Capitalism and Speculation

An attempt by a group of speculators to enrich themselves by cornering two commodities has recently failed. The two commodities are shellac and white pepper; both, it might be mentioned in passing, of importance in connection with the production of war materials. About a year ago the group, through its agents, began to buy up all supplies of these commodities as they came on the market, the object being to force the price up and then to sell at a substantial profit. Shellac and pepper were, presumably, chosen by the speculators for their market manipulations because they thought that the amount of money required to create a comer in these commodities was relatively small, and that supplies could not be rapidly increased. They were mistaken in both respects. As the operations of the group lifted the price of pepper from 8¾d. per lb. to 1s. 6d. per lb., and that of shellac from around 70s. per cwt. to 120s. per cwt., larger and larger supplies came on to the market and buyers went round the back of the speculators and obtained their requirements in the native markets. Imports into this country increased enormously, as the following figures show: —

By the end of January stocks of pepper in London amounted to 21,000 tons (four years’ supply) as compared with 3,000 tons a year earlier. About 7,000 tons was due to be paid for on February 8th. At the last minute the speculators found themselves not able to command the financial resources they had relied upon. The gamble had failed.

The storm has centred around a Mr. Bishirgian and a firm of metal brokers, James & Shakespeare, of which he is a director. This business was established in 1842 and was converted into a private company in 1917. In September of last year, after the buying of shellac and pepper had begun, the company made a public issue of £300,000 of preference shares and 300,000 ordinary shares of 5s. each. Part of the proceeds of this issue was utilised to acquire the metal and produce departments of G. Bishirgian & Co., and a majority interest in another firm, Williams, Henry & Co. Among the shareholders of James & Shakespeare are Mr. Reginald McKenna, chairman of the Midland Bank, Ltd., who, however, disclaims knowledge of the pepper gamble. Another is Sir Hugo Cunliffe Owen, chairman of the British-American Tobacco Co., Ltd., and the Dean Finance Co., a company of which we shall have more to say later. Purchases of shellac were made by Williams, Henry & Co., while pepper was bought by James & Shakespeare, both firms acting in the market through brokers. Their dealings, however, were not for their own account, but were on behalf of the group of speculators whose identities are not positively known. It was only because the market confidently believed that there was a powerful group behind the ostensible buyers that dealings were permitted to reach their final unwieldy size. There is now a demand for investigation, but we think it is a safe prophecy that there will be no real inquiry into the gamble and its initiators.

When the bubble burst, all the shellac bought by Williams, Henry & Co., was taken up. Arrangements were made by which the Dean Finance Co., Ltd., took over from James & Shakespeare their holding of shares in Williams, Henry & Co. The Dean Finance Co., Ltd. (director, Sir Hugo Cunliffe Owen) is a subsidiary of Tobacco Investments, Ltd. (directors, Mr. McKenna and Sir Hugo Cunliffe Owen), which in turn is owned by Tobacco Securities Trust (chairman, Mr. McKenna, vice-chairman. Sir Hugo Cunliffe Owen), a subsidiary of British-American Tobacco Co., Ltd. (chairman, Sir Hugo Cunliffe Owen). The managing director of Williams, Henry & Co., Mr. Louis Hardy, resigned. He is on the board of a number of tin companies, which have been connected with the the restriction scheme, which has the blessing of the Government.

The pepper position, however, could not be propped up, as the shellac was. A winding-up order was applied for against James & Shakespeare. With that company unable to carry out its obligations, the brokers. Rolls & Sons, and J. T. Adair & Co., Ltd., who had acted for it, were also forced to default. Pepper and shellac are now back to their former level of prices. Three firms have smashed. Their employees are out of jobs. The City, in a fit of righteous indignation, is demanding the heads of the real culprits.

This indignation is farcical. There have been many cornering gambles in the past, and there will be more in the future. Capitalism provides scope for gambling of this kind. It offers fortunes to the successful speculator. Its apologists prate of the useful functions performed by the speculator in helping to make a market. When the gamble goes wrong those who get hurt in their pockets always set up howls of indignation. While a system based on the legalised robbery of the workers persists, there will always be struggles over the swag. That is what speculation is, and that is why talk of “cleaning up” capitalism is bluff and pretence. To end speculation it would be necessary to end capitalism.

The fate of the innocent victims, the clerks now out of jobs, provides a pretty commentary on those who say that profits are payment for risk. The speculators, if they had won, would have made huge profits. The clerks have lost their jobs. What reward did they, or could they, have got for running the risk of unemployment? They suffer when the gamble goes wrong, they would not have gained if it had gone right.

One final point worthy of notice is that we see here a banker, Mr. McKenna, investing money outside banking. Perhaps the illusionists who believe that bankers possess in the banking system a means of creating wealth without limit for themselves will explain why Mr. McKenna should have sought profit in another field.

B. S.

(Socialist Standard, March 1935)