THE happiness of countless thousands in Europe, their lives, their wealth, and their health, depended upon the harvest in coffee-growing countries.
Vacillations in the price of this staple were not due exclusively to the machinations of speculators. They depended also upon the nature of the coffee-shrub and upon the nature of man. The mutual relationships between these respective natures, the way they reacted upon each other, determined whether, as far as coffee was concerned, a year should be a year of plenty or a year of famine.
It worked as follows. The harvest was sold for cash. The planter, naturally, had a strong motive for investing as much as he could of this cash in new plantations. His material benefit from the harvest was like money won at the gaming-table, which always incites gamesters to hazard it once more. In extending their plantations, planters took no heed of the commercial side of the question, forgetting that since markets first existed they have always been subject to the iron law of supply and demand.
Thoughtlessly, therefore, the planters extended their enterprises, with the inevitable result of over-production. Confident that prices would be maintained, they grew more and ever more coffee, to learn, in their despair, that each new million sacks had the effect of reducing profits instead of increasing them.
Was this the immediate effect? Unfortunately not. The planters were given time to persist in their mistaken courses. Had they been taught within a year that they were on the wrong track, the crisis would have been less catastrophic.
The nature of the coffee-shrub is such that it does not begin to bear fruit until after the lapse of four barren years! During these four years, in which no return could be expected, the planters had no direct evidence that their reckless extension of plantations would recoil upon their own heads, so they continued to put more and more land under cultivation. It was after the lapse of four years that over-production became manifest. In the fifth, sixth, seventh, and eighth years, larger and ever larger quantities of coffee were poured into the market. Prices thereupon crashed. In the seventh year, the psychological consequences became manifest. There was a panic among the planters; the new plantations were neglected; workers were discharged; coffee fell into disrepute because “it did not pay”; landowners turned their attention to maize, cotton, or stock-raising. Then the price of coffee began to recover. Supply was falling short of demand. The planters found, to their astonishment, that their worthless coffee could once more be sold for good money. Here was a stimulus to fresh plantation, and the cycle was resumed—da capo.
Approximately every seven years the life of a coffee-planter completes this predestined cycle. Seven years are a long time, and memories are short. Men forget their mistakes, and make them once more. Again and again this happened. Throughout the nineteenth century we can trace the history of this anarchic succession of over-production and under-production of coffee. Delight in a year when prices have been high is translated into an undue extension of planting, which, four years later, leads to the recurrence of rock-bottom prices. Then there is a panic. In the seventh year, the pendulum swings back once more towards the side of extended planting.
In 1790, when the revolution put an end for a time to coffee-planting in Santo Domingo, there was a shortage of coffee in the world. Prices rose, so that there might have been expected extreme over-production towards 1799. The Napoleonic wars prevented this. Although prices were high, the planters did not venture to go on producing a commodity that was continually exposed to capture upon the high seas. This state of affairs lasted until 1813. Very soon after sea traffic had been freed from its hazards, under-production took effect in a rise of prices, and, at the beginning of the eighteen-twenties, over-production in the West Indian plantations was the inevitable consequence. Except for the perturbations produced by wars, and especially by the American Civil War, decade after decade was characterized by a regular succession of over-production and under-production, with intermediate years when, for a brief period, there was a balance.
In the year 1903, at a congress of representatives from coffee-producing lands, held in New York, a retrospect of nineteenth-century experience was drawn up, to the following effect: “Very remarkable is the way in which, for some decades, at least since the War of Secession, but before this as well, crises of over-production and underproduction have regularly alternated; periods of very high profits and periods disastrous to the planters. This anarchy is, in both cases, the outcome of extravagant views; of enthusiasm, which leads to excessive planting, and then to moral depression, the result of which is that large areas are left uncultivated. . . . The coffee-planter’s life is characterized by decennial crises. For what reason? The planters do not know one another, and do not take counsel together. . . . They make no attempt to consolidate the market.”
Often enough, in the tropics, a white coffee-planter was several days’ journey from his nearest neighbour, with whom he might have exchanged ideas. This isolation was supposed, by those who assembled at the aforesaid congress, to account for the failure to organize coffee-planting in the nineteenth century. The isolated planter, left entirely to his own devices, and connected with the outer world by nothing more than the news which reached him concerning the price of coffee, acted upon the impulses of the moment.
