Incocontrol was of able and tomerge control Orford a majority and Canadian of the U.S. Copper. nickel The market, new companyand had incr waseased called its shareInternational to 70 percent Nickel, by nicknamed 1913. Its largeInco,- andscale was operations based in in New the York.Sudbury From Basin the first,allowed the company to eliminate competition through price wars and sheer staying power. e U.S. market without interruption for nearly 40 years. According239 to Fortune magazine in May 1957, Inco had maintained its control of th - “Vertrag zwischen Orford Copper Co. und Balbach Smelting and Refining Co.,” HWA MG 119, a16 (20 November 1893), 2 5. 122

ways from the deal. First, AMCo made a 1 percent (c. $25,000) commission for having brought in new the business for Balbach.240 This was a substantial, long-

term deal for Balbach, which at the time had the capacity to refine 15-20 million

pounds annually.241 AMCo had an interest in doing so as it was an equity shareholder in Balbach since 1891 (more on that relationship below).

With Orford Copper Company, AMCo functioned as the firm’s sales agent abroad and had been doing so since 1887. As part of that agreement, American

Metal promised to handle Orford’s non-US sales of refined copper, an amount

that fluctuated between 5-10 million pounds depending on the company’s domestic contractual agreements.242 For this service, AMCo earned a 1 percent

commission on all metal sold. Metallgesellschaft had the right of first refusal. MG

purchased these metals at wholesale prices and then retailed parcels to various

manufacturers around Europe.243

240 This was not actually the first time the two had done business. Balbach and ord have contracts dating to 1888, as is referenced in the later contract, however there is no mention of this earlier contract in the AMCo company minutes nor is thereOrf any existing record in the MG Frankfurt archive. 241 Balbach & Co also did a good deal of lead smelting and refining. As early as 1888,

American Metal had brokered deals for Balbach to refine Refining concentrated und Guggenheim lead (read: & smelted lead) from Mexico produced by the Guggenheim’s Mexican smelters in 1893).Monterrey. See Vertrag zwischen Balbach Smelting and Son’s242 Great National Mexican Smelting Company,” HWA, MG 119, a16 (4 December 1893. 243 HWA, MG 119, Nr. a16 “Letter from J. Langeloth to MG and HRM,”ter 1890. 11 December That nickel was found to be of great value as an alloy for strengthening steel around that time, it wasAmerican not long thatMetal this also part represented of the business Orford’s became nickel just business as important af as the copper sales. The only other major nickel producer at the time was in of Australia) and owned exclusively by de Rothschilds. Sudbury was about six times New Caledonia (east

as large as the nickel deposit in Asia. Interestingly, by 1896, Orford and Le Nickel 123

One of the lasting effects of the rise of electrolytic refining technology was

on the futures market in London. Growing availability was matched by rapidly

rising demand for purer metal – essential particularly in the manufacture of high conductivity copper wire for electrical purposes. As trade in refined (99.9 percent pure) copper, the London Metal Exchange’s contract committee declared that

“something should be done … to strengthen in consequence the hold that the

London market has on the trade of the world and to give increased inducement to sellers to send copper to this country for sale and resale.”244 In January of 1898,

the Exchange introduced a new contract for refined copper, which replaced the

older GMB or Standard contract from 1888. The specifications of the new

contract were that delivered copper must assay at or above 99 percent pure. This

became known as the Standard contract and remained in effect until the LME

closed in 1939.

The new contract was a reflection of the change in demands of the

manufacturers who increasing expected higher grade (electrolytic) copper. How

would this affect the overall market? Would the expectation for purer metal be a

good thing or a bad thing for traders and the London Metal Exchange? The

answer depended on the number of firms and the capacity of those firms to

produced refined copper. If the barriers to entry to electrolytic refined copper

proved to high in terms of cost, the number of such firms would remain low. The

result might be oligopoly or monopoly by those few refiners. As Thomas Navin

has shown, the number of refiners remained quite limited. Only 12 refineries

(Rothschild firm) formed a joint venture and AMCo and MG were the brokers for the deal. EMJ (8 Feb. 1890), 173 244 The Economic Intelligence Unit, The London Metal Exchange, 46. 124

were constructed over the course of 1890 to 1910. However, the capacity of those

refineries was so great, and the scope of raw materials they could process diverse

enough that no real oligopoly in refining developed. Indeed as much as fifty

percent of the copper that was produced was traded abroad with much of it

passing through the hands of LME traders in Europe, and in large part this was

so because numerous metal trading families had invested in this technology at an

early point; most notably Metallgesellschaft.

From 1891 to 1900, US production of electrolytic copper increased from 10

million pounds to 337 million pounds. At the same time the turnover in long tons

traded on the London Metal Exchange also increased dramatically, from 600 to

1400 tons per day.245 By 1900, Electrolytic Copper made up half of total supply in

Europe.246 These figures suggest that the electrolytic revolution did not stifle the competitive trade in copper before the WWI. However, as we will see later, as more refineries were vertically integrated with mining companies, the amount of available copper on the open market would decrease.247

In all, Metallgesellschaft’s expansion into North America proved to be quite profitable. Its expanding networks in the United States contributed to the increased volume of copper traded across the Atlantic from 20 million pounds a year in 1890 to as much as 100 million pounds by the end of the decade. MG’s subsidiary in New York, American Metal Company was largely responsible for this increase. The investment holdings of Nichols and Balbach had not only

Annual average turnover was calculated from weekly price and volume figures of 245 Times from 1880-1930. Figures can be found in the appendix. the246 The LME Economic as recorded Intelligence in the London Unit, The London Metal Exchange, 46. 247 Chandler, Scale and Scope, 124– n, Copper Mining and Management, 67.

25; Navi 125

provided them abundant access to American copper, it also gave them a great

deal of leverage moving forward. As we will see, by 1899, a wave of mergers

would take place in copper that had the potential to remake the industry.

3.4 The International Merger Movement in Copper, 1899-1907

At the turn of the century, a holding company was formed largely at the

behest of two top executives from the Standard Oil Company, Henry H. Rogers

and William Rockefeller. The company they established came to possess all the

major copper mines in Butte, Montana as well as a number of mines in Michigan

and Arizona. It also absorbed dozens of smelting facilities, two major refineries,

and its own sales agency. By 1901, the Amalgamated Copper Company was the

largest, most integrated copper company in the world, and controlling as much as

15 percent of global annual production. Rogers and Rockefeller had bought out

the Daly, Heart, Haggin interests at Anaconda and the Lewisohn Brothers mining

and refining holdings as well as their sales agency.248

What was impact of the formation of Amalgamated on the copper industry? The immediate effects can be viewed in Chart 3.1 below. In January

1899, the spot price of copper shot up 50 percent where the remained until 1902.

This dramatic price swing was due to the expectation that supply would be restricted as a result of the merger. This did indeed occur.

248 Corporation Finance,” The Quarterly Journal of Economics, 1916, 387–407. F. Ernest Richter, “The Amalgamated Copper Company: A Closed Chapter in 126

LME Spot Copper , 1890-1900

£80.00

£70.00 £75.00 £60.00 £65.00

£55.00 £50.00£40.00 £45.00

Nominal Nominal Price per long ton £35.00 1/3/1890 7/3/1890 1/9/1891 6/9/1893 6/8/1894 5/8/1896 4/7/1899 6/26/1891 6/17/1892 12/9/1892 12/8/1893 5/17/1895 11/8/1895 11/6/1896 4/30/1897 4/15/1898 10/7/1898 9/22/1899 3/13/1900 9/20/1900 12/24/1891 11/23/1894 10/22/1897

As Chart 3.1 indicates, LME spot prices rose significantly during the early

months of 1899, from £56 to £75 per long ton. Prices stayed high (and in

backwardation) until December of 1901. At that point, increased production from

mines in the US and abroad that were unwilling to cooperate with Amalgamated

had eroded the trust’s market share to the point where consumers were finding

copper for much cheaper elsewhere. At the same time, Amalgamated had been

stashing copper away in warehouses with the hope of starving manufacturers to

bring them back to the table. Amalgamated Copper’s inventories of refined

copper rose from 93 million to 200 million pounds over the year 1901. Not long

after, prices declined back into the £50 range.249

Since the Progressive era, historians have suggested the Amalgamated

Trust (as it was often referred) was merely a money grab by robber barons working in conjunction with Wall Street stockbrokers. While this interpretation is

249 The Mineral Industry .

, 1902, p. 175; 202 127

not inaccurate, it implies that greed was somehow unique to this situation when

in reality greed and self-interests were (and remain) ubiquitous. What is the

more interesting subject from a business historian’s point of view is whether the

Amalgamated was logical, natural or inevitable?

Sceptics (both on the left and right) of horizontal and vertical combination

have long suspected that such moves are made out of desire to escape

competition. 250 Proponents of bigness often point out that horizontal

consolidations can be rational and less costly than a “race to the bottom” in

prices. Others have argued that integration of processes create efficiencies if

operations are “technologically interdependent.” Examples include iron and

steel-making where “thermal economies” are thought to result from vertical

integration of the two.

In copper, however, the need to combine is much less obvious. Combining the mine with the roasting process does appear to be advantages in regards to lowering the cost of transport. Copper ore that is 95 percent waste rock and

destined to end up in a slag heap cannot be profitably transferred by rail

hundreds of miles. If it is roasted, and concentrated to 40-60 percent copper,

transportation costs are much more affordable. Yet building an entire smelter

facility might be overkill unless the mine is of the proper size. The same logic can

be applied to the process of integrating a refinery. In the case of Amalgamated,

this integration might have made financial sense given the size of their facilities.

And to a degree history confirms this point, as the company did turn a decent

The Public Image of Big Business in America,250 1880-1940: A Quantitative Study in Social Change (Johns Hopkins Louis Galambos and Barbara Barrow Spence,

University Press, 1975). 128

profit during the years of operation. It is also likely that the logistical challenge

faced by those firms in Montana motivated miners there to integrate more

quickly than others around the country. Still the fact that no other miner in the

US integrated downstream into refining until after the First World War add more

weight to the argument that copper markets functioned efficiently throughout the

pre-War period. Surely, Phelps Dodge would have purchased the Nichols Copper

refinery at an earlier date or ASARCO would have integrated upstream into

copper mining – something it did only in 1929.

One of the biggest contributing factors to Amalgamated Copper’s failure in

becoming a price leader on par with U.S. Steel was its inability to manage the

supply copper in the US.251 Many of the firms in Michigan, Arizona, and Montana

undercut Amalgamated because of pre-existing long term contracts they had

established with groups like American Metal. Take the example of Montana Ore

Purchasing Company.

The Montana Ore Purchasing Company was a firm started in Butte,

Montana by F. August Heinze in 1893. Heinze was a New York born mine engineer from a well-to-do German-American family. After attending the

Columbia School of Mines and the Freiberg School of Mines in Germany, Heinze moved to Butte as a reporter for the Engineering and Mining Journal. Shortly thereafter he saw the opportunity for an custom smelter to treat ores of smaller, independent mines that had until then relied on the treatment facilities of integrated producers like Anaconda and Boston & Montana. Heinze opened his

ership,” The 251American Economic Review –93. Jesse W. Markham, “The Nature and Significance of Price Lead , 1951, 891 129

smelter in 1893 with the financial support of his family. Heinze then signed a

long term copper contract with Metallgesellschaft via American Metal Company

on 26 July 1893 just as he was financing his smelting operation at Meaderville.252

For years, Heinze drove the Lewisohn’s crazy by drawing away smelting business

from them. At the same time, American Metal continued to gain access to a

greater share of Montana copper.

With the formation of Amalgamated and the combination of the Anaconda mine and the Lewisohn properties, as well as dozens of other mid-sized mines,

Heinze began to lose his customer base. He then began to exploit some of the

mining properties he had accumulated over the years and from there engaged in

a legal battle with the new Amalgamated group over who owned the “apex” parcel

of land from which all copper veins in and around Butte stemmed. This battle

over concerning the “law of the apex” eventually tied up the Montana

combination in so many lawsuits for so long that by the time everything was

settled with Heinze in 1906, the new open-pit porphyry (low grade) copper mine

at Bingham Canyon was open and running. Whatever dreams the Standard Oil –

Amalgamated crew had of controlling the supply and price of copper were

dashed.253

The contract between American Metal, Nichols Copper Company, and

Heinze in 1893 was renewed every two years at least until 1903. The relationship between Heinze and American Metal provided both firms with substantial

252 th, 1893.Contract reported in AMAX Company Minutes, FCX Archive, Phoenix, “Contract with Marcosson, Montana Ore Anaconda Purchasing. Company and Nichols Chemical Company,” July 26 253 130

revenue. In 1894, for instance, as part of the contract Heinze agreed to send

between 1,000,000 lbs of “pig copper” per month to the Nichols’ new electrolytic

facility at Laurel Hill, Long Island. At 10.5 cents per pound, American Metal

president Langeloth calculated that after the cost of insurance and freight (cif),

Heinze would make $100,000 per month during the first year, while both AMCo and Nichols would bring in $2,000 and $20,000 for their respective efforts. The difference being made up for in the extra gold and silver collected by the electrolytic process. In the end, this revenue sustained Heinze’s firm over the next decade and is a great example of how metal traders were able to help smaller producers build and maintain their position even in an environment like Butte where the Amalgamated Trust owned or controlled most of the town and surrounding area. The example also demonstrates how the flow of primary copper continues to find its way onto secondary markets like the LME via traders.

Although Heinze did eventually sell out for $10 million to Amalgamated in 1906,

American Metal along with their connections in Europe (MG) worked with

Heinze and in the process outwitted Rogers, Rockefeller, and the Lewisohn

Brothers254.

3.5 Copper Sales and Consumption in Europe, 1900-1914

Between 1900 and 1914, world copper production figures doubled from

500,000 metric tons to over 1,000,000 metric tons.255 Global prices over this

254 HWAyears MG and 119, was a16, renewed folder in 5, 1901.Vertrag zwischen AMCo, Mon. Ore Purchasing Co., and G. Nichols.” A. Roush, Contracts ed., The Mineral from 1893, Industry 1894, 1896. The final contract was for a period 255of 5 , vol xxii (New York: 1914), 131. 131

span of time registered peaks in 1900, 1907, and again in 1912. [Graph]. While

the high prices early in the century were attributable to supply manipulations by

Amalgamated Copper, the price increase from 1904 to 1907 and from 1910-1913

were in large part a reflection of rapid increase in demand, especially in Europe.

