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Building Futures Markets: Infrastructure and Outcome on the Chicago Board of Trade and New Orleans Cotton Exchange, 1856-1916

  • Author(s): Pinzur, David
  • Advisor(s): Rona-Tas, Akos
  • et al.
Abstract

Derivative financial instruments figure prominently in the modern global economy, but their modern origins date back to the use of agricultural futures contracts in the mid-19th century. This dissertation analyzes the construction of markets in futures contracts during this period on two exchanges—the Chicago Board of Trade and New Orleans Cotton Exchange. Building these markets posed a unique problem. Unlike extant markets, which could operate autonomously, futures markets had to be constitutively linked with a second underlying market in order to work (e.g., a market in cotton futures linked with an underlying market in cotton itself). Making this linkage required creating infrastructural connections—with institutional, material, and cognitive components—that would allow the two markets to work in concert. Infrastructures had to support an environment in which traders on the futures market could incorporate spot market information into intentionally rational decisions.

The Chicago Board of Trade and New Orleans Cotton Exchange built their infrastructures differently. This dissertation asks two questions about this divergence: What factors caused the infrastructure on each exchange to take the shape it did? And, what consequences did these infrastructures have for market behavior? I answer these questions through analyzing the construction and impact of three critical infrastructural features: (1) the classification schemes by which spot commodities were assigned grades ; (2) the material means of gathering and disseminating data, both statistics on the growth and movement of the spot crop, as well as price quotations from global markets; (3) the economic and cultural theories by which traders understood the nature of speculation in futures and its effect on spot markets. I find that the characteristics of these infrastructural elements were shaped less by any uniform concern with efficiency or fairness and more by the distinct economic, cultural, political, and organizational environments on each exchange. Additionally, I suggest that these distinct infrastructures promoted different types of trading on each market—high-risk speculation in Chicago and low-risk hedging in New Orleans—which contributed to the divergent price volatility on these markets during the period of my research.

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