He acted foolishly, to his own detriment. Nevertheless—and herein lies the tragic element—his actions were logically accordant with the laws of political economy.
Classical economists formulated the “law of gravitation of prices.” The law finds expression in the relationship of the coffee-planter to his own product. How does the law run?
“The market price of a product tends always to gravitate towards the natural price.”
What does that mean? First of all, the natural price is the price determined by the cost of production. The market price, on the other hand, is the price that depends upon the number and the eagerness of buyers and sellers in the market. When supply is scanty, the market price rises. Thereupon, this high price acts like a magnet attracting capital and labour. The planters would be superhuman if their intelligence enabled them to resist what is as irresistible as gravitation. Since they do not resist, the result is inevitable. Increased application of capital and labour increases production, and thus augments the supply until there are more sellers than buyers, and prices fall. They fall so low that the returns do not suffice to pay the interest on capital and the wages of labour. Thereupon capital and labour are withdrawn from this field of production.
In European lands, a sort of inertia prevents a too rapid change between the opening and closing of factories and workshops, between the engagement and discharge of workers. But in tropical countries (where as yet, for the most part, social legislation and labour-protection laws are unknown) such fluctuations occur with amazing speed. Coffee has always been a ticklish commodity. Its troubles have not been merely due to speculators in the European market, but to the vagaries of the coffee-planting States.
The coffee-bean is smooth and slippery!
When the Arabs lost the supremacy they once held in supplying coffee to the world, the Dutch were, for a long time, the chief sellers of coffee.
Amsterdam—in this respect a suburb of Batavia—was, of course, the principal place to which produce was shipped from the Dutch Indies. Still, Rotterdam came in as a good second. How did the magnates of the Dutch East India Company dispose of their coffee? Mostly by auction. Thus, in 1712, the first shipment of coffee from Java, eight hundred ninety-four sacks, was sold by auction in Amsterdam.
In every auction there is an element of uncertainty, of surprise. If you go into a shop to buy half a pound of coffee priced at three shillings, and cannot get it because somebody else offers four shillings, you will feel yourself back in primitive times. Are there no longer any fixed prices? Actually, it need hardly be said, in retail trade that sort of thing does not happen. For half a pound of coffee, as for other goods, there is a specified price.
Wholesale trade is different. Here coffee is too great a dignitary to be controlled by rules and regulations. The uncertainties of sale by auction correspond to the caprices of coffee’s abundance, to the quantities that have been shipped and to the quantities that are stored in warehouses.
Through auctions, the magnates of the Dutch East India Company secured what they wanted, which was that their warehouses should not remain glutted with coffee. Many buyers came to the salesroom, and, amid the excitement of competition, paid higher prices than they would have paid if their heads had kept cool. Still, there were disadvantages in the system. When the attendance at an auction was scanty, lower prices might prevail than corresponded to the true state of the market.
The Dutch did not remain for ever the dictators of the market. Other colonies than those of the Netherlands came into the field. Towards the end of the eighteenth century, the French were the most important coffee-brokers. Shipments from the French Indies were sold by auction in Bordeaux. Then Havre, being much nearer Paris, came to the fore in this matter. After that, both Holland and France were outpaced by England as rulers in the coffee-market. After the close of the Napoleonic wars, London could dictate prices. Then, towards 1850, the New York market became no less important than that of London, for the United States had developed into a great consumer of coffee, absorbing a considerable part of the harvest of the new coffee-growing giant, Brazil. Now Hamburg came third in the list after London and New York. The rise of the Hamburg coffee-market to importance was closely connected with the extension of coffee-planting in Brazil.
In Hamburg, coffee was seldom sold by auction. There the produce exchange decided matters. There was a good reason for this, inasmuch as auctions of produce are difficult to arrange except as regards the products of the auctioning country’s own colonies. No doubt the example of London can be quoted to refute this dictum. The British empire produces much tea, and Britain consumes comparatively little coffee, but nevertheless large quantities of coffee were auctioned in London.