Just prior to the war, European consumption hit 1,200,000,000 lbs of refined copper, nearly three quarters of it electrolytic produced at US East Coast refineries. The US was the world’s leading consumer at 700 million pounds in

1913. That same year, Germany took in more than 500 million while the British consumed 310 million pounds.256 Where did all this copper go? The general answer is that the strongest consumer segments were telephone and lighting plants, power stations, trolley lines, generators, and long-distance power lines.

Over that same period, MG managed to grow from around $1 million to

nearly $20 million in assets.257 In terms of profits the company averaged

between $250,000 and $2 million and consistently earned a return on

investment (ROI) over 10 percent.258 MG increased their number of agents

worldwide from 40 to 151 and by 1914 was thought to have around 168 men

working at its subsidiary office in Frankfurt which handled the company’s

technology research and financial activities.259

While MG had developed an extensive network system of agents that

spanned the Continent of Europe, it still faced an ever increasing number of

competitors in Europe – some obvious and some not so obvious. The obvious

Mineral Industry (1922), 167. 256 Chandler, Scale and Scope, 700. 257 Fünfzig Jahre Metallgesellschaft, 1881-1931, 96–97, 112–14, 202–3, 240– 41.258 AchingeDäbritz, r, Wilhelm Merton in Seiner Zeit, 69–70. 259 132

ones were other merchant firms, of which there were thousands scattered around

Europe, looking to expand their influence and territory. A few of these metal

merchant firms held membership at the London Metal Exchange, but most were

scrap dealers who were looking to break into the role of wholesale dealing.260

A second and less obvious threat stemmed from MG’s primary customer base, large brass and copper manufacturers. Often one considers competition in a narrow sense – as in direct competition from groups who perform the same task.

However, it is also useful to think of customers and suppliers as competition, too

(as Michael Porter has argued).261 Manufacturing groups were also growing

larger and more cartelized at an increasing rate after 1900.262 Thus as

manufacturers increased in size, they also increased in bargaining strength.

Furthermore, many manufacturers in Germany sought to increase their

bargaining strength by forming Kartellen Vertrage or cartel compacts with other

manufacturers in their area. In large part, these cartels were formed to mitigate

the intensity of competition amongst rivals and also create barriers to entry in the

industry. However, these cartels would also form collective purchasing or “buying

combinations” so as to further increase their bargaining power with suppliers.263

In order to combat the strength of this manufacturer’s combination, MG pursued two distinct policies. First, MG sought to develop what Wilhelm Merton called “a special relationship” with each customer of copper. “The relationship with the customer was of the greatest significance. Misunderstandings must be

260 261 Porter, Competitive Strategy: Techniques for Analyzing Industries and Competitors, 9–12.Becker, “The German Metal Traders before 1914.” 262 Cartels, Concerns and Trusts 263 Blaich, Kartell-Und Monopolpolitik Im Kaiserlichen Deutschland. Robert Liefmann, (New York: Dutton, 1932), 25. 133

kept to a minimum . . . only through reliability and fairness of execution of supply

orders can MG procure a special reputation.”264 To that end, MG often offered

clients very favorable trade terms – liberal repayment periods, convenient

shipping arrangements, technical advice, as well as long-term fixed price

contracts.265

Long-term contracts were a particularly useful tool for trading companies.

The utility of a contract for an extended period of time (+6 months) is that both

parties are able to reduce the risk of that particular action (either buying or

selling) for the foreseeable future. For example, MG often agreed to purchase

10,000 tons monthly of copper sulfide ore from Rio Tinto mines in Spain in the

1880s and 1890s for 3-5 year terms. Price terms might be fixed or based on the

LME monthly average corresponding to delivery date. Thus, Rio Tinto had an a

agreement while MG guaranteed supply with the benefit that both groups

avoided the costly and time-involved task of integrating upstream or downstream

to secure business.266

Apart from long-term contracts, MG pursued other more aggressive

measure to form “special relationships” with clients. Another such measure was

vertical integration via joint venture arrangements (aka “quasi-vertical integration”) in Europe with smelters, refiners, and manufacturers. Such investments included taking a sizable minority stake in the following firms: the

Usine de Desargentation lead-copper smelter in Hoboken, Belgium; a major

264 Fünfzig Jahre Metallgesellschaft, 1881-1931, 74.

265266 Däbritz, McKinseyLiefmann, & Company,” “Die Internationale McKinsey OrganQuarterlyisation, no .Des 3 (August Frankfurter 1993). Metallhandels,” 115. John Stuckey and David White, “When and When Not to Vertically Integrate | 134 cable and wire company, Heddernheimer Kupferwerke of Frankfurt; another copper cable firm, Suddeutsche Kabel Werke in Mannheim; the Metallhütte

Duisburg AG; as well as the Norddeutsche Affinerie A.G. in Hamburg which is still in operation today. All investments were done in collaboration with other producer and manufacturer groups, so as to reduce the amount of exposure MG had in any one firm.267

This was a strategy initiated by Wilhelm Merton and was seemingly an attempt to get ahead of the growing trend in the non-ferrous industry toward concentration and integration among producers and consumers of copper. This strategy of integration did not go unchallenged within the firm. His partners, Bert

Hochschild and Leo Ellinger were both trained as traders of the old tradition that merchants should avoid large capital investments and instead rely on networks and knowledge to gain profit. Commercial activities, in their minds, were simply a safer bet.

Recognizing the validity of the traditionalist approach, Merton decided to create a separate holding company for industrial investments. In a memorandum from 25 November 1896, Merton laid out his vision for a division of industrial and commercial parts of Metallgesellschaft and in 1897 founded Metallurgische

Gesellschaft (Lurgi) in Frankfurt with a starting capital of M6,000,000 of which

MG was the majority subscriber with executives and family members of HRM and AMCo picking up the rest.

267 Knetsch, Das konzerneigene Bankinstitut der Metallgesellschaft im Zeitraum von 1906 bis 1928. 135

According to the by-laws of Lurgi, the firm’s purpose was investment and

holding of shares in companies involved in the mining, processing, and

manufacture of metals. Indeed, Lurgi was a financial holding company legally

separate from Metallgesellschaft, which now was mainly focused on trade and

brokerage. Lurgi also inherited the Technical Department of MG in 1897, a MG

institution that was created in 1889 to generate technological and metallurgical

expertise. After the department had been turned into Lurgi, its primary function

lay in the development and sale of technological innovations and processes.

Through Lurgi, the famed metal industry publication Metallstatistik would

continue to be published. Apart from doing consulting work, this branch of the

firm developed or purchased patents such as the Wetherhill Process (1896), the

Heberlein Process (1898) and the Herreshoff Roasting Over design (1899).268

By 1910s, it was clear that MG was a major player in the European metal market, not only in copper but also in lead, zinc, and nickel. On account of the ongoing expansion of MG’s trading business, industrial investment, and research division, MG leaders began to wonder whether this entire operation could continue to be internally financed as it had since 1881. It had always been the preference of Merton and his partners to keep shares of the company “closely held” among the top brass at Metallgesellschaft, Henry R. Merton & Company, and to a certain extent American Metal Company. Part of the goal in doing so was to keep decision-making in the hands of Merton and a few of his brothers and close family colleagues. However, there was an increasing need for more capital and one way of attracting a bigger group of shareholders was through stock

268 Fünfzig Jahre Metallgesellschaft, 1881-1931 –21.

Däbritz, , 115 136

exchange. Thus, on 4 September 1906, the Berg- und Metallbank AG was founded with a share capital of M40,000,000. According to its statute the purpose this the new subsidiary was banking and financial transactions involving mining and smelting companies and metal fabrication companies. Shares were first offered to employees and then the remaining shares were issued on the

Frankfurt Exchange for about 110 percent of par value.

It was not long before the Metallbank und Metallurgische Gesellschaft were merged into one large holding company (1910) as a way of simplifying the organization and administration of the firm. Later that same year, Merton also took the step to divest a large block of MG assets and place those holding in a newly created Swiss holding company known as Schweizerische Gesellschaft fur

Metallwerke. In part, this was done to escape a federal tax increase on corporations in Germany that went into place in 1909. Additionally, because

MG’s business had become more and more international, it was considered to be advantageous to not restrict its financial resourcing to German markets.269

Having gone through a great merger movement, the copper industry within the US national borders was to a greater extent under the influence of large producers. The American producers had learned from the trading companies that control over distribution was vital to maintaining control of prices. However, in 1907, US manufacturers consumed only 220,000 tons of copper, while European groups were taking in nearly 400,000 tons. With such a large percentage of business happening in Europe, producers in the US could not afford to get too comfortable if they hoped to continue to grow and profit.

269 Becker, “Multinationalität hat verschiedene Gesichter.” 137

Beginning that year, American producers began to open sales offices in

European cities with the hope of selling directly to large consumers like AEG,

Siemens, and Krupp. Amalgamated Copper, who had previously used C.S. Henry

& Co. for selling their metal in Europe, opened their own offices in London and

Cologne in 1907. ASARCO soon followed suit by opening an office in Berlin and

other metal producers from US did as well by 1912.

Apart from expanding their business through vertical industry

relationships with manufacturers, Metallgesellschaft and other trading firms in

Germany financed the opening of both the Berlin and Hamburg Metal Exchanges

in 1907 and 1910. This further complicated the direct dealing efforts of the

American producers.270

MG’s actions were supported by German political leaders who recognized how vital cheap copper was to industrial, military, and municipal growth. Graph I demonstrates, copper consumption grew at an annual average rate of 5 percent in

Europe until 1907, but exploded thereafter.

270 Kaufmannschaft, Denkschrift Betreffend Errichtung Einer Metallboerse Zu Berlin - Die Volks- Und Weltwirtschaftliche Bedeutung von Aluminium, Blei, Kupfer, Zink Und Die Metallboersen(Berlin: Börsen NewBuchdr. York, DenterLondon, & Hamburg, Nicolas, 1907); Und Berlin Specht,. 138

Copper Consumption World Leaders 1892-1913

450,000 400,000

350,000

300,000

USA German 250,000 200,000 Britain France Metric Tons

150,000 100,000

50,000 0 1890 1900 1910

1895 1905 1915

At the same time, the percentage of copper that was consumed by the electrical equipment industry also increased at a healthy clip. Not only was wire in demand

for construction of lighting infrastructure, but the electrification of urban

subways and railways relied on red metal heavily as well. The miles of rail track

operated by electricity eclipsed 20,000 by the turn of the century. By 1900, there

were 600,000 telephones in Alexander Bell’s system and nearly 6 million a

decade later.271

Copper consumed by European electrical power companies was higher still. In Germany it was the case that electrical industry output increased fivefold

271 U.S. Department of Commerce, Bureau of Census, 1902, 1907. 139

in value between 1891 and 1899 – not surprising given the rate of increase in

power stations, urban railways, German apartment units.272 In Britain, wire

makers, brass fabricators, and weapons manufacturers located in Birmingham,

Liverpool, and Manchester churned out industrial and military essentials where

copper was the key component. These finished goods were needed not only in the

U.K. proper, but also to supply the massive British Empire.273 Copper was also

needed for the submarine telegraphic cables connecting London merchants and government employees to the nether regions of the Empire and beyond.274 For

Britain as for France, the electrical industry was again the primary driver of

copper consumption. With power lines stretching from one end of the country to

the other connecting the major port and industrial cities along the way, major

cities like London and Paris had tens of thousands of miles of copper wiring.275

Long known as a city administrator’s nightmare, by 1913 London had sixty-five

electrical utilities, seventy generating stations and forty-nine different types of

supply systems, and as many as seventy different methods of charging and

pricing access to electrical power.276

Overall, the dramatic increase in population density in cities, the

appropriate infrastructure that followed shortly thereafter, and the dynamic

conversion of businesses and municipalities from steam to electrical power put

272 Vol. 43, 273 IndiaThe German was a particularly Great Banks, large National consumer Monetary of brass Commission, and copper Senate manufactured Documents, goods from Birmingham.p. 125. 274 Politics, 1838–1939,” Business History Review – Daniel R. Headrick and Pascal Griset, “Submarine Telegraph Cables: Business and Annuaire statistique de la France 75, no. 03 (September 2001): 543 275276578, Hughes, https://doi.org/10.2307/3116386. Networks of Power, 228. 20 (1900): 251, 264. 140

copper front and center as a necessity for modern living. Supplying that need of

course was just as dramatic.

Conclusion

What this chapter suggests is that prior to WWI, information asymmetries and other transaction costs in copper were overcome less through internalization of markets by large corporate structures (i.e. vertical integration) and more through vertical trade networks and public pricing mechanisms.

On the demand-side, MG continued to cultivate “special relationships” with buyers through its sales agency network. Especially on the continent, MG laid the groundwork for a distribution system that extended to every major

European commercial center. MG exploited this agency network to point of

oligopolistic advantage – hardly any other European metal company came close

to matching its channels of distribution. Additionally, MG also could also count

on the leading brokerage house at the London Metal Exchange, Henry R. Merton

& Company, which helped the company to manage its risk in trading metals over

long distances.

On the supply-side, Metallgesellschaft made significant investments in

North America starting with American Metal Company in 1887. The American

Metal Company, which had generated solid returns during the Secrétan years,

rapidly expanded the firms purchasing power by fostering relations with US,

Mexican, and Canadian producers of copper and other non-ferrous metals.

Through its Niederlassung (branch) in North America, MG was able to bargain 141 directly with burgeoning miners and refiners and in turn sell those metal products and commodities directly to European manufacturing clients.

While this agency system proved profitable, MG executives knew that competitors were not standing still. On the one hand, competition was growing from direct competitors – other trading companies who saw an expanding market and thus expanding opportunities. On the other hand, the increasing size and strength of producers and manufacturers also posed a direct challenge to the intermediary position of the company. In order to stay one step ahead of these competitors – both horizontal and vertical – MG begins pursues a path of what has been called quasi-vertical integration. In the end, MG continued to protect its intermediary position by integrating into numerous areas on both the production and manufacturing ends of the copper value chain.

Through its central offices in Frankfurt, London, and New York, MG president Wilhelm Merton approved an aggressive acquisition strategy that included signing long-term contracts with producers and consumers, direct investments in treatment facilities, as well as quasi-vertical integration downstream into manufacturing facilities in Europe. In support of these efforts,

MG also founded a research institution, a metallurgical department, and its own commercial banking division to help finance any opportunity that came about.

