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ABSTRACT
Just before the First World War, 70% of the globe’s copper was mined or processed in the U.S. At that time, nearly the same percentage of copper was consumed in Europe – the vast majority of which originated from American mines. At first glance, a trade dynamic of this sort would appear to strongly favour the position of U.S. producers; surprisingly, sources indicate that control of the world’s copper trade was largely the prerogative of a select group of German metal trading companies – the largest and most influential among them was Metallgesellschaft (MG). The following essay explores the competitive dynamics among producers, consumers, and intermediary groups. It argues that U.S. producers were only able to gain substantive control over the supply and marketing of copper in the wake of the economic disruption caused by the Great War.
JEL CLASSIFICATION:
Acknowledgements
I must first thank my doctoral advisor, David Hammack, for his useful suggestions. I would [also] like to thank the organizers and participants of the symposium ‘Commodity Trading Companies during the First Global Economy’ sponsored by Erasmus University and NTNU-Trondheim. The event was held at Erasmus University Rotterdam on 3–4 February 2017. I am grateful to all the attendees who provided me useful advice. Their criticism greatly improved this essay.
Disclosure statement
No potential conflict of interest was reported by the author.
Notes
1 Production data retrieved from Schmitz (Citation1979, pp. 65–70); Consumption figures retrieved from Metallstatistik (1913, July), pp. 8–9.
2 The other two firms were Beer, Sondheimer & Company and Aron Hirsch & Sohn. By ‘control’ I mean the handling of copper by means of distribution, coordination, and the setting of prices.
3 In 1913 world production hit 1,000,000 tons, of that amount MG handled more than 150,000 tons as a broker or reseller, most of which came from its American subsidiary, American Metal Company. It was estimated that Aron Hirsch and its American agent L. Vogelstein ‘controlled’ another 100,000 tons (U.S. Government, Citation1919, p. 69).
4 U.S. Government (Citation1919, p. 64); Internal Report on The International Organization of the Frankfurt Metal Trade from 1 July 1915, National Archives at Kew, Foreign Office (FO) 382/462, doc. 87137.
5 I borrow this phrase from Jones (Citation2005).
6 I thank Espen Storli first for introducing me to the concept of ‘institutional duality’ at the 2017 Business History Conference in Denver.
7 Susan Becker raised the question in her work on German metal traders: ‘The question arises on which factors [rested] the German metal traders’ success?’ She points to the internal factors of ‘knowledge’ and ‘administrative structure’. Becker is partially correct, but misses the underlying institutional factors that contributed to the success and eventual decline of the metal trading firms after the war (see Becker, Citation1998, p. 81).
8 The Webb Act revised competition policy in the U.S. most notably the Sherman Antitrust Act of 1890. The Sherman Act, according to A. Chandler (Citation1990), ‘marked the most important noneconomic cultural difference between the United States and Germany, Britain, and indeed the rest of the world insofar as it affected the long-term evolution of the modern industrial enterprise.’ (pp. 72–73).
9 The archives visited include the Metallgesellschaft AG business papers held at the Hessisches Wirtschaftarchiv (HWA) Darmstadt, Germany; the American Metal Company records held at Freeport-McMoRan (FCX) in Phoenix, AZ; The London Metal Exchange (LME) company archives in London; The National Archives at Kew, London Foreign Office (FO) reports.
10 Testimony of John D. Ryan, U.S. House, Judiciary Committee, Hearings on the Clayton Act, 63rd Cong., 2nd session (1914), I, series 7, pt. 11, 435.
11 The primary feature of Continental cartel law was such that cartel contracts were legally enforceable in court (Keller, Citation1980).
12 It was also stated by the court that such agreements were preferred as they were in the public’s interest.
13 The firm was closely held with only three shareholders: Merton, Zachary Hochschild, and Leo Ellinger with Merton holding around half of the company’s shares.
14 From 1875 to 1905 the German Ministry of the Interior estimated that the number of cartels had increased 300% from 106 to 385.
15 The Frankfurt group was joined by London affiliate Henry R. Merton & Co in raising the startup capital of $200,000. Both MG and HRM came to control 1535 of 2000 shares (76%) of American Metal. Freeport McMoRan Company Archives, Phoenix, Arizona (FCX), AMAX Inc. NY, 1887–1922: Company minutes from monthly board meetings. American Metal Company, Inc., 4 October 1888.
16 Kaufmannschaft. 1907, 'Denkschrift betreffend Errichtung einer Metallborse zu Berlin.' Berlin: Denter & Nicolas.
17 By 1907, MG was functioning as a holding company of many other businesses including Metallbank, Metallurgische-Gesellschaft, American Metal Company, and Henry R. Merton & Company. For reasons of simplicity I will just use ‘Metallgesellschaft’ in order to reference these companies as a corporate unit. For details on the intricacy of MG, see Knetsch (Citation1998).
18 HWA MG 119, a16, ‘Proposed Agreement between American Metal Co., Ltd of New York on the one side, and Metallgesellschaft, of Frankfurt am Main, and Henry R. Merton & Co, of London, on the other side,’ 6 July 1894, pp. 2–4.
19 HWA MG 119, a16, ‘Proposed Agreement’ 6 July 1894, p. 1, 4.
20 HWA MG 119, a16, ‘Folder 2: Gemeinschaftliche Geschaefte,’ Example of inter-business competition: Letter from Amco to HRM, complaining that HRM was purchasing copper from another American merchant firm while Amco was not permitted to sell to anyone else overseas. It is unfair that ‘we are dependent for export practically only on you and Metall!’ P. 2 from 31 August 1896.