Why? Because London was the banker of the world. At any rate it was the banker of many coffee-growing countries. There was so much capital seeking investment in the London market, that exporters of coffee could reckon with fair confidence upon the disposal of their goods. Even if no English out-and-out buyers were forthcoming, there would be London firms to bid at auction in order to reship coffee to the continent. Moreover, London was the best place in which to sell coffee on commission. It was a place where banks would lend money upon shipments, so that the shipper could get his cash without waiting for the produce to be sold.
The earlier London auctions took place in certain coffee-houses, and were popularly known as “auction by candle.” The auctioneer had a lighted candle-stump on his desk, and continued to receive bids as long as the candle was burning. When it flickered out, the lot was knocked down to the last bidder.
During the nineteenth century these auctions assumed very peculiar features. No outsider could take a hand in the game, because he could not understand the dialect. The auction-room had a slang of its own. One who intended to become a coffee-broker, had to serve years of apprenticeship before he could “know the ropes.”
The coffee that was to be sold by auction was divided into lots, graded by quality and in accordance with the place of origin. Samples of each lot were exposed for inspection. Lists of these lots, containing a precise description of the wares, were sent round to the dealers. One who did not wish to bid in person at the auction would go to the salesroom, examine samples, roast small quantities, make coffee and taste it, and then give a purchasing broker his instructions. The actual buyer would make secret signs to the broker while the auction was in progress.
The genuine buyers were dealers who really wanted to get coffee in order to sell it again. But among the bidders were speculators who had no intention of buying, and only wished to keep up prices.
A produce exchange is a market where goods are sold without being actually on the premises. A coffee exchange is such a market, where coffee is sold, although there is no coffee there. It is a part of our manifold human nature that we are influenced by absent things. A man may have a peculiarly active faith—or the reverse—in things unseen, which are known to him only by repute. The rise and fall of prices in a produce exchange depends, in the last analysis, upon the workings of the human imagination.
A shortage in supply would, in any case, raise prices without the intervention of speculators. Still, in such circumstances, speculators seize their opportunity, combining with financiers to form a ring, in order to maintain high prices as long as possible. Before the ’seventies, when there were no submarine cables, few steamships, and the telephone had not yet been invented, such a ring would buy all the coffee in the market, and run up prices to a fancy level. Wholesale traders had to pay whatever the ring demanded. Its activities were only frustrated when unexpected shipments arrived.
In 1823, as already related, when the tension between France and Spain did not culminate in war so soon as had been anticipated, there was for a time such a fanciful rise in prices. Then the bottom dropped out of the market, and many of the speculators, being ruined, committed suicide. In the beginning of the eighteen-seventies, there was a similar swindle, when exaggerated tidings of a failure in the coffee-crop were disseminated. The price of coffee soared to a higher level than it had reached for fifty years. When large quantities of the staple now began to pour in from across the seas, the bears in the coffee-market seized their opportunity, laid a counter-mine, defeated the bulls, and forced the price of coffee below the figure warranted by the actual situation. In 1874, submarine cables were laid down from South America to New York and from New York to London. Thenceforward, the daily receipt of messages in the market modified the technique of speculation. Prices were regulated, not by actual shipments, but by expected harvests. News from Brazil concerning frost and rainfall or favourable weather while the crops were ripening came to play a great part in the game.
In 1888, an ill-conceived attempt to raise prices glutted Havre with supplies of coffee. Catastrophe was imminent. To avoid disaster, the bulls tried to enlist the aid of capital from elsewhere. The attempt took the form of trading in “futures.” This helped the speculators, with the aid of extraneous capital, to avoid having to unload their stocks of coffee at knock-down prices; but the result further showed that capital thus used was strong enough to distribute the produce of the harvest quietly and equably throughout the ensuing year.
The introduction of dealing in futures in the coffee trade was natural enough. Coffee, though used in much the same quantities throughout the year, is marketed in vast amounts at a particular season when the staple has been produced in distant lands. The function of commerce is to bridge differences in time and space. Capital could not fulfil this important function without the aid of the “time-bargain,” as dealing futures is sometimes called. The capital invested in time-bargains renders possible a coalescence of the funds of numerous gamblers who are not genuine traders, in the sense of performing some function in relation to the commodity, but wish only to earn profits. One who enters into a time-bargain contracts to sell stocks, shares, or a commodity such as coffee, for a stipulated price at a future time. But the speculator is not interested in a genuine deal with the commodity in question. He does not aspire to handle coffee, not being a real merchant; he wants only to earn a profit from his contract when the term expires—or before. He hopes to gain out of the difference between the price at which he has agreed to sell months ahead and the price which now rules in the market.