And increasingly, the company became more tightly intertwined with the German government, serving on numerous federal councils charged with developing resource strategies for the Reich. Indeed, Wilhelm Merton left little to chance in his pursuit of survival. Little wonder that MG came to be known around the copper world as “the octopus.” 142

CHAPTER 4:

THE COPPER TRADE DURING THE WAR YEARS Shifting from Markets to Hierarchy

BEFORE THE WAR, the global copper market had functioned competitively,

with producers, consumers, and traders all battling over the profits while the

London futures market served as a moderating force and price authority. By

1918, however, the world market was within the grasps of American

producers like Anaconda, Kennecott, and ASARCO. Hanging in the balance

was the future of the exchanged-based pricing system, which until the war

had proven an efficient mechanism for distributing the rare earth metal.

In part this shift stemmed from the trade disruption caused by the war itself. The war, of course, temporarily shut down traditional transatlantic copper commerce. In Britain, the summer of 1914 brought the first major break in the growth and development of metal trading firms and the London

Metal Exchange. When war appeared imminent in late July, the LME closed its doors and suspended business. While the Exchange would remain closed for only three months, for the rest of the war period it would be under government command. In Germany, the war severely curtailed imports of strategic minerals, metals, and other war materials. German control over the marketing of copper, and other non-ferrous metals was largely dismembered while German foreign investments in metals and chemical companies were appropriated by British and American governments. 143

Perhaps most importantly, the war pushed copper output to heights never before seen; accelerating the expansion of production facilities throughout the Western Hemisphere. Major gains in output to meet wartime demand were made in the United States and also Chile, where American capital flowed in to develop the enormous deposits of Braden and

Chuquicamata. At the same time, the passage of the Webb-Pomerene Act cleared the way for a new era in the organization of the market. As the following chapter explains, the war in conjunction with the shift in US competition policy (Webb-Pomerene Act), disrupted the order of the copper market as it had functioned from 1890-1914.

4.1 American Producer Problems with European Buyers … and

Competition

The war indirectly helped solve a major issue for American producers.

The issue at stake was the inability of large American producers to “deal

direct” with large consumers in Europe, most notably German

manufacturers. From John D. Ryan’s point of view in 1914, Germany’s copper

market represented an untapped gold mine. If they just cut out the

middleman, American producers could earn a premium of about 1 cent more

per pound than they received currently.277 The problem for Ryan and other

large producers like Calumet and ASARCO were the metal trading firms

277 This was a major talking point for the Amalgamated Chairman John Ryan. See Report of the Federal Trade Commission on Co-operation in the American Export Trade, II, p. 261. 144

standing in their way. How to move groups like Metallgesellschaft aside,

Ryan wondered, so to enable direct dealing with groups like Siemens?

In 1907, large producers sought to bypass the Grossmetallhandlers by

opening up sales offices in European cities and selling direct to consumers

that way. This strategy had limited success. By spring 1914, Amalgamated and

ASARCO came up with a new strategy. They started a campaign for the

legalization of an association whereby all American producers could bargain

with one voice on exported copper. The lobbying campaign by the copper

producers (along a few other export-oriented industries) kicked off just

before the outbreak of the war. Unrelated though it was, the outbreak of the

war, nevertheless, presented conditions favorable for the producer’s case. The

underlying premise of the producer’s case was the claim of unfair trade

practices. Producer’s claimed that because U.S. law forbid collaboration

among competitors, industries heavily dependent on international trade were

at a disadvantage when it came to bargaining with European buyers.278

European manufacturers were horizontally combined cartels, which worked exclusively through metal traders like MG to fulfil their raw commodity demands.279 Such an arrangement gave metal trading firms enormous

purchasing power when bargaining with the numerous, non-combined

American copper producers.

278 Alfred Dupont Chandler and Herman Daems, Managerial Hierarchies: Comparative Perspectives on the Rise of the Modern Industrial Enterprise, vol. 32

279 Mira Wilkins, The Emergence of Multinational Enterprise: American Business Abroad(Cambridge, from Mass.:the Colonial Harvard Era University to 1914 Press, 1980). Press, 1970), 70. , vol. 34 (Cambridge, Mass: Harvard University 145

At a hearing before the U.S. Congress in 1914, months before the beginning of

the First World War, the Chairman of Amalgamated Copper Company280,

John D. Ryan, had this to say in regard to ‘foreign buying combinations’ abroad and their effect on American industry:

When we sell copper in Europe – to Germany, England, and France – we have to sell it to combined buyers. Repeatedly and regularly the dealers or consumers of Europe have combined to force the American manufacturers of copper to unload, especially at times when business conditions were not good when a surplus was accumulating. At those times they have almost named their own price … [at the same time] the domestic [American] manufacturers were not able to combine; they had to trade in competition with those foreign manufacturers who were able to combine, and the result was that over a period of 12 or 13 years they paid a half a cent a pound more for their copper … [than] the European manufacturers.281

The Amalgamated Copper Company (soon to be renamed Anaconda Copper

Mining Company) was the largest miner and processor of copper in the

world. Since Amalgamated’s founding in 1899, the firm had continued to absorb dozens of major mines in Montana, Michigan, Arizona, and Mexico as well as a number of refineries in both Montana and on the East Coast. After

1910, the company produced and sold anywhere from 10 to 15 percent of the world’s annual copper output (250,000,000 - 500,000,000 pounds fine

280 Amalgamated was soon rena 281 Testimony of John D. Ryan, U.S. House, Judiciary Committee, Hearings on the med Anaconda Copper Mining Company in 1915.

Clayton Act, 63rd Cong., 2nd session (1914), I, series 7, pt. 11, 435. 146

copper). The net earnings of the company between 1910 and 1914 had

averaged 10 million or 8.0 percent return on assets.282

The company had done well by any standard, but Ryan and his wanted more. They saw profits left on the table when it came to overseas business. If

Ryan was indeed correct that a full cent per pound could be made on their copper sails overseas, which accounted for 25-50 percent of Amalgamated sales, then as much $2.5 million in profit was at stake.283

In order to claim this potential profit, Ryan, along with others like

Daniel Guggenheim of American Smelting and Refining Company sought legislative action that would exempt American exporters from the anti-cartel provisions of the Sherman Act.284 The foreign buying combinations that Ryan was referring to were essentially Metallgesellschaft and other metal trading companies that represented cartels of European (mostly German) manufacturers. According to Ryan, they were able to exploit the competitive

reality of the American copper industry, while at the same time benefiting from the cartelized arrangements in Western Europe. One crucial factor was the legalization of cartels and cartel contracts throughout the Continent, an

282 The Anaconda Copper Mining Company, Annual Reports, 1910- . In 1910, all mining and production properties were transferred to Anaconda although Amalgamated remained the holding company of Anaconda until the1915 corporate name

283 -1914. change284 Wilkins, in 1915. The Emergence of Multinational Enterprise Interestingly, that number was close to American Metal’s profits for 1911 , 34:81. 147

economic phenomenon which had started after the Depression of 1873, and had gained steam in the early twentieth century.285

In contrast with Europe, U.S. law had prohibited the formation of trade combinations since the Sherman Act of 1890. The validity of the law was tested

during the early 1890s. Ironically in the year 1897, just as the U.S. Supreme Court

upheld the constitutionality of the Sherman Act, the German Reichsgericht

held that contractual arrangements regarding price, output, and allocated markets were enforceable in by law. Thus, cartels and syndicates remained the law of the land in Germany, while essentially banned in the U.S.286

While the large American producers painted a picture of all powerful

“buying combinations” who were dominating the copper market, the truth seemed to be that it was the competition and inability to control it on the

American side that was frustrating them. The metal trading firms could be blamed for exacerbating the competitive situation. Through their skilled dealings and deep trade networks both on the Continent and throughout

North America, the metal traders were able to exploit the competitive reality of the American copper industry. For example, during extended periods of dull buying, producers like ASARCO or Amalgamated would accumulate large stocks as a result of a prolonged period of business ‘inactivity’ because the

Germans had refused to buy. Whether the producer liked it or not, he sold his goods to the middleman:

–32. 285The primary feature of Continental cartel law was such that cartel contracts were legallyMaschke, enforceable “Outline in ofcourt. the History of German Cartels from 1873 to 1914,” 231 286 Chandler, Scale and Scope, 1–4. 148

With markets at their lowest … these large German metal firms entered into the market and bought large tonnages of copper at low prices. The purchases were often in quantities of 10,000 and 25,000 tons at a time. … After they had purchased these large quantities of copper then by encouraging the buyers, by manipulating the metal exchange markets [through their dealer HRM], and by withholding offers from the market, they created an improved market sentiment and started the market on a boom of which they in turn took advantage by selling at higher prices quantities of copper which they had accumulated at low prices.287

But MG and American Metal were not just speculating in futures and prices, they were also supplying some of the largest metal consumers in the world. Large metal consumers – cartelized or not – were not easy to please.

They were constantly on the look out for better opportunities. For example,

AEG was one of the Metallgesellschaft’s major accounts and along with

Siemens were some of the largest purchasers of copper in the world.288 Yet

they also bought copper from other metal dealers like Aron Hirsch & Sohn

and Beer, Sondheimer. Both Isaac Leopold Beer and Moses Tobias Sondheimer

had trained with Wilhelm Merton at P.A. Cohen &Co. during the 1860s and

1870s, but split off in 1872 to start their own partnership. Other competition

included many of the brokerage houses at the LME and even small retail

287 United States Alien Property Custodian Report .S. Government

288 (Washington, DC: U Printing Office, 1919), 71. See various contracts contained in HWA MG 119, num. 67, ‘Mischlinge Banden.’ 149

outfits which sourced both primary and secondary (scrap) for buyers.

Needless to say, competition for business was highly competitive in the

copper industry, whether at the mining stage or the consumer end.

Of course one of the distinct advantages for Metallgesellschaft was its

strategy of combining its trading business with partial integration on both the

producer and consumer ends. The hybrid nature of MG’s business was highly

flexible as it balanced the cost of controlling a firm with the risk of investing

too much capital. Metallgesellschaft’s business with Heddenheimer

Kupferwerk and Suddeutsche Kabelwerke AG, both large consumer brass

factories, allowed MG to coordinate purchasing policy for both firms while

limiting its exposure to the fixed cost side of the fabricating business.

In the United States, American Metal had similar relationships with

various mining and processing firms (see Chapter 3). A listing of clients from a survey in 1911 detailed that AMCo was major or exclusive seller for both integrated and non-integrated mid-sized mining companies like Old

Dominion, Shannon, Granby Copper, East Butte Mining Co, Teziutlan,

Torreon, Ducktown, Fitzroy, and others.289 It also was the exclusive dealer

for Balbach Smelting & Refining and Nichols Copper Company, the second

largest refinery in the country after ASARCO’s refinery in Baltimore. With

American Metal “controlled purchasing contracts and selling agreements” for upwards of 250,000,000 pounds of American copper, a figure approaching

289 The Mining Magazine (1911, p. 464).

“Marketing copper in the United States,” 150

the yearly production of the Anaconda Copper Mine, Amalgamated Copper’s

largest subsidiary.290

Initially, the response (as mentioned in chapter 3) by large producers to the hybrid strategies of German metal traders was to pay closer attention to the marketing of their copper overseas. In this way, the American producers hoped to bypass the German middlemen and go straight to the source. Beginning in 1907, major American producers started opening their own sales offices in European cities in order to deal directly with buyers.

Amalgamated was the first to open its own office abroad in Cologne around 1907 and later in the electrical equipment manufacturing capital of the world of

Berlin in 1913.291 The Guggenheims followed shortly thereafter by opening an office in Berlin in 1909 under the name American Smelting and Refining

Company GmbH. It was also the case that both Phelps Dodge and Calumet and Hecla had their own Niederlassungen or ‘branch offices’ in Frankfurt and

Bonn, respectively.292 In fact the two largest selling agencies in the world

were United Metals and ASARCO, both handling twice as much copper as

MG.

The strategy of the American producers, while logical, did not prove

very effective. Foremost was the reality that most Continental manufacturers

would not purchase copper directly from the producer on an individual basis.

290 United States Alien Property Custodian Report, 69–70. 291 Ewald Reinhart, Die Kupferversorgung Deutschlands Und Die Entwicklung Der Deutschen Kupferboersen

representative. (Bonn: A. Marcus und E. Webers Verlag, 1913), 33. 292Amalgamated Adey, Die Organisation used Charles Und S. Henry Die Funktionen & Company Des as Deutschen its London Metallhandels and later Koln

, 45. 151

Doing so might put them in violation of their cartel compact (Kartellvertrag)

or burn a bridge with a long-time sales agent. The probability that such a deal

would have resulted in higher price quotes was equally as high. After all, the

large American producer agents were not their just to hand out better deals!

Further complicating the matter for the American groups was the

existence of futures markets, not only the London Metal Exchange, but also newly opened Metal Exchanges at Hamburg (est. 1909) and Berlin (est.

1907). The German metal exchanges attracted alternative sources of supply and created more diverse buying opportunities for regional consumers. 293

Much of the metal that was traded on these new exchanges was being sourced from Japan. The estimated production of Japan in 1913 according to H.R.

Merton & Co. was over 70,000 metric tons. This was more than double what it had produced in 1903, making Japan the second largest producer in the world just before the war. More than half of the Japanese product was shipped abroad during the early twentieth century with the bulk of its exports ending up in Germany.294

With Germany consuming upwards of 200,000 tons of copper, the American

producers felt it was their best plan of action to lobby on behalf of a bill that would

legalize a new association for the export of copper. Just as the producer’s campaign was getting under way, war erupted in Europe.

4.2 The War Disruption to the Atlantic Copper Trade

293 Specht, Die Volks- Und Weltwirtschaftliche Bedeutung von Aluminium, Blei, Kupfer, Zink Und Die Metallboersen New York, London, Hamburg, Und Berlin, 47– 294 -76. 56. The Mineral Industry, 1913 (New York:, 1914), 174 152

When Britain declared war on Germany in July 1914, near the top of their list of concerns was the power of the Frankfurt Metal Traders and their stranglehold on the non-ferrous metals industry. The British labelled copper

“absolute contraband,” placing it on the same level of importance as explosives, munitions, and other strategic raw materials vital to the war effort.295

This of course proved to be a serious issue for Metallgesellschaft,

German consumers, and American producers alike. American producers, regardless of whether they were missing out on half a cent a pound in copper profits, still needed the markets of Europe in order to remain viable as 70 percent of all copper processed in the U.S. was exported, nearly all of which ended up in Europe. Of that figure, a third was consumed by the Germans (c.