21 HWA MG 119, num. 1256, Folder: ‘Bilanzen’. These figures are the profits listed for MG alone and do not include HRM or AMCo earnings which explains their modest sum. As an aside, it is interesting to compare MG’s profitability with other major copper producers at the time. For example, for 1906–07, MG’s average net income (profit after expenses, depreciation, and interest) registered about M6.4 million or about $1.4 million. Compare that figure with ASARCO which registered a net income of $10.2 million and Amalgamated Copper’s $14.1 million for the same period. The comparison suggests that MG was insignificant next to its competitors. Yet when total assets are added to this comparison, one finds that MG’s ‘return on investment’ ratio is stronger than either of its competitors, 11% vs. 8.5% (averaged).
22 All mining and trading companies had a NYC office on the Lower East side of Manhattan. AMCo referred to these offices as their Nachbarn or ‘neighbors.’ See HWA MG 119, a16, ‘AMCo to MG Letter,’ 1 April 1914.
23 By selling to a trader you are in fact strengthening a potential competitor who could potentially influence the price of the metal.
24 See various contracts contained in HWA MG 119, num. 67, ‘Mischlinge Banden.’
25 HWA MG 119, num. 67, ‘Mischlinge Banden: Heddenheimer Kupferwerke.’
26 ‘Marketing copper in the United States,’ The Mining Magazine (1911, p. 464).
27 Nichols did sell a portion of their metal through an internal sales department, which was quite small.
28 Lending money to commission or gain access to commodities had been a classic strategy for commission merchants since the early nineteenth century. See Chapman (Citation2003) for more on this subject.
29 Engineering & Mining Journal (EMJ), 22 December 1888, p. 536; Engineering & Mining Journal (EMJ), 28 December 1889, p. 579; Engineering & Mining Journal (EMJ), 27 December 1890, p. 757.
30 Amalgamated used Charles S. Henry & Company as its London and later Koln representative.
31 National Archives, London, England (FO) Foreign Office Records, FO 382/462, no. 87137: Memoranda on International Organization of Frankfurt Metal Trade, 1 July 1915.
32 HWA Abt. 119/a15: Berthold Hochschild nach Wilhelm Merton betreffend Bilanz 1914, 7 October 1914.
33 For account of ‘Rotterdam’ bound copper shipments from New York confiscated at beginning of war which highlights British concern over American displeasure FO 368/1040, no. 57636: Robert Skinner to American Consul in London. 28 September 1914.
34 FCX, Amco Minutes: 11 February 1915; 8 December 1914.
35 See FO 368/ 1040; FO 368/1161 for numerous ‘top secret’ reports on contraband in neutral ports from 1914–1916.
36 Much to the chagrin of American Metal and other copper companies, purchases by the French and British did not expand as much as one would assume. According to Pettengill’s data on copper consumption, the joint Allied demand for crude copper saw an increase of only 150 million pounds, which did not make up for the 475 million pound decrease in business from the Central Powers.
37 U.S. Code, Title 50, Trading with the Enemy Act, Statute 2.
38 FCX, Amco Minutes: Letter to War Trade Investigation Bureau, 4 October 1917.
39 FCX, Amco Minutes, 22 January 1918. The others were E.C. Converse of Bankers Trust Company, L. L. Clark, president of American Exchange National Bank, and the Hon. George McAneny.
40 Records of Federal Trade Commission Economic Division, Economic Investigation File, Non-Ferrous Metals, RG 122, Box 3316.
41 Not long after the conclusion of the war, a similar group was arranged under the protection of the Webb Act.
42 FCX AMCO Minutes, 1910–1920.
43 Engineering and Mining Journal, vol. 106, No. 25 (21 December 1918), 1092.
44 The Association issued five-year 8% bonds which were secured by the copper inventory at a discounted market value.
45 Sections of the official statement made by the Copper Exporters, taken from Mineral Industries, 1926, p. 156.
46 Mineral Industries, 1918, p. 147.
47 Engineering and Mining Journal, vol. 106, no. 25 (21 December 1918), p. 1092.
48 New York Times, 27 November 1919, p. 22.
49 The 200,000 tons stored was financed by CEA by issuing $40m in bonds at 8% to mature in 1–4 years.
50 Pricing data were kindly provided to me by Dr. Martin Stuermer of the U.S. Federal Reserve Bank of Dallas. For annual price averages and conversion rates, please see: https://sites.google.com/site/mstuermer1/
51 Economist, 12 February 1927, p. 56 of supplement section.
52 Mineral Industry, 1926, p. 156–157.
53 The Roan Antelope Copper Mine and the Bwana M’kubwa Copper Mine, both sold by the defunct Cape Copper Company to American Metal by 1928.
54 Perhaps the 1920s was the real ‘merger movement’ for the industry, not at the turn-of-the-century as some historians have previously argued. A question for historians to consider moving forward.
55 Marcus (Citation1931, p. 33). Data from Al Marcus on German non-ferrous Metallhandelsfirmen suggest that the number of traders increased slightly from 566 in 1913 to 603 by 1930.
56 Futures Markets as Trustbusters: The Secretan Copper Corner and the London Metal Exchange, 1887–1889. Manuscript in author’s possession.
57 Data provided by Dr. Martin Stuermer of the Federal Reserve Bank of Dallas.