German merchants were slow to follow the example set them by Havre. But the Hamburg exchange had to introduce trading in futures when it saw, year after year, all the capital available for trading or speculation in coffee flow away to Havre.
Time-bargains were, indeed, originally devised, not to promote speculation, but to hinder it. With their aid, a prudent merchant could ensure himself against the risk to which he was exposed from future fluctuations in prices. These prices were unknown. By covering purchases or sales in the futures market, by “hedging” in fact, he was able to safeguard his position. But who were his partners in this matter? Speculators, of course! Since these speculators absolved the merchant from risk, they quickly gained control of the market.
Thus, very soon after the introduction of time-bargains into the Hamburg produce exchange, excesses of speculation ensued. There was an unhealthy swing of prices from high to low and from low back to high again, so that ten times as much “paper coffee” changed hands as there was coffee actually produced. That was in the year 1888, when sixty-one million sacks of coffee were bought and sold in seven futures markets, although the harvest amounted to only six million sacks. Gaming-houses where roulette was played had been closed, but people could gamble as much as they liked in time-bargains. What distinguished the time-bargain market from the gaming-house was that in the former the lowest possible stake was five hundred sacks of coffee, and that one could gamble without staking anything in hard cash.
It was no longer the traditional oscillation of the balance between supply and demand that now led to fluctuations in the price of coffee. These latter were determined by the shrewdness and the boldness of rival groups, the bulls and the bears.
“Overseas harvests and speculation,” writes Hans Roth, “affect the movements of the world markets as the winds affect the waves of the sea. Crests and depressions follow each other in a perpetual rhythm. Only when the wind blows against the current of the waters are the big waves broken up into the little ones of a choppy sea. If, on the other hand, the wind and the current are in the same direction, the waves grow higher. When the wind rises to a storm, the waves grow mountains high, and break at their crests. There you have an image of the contest between the bulls and the bears, of the great battles in the exchange. The wreckage after the storm takes the form of bankruptcies and repudiation of contracts.”
These kinds of storms, however, are seen only at or near the surface. The consumer, dwelling at peace in the depths, knows nothing of this turmoil on the surface. Were it otherwise, the consumption of coffee would soon come to an end.
Genuine wholesale dealers within any country are influenced only to a moderate extent by wild fluctuations in the produce exchange. There are other factors besides the price in the world market that determine the wholesale price of coffee in England, Germany, or France. Freightage, customs dues, and other overhead charges do not vary with the fluctuations in the original price of coffee, or at any rate they vary less extensively and swiftly, and the extent of the fluctuations is thereby damped down.
Besides, the trader must not expect too much from the consumer. The majority of petty buyers want to go on buying the kinds of coffee with which they are familiar and to buy them at the accustomed prices. To the unskilled eye, all coffees are alike, so the purchaser regards the price of a coffee as a measure and a guarantee of quality. The individual purchaser reacts against a rise in price by restricting his personal consumption. That is only natural. Oddly enough, however, he is also estranged by a fall in the price of coffee, if that fall affects only certain varieties of coffee, and not coffee in general. “Why is coffee cheaper?” you may hear him ask, with suspicion in his voice. Even when a low price is due to exceptionally large harvests or to other conditions affecting the world market, it is difficult to persuade the purchaser that anything but a decline in quality can account for a decline in price. The retail price must remain stable, if the retailer is to dispose of his stock successfully. The price at which he has bought will differ to a varying degree from the price at which he sells, since the price at which he buys depends upon vacillating conditions in the world market. The larger the difference between purchasing and selling price, the better for the dealer. At times, however, this difference becomes smaller and smaller, until at length the retail trader cannot make any profit. To help himself out of the difficulty, he sells inferior kinds of coffee at the old price. Of course the purchaser must not know anything about this. The retailer’s art lies in a skilful blending which will deceive the consumer’s palate.