420 million lbs).296

Complaints of industry leaders – most notably Anaconda, ASARCO, and American Metal caught the attention of high-ranking state officials.

Shortly after the commencement of the war, U.S. Secretary of State Williams

Jennings Bryan protested to Britain’s Ambassador Cecil Spring Rice that

“legitimate trade” has been greatly impaired as a result of the blockade.

Exports of copper were a problem in particular as “seizures were so numerous and delays so prolonged that exporters are afraid to send their copper to [neutrals], steamship lines decline to accept it, and insurers refuse

295 National Archives, London, England (FO) Foreign Office Records, FO 382/462, no. 87137:296 Herfindahl, Memoranda Copper on Costs International and Prices Organization. of Frankfurt Metal Trade, 1 July 1915. 153

to issue policies upon it” wrote Bryan to the American ambassador in

December 1914.297 Yet the British remained steadfast in their original course

of action as the alternative of permitting German access to strategic materials

was entirely unacceptable.

American Metal business hit a snag immediately as its copper shipments destined for Frankfurt via Amsterdam and Rotterdam throughout

July and August 1914 were rerouted to London and held indefinitely by

British customs authorities. Given that the six shipments between 100,000 and 500,000 pounds, this was a particularly expensive setback.298 According to British Foreign Office reports, however, American Metal executives refused to entirely desist in trade with their parent company. Neither had metal trader Aron Hirsch’s American agent, L. Vogelstein nor ASARCO for that matter. Indeed, most American copper firms with significant trade

networks abroad continued to trade via neutral country agents in order to

realize profits, especially as most American manufacturers were hesitant to

start buying copper during a time of uncertainty.299

Although initially the war conditions disturbed copper markets by pushing down prices, by 1915, domestic production orders roared back to life

297 Mira Wilkins, The History of Foreign Investment in the United States, 1914-1945 (Harvard University Press, 2009), 16–18. 298

299 HWA Abt. 119/a15: Berthold Hochschild nach Wilhelm Merton betreffend Bilanz confiscated1914, 7 October at beginning 1914. of war which highlights British concern over American For an account of ‘Rotterdam’ bound copper shipments from New York 28 September 1914. displeasure FO 368/1040, no. 57636: Robert Skinner to American Consul in London. 154

as order from abroad poured in for U.S. fabricated war materials.300

American producers and metal traders like AMCo were recharged as new orders for copper from artillery producers in the U.S. were received. Many of which were government issued contracts, including a large order for copper from Frankford Arsenal, a U.S. Army ammunition plant outside of

Philadelphia. Others in 1915 including Cleveland Metal Products Company,

American Brass Company, and Peters Cartridge Co.301

On the other side of the Atlantic, German political leaders were quick to respond to the blockade and organized under the leadership of Walther

Rathenau the Kriegsrohstoffamt (translated as the War Materials

Department or KRA). Founded on 13 August 1914, the KRA served under the authority of the Kaiser’s Prussian War Ministry. The KRA was a state-run government department staffed mostly by industry experts and some military personnel. Its tasks were primarily administrative charged with collecting statistics, maintaining financial accounts, tracking resources, and imposing price controls. It also initiated the policy of researching and developing substitutes for those vital commodities that were made unobtainable by the war. Yet the KRA did not have the capacity to manage the distribution and allocation of raw materials to specific economic sectors; that duty was left to individual Kriegsgesellschaften or war companies.

The first of these Kriegsgesellschaften that Rathenau created was the

Kriegsmetall Aktiengesellschaft (KMAG) on 2 September 1914. This was not

300 Alfred E. Eckes Jr, The United States and the Global Struggle for Minerals

301 AMCo (University of Texas Press, 1979), 15. FCX, Minutes: 11 February 1915; 8 December 1914. 155

surprising, as Rathenau, president of A.E.G. was deeply concerned about

German access to foreign copper.302 Appointed to the board of directors of this public-private association was Wilhelm Merton of MG. This group was charged with procuring metals necessary for the war effort. To do so, KMAG recruited and organized the cooperation of about 30,000 (mostly small) metal companies which were to report their metal stock figures every month in order to support the price controls and centralized allocation of metals.

While the ownership of raw materials remained vested in the companies and not the Kaiserreich, the KMAG was empowered with the responsibility to allocate resources according to the needs of the state.303

Merton recognized as well as Rathenau that one of the keys to German

victory was not running out of strategic metals. While most German Generals

– von Schlieffen above all – had believed the war would end quickly,

Rathenau was not convinced. This fact, and his company’s success, motivated

him to advance the mission of the KRA.

The KRA and the Kriegsmetall AG moved quickly to obtain these

supplies. Not surprisingly, “first and foremost were concerns over copper and

nickel supplies.”304 “The war machine requires metal,” stated Wilhelm

Merton “especially for things like rifles, machine-guns, mine-throwers, flame-

throwers, gas-fueled weapons, steel helmets, armor, tanks, planes, cruisers, and

submarines,” machines which “more and more became the face of the

302 Hew Strachan, The First World War: Volume I: To Arms

303 Strachan, The First World War. , vol. 1 (Oxford University Press,304 2003),Fünfzig 1015. Jahre Metallgesellschaft, 1881-1931

Däbritz, , 215. 156

Maschinenkrieges.”305 With Germany cut off from most overseas supplies, the

Kriegsmetall AG quickly advised the Saxon and Silesian miners to push

production to the max. While zinc and lead were less of an issue, only about

20 percent of the state’s copper needs were able to be satisfied by new internal

production. As a result, German officials encouraged the “mining” of

secondary sources of copper (aka scrap), especially in the cities.306 Copper sheathing on roofs, household goods made of brass or copper, bronze bells – by the end of the war wiring from telephone and electrical equipment found its way to the front lines.307

Metallgesellschaft played a central role in allocating vital metals and

chemicals for the war effort. Foremost MG continued to import copper from

the U.S. as well as from Japan, Mexico, and Chile. MG and other firms attempted to by-pass the British blockade of strategic goods and metals by consigning materials to neutral ports in Denmark, Sweden, Norway, Italy

(until 1915), or the Netherlands, the British Navy and British consulate officials nevertheless proved capable in slowing the copper trade with the central powers to a crawl.308 Figures suggest whereas in 1914, Germany and

Austria had imported from the U.S. more than 500 million pounds of

305 und Tanks, mit Däbritz, 215. “… Geschützen,-Booten Maschinengewehren, immer deutlicher Minenwerfern, das Gesicht eines Maschinenkriegs.”Flammenwerfern, Gaskampfmitteln, Stahlhelmen, Schutzschilden Flugzeugen,306 Kreuzern und U - Zeitschrift Für Unternehmensgeschichte –36. 307 YearbooD. G. Williamson,k of American “Walther Bureau Rathenau of Metal and Statistics the K.R.A.: August 1914 March 1915,” 1921), 9. 23, no. 2 (1978): 118 308 , 1st ed. (New York, NY: ABMS, contraband in neutral ports from 1914–1916. See FO 368/ 1040; FO 368/1161 for numerous ‘top secret’ reports on 157

copper, by 1915 Central Powers were only able to procure about one-tenth that amount.309

On the production side, MG’s efforts included the expansion of capacity of their smelting facilities at Duisberg, Bensberg, and Oberschlesen, especially in zinc and lead. Refineries in Hamburg and Hoboken were also enlarged and diversified to refine a wide range of ores, most notably those from the Nordic countries which were most easily imported under the nose of

British agents.310 Heddernheimer Kupferwerk (Mannheim) and Suddeutsche

Metallindustrie (Nuremberg) both expanded the scale and scope of fabricated metal products they offered, with the former employing about 2000 workers most of who were women.311 At Knapsack, MG purchased and expanded production of a dynamite factory (Aktien-Gesellschaft fur Stickstoffdunger,

Knapsack) to support the massive increase in artillery production. In support of a Kriegsmetall AG initiative, MG advised and invested in the construction of an Aluminum refining plant in an attempt to quickly meet increased demand of that metal. Aluminum was not only needed because of its strength and lightweight, but also as a substitute for copper in wiring. This task fell to

MG’s Metallbank on the basis of its earlier experience in aluminum production

and consulting. With the German Army’s demand for aluminum constantly

growing but only a single small factory on German soil (which was Swiss-owned),

the country could not afford to be remain wholly dependent on the Swiss

309 Robert Pettengill, The United States Foreign Trade in Copper, 1790-1932 (Stanford

310 Fünfzig Jahre Metallgesellschaft, 1881-1931, 222–23. University:311 Ph.D.–27. Dissertation, 1934), 239. Däbritz, Däbritz, 226 158

connection. It is difficult to measure the company’s impact on the total war effort.

We might go about measure such result by counting up the amount of metal the

country was able to obtain through foreign sources or the amount of metal that

was processed in MG smelters and refineries.312

What we do know is that the amount of influence MG executives had over

the countries metal policy was enormous. Not only was Wilhelm Merton a top

advisor for the Kriegsmetall, but his son, Richard, who took over control of the

company upon Merton’s passing in 1916, was also appointed as a member of the

Kaiser’s Peace Delegation to represent German non-ferrous metal interests. The

company made a great sacrifice for the Kaiserreich in another way during the

war, namely the loss of its American, Australian, and British foreign investments.

In London, the MG metal trading business Henry R Merton &

Company was purged of its German members in 1916. The company was later renamed Henry Gardner & Company after one of its Scottish partners.

Because MG’s industrial holdings were not as significant in England (and

Australia), the loss of physical property there was less painful than it would be a year later in the US.313

When war was declared on Germany in the United States, the country’s political leaders followed in the footsteps of the British by passing the Trading with the Enemy Act on 6 October 1917.314 As part of this legislative action,

Congress created the Office of the Alien Property Custodian (APC), an

312 In terms of human sacrifice, the company lost 27 company agents during the war. 313 War, 1914–1939,” Enterprise and Society –61. 314 Simon Ball, “The German Octopus: The British Metal Corporation and the Next 5, no. 03 (2004): 460 U.S. Code, Title 50, Trading with the Enemy Act, Statute 2. 159

executive committee with the power to appropriate property belonging to the

enemy. This turned out to be a substantial amount of foreign direct

investment as German citizens had established numerous businesses

throughout the U.S., most notably in the chemical and metal industries, but

also significant holdings in various manufacturing of machines, transport

companies, textiles, and communication technology. All totaled, the value of

the enemy property in the hands of the APC was over $500,000,000.315

Along with this property was a significant portion of American Metal’s shares owned by the enemy – the Merton family in Frankfurt.

The executives of American Metal were proactive in their desire to comply with U.S. Government officials.316 The company turned over its shareholder information which detailed that the company was in fact two- thirds owned by H.R. Merton and Metallgesellschaft, both foreign companies.

Metallgesellschaft, with 49 percent ownership, was the greater concern

since it was based out of Frankfurt.317 Throughout the remainder of the

war, American Metal continued to function as it had in the past – as a sales

agent, consultant, and partially integrated producer. The main difference now was that they were now independent and without their biggest client, MG.

4.3 The U.S. War Industry Board and the Regulation of the Copper

Trade

United States Alien Property Custodian Report, 9. 315316 AMCo 317 AMCo Minutes, 22 January 1918. The others were E.C. Converse of Bankers FCX, Minutes: Letter to War Trade Investigation Bureau, 4 October 1917. Hon.FCX, George McAneny. Trust Company, L. L. Clark, president of American Exchange National Bank, and the 160

Allied demand for copper continued to rise rapidly during the war and producers responded with increased investments. Refineries were updated and new mines in Arizona, New Mexico, and Utah were opened. Total capacity for electrolytic refiners nearly doubled from 1912 to 1917. Amazingly,

even with an increase in production that was 50 percent beyond the production figures of 1913, wartime consumption continued to outpace capacity.318 To manage the high prices, and “control and regulate industry in all its direct and indirect relations to the war and nation,” President Wilson authorized the creation of a bureaucracy, the War Industries Board (WIB).

The WIB was charged with the duty of “procuring an adequate flow of materials” for the war-making agencies of the U.S. Government, namely the

Army and Navy.319 WIB would accomplish this goal through top down executive regulation of “basic economic elements” such as materials, fuel, transportation, labor, and capital. The Board sought to “stimulate and expand” the production of materials prioritized as essential to the war program and to curtail the production of those things “not of a necessitous nature.”320

The WIB was a short-lived bureaucracy. It was thought up by the

Council of National Defense in July 1917 and dissolved on 30 November 1918.

The chairman of the WIB was Bernard M. Baruch. Beneath Baruch were

dozens of officials heading up separate departments which included well-

318 Yearbook of American Bureau of Metal Statistics, 18. 319 Bernard Baruch, American Industry in the War: A Report of the War Industries Board – 320 An Outline of the Board’s Origin, Functions and Organization (New York: Prentice Hall, 1941), 4 -2.5. (Washington D.C.: U.S. Government Printing Office, 1918), 1 161

known businessmen, professionals, academics, and military leaders, all

whose goal was to coordinate an efficient expedient flow of materials (both

finished and raw) for the war effort without getting totally ripped off by

private industry in the process.

In the regulation of commodity producers, “second only to steel” in its

importance as a basic war metal was copper.”321 On the one hand, the Board

was faced with the challenge of how to properly motivate copper and brass

industries to increase production. On the other hand, the WIB sought to

obtain millions of pounds of copper as cheaply as possible and was convinced

that price controls were necessary to accomplish this task. Ordering all

producers to sell their copper to the government and Allies while also finding

a price maximum that would incentivize production was quite a task to say

the least. Determining a fair price would require detailed study of costs

related to the copper value chain: mining, smelting, refining, and fabrication.

Baruch appointed investment banker and mining financier, Eugene Meyer to

assist him in this endeavor. At one point in Nov. 1917, Meyer was talking with

Baruch who asked him: “I’ve been down to Washington and they want me to get

for the Navy 45,000,000 lbs of copper. I’d like you to tell me what price you think

I should pay.” Meyer replied that he was unsure. 322

In his notes housed at the Library of Congress, Meyer noted that he “had been doing some figuring about prices and was always messing around with figures. Copper at the beginning of the war in 1914 was around twelve to fourteen

321 Baruch, American Industry in the War: A Report of the War Industries Board, 136. 322 Eugene Meyer

, Jr., Memoirs Interview # 7 Part 1, Box 1, Library of Congress, Eugene Meyer Collection (1952), p. 220. 162

cents. Business had been rather dull in 1914 [but] after a few months, copper

began to be in great demand. Production had to be stepped up. Prices rose.

England, France, Belgium and Italy were trying to buy more copper than there

was, so it went up until, at the time, I talked with Baruch in 1917, it was 38 cents

and very hard to get for prompt delivery. You could get some for delivery in nine

months for about thirty-two cents, as I remember, but that was a long time

ahead.”323

Although prices for copper were hovering around 30 cents, it was agreed by industry majors to sell to the government at reasonable, pre-war prices. For instance, the Army and Navy contract Baruch was referring to for

45 million pounds of electrolytic was settled at a bargain of 16.67 cents per pound in March 1917. By early July 1917, another government order for 60 million pounds was placed as market prices stood at 32 cents. Yet the

Secretary of Navy announced he would pay 18.75 cents per pound for the order. This offer did not sit well with copper industry leaders, for although the industry had shown a token of good faith with their initial sale at 16 cents, they were not prepared to deal at under 20 cents a pound for the long term.

One major obstacle for the copper mine owners and by extension the government, were unionized miners. As soon as it was learned by copper mine workers and their unions what prices the government might be willing to pay for copper, they threatened to strike. The issue was that miner’s pay was directly tied to the price of copper. They were paid on what was known as a sliding wage scale which adjusted to the market price. The sliding wage

323

E. Meyer Collection, LoC, Interview 7, p. 220. 163

scale system had been initiated by Anaconda in the early twentieth century as

a way of avoiding labor troubles when wages needed to be cut. The sliding

scale system provided for a minimum wage of $3.50 per day of eight hours of

labor for men employed underground, and $4.50 for mechanics, and with

higher rates for more skilled laborers. The minimum wage rate was

applicable when copper sold below 15 cents per pound, and 25 cents

additional per day for every 2-cents advance above 15 cents. For over a year

the price of copper had averaged 27 cents and above, so that miners were

making $5.00 plus per day and mechanics over $6.00.324

After a great deal of negotiation, it was finally agreed that the price

would be fixed at 23.5 cents per pound. The agreement with the WIB was established on 21 September 1917 and was subject to revision after four months. This was the first negotiated price-fixing arrangement ever

established by the U.S. Government.325 For most copper producers, especially those mid-sized and smaller (also known as “high-cost”) producers, even this

price turned out to be quite low. Small producers, whose product was

“indispensable” to the war effort, could not keep open at less than 25 cents.

Most of the industry although dissatisfied, finally capitulated.326

Compared to other industries and their price agreements, the producers had a right to be upset. Even the WIB admitted “there are ample grounds for the belief that the prices fixed by the government worked

324 Wilson, 24 August 1917. Marcosson,FTC Econ Investigation, Anaconda NF Metals, RG 122, Box 3316, J. E. Sylvester to President 325326 Baruch, American Industry in the War: A Report of the War Industries Board, 140– 41. , 155. 164

hardship on many operators.” This opinion was emphasized at the time by

F.W. Taussig, academic and representative of the WIB Price Fixing Board. “If

iron and steel, coal and coke, heavy chemicals, cotton, wool, wheat, corn,

sugar and meat, be classed along with copper as the absolute war essentials, it

is found that the advance in copper over prewar normal allowed to copper,

was less than half the average granted to all these other products.”327

In the wake of the September price agreement, many complaints found

their way to the Federal Trade Commission (FTC) regarding the unfairness of

the price. For instance, although the government was buying copper at this

price, it was not possible for brass manufacturers and fabricators who lacked

government connections to obtain copper at the price level set by the War

Industry Board. Because most copper was sold directly to the government

and was reserved for the war effort, small manufacturers were crowded out of

the market. Those in need of copper had to purchase scrap or second hand

copper from dealers. And because scrap prices were not fixed, this metal was

sold at sometimes twice the WIB price even as the quality was substantively

inferior?328

Under the War Industry Board’s guidelines, there was arranged a government–private industry association for managing supplies of the red metal. The group was called the Copper Producers’ Committee329 and through

327 -Fixing as Seen by a Price-Fixer,” The Quarterly Journal of Economics –11. 328 Baruch,Frank W. American Taussig, Industry“Price in the War: A Report of the War Industries Board, 141– 42. 33, no. 2 (1919): 210 329 protection of the Webb Act. Not long after the conclusion of the war, a similar group was arranged under the 165

it all purchases of copper by American government contractors were handled.

Two firms were charged with acquiring copper and selling it. Anaconda’s

sales agency U.S. Metals Selling Company handled domestic contracts, while the American Smelting & Refining Company handled all sales to other

Allied governments.330

American Metal, representing the trader perspective, profited during this period. The company’s ability to secure non-ferrous ore, ore concentrate, and scrap through their foreign offices in Mexico, Peru, and Chile proved particularly advantageous. Copper also found its way to refiners like Nichols

Copper Company as well as to Balbach Smelting & Refining, its two principle refining clients. Other investments in lead and zinc properties rounded out

AMCo’s balance sheet such as its investment in a coal mine, a zinc smelters in

Pennsylvania, as well as the Penoles lead–silver mine in Mexico. In part this was because AMCo was able to avoid much of the heavy capital costs that most producers suffered under. While AMCo had substantive investments in industry, it was much less dependent on such investments. Nearly all investments made after having communication shut off with Frankfurt in

1915.331 Though AMCo executives were often suspected of harboring sympathy for enemy, government records indicate that they were highly co-

operative after the beginning of the war.

With peace established in 1918, new problems emerged for the copper and other commodities producers. The issue was the economic dislocation

330 Copper Mining and Management, 123. 331 Minutes, 1910–1920. Navin, FCX AMCO 166

due to the end of the war. During the war, copper producers had expanded

their producing capacity to keep up with American and European demand.

The increase, however, eclipsed the needs of the US and the Allies to fabricate

the metal. As production continued to surpass the needs of consumers toward

the end of war, industry leaders warned the government of the potential

disaster that was loaming for the copper industry. The U.S. Government was

adamant, however, that industry not curtail production and “ordered

continuous output.”332

The result proved devastating for copper producers. Inventories on hand at mines and refineries were high. Copper was also in the hands of governments in Europe, but both foreign and domestic demand had receded to such an extent that prices had nowhere to go but down. Anticipating a large civilian demand after years of restricted consumption, a bump in demand in 1918 from domestic and foreign consumers was not long lived.

With leftover copper stocks mounting to over 400,000 tons in addition to stocks of secondary scrap copper of nearly twice that size, American

producers found themselves in a dangerously glutted market.333

Fortunately, for copper industry executives in the U.S., the complaints of unfair buying practices by the Europeans first voiced by Ryan and others in early 1914 were finally confirmed with the publication of the Federal Trade

Commission’s official report and reached the ears of Congress in 1918.334

332 Marcosson, Anaconda 333 Elliott and Wallace, International Control in the Non-Ferrous Metals, 41 334 - , 157. 5. “Report on the Co Operation in the American Export Trade” (Washington: US Government Printing Office, 1916), 379. 167

With the report, the question of the desirability of legalizing combinations

(or cartels) for export trade manifested itself in the Webb-Pomerene Act of

1918 and it was through this law that American producers were able to

navigate the problem of surplus copper, low prices, and ultimately the threat

of speculators like MG and its former subsidiary, American Metal.

4.4 The Webb Act 1918

The Webb Act of 1918 changed the structure of the American copper industry for next half century, from one that was coordinated by merchants and markets to one that was coordinated more by integrated producers. The initial investigation by Federal Trade Commission took place over the course of the war after interviewing countless individuals from industry, government, and academia.

The report noted the argument of a number of American producers and manufacturers who in seeking to increase trade abroad encountered pushback from

“powerful foreign combinations” who possessed an unfair advantage because of legalized cartels and the government promotion thereof. The report also suggested that these foreign buying combinations were a significant problem mainly in

Germany, but were also prevalent in Belgium, Holland, Italy, and Japan. It was also noted that not all companies suffered equally, some American companies, particularly US Steel, Standard Oil, and International Harvester did not encounter the kinds of problems that smaller concerns in their industry had. In industries where “competitive conditions prevailed,” great disadvantages were the norm.335

Report on Co-operation in American Export Trade, I, p. 1- 335 5. 168

The report specifically pointed out how for “some time” the world’s copper trade had

been controlled by a Germany metal-buying agency.336 In the end the FTC

recommended approving some kind of legal mechanism in support of export

associations.337

The debate then found its way to Congress, where the legislation was debated

on and off for two years. The legislation was first introduced in the summer of

1916, but was not able to gain approval until 10 April 1918, and then only after

President Wilson pushed the members of Congress saying that the Webb bill

“ought by all means be completed at this session,” that being the 65th

Congress. The stated purpose of the bill was to encourage the export of goods by companies that did not have the means or the size to negotiate properly with foreign “combined” buyers. Many industries ran into trouble when attempting to trade overseas. The timber industry, cotton textile producers, silver and lead producers, as well as foodstuff producers all contend with

“astonishingly comprehensive wholesale buying organizations’ which tilted the balance of negotiation leverage in favor of foreign purchasers.”338

The stated purpose of the Webb Act was to enable a number of smaller

companies lacking a volume of business large enough to justify carrying on an

export trade by themselves to cooperate for this purpose and, by distributing the

overhead charges over their combined foreign sales, to bring the cost down to a

reasonable figure. It declared that “nothing in the Sherman Act of 1890 shall be

construed as declaring to be illegal an association entered into for the slole purpose

336 Ibid, I, p. 7. 337 Report on Co-operation in American Export Trade, I, p. 379. 338 -

“Co Operation in the American Export Trade,” 7. 169

of engaging in export trade, or an agreement made or act done in the course of export trade by such association, provided such association… is not in restraint of trade within the United States.” Many were found in favor of the bill as it would promote US economic interests abroad; however some wondered how the

associations influence over prices would not bleed into the domestic sphere. The

famous Gary dinner in the steel industry had proven to be an effective device for

maintaining/fixing the price of steel. Though these dinners were discontinued as

they were proven to be illegal, could not the same situation transpire abroad?

Other’s raised the concern that the bill might promote international combination. Or that perhaps in certain industryies the ultimate conseqquesce

would be the pitting of a single American seller against a single foreign buyer. How

could such a centralized system function or respond to market pressures? What

market pressures would exist?

4.5 The Copper Export Association, 1918

When the Bill passed, copper executives wasted little time in organizing their association. Their solution was to form an association similar to those which Anaconda and ASARCO executives had led during the war years. Copper producers took advantage of the bill shortly after the war by forming the U.S. Copper Export Association on 17 December 1918.339 All the major important copper mining and refining companies joined the cartel transferring a significant portion of their excess copper inventory. The inventory was then to be sold off over the course of five years in an effort to

339

Engineering and Mining Journal, vol. 106, No. 25 (21 December 1918), 1092. 170

stabilize the market.340 Stabilizing the market was indeed of major

importance, but the Association and its Congressional supporters had

additional motivations. As Elizabeth May pointed out in International

Control in the Non-Ferrous Metals Industry:

The new [copper export] corporation was not simply an organization of domestic producers, it was rather a joint selling agency for all markets outside the United States. The avowed purpose was to eliminate middlemen and to stabilize prices … and without doubt [was] a means of establishing the dominance of American producers.341

John D. Ryan, the President of the Association was later quoted as saying: “speculation” initiated by “dealers” with “no financial interest in the production of the metal,” produced a market that proved “intolerable from the producer’s point of view.”342

The organization represented nearly 75 percent of the domestic producers,

and over 95 percent of American output.343

On the board of directors for the Copper Export Association included

Simon Guggenheim of American Smelting and Refining Co., John D. Ryan and Cornelius Kelley of Anaconda (formerly Amalgamated), Adolph Lewisohn of Lewisohn and Sons, D.C. Jackling of Ray Consolidated Copper Co., Walter

340 The Association issued five-year 8% bonds which were secured by the copper inventory at a discounted market value. 341 Elliott and Wallace, International Control in the Non-Ferrous Metals –62. 342 Sections of the official statement made by the Copper Exporters, taken from Mineral Industries , 561 343 Mineral Industries, 1918, p. 147. , 1926, p. 156. 171

Douglas of United Verde Extension, and R. S. Agassiz and James

McNaughton of Calumet and Hecla. Membership was contingent on a

promise to export only through the channels provided by the association.

Each member was allotted one share of common stock and though members

were allowed to purchase up to $250,000 of preferred stock, the voting

privilege was accorded in proportion to the tonnage of copper exporter rather than shares of stock.344 Missing from the roles of membership was

American Metal Company. The fact that AMCo was more of a trading firm rather than a pure producer like Amalgamated, Phelps Dodge, or Kennecott offers clues as to why they would likely want to avoid/undermine the efforts of the cartel.345 The logic of American Metal was that if the major producers wanted to gain a monopoly on the price of copper via their association, they would have to buy up American Metal’s stocks at a premium. Such was the opportunist logic of the trading company.

The first step for the leaders of the Copper Export Association decided to withdraw from the market a block of 200,000 short tons of refined copper and then set out to sell off the allotment to foreign consumers in a gradual manner with the hope of at least maintaining world prices.346 Many American

producers also discontinued mine production in 1921 as well. By 1922, the restrained production and withholding of metal did encourage prices to tick up – even without the help of American Metal. The initial results of the first

344 Engineering and Mining Journal, ember 1918), p. 1092. New York Times 345346 The 200,000 tons stored was financedvol. 106, by no.CEA 25 by (21 issuing Dec $40m in bonds at 8% to mature in 1–4 years.(27 November 1919), p. 22. 172

Copper Export Association impressed many of its members. The Association achieved greater producer integration into the marketing of copper abroad, which was bolstered by the fact that wholesale traders like MG were reeling as a result of the war. For the large producers, direct sales to large consumers in Europe were now possible. Still, as prices began to creep up in response to the tightened supply, new International competition emerged that was not beholden to the Copper Export Association.

European projects in places like Africa and Australia gained momentum during the early 1920s. In part this was a response to the gradually improving global market. But just as important was the memory of the war and the importance of having access to raw materials. Major mines in

South Central African Copperbelt were being developed by British and

Belgian interests. Some mines in the Katanga region were already producing.