The retailer must also tickle his customers’ imagination. He will give his blends of coffee fancy names, which in most cases have nothing to do with the origin of the coffee that is being sold, or with its accepted destination in the trade. Most of the purchasers are women, and they are attracted by pretty names. To call a blend “pearl coffee” may tickle their fancy so much as to make them willing to pay a higher price.
The name “mocha” has a wonder-working influence. Arabia cannot produce nearly as much mocha as the public demands. Brazil has here come to the coffee-merchant’s aid. During the rainy season, coffee is shipped on old-style windjammers to Arabia, by the longest route, round the Cape of Good Hope. It reaches port as wet as a soaked sponge. The damp and the long voyage have spoiled its aroma. Doctored and dried under the Arabian sun, and rechristened with the money-making name of mocha, it is now shipped on steamers to be sold in the great markets of the West.
We are coming to the realm of jests and anecdotes. Of course coffee can be as sophisticated as wine. Even if the history of the coffee-trade were not fully known, one could guess as much. There are, indeed, as many jokes about humbugging with coffee as there are about the spurious labels on wine-bottles.
One of the greatest revolutions in the coffee-trade occurred in 1906, when a caffeine-free coffee was put on the market. What do we mean by “caffeine-free” coffee? Since, in the seventeenth century, coffee helped to wean the English from drunkenness, and the movement spread from England to Germany, Scandinavia, and the rest of northern Europe, coffee has often been styled “the puritans’ drink.” The enemies of wine, beer, spirits, and intoxicating beverages generally, had armed themselves with this puritans’ decoction.
Now, persistence as well as seriousness are characteristic of the puritan temperament. The waves of puritan thought flowed on. It was only natural that what had led the puritans, aided by coffee, to carry on a campaign against alcohol, should further lead them to attack the excessive craving of human beings for caffeine.
The self-composed epitaph, attributed by some to Balzac, and by others to Voltaire, “He lived and he died through thirty thousand cups of coffee,” though penned in jest, gave many people cause to think. Did the writer mean that coffee was a slow poison? Might it not be that the enormous expenditure of energy demanded by the new times, multiplying achievement, simultaneously cut short the life of the individual? Was not this tropical luxuriance of achievement, with a reduced duration of life, symbolized by caffeine?
During the first years of the twentieth century many began to entertain such thoughts. The friends of coffee tried to reassure doubters by reminding them of Fontenelle, a great consumer of coffee, who lived until he almost became a centenarian. But Fontenelle, said the objectors, had been an exception. The escape of one individual from the deleterious effects of coffee could not guarantee the harmlessness of the beverage for ordinary persons. In any case, far more coffee than ever was now being drunk as a spur to flagging energies. Doctors were almost unanimous in their condemnation of the speeding-up of modern life. Whereas those who died prematurely in former days had often died as victims of beer, wine, opium, or tobacco, in the twentieth century, despite its wonderful achievements, there were manifest the stigmata of nervous insomnia, palpitation, restlessness—in a word, pandemic signs of coffee-poisoning.
Superadded to these considerations was the desire that everything men did should be done by their own unaided powers. It was regarded by many, on general principles, as inadvisable that mental activity should be stimulated by drugs. Just as, at all times, there have been persons who demanded “intoxication without wine,” so now there were persons who demanded “wakefulness without caffeine.” The supply of coffee-substitutes, which began during the Seven Years War, reached its climax in Germany at the opening of the twentieth century. Those who could not afford to buy genuine coffee bought and drank the word coffee at least—“coffee” preceded by another word linked to “coffee” with a hyphen—some such word as “wheat,” “chicory,” “malt,” “acorn,” or “fig.” Generally speaking, the second component of this hyphened word was a phantom. The “coffee” element in the “acorn-coffee,” etc., was non-existent.