The British also had investments in the Broken Hill and South Australian regions of Australia. Many of whom were working through a newly formed

British state-owned metal agency, British Metal Corporation which was

supplying Western European needs. Japan had now surpassed Russia as a

major producer and much of its product found its way to Germany. Even

International Nickel Company (INCO) of Canada was destroying Copper

Exporters market share. The reason being copper was a byproduct for the

INCO, and for them to curb production meant also curbing nickel production –

which was not going to happen.347

347 Elliott and Wallace, International Control in the Non-Ferrous Metals, 422–

25. 173

By 1923, the American producers began to have differences in where the price of copper should be set. They also disagreed on tariff policy as some

firms (PD and Calumet) wanted a 6 cent duty on imports while others with

significant mineral holdings or business relations abroad (i.e. Anaconda,

ASARCO, Kennecott) strongly disagreed. Eventually, the producers saw little

reason to maintain the export cartel. ASARCO lead by Guggenheim Brothers existed first and others soon followed.348 The American producer experiment with the Export Association thus came to an end. Control of the market slipped from the fingers of major producers, but nevertheless the legal foundation on which the producers group was built remained viable for years to come.

Conclusion

Events during the war period changed the nature of the copper industry.

Three catalysts can be deduced as having contributed to copper’s shift from a competitive market to oligopolistic producer-dominated market similar in structure to steel. First, the war itself caused a severe disruption in the flow of trade. Second, the war granted governments the political power necessary to appropriate property and institute price controls. Third, the war saw the passage of the Webb-Pomerene Act in 1918 and the Copper Export Association cartel.

Prior to the start of the war, metal trading intermediaries were marketing as much as a third of all global copper production, which by 1913 had eclipsed

1,000,000 metric tons. The combination of Metallgesellschaft and American

Metal Company were distributing as much as 150,000 tons of copper in Europe

348 Elliott and Wallace, 418. 174 and North America during the period 1910 – 1914. Other metal merchants like

Ludwig Vogelstein in the US, Aron Hirsch & Sohns, and Beer, Sondheimer & Co. were buying and selling or working as sales agents for dozens of producers around the world and were dealing as much as 100,000 tons. Additionally, dealings on the Metal Exchanges in Europe (London, Hamburg, and Berlin) had never been higher.349

From the perspective of the two largest producers in the world at the time,

Amalgamated and ASARCO, these intermediaries were taking profits that rightfully belonged to those who produced the physical good. The producer’s point is not totally without merit, for the cost of producing the metal – the mining, smelting, and refining processes – is not always reflected in the price on the market. The value added by the trader was not readily apparent to the producer. However, the function of the trader was definitely appreciated by the consumer, especially by those in Europe where copper was not plentiful. What had kept the copper market so competitive all those years – its international nature, its highly complex and costly sequence of production, its tradition of distribution through traders, the continued functioning of futures exchanges – had to somehow be overcome if producers were to control the market. The war was the catalyst which proved to be a leveler of these aspects of the copper market.

The war slowed and then stopped the trade in unwrought copper. This limited the influence of those trading firms dependent on Continental Europe for a large portion of their business. Then when the US joined the war, all the

349 The Economic Intelligence Unit, The London Metal Exchange, 69. 175

German-American trading firms were “nationalized” and broken off from their

parent companies. The war also resulted in an overproduction of copper, which

as one might expect would have been a positive thing for traders except for the

fact that it also inspired producers to form export cartels. The passage of the

Webb Act permitted producer cartels to function legally going forward.

As we shall see in the following chapter, these factors contributed to a new copper trade, one that would be much more dominated by big producers in

America and big consumers – both in the US and Europe. In between, the intermediary who had for the past 30 years made the market, he would find himself only of marginal importance when it came to coordinating the flow of copper.

176

CHAPTER 5

THE COPPER INDUSTRY AFTER THE WAR

The Arrival of Big Business in Copper

THE ORGANIZATIONAL STRUCTURE of the copper industry changed a great

deal in the period following the Great War. The combination of overproduction

during the war years, the legalization of export cartels in America, and the

weakening of the traditional copper trade channels resulted in a industry that was

less competitive and less dynamic than in years past. By 1930, the new world of

copper would be dominated by two groups: large vertically-integrated American

mining companies with major holding in the US and Chile and a half dozen mid-

sized African and Australian mining groups with strong colonial ties to European

governments. What were the specific factors that led to this increasingly

concentrated market? What was the impact of this concentration on the industry

and political economy of the North Atlantic and beyond? The following chapter

addresses these questions in three thematically-grouped sections, which overlap

chronologically.

Section one begins with a brief review of the war’s immense

overproduction and its impact on the strategic approach by industry leaders

throughout the 1920s. The period was marked by a number of examples of

vertical integration by firms across the supply chain. Anaconda, ASARCO, Phelps 177

Dodge, Kennecott, and American Metal Company all made heavy investments to

secure business both upstream and down – and in the process, internalized increasingly larger sections of the copper market.

The second section looks at how London Metal Exchange responded during the interwar years to an increasingly concentrated global market. The war severely weakened metal trading firms throughout the Atlantic (most notably

Metallgesellschaft) and with them the influence of the London Metal Exchange.

While the Exchange would continue to function during the 1920s and 1930s, its authority as the price making body for copper gave way to a permanent “dual pricing system” in copper that remained in place until the 1970s.

Finally, the chapter examines the theme of “mineral security” and

territorial expansion during the post war era. Free trade during the extended

period of relative peace before the war had proven that nations did not need

direct control over natural resources in order to thrive. Yet the war had taught

politician and industrialist in many European nations that reliance on external

trade was a point of weakness during open conflict. This feeling of “mineral

insecurity” inspired some national governments to intervene in pursuit of

securing supply just in case of future conflicts.

5.1 Overproduction and the Rise of Big Business in Copper

Capacity and production were greatly expanded during the war years. In

1913, world output had eclipsed 1 million tons – then the highest ever recorded.

In 1916, world production hit 1.4 million metric tons, an increase of 40 percent in 178

only three years.350 The end of the war left producers and traders holding

enormous inventories and little demand from governments.

At the beginning of 1919, the copper producers in the US at in their

possession more than 400,000 metric tons of unsold copper. At the same time,

the Allied Governments collectively had a stock of 500,000 metric tons that they

had bought for the war, but which was unneeded after the armistice. Not to

mention the literally hundreds of thousands of tons of scrap copper and brass

that littered the battle fields. Prices for copper responded accordingly, dropping

from 25 cents to 10 cents a pound by 1921. Needless to say, a readjustment in the

market of capacity, stocks, and prices was underway.

The post war years were notable for the attempts made by American producer to regulate output, disposal of stocks, and price. Faced with the prospect of demand considerably below the capacity to produce, firms like

Anaconda, ASARCO, and newly formed Kennecott Copper had led the way in forming the Copper Export Association. As American firms worked through the channels of the Copper Export Association to encourage the suspension of production, these large producers (who had high fixed costs and shareholders to report) took more dramatic steps to ensure their mines and refineries could continue to run regardless of low consumer demand.

Again, it was Anaconda who led the way in new thinking and strategy. In order to insulate itself from the tribulations of the market, the chairman of the board at Anaconda decided it was necessary to integrate further downstream into the manufacturing sector of the copper value chain. Their motto became “from

The Mineral Indus 350 try, 1922 (New York, 1923), 131. 179

mine to consumer.” The move was in part a response to the dismal conditions of

the market and in part response to the failure of the Copper Export Association.

The CEA cartel action that the Anaconda had attempted to spearhead had left the

firm’s future success in the hands of others and this was “unacceptable”

according to Cornelius Kelley.351 By vertically-integrating, the thinking went,

Anaconda’s massive copper refining output could be centrally directed to the internalized fabrication plants, essentially assuring continuous throughput. To

John D. Ryan, connecting production of “producer goods” with the downstream manufacturing process was a logical if Anaconda was to achieve balance in its operations.

Such a model had worked in other heavy industries. Steel mills had integrated into iron production because efficiency in steel making – the process of converting coke, iron ore, and limestone into pig iron and then steel – is enhanced when those processes are executed in close proximity.352 Some steel

makers integrated further upstream and purchased iron ore mines to ensure

access to raw materials and to effectively raise barriers to entry for others. Oil

producers like Standard had since the 1880s grown in two directions outward

from the refining stage – both upstream into exploration and production, and

downstream into distribution and even retail (gas stations). The best integration

351Success?,” Journal of Economic Literature – Margaret C. Levenstein and Valerie Y. Suslow, “What Determines Cartel 44, no. 1 (2006): 43 95; Stigler, “A Theory 352of Oligopoly.” In order to take advantage of what is called “thermal economies.” 180

strategies exhibited a “technological interdependency” that enhanced the

economy of scale principle.353

To be sure, vertical integration had taken place in copper before.

Numerous miners had integrated into the smelting space. This typically occurred

only after they achieved a certain scale of production and had cheap access to fuel

energy. This way the mine could avoid the cost of transporting ore which typically

contained only 5-10 percent copper (90 percent waste). Other advantages for

integrated mine-smelter operations: integrated mines can ramp up production

whenever they want, not so for non-integrated mines unless their contract with a

smelter states otherwise.354

Justifying integration into refining was difficult given the enormous upfront capital costs to do so. Owning a refinery during “tight” markets could be an advantage, but then again, during slow times when prices are low, the refinery can become a major expense. It is a telling fact that by 1914, only Anaconda had achieved this mine to refinery level of integration.

Anaconda sought to achieve a “closed” system where it could mine, smelt, refine, and manufacture all of its own copper. This level of insularity is not always

necessary or desirable given the variety of ways a firm could profit from its ore.

But the leadership of Anaconda was not just making this move because of the

overproduction that was hampering the system at the time, they also thinking

Technological interdependency occurs when there are successive processes which,353 naturally, follow immediately in time and place dictate certain efficient manufacturing configurations and thus should have common ownership.

The American Economic Review Oliver E. Williamson, Raymond “The F. Mikesell, Vertical The Integration World Copper of Production: Industry: StructureMarket Failure and Ec Considerations,”onomic Analysis354 (Routledge, 2013), 220.61, no. 2 (1971): 112. 181 about how they could further undue the foothold of the “speculators” and metal traders who in their opinion were only making things more difficult.355

No major producer had ever been willing to integrate “from mine to consumer” until John D. Ryan sought to do so in 1922. Anaconda’s reported loss of $17 million in 1921, the worst year in the company’s history, may have offered the final nudge. Director Ryan and president Cornelius Kelley released in the

Annual Report that read “convinced that in order to protect the business of the company, it should be in a position to control the outlets of the metals and to promote the sale and distribution of copper and brass products, negotiations were initiated for the purchase of the shares of The American Brass Company.”356

According to one contemporary observer, “there was no need for Ryan and

Kelley [then president of Anaconda] to look far afield for the fabricator to which they could wed Anaconda. That fabricator was The American Brass Company, a giant in Brass, and the largest fabricator of non-ferrous metals in the world.”357

Like Anaconda, American Brass was the industry leader. Situated in the

Naugatuck Valley of Connecticut, ABC consumed up to 500 million pounds of copper every year.358

For example, it is often the case that integrated firms may find cost advantageous 355to acquire a portion of their ore or concentrates from outside firms for their may ship a portion of their concentrates to unaffiliated custom smelters and refineries for a premium. Additionally,smelters and/or sometimes refineries. economies At the same of scale time, are they better achieved if the output of a to the nearby smelter of another competitor firm. mine The in Anaconda a region far Copper from theCompany, company’s Annual own Report, smelter 1921, complex p. 3- 4.is shipped 356 Marcosson, Anaconda, 168. 357 EMJ (14 January 1922), p.78. 358 “American Brass Output in Ten Years,” 182

Copper and brass work had been going on in that region for more than a century and American Brass’ factories produced wire, brass products, tubes as well as many more specialized goods like clocks, bells, artillery shells, and watches.359 American Brass was itself an outcome of the first “merger movement” in the US. It combined a number of brass manufacturers from the Naugatuck

Valley like Coe Brass, the Waterbury Brass Company and Ansonia Brass and

Copper Co. American Brass functioned as a holding company for these units until

1912 when the loose structure reorganized into a modern centralized operating company. The head of the company was Charles Booker, also referred to as the

Dean of Brass.

The conversation that set the merger between American Brass and

Anaconda took place at some unknown date in 1921 while John D. Ryan and

Cornelius Kelley were having lunch at the Recess Club in New York. Also at lunch that afternoon was Charles Booker. Ryan approached Booker and indicated he had a proposition for him. They agreed to meet that evening at Ryan’s place on

Long Island near Manhasset. There, the three men spoke late into the night and agreed the vertical merger was a good idea. In the ensuing months Ryan and

Kelley visited all the plants of American Brass, while American Brass made the same survey of Anaconda properties. After a few months of haggling, Anaconda agreed to purchase American Brass for $45 million, and bought up all 150,000 shares of outstanding stock for $150 apiece.

Marcosson, Anaconda, 169. Israel Holmes, an American businessman with brass 359 effectively jump started the industry. He was reported to have illegally smuggled 38 skilledballs, recruited metal workers workers by from storing Birmingham them in beer to work barrels in theand US rolling around them 1815 on toand his ship. 183

After the merger was completed, John Ryan published a statement that

suggested his intention had been to bring stability to the hitherto separate

industries: “The time has come when we cannot compete in the industry if we

control only one stage of the business. Anaconda is not now able to operate its

mines at a steady and economical rate . . .. The American Brass Company has not

been able to pledge steady production and employment to its workers because it

has not been able to book orders far in advance, not knowing what the cost of raw

material would be. This is a faulty condition, and we believe that great benefits

will arise by reason of the proposed merger. The raw material supply will be

assured at steady prices, and the manufacturer can then book his orders with the

certainty of obtaining material at reasonable costs. In this way, from the mine to

the consumer, there can be one just and fair profit, and the industry will be

stabilized.”360 By stabilized of course he meant free from the menace of the trading companies.

The merger’s effect on Anaconda did not have the explosive effect on

profitability that the company leadership had hoped for. The company’s returns

over the course of the decade were lackluster as Ryan’s behemoth tripled in size

while only registering an ROI over 5 percent once after 1922.361

Year Assets Net Income (Profit) ROI

1920 $ 294,795,732.22 $ 2,691,007.62 0.9%

360 –76. 361 These figures were taken from Anaconda Copper Company, Annual Financial Report,Marcosson, 1920-1932. 175 184

1921 $ 273,262,605.05 $ (16,999,555.19) -6.2%

1922 $ 343,892,781.98 $ 3,539,239.65 1.0%

1923 $ 446,338,915.63 $ 8,767,814.20 2.0%

1924 $ 459,748,930.76 $ 6,719,215.49 1.5%

1925 $ 494,425,602.72 $ 17,540,532.38 3.5%

1926 $ 514,507,008.35 $ 14,226,202.61 2.8%

1927 $ 528,128,273.32 $ 10,123,258.45 1.9%

1928 $ 505,683,143.78 $ 24,174,780.59 4.8%

1929 $ 764,227,815.43 $ 70,317,739.38 9.2%

1930 $ 739,405,794.85 $ 18,782,968.22 2.5%

1931 $ 714,102,564.76 $ (3,151,726.89) -0.4%

1932 $ 691,080,703.19 $ (16,893,240.26) -2.4%

More important however was Anaconda’s overall impact on the copper

market. Take for instance the fact that American Brass was using around 650

million pounds (c. 300,000 metric tons) of copper for the manufacture of its

wire, rod, and copper goods in 1925. That same year, total consumption of

primary copper around the globe registered 1,500,000 metric tons.362 In essence, about 20 percent of global demand was internalized by the vertical integration of

Anaconda and American Brass.

By the mid-1920s, other large producers were of similar mind. ASARCO

which had contemplated integrating forward into fabrication before the war,

ending up doing so in 1924 when it opened a rod and wire plant in Baltimore. The

362

Anaconda Copper Annual Report, 1925, p. 2; The Mineral Industry, 1929, p. 121. 185

refining company then made major investments in General Cable Company in

1927 and Revere Copper & Brass Company in 1928. ASARCO at the time was

producing nearly 500 million pounds of copper per year from its treatment

facilities, while both General Cable and Revere were capable of taking about half

this figure.

Phelps Dodge bought Nichols Copper Refinery in 1928. Two years later,

Phelps Dodge made its second major acquisition National Electric Products

Corporation, one of the largest manufacturers of copper products for electrical purposes. Even newly liberated American Metal, purchased a major refinery at

Chrome, New Jersey in 1920 after dumping its Nichols stock to Phelps Dodge.

Before the end of the decade, AMCo would invest heavily in two copper mines in

Rhodesia, the Bwana M’Kubwa Mine and Roan Antelope Mine.

5.2 The Market Interlude, 1923-1926

Following the dissolution of the Copper Export Association in 1923 and the shocking vertical integration of Anaconda-American Brass deal, both consumption and production of copper around the globe grew significantly.

Without any collusive agreement and still limited number of integrated firms, free market conditions prevailed much to the delight of metal traders and consumers around the globe. The period was accurately described by a group of

Harvard economists in 1937 who were studying the “international control” in copper, zinc, and lead on the eve of WWII. Alex Skelton suggested “it is worthy of 186

note that the years 1923 to 1926 make up the only period which can thus [be]

classed as ‘normal’ in the history of copper since 1913.”363

Consumption, as can be seen below, was finally picking up in Europe as

the difficult period of post-war adjustment was finally winding down. The return of gold based currency system prepared the ground work for the revival in international trade. The German mark, which had reached extremely inflated proportions of 50 billion marks to 1 pound sterling, had been stabilized.

Meanwhile, the US economy was experiencing strong growth in automobile

motor and electrical industries which also stimulated economic activity in the

construction of roads, factories, and houses.

Data on average pounds per capita copper consumption after 1920 offers

evidence of this recovery in the metals industry:

COPPER PER CAPITA, 1921-1929 US France Germany GB 1921 6.04 2.84 4.57 3.17 1922 10 4.59 5.37 2.12 1923 13 6.36 3.45 4.99 1924 13.3 7.24 4.61 6.65 1925 14.15 6.42 8.09 6.64 1926 15.53 6.15 5.7 6.71 1927 13.99 4.45 9.11 7.57 1928 16.47 6.73 8.65 7.69 1929 18.55 7.22 7.34 7.41

Data on individual industry consumption in the US suggest that electrical

and automobile were the drivers of this recovery.

U.S. COPPER CONSUMPTION BY INDUSTRY, 1921-1929364

363 Elliott and Wallace, International Control in the Non-Ferrous Metals, 427. 364 Data from American Bureau of Metal Statistics

, 1930, p. 35. All figures measured in short tons. Under “Electrical manufactures please note this includes “Generators, 187

1921 1922 1923 1924 1925 1926 1927 1928 1929 Electrical manufactures 130,000 134,500 178,500 195,500 183,500 20,100 196,500 213,000 261,000 Telephones and telegraphs 54,000 60,000 75,000 80,000 90,000 104,000 93,000 11,900 164,000 Light and power lines 33,000 48,750 85,850 90,000 110,000 122,000 103,000 115,000 127,000 Trolley wire 4,600 6,250 5,100 6,650 7,000 5,300 6,300 6,700 Wire and rods 38,500 35,500 49,500 60,000 63,000 74,000 49,000 80,000 95,000 Wire cloth 3,000 4,000 4,000 5,700 7,000 5,400 6,500 6,700 Steam railways electrified 450 800 1,000 400 750 800 500 Automobiles 46,000 73,800 103,900 93,700 106,400 102,800 99,000 125,000 135,000 Automobile brake lining 700 800 1,200 1,250 1,500 1,700 1,800 2,400 2,600 Buildings 22,150 36,950 38,050 40,450 46,700 50,200 52,800 62,000 59,000 Locomotives 2,945 2,515 6,300 3,350 2,200 2,900 1,900 1,500 2,500 Railway cars 2,740 3,735 10,250 7,150 7,150 6,150 4,500 3,200 5,600 Air brakes 1,675 2,800 2,900 2,900 2,000 2,000 1,600 1,300 1,500 Ships, commercial 19,000 3,090 2,600 2,100 2,100 2,100 3,600 1,600 2,000 Ships, navy 4,950 85 3,450 2,150 800 400 2,400 300 400 Bearings and bushings 14,000 21,000 41,200 34,550 35,000 38,000 41,500 42,000 48,000 Valves and pipe fittings 5,750 16,000 20,000 21,000 24,100 26,000 21,000 20,500 22,000 Ammunition 8,250 6,200 6,400 4,600 5,900 5,700 4,600 8,200 6,900 Total 452,377 539,113 737,700 766,000 840,250 909,900 841,450 981,100 1,137,000

Yet in the midst of this economic recovery, production also continued to increase. This increase kept copper prices from rising. New production was coming online from Chile and the African Copperbelt in Rhodesia. While Chilean mines were under the financial control of American producers like Anaconda and

Kennecott, ownership of African mines was shared among Belgian, British, and

American interests.

After years of experimentation and investment, many of the African and

Chilean mines were beginning to produce. It had taken nearly a decade to bring mines like Braden (Chile), Chiquimata (Chile), and Kantaga (Rhodesia), but by

1925 all were up and running and at a cost of production that was dramatically lower than the US-based operations. All three mines were putting out over

100,000 tons annually by 1926. Indeed the ultimate threat to the global

motors, switchboards, lamps, but excludes manufactures for telephone and telegraph purposes. 188

industries success was over production. As a result, the strategy of producers

again reverted back to one of control through cartelization. This time, the group

would be known as Copper Exporters, Inc and it was organized with the

protection of the Webb Act.

5.3 American Copper Cartel: The Copper Exporters, Inc. 1926

The years of free trade in copper were coming to an end in 1926. That year, US producers felt they were in a strong position to “stabilize” (aka increase) the price of copper. At that point, the US-based mine production was 53 percent of the world’s annual total, which was a significant decrease from pre-war levels.

However, US-based refineries were handling north of 70 percent of the world’s production, with a significant share of Chilean and African metal being treated on the east coast. In all, American capital controlled 75 percent of total mine production.

It was not just the national affiliation factor that gave producers confidence they could achieve control, it was that at each level of production – the mine, the smelter, the refinery, the fabricator – assets were held in fewer and fewer hands.365 Anaconda had achieved vertical integration from “mine to

consumer” with the purchase of American Brass. It also now controlled the

output of two of Chile’s largest mines. Kennecott, although not in control of a

refinery, was now second in terms of output thanks to its enormous mines at

Bingham, Utah and Braden, Chile. ASARCO was consolidating its position as

world leader of refining and had begun to integrate downstream into fabrication.

Herfindahl, Copper Costs and Prices 365 , 165. 189

Phelps Dodge was on the verge of absorbing the Nichols group, thus eliminating

one of the few remaining independent smelter/refiners. Finally, most of the

major trading companies that had survived the war were either merging – as

American Metal had with L. Vogelstein & Co., or were moving into more dynamic

areas such as chemicals and consulting – as Metallgesellschaft was doing.

American domination was further extended when one considers that the production of Spain and Scandinavian countries were selling their copper sulfide

to chemical firms (mostly by way of Metallgesellschaft) to be used as fertilizer.

Other groups like Japan and Germany, which had in the past produced

considerable amounts of copper were of no threat to the US producers for the

simple fact that nearly all of their home production was consumed domestically.

Both countries were net importers of metal by the 1920s. Even Australia was not

an exporting threat as high wages and geography effectively limited the

profitability of production there.366

When the Copper Exporters, Inc. was finally organized in the fall of 1926,

its membership accounted for 95 percent of primary world production. The group

was made up of 32 different copper producing companies and eight of those were

represented on the Board of Directors. On the Board were of course Anaconda,

ASARCO, Phelps Dodge, and Kennecott – then the largest producers in the

world. Also included was American Metal Co., Calumet & Hecla, Nichols Copper

Co., and United Verde Copper.367

366 Elliott and Wallace, International Control in the Non-Ferrous Metals 367 -US based firms that were part of the cartel included Aron Hirsch, British Metal Corporation, Cerro de Pasco Copper, Chile Copper, Granby Consolidated,, 435. GreeneNon Cananea, Mansfeldischer Metallhandel, Mansfeld AG, Metallgesellschaft, Rio 190

The goal of the group was not only to restrict production and increase

prices, but more long term, to destroy those meddling speculators working out of

the London Metal Exchange. Brokers and traders on the LME who had not fully-

integrated into production or refining like the more international-minded traders

American Metal, Aron Hirsch, and Metallgesellschaft, soon found that obtaining

physical copper a very difficult thing in the coming years. One has to wonder

whether these hybrid trading companies turned integrated producers felt any

remorse in betraying their London colleagues and the principles of liberal trade.

This is doubtful for obvious reasons; the fact that traders were always just as

greedy as producers. The difference now versus before the war was that the rules

of the game had shifted as a result of the war and the Webb Act. At the end of the

day, survival and profit are what truly mattered to all who played the game.

The trade and popular press reported on the formation of Copper

Exporters cartel well in advance of any effects it would have on the over market.

The message the producers sent was clear: “the purpose of the organization is to endeavor to eliminate in foreign countries the harmful speculation that causes wide fluctuations in [metal] price, and tends to destroy confidence in the integrity of such price and the stability of the business … Under the operations of Copper

Exporters Inc. an effort will be made to sell direct to consumers and prices will be established in accordance with general business conditions.”368

Consumers (especially European) were of course the social group who would ultimately bare the cost of the cartel’s manipulation in supply and price.

Tinto, S.G.M de Hoboken, S. G. de Minerals, South American Products Co., and U. M. du Haut Katanga. 368 The Mineral Industry

, 1926, p. 156. 191

American consumers were less susceptible for two reasons: 1) because it was still

unlawful to coordinate the price of copper domestically and 2) because much of

American copper industry was vertically-integrated and thus raw material costs

were concealed.

Perhaps surprisingly, there appeared very little public concern that the

cartel would harm consumers. Both in North America and Europe, many viewed

futures market (and traders) as gamblers betting on the rise and fall of property

that was “fictitious.” It makes logical sense that if two people are involved in an

exchange, the exchange is more efficient than when a middleman is involved.

This logic fails to acknowledge the principle of bargaining power and the

possibility that speculating middlemen are more interested in profiting from

large volumes of sales rather than arbitraging customers with high prices.

Indeed, the cartel was a marketing arrangement designed to destroy the price-making powers of the London Metal Exchange by reducing the number of groups that were capable of selling copper. Sales were to be made direct to consumers and on a carefully rationed basis so as to ensure that consumer- manufacturers would not be tempted to speculate with their warehoused stocks.

Prices were listed by the Copper Exporters, Inc. agents and would only be adjusted publically on an irregular basis and at the prerogative of the members.

The first year of the cartels operation saw only a small shift in the price of

copper. The electrolytic European c.i.f. price fell from 14.4 cents per pound (£67

per ton) to 12 cents per pound (£56 per ton) as a result of weak demand.

Interestingly, European manufacturers did complain that the price was notably 192

higher than the US price. Over the course of the year, however, the Copper

Exporters strengthened their grip on supply and thus the market.