One point, however, becomes plain to those who study economic psychology. If it be possible to sell to millions a coffee which is not coffee at all and which is devoid of the stimulant trimethyldioxypurin, this must be because there is a growing repugnance to the stimulating effect of caffeine. The recognition of the fact guided the work now undertaken by a young merchant of Bremen, Ludwig Roselius by name. His attitude towards coffee was twofold. Being an honest trader, he did not wish to sell as “coffee” something that was not coffee. On the other hand, for personal reasons, he was an enemy of coffee. His father, a coffee-taster by profession, had died prematurely, and Ludwig ascribed the death to coffee-poisoning. As a safeguard against overdosage with caffeine, coffee-tasters and tea-tasters spit out the fluid when they have tasted it; but, willy-nilly, they are likely to swallow a little, and persons who are exceptionally sensitive to caffeine have sometimes to abandon the profession. Ludwig Roselius’ belief that his father had died from coffee-poisoning led him to study the possible deleterious effects of coffee in other persons—perhaps as the result of a fairly common idiosyncrasy. He came to regard coffee as one of the causes of heart trouble, gout, and, arteriosclerosis. In diabetes and liver troubles, doctors have long been accustomed to forbid the use of coffee. There can be no question that various ailments, major and minor, have become more common since the middle of the nineteenth century, when a great increase in the consumption of coffee began.
Influenced by these considerations, young Roselius set to work, with the characteristic German perseverance, upon an investigation which was to lead to great results. He wanted to produce a caffeine-free coffee. It was to be genuine coffee, with the aroma and other agreeable qualities preserved, but to be free from the trimethyldioxypurin which is dangerous to the continually growing number of neurotics.
Sufferers from coffee were to be relieved of their troubles without any decline in the consumption of coffee. Those who had abandoned coffee in favour of substitutes were to be recalled to the use of the Arabian berry. No one, henceforward, was to be compelled to renounce the enjoyment of coffee, or to adopt an ascetic life for reasons of health, or forced to accept an unsatisfactory substitute. Roselius was convinced that if he could produce a caffeine-free coffee, this new coffee would no longer be frowned upon by medical opponents of the ordinary beverage.
When, in the year 1820, Goethe sent Ferdinand Runge, the analytical chemist of Jena, a boxful of coffee-beans, the poet was giving away something for which he had no use. To the Dionysiac son of the antique world, the Black Apollo who was the spirit of coffee seemed repugnant. Goethe, as a lover of good wine, wrote several diatribes against coffee. Perhaps the most unwarranted of these is to be found in his last letter to Frau von Stein, under date June 1, 1789, in which he ascribes the loving woman’s distresses and reproaches to insomnia produced by coffee. When, thirty years later, Goethe sent a supply of coffee-beans to a chemist, it was certainly not done that Runge might have coffee to drink, but in the hope that his friend would analyse the beans. In actual fact, Runge discovered the demon that lurked in them; he was the first to extract caffeine from coffee.
This analytical feat caused considerable excitement in the early part of the nineteenth century. First of all for pharmaceutical reasons. Caffeine, the purified drug, was now made available for prescribers and was stored by apothecaries. The solution of the industrial problem, as far as coffee-salesmen were concerned, was reserved for a considerably later date. How could caffeine be extracted from coffee-beans without destroying the other qualities that made it possible to prepare an agreeable beverage from these beans? That was what Ludwig Roselius set himself to discover.
His new process for the extraction of caffeine from coffee produced the alkaloid in such large quantities that its price, which before the war was thirty-six marks per kilogram, has now fallen to six marks. But Roselius was even more interested in the other aspects of his process; the decaffeinized coffee was still coffee. That was the result he achieved after lengthy and laborious investigation.
Roselius set out from the fundamental experience that the taste and aroma of coffee are developed while the bean is being roasted. He therefore extracted the caffeine from unroasted beans. Since the grinding of raw beans is difficult, and since they have a very hard shell, he subjected them to a preliminary treatment, a “disintegrating process.” By this the cells were opened. He exposed the beans to superheated steam, which was acid or alkaline as their quality varied. When, after this preliminary treatment, the beans were subjected to the action of solvents of caffeine, about twenty-nine parts in thirty of the caffeine could be extracted without simultaneously extracting the aromatic substances in the beans.
Thereafter, they could be roasted in the usual manner to develop their aroma.
In the year 1906, Ludwig Roselius founded a joint-stock company to work his patents, with the result that by the year 1912, Bremen came near to challenge Hamburg as a centre of the coffee trade. From the Bremen factory a lively propaganda has gone forth throughout the world in favour of the use of caffeine-free coffee.