Prices could only be dictated by the producers, if outside selling on exchanges was first eliminated. In pursuit of this end, metal sales to traders were

dramatically curtailed while direct dealing with European consumers began to be

negotiated through a centralized agency in Brussels. No sales were made to

merchants or brokers. Sales to manufacturers were carefully monitored to

prevent extra copper falling into the speculators hands. Meanwhile, the Standard

Copper offered at the LME was bought up.369 Gradually, the floating stocks in

London and Le Havre dwindled. In Great Britain stocks decreased from 62,773

tons in 1925 to 7,000 in 1928; at Le Havre stocks fell from 9,688 to 2,334 tons

over the same period.370 Further evidence of the strengthening American position can be seen in the decline in copper turnover at the London Exchange. In 1925, the turnover of business in the LME ring was 398,950 long tons. Three years later

in 1928 it had fallen to 163,425 tons. Prices on the London Exchange began to

mimic the prices set by the producers and not the other way around which was

the custom of competitive marketplace. The spot price for electrolytic copper thus

increased from £55 per long ton in January 1927 to £99 in March 1929:

369 Metal Industry (7 January 1927), p. 24- 370 The Mineral Industry, 1922, p. 122. In many ways, the operation functioned very similar to the Secrétan Syndicate in Paris 405. years earlier. 193

LME Copper Price, 1926-1930 £100.00 £90.00 £80.00 £70.00 £60.00

£40.00 £50.00 8/1/1928 1/3/1930 10/1/1926 2/16/1927 4/21/1927 6/24/1927 8/30/1927 11/1/1927 1/11/1928 3/19/1928 5/25/1928 2/22/1929 4/26/1929 6/28/1929 8/30/1929 11/1/1929 3/14/1930 5/16/1930 7/25/1930 9/26/1930 12/5/1930 12/14/1926 10/11/1928 12/18/1928

3 Month Spot

That spot prices were much higher than future (3 month) prices over this period of time was further evidence of the monopoly control held by the producers. This phenomenon is highly unusual and known as “backwardation”:

Price Spreads: Spot and Futures £2.00 £1.00 £- -£1.00 -£2.00 -£3.00 -£4.00 3mth - Spot -£6.00 -£7.00-£5.00 1/3/1930 8/1/1928 2/22/1929 4/26/1929 6/28/1929 8/30/1929 11/1/1929 3/14/1930 5/16/1930 7/25/1930 9/26/1930 12/5/1930 10/1/1926 2/16/1927 4/21/1927 6/24/1927 8/30/1927 11/1/1927 1/11/1928 3/19/1928 5/25/1928 10/11/1928 12/18/1928 12/14/1926

By 1928, copper consumers began to realize the pricing power of the cartel and by then they were trapped. Whereas previously the competition between the 194

producers and merchants had (mostly) led to given consumers copper on bargain

terms, buyers were for the foreseeable future completely dependent on the

Copper Exporters, Inc. for supplies. For small buyers, such as tool makers or

foundries, the cartel’s monopoly proved to be particularly difficult. No longer

were these groups provided credit by their local metal merchant retailer. Not just

the small buyer was feeling the pain by 1929, everyone in Europe and even the US

was paying rent to the cartel.371

As expected the price increase was bitterly resented by European buyers

especially by 1929. In the Mining Journal of London it was reported that in

France “the high price of copper continues to exercise writers in the French

technical press, who decline to see any reason for the rise except the

determination of the Copper Producers Association to exploit consumers by

forcing up prices.”372 In support of their assertion, many pointed to the stellar

profits that were being earned by American mining companies in 1928 and

1929:373

Assets Profit ROA Anacond a 1927 $ 528,128,273.32 $ 10,123,258.45 1.9% 1928 $ 505,683,143.78 $ 24,174,780.59 4.8% 1929 $ 764,227,815.43 $ 70,317,739.38 9.2%

Kennecott 1927 $ 278,339,930.30 $ 28,637,002.36 10.3% 1928 $ 298,761,675.82 $ 46,228,022.09 15.5% 1929 $ 337,807,865.92 $ 52,756,467.73 15.6%

Phelps Dodge 1927 $ 228,829,660.06 $ 3,623,581.96 1.6%

371 Times, Tuesday, March 19th, 1929, p. 22. 372 Mining Journal, December 7th, 1929, p. 1100 373 London “City Notes,” Chandler, Scale and Scope, 648. In terms of size of assets in 1930, these firms ranked: 8, 25, 27, 35, and 86. See 195

1928 $ 237,214,605.02 $ 10,077,451.28 4.2% 1929 $ 242,926,037.83 $ 9,601,212.19 4.0%

ASARCO 1927 $ 227,735,770.94 $ 15,477,769.99 7% 1928 $ 233,020,964.68 $ 18,586,203.85 8% 1929 $ 241,067,856.28 $ 21,831,583.22 9%

Amer. Metal Co. 1927 $ 48,150,179.15 $ 2,513,764.12 5% 1928 $ 52,824,161.10 $ 2,651,933.58 5% 1929 $ 77,052,605.62 $ 3,252,879.38 4%

The lackluster performance by Phelps Dodge and American Metal were due to their respective expansion into refining and mining sectors. In fact,

American Metal Co. was moving aggressively to acquire a number of mines in

Congo and Rhodesia. Phelps Dodge was paying down its debt obligations and thus turned in only marginal return on assets figures. Anaconda, which had also been growing horizontally and vertically throughout the 1920s hit a home run in

1929. The star performers were the two companies run connected to the

Guggenheims, both turning in excellent years during the Copper Exporters, Inc. era.

Needless to say, the effects of the cartel on European attitudes and business were long lasting. From the British perspective, the Copper Exporters conduct seemed monopolistic, especially when the combine failed to adjust prices in 1929.374 Some statesman and economists were originally sympathetic to the producer conundrum of enormous stocks and low prices that plagued the industry and the trade throughout most of the twenties. Even dealers at the LME like prices to rise to levels that encourage business transactions. Thus many

374 0.

Royal Economic Society, Memoranda No. 24 (1929), p. 1 196 recognized that some degree cooperation among the producers was likely, though not preferred. “Stabilization” had been the rational and intended goal of the export cartel, so said the large American producers. Yet when prices began to finally rise in 1928 and at the same time stocks were dwindling at all-time lows, no action was taken to increase production to meet rising demand. Alfred

Plummer, reflecting on this period in 1937 put it bluntly: “if stability of prices is honestly the object . . . [the] combine must not stabilize only when the price- trend is downwards.”375

Calls for the substitute of aluminum for copper were heard around this time. Although production in Europe had been limited up to that point, new and increasing investment in Aluminum production was in large part sparked by

Copper Exporters, Inc. It was noted for instance by a Berlin correspondent for

Engineering and Mining Journal in Germany, “it is a sign of the times that a lot of European manufacturers of high standing are beginning themselves to foster propaganda for aluminum. The biggest electric concern of Germany, that of

Siemens, in Berlin, is now boosting the aluminum alloy “aldrey,” which is being manufactured by the Vereinigte Aluminiumwerke A.G. of Lauta according to patents of the Swiss Neuhausen company, for open-air cables and many other purposes which hitherto were restricted entirely to copper.”376

The price rise was not entirely attributable to monopolizing impulses of the cartel. Consumption too had been on the rise in both US and Europe. Still, the attitude of the Europeans had shifted in the post war era. Copper – which had

Alfred Plummer, Raw Materials or War Materials? 1937),375 40. 376 EMJ (1 June 1929) (London: Victor Gollancz Ltd., 197

long been a strategic good one available on the open markets of Europe – now appeared could be used as a weapon of sorts to hold rival empires in check. “The question,” Exclaimed a journalist covering the Hamburg Metallbörse, “is whether

[Europe] must for all time remain in some measure dependent for its copper on

America. This question is the more pertinent, as while all other metals have lately suffered a large fall in price; the cartel figures for copper have been maintained.

The European consumer is entirely ignored in the price policy of the cartel!”377

At one point, British copper and brass manufacturers became concerned

that they would have to worry about being undercut by American copper

manufactures. As they saw it, more American producers integrated downstream

into the realm of manufacture, there was a chance they could develop a dual

strategy of keeping electrolytic prices high through the Copper Exporters cartel

while also “dumping” manufactured copper on the English market. Thereby

raising the raw material costs for British manufacturer’s prices and undercutting

the price of their finished product all at once. This would have been quite a feat,

given that all European economies had duties in place to project their manufacturing industry, but alas it proved to be only speculative fantasy as large economic forces had their way.378

From May 1929 to April 1930, the combine price remained fixed at £84

per ton. At this level, mines still in the development stage rapid emerge with a

few non-combined producers finding a way to increase their outputs. Other

mines which had been closed down for years and not party to the cartel

377 The Mineral Industry, 1929, p. 118 378 Economist (22 June 1929), p. 1394. 198 recommenced their operations. In a matter of months production was increased and but at the same time consumption was declining. A noticeable increase in turnover on the London Metal Exchange was reported that summer as new product made its way to traders thirsty for copper to deal on the LME ring. Many industrial consumers were infuriated that producers refused to lower prices which were sitting at 18 cents (£84), while knowing full well that production costs were below 10 cents per pound.

It is not clear how or why the cartel decided to finally lower its price, but journalistic accounts reveal that “a few American customs smelters,” began supplying the London metal dealers with copper “in open violation of the [cartel] agreement.” By late April, the price had been reduced to 14 cents f.a.s. New York or 14.30 cents c.i.f. European ports. “Exporters held the price for a year in spite of ample evidence that business in the red metal was slowly being destroyed,” wrote one of the metal analysts at the Economist.379

A month later it was revealed that a new alliance was forming between the three major copper distributors in Europe for the Copper Exporters cartel. The

British Metal Corporation and Metallgesellschaft of Frankfurt, and the Societe

Generale des Minerais of Brussels decided to “secure cooperation in certain directions … to facilitate the provision of raw materials needed by the smelters and refineries.”380 Since October of 1927, Metallgesellschaft had been serving as the official distributor for Copper Exporters. They seemingly had little choice at that time to essentially function as the sales agency on commission for the cartel.

379 Economist (26 April 1930), p. 380 Economist (31 May 1930), p. 1229. 594. 199

However, as production increased from non-affiliated mines and smelters, MG and other European distributors found their position and the position of the manufactures they were selling to greatly strengthened. As the stock market crash wore gradually grew worse, the Copper Exporters would be forced to reduce their price further so as to relieve the cost of maintaining their massive copper stocks.

5.4 Conclusion: Copper was a Raw Material or War Material?

As the past chapter has indicated, copper was a commodity of strategic importance to all industrializing nations during the early twentieth century.

While some countries enjoyed domestic or colonial access to this, other nations were totally dependent on open trade and markets in order to obtain it. Prior to the First World War, this was not a major political issue, as traders and markets functioned efficiently enough to meet global demand. However, the coming of the war brought new policy initiatives and major disruption to international trade and investment and these changes in turn presented new material challenges for mineral poor nations in Europe and Asia.381

The breakdown of this system of liberal commodity exchange took place gradually over the course of the 1920s. One contributing factor was the war itself and its demolition of trade networks. Another was the overproduction of commodities during the final year of the war. In copper, overproduction resulted in historically low prices and hard times for many producers. Assessing the situation, large producers saw an opportunity to stabilize the industry by forming

381 Eckes Jr, The United States and the Global Struggle for Minerals

, 57. 200 an association of producers. Newly enacted legislation had made export groups legal, and the copper producers took advantage. The Copper Export Association did lead to a reduction in stock and a small price improvement. After its dissolution, however, profits for copper producers remained low.

American producers fought to improve their profitability in different ways:

Anaconda integrated downstream into manufacturing in order to guarantee a buyer for its raw copper and was the first to do so on such a scale. American

Metal Company merged with a fellow trading organization and then absorbed a refinery, and later two mines in the African Copperbelt. ASARCO, Kennecott, and

Phelps Dodge also grew – horizontally and vertically – throughout the decade acquiring assets in the US and around the world. This “second merger movement” helped to lock up the American market from “mine to consumer,” but still there remained the challenge of controlling Europe. Without control over price and supply in Europe, the world’s largest market for copper, producers would remain susceptible to the influence of the futures exchange at London and its speculators.

As result, large producers in the US combined to form an export cartel, the

Copper Exporters, Incorporated. The cartel also included numerous European producers and large wholesale metal traders like Metallgesellschaft, who agreed to sell metal on behalf of the American lead group. At first Copper Exporters proved relatively ineffective in dictating prices, but by 1928, the group had effectively reduced stocks and withheld new production from the market, thus forcing up prices rapidly. The group further strengthened its grip over supply by purchasing as many contracts for future metal on the LME as possible. From 201 early 1929 through April 1930, the Copper Exporters held global copper prices at or above £84 per ton; ignoring the pleas from industrial consumers to drop their list price even as end consumer demand for manufactured goods continued to fall off since the market crash. Prices were eventually dropped as customs smelters and European distributors put pressure on the Exporters to do so.

The aggressive stance by the American producers did deep damage to the international trade as well as the London Metal Exchange. While not quite killing off “speculating” traders as the producers had hoped, their efforts did usher in a new period of protectionism and economic nationalism, thereby weakening the global pricing authority of the LME for the next 40 years.

On September 11, 1935, British Secretary of State Samuel Hoare in an address at the League of Nations identified mineral access as a major concern among the so-called “dissatisfied powers” or Germany, Japan, and Italy. “...Some countries, either in their native soil or in their colonial territories, do possess what appear to be preponderant advantages; and that others, less favoured, view the situation with anxiety….. [Therefore] it is not unnatural that such a state of affairs should give rise to fear lest exclusive monopolies be set up at the expense of those countries that do not possess colonial empires …. It is the fear of monopoly – of the withholding of essential raw materials – that is causing alarm.”382

In explaining the origins of the Second World War, historians have emphasized contributing factors such as economic depression, militarism, nationalism, imperialism, and racism. Certainly no one would deny that the

382 -

League of Nations, Raw Material Problems and Policies, pp. 57 58. 202 context and these ideas moved nations to war. Often forgotten, however, was the challenge of liberal mineral access; this factor must also be mentioned as having contributed to deepening economic depression and imperialistic tendencies.

203

CONCLUSION

This dissertation has sought to examine the development of the North

Atlantic copper market over the course of the second Industrial Revolution. It has also attempted to capture the influence of what I feel are two entities that have hitherto been largely overlooked and misunderstood, Metallgesellschaft and the

London Metal Exchange.

At the beginning of the second Industrial Revolution, the copper industry was dominated by a small number of technologically-sophisticated smelters in

Britain who bought, processed, and sold more than half of the world’s annual output. By 1880, however, the Swansea Copper Smelters grip on the global copper supply chain was broken by enterprising metal merchants.

These metal merchants, who I have referred to as metal traders, changed the world of copper by investing in new mines and refineries in Chile and the

United States, and by creating an alternative market for copper in London. This alternative market was actually a futures commodity market for copper (and tin), and created a revolution in the distribution of non-ferrous metal similar to that which occurred in wheat and cotton. From 1880 to 1914, the London Metal

Exchange was the global pricing authority and metal traders were responsible for connecting producers and consumers around the Atlantic. 204

This system changed during and after the First World War as Copper

industry saw increasing concentration in the hands of large, vertically integrated

companies from the United States. By 1930s, the pricing of copper was in the hands of these large producers and the London Metal Exchange was severally weakened as a result. A new business cycle of “producer pricing” became the norm for the industry for the next fifty years until a new round of globalization initiated the re-emergence of the London Metal Exchange and the metal traders once again.

This dissertation has found the following to be true: 1) Futures markets and trading companies emerged and thrived during times when protectionist barriers were low and when the global exchange of goods, ideas, and capital were high. 2) Intermediary players and institutions like trading companies and futures markets had a limiting effect on monopolistic and oligopolistic market arrangements. 3) Horizontal and vertical integration in copper was a strategy pursued in response to competition emanating from futures market and trading company activities. 4) Horizontal and vertical concentration in conjunction with protectionist or anti-competitive nationalist policies led to oligopolistic market arrangements.

The final lesson of this dissertation is thus: That in the copper industry, competitive futures markets and the merchants working on their behalf proved effective at restraining the ability of other copper capitalists from conspiring against the public by inflating prices through limited supply. Secondly, national economic policies in the 1920s rendered futures markets and trading companies less effective market levelers. 205

In the end these markets and traders promoted and equitable distribution of copper at a time when industrializing nations needed it most. It is revealing that in the globalized world today, futures markets and trading companies play a decisive role in the exchange of commodities, securities, and currencies across the planet.

206

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