The Liverpool Cotton Market: A Brief Outline History
In the later eighteenth and early nineteenth centuries the cotton industry developed as Britain's leading manufacturing industry; it retained its place as one of the country's staple industries into the mid twentieth century.
In the early decades of the nineteenth century the port of Liverpool in the north-west of England emerged as the central cotton market supplying the British cotton industry with its raw material. This was a result of Liverpool's proximity to the major centre of British cotton spinning in the county of Lancashire, improving communications between the port and its hinterland (most importantly the development of railways after 1830) and Liverpool’s ever increasing share of Britain's raw cotton imports.
By the close of the eighteenth century Liverpool was handling over half of Britain's total cotton imports and by the 1820s, over eighty per cent. The enormous scale of Liverpool's cotton imports and their prodigious growth meant that by 1913 it was estimated that if all the cotton stocks held in New York, New Orleans, Bremen, Havre, and Bombay were grouped together, they would only just exceed the stock of cotton held in Liverpool.
Lancashire's spinners had initially bought their raw material through cotton dealers who were based in the spinning districts, mostly in Manchester, and who bought and sold raw cotton on their own account. As Liverpool emerged as the leading cotton port, spinners employed one of a growing body of specialist cotton brokers located in the port to buy cotton for them on a commission basis - it was rare to purchase directly from a merchant.
The cotton brokers came from differing backgrounds. Some were cotton dealers who migrated to the port from the spinning districts, some broking firms were established by spinners or groups of spinners, others seem to have emerged from the ranks of merchants and general brokers already established in the port.
Liverpool trade directories indicate that by 1829 there were 45 cotton broking firms in the port. The opening of the Liverpool and Manchester Railway in 1830 led the number to increase to 111 by 1841. In 1851, there were 161 cotton broking firms in Liverpool and by 1860 the figure had risen dramatically to 322.
In the later nineteenth century some spinners demonstrated a greater willingness to import some cotton directly themselves rather than buying through a Liverpool broker (perhaps using the Manchester Ship Canal after it was opened in 1895), but well into the twentieth century, the bulk of the cotton spun by the British industry was bought through the Liverpool cotton brokers.
Liverpool’s cotton merchants and brokers worked out of offices or “counting houses” in the centre of Liverpool. In 1808, a special area called “Exchange Flags” was created for the port’s mercantile community, behind Liverpool Town Hall. This was modeled on London’s Royal Exchange. At Exchange Flags, cotton merchants and brokers could meet and transact business. In the buildings surrounding Exchange Flags, there were offices and the “Commercial Room” where auctions of goods (including cotton) took place. This room was renamed the “News Room” when auctions became less frequently used as a way of selling cotton.
In the years following the end of the American Civil War, the late 1860’s witnessed the development of a fully-fledged cotton futures (derivatives) market in Liverpool. The futures contracts were traded in the open air of Exchange Flags. In the 1890’s, an indoor trading floor for cotton futures was established I the nearby “Brown’s Buildings”. Finally, a purpose built cotton exchange was erected on Old Hall Street, which was opened in 1907.
In the years following the end of the First World War in 1918, the British cotton Industry faced increased competition in its overseas markets for cotton goods. In the depression following the Wall Street Crash of 1929, the industry faced very considerable difficulties and a period of decline and closure of cotton mills ensued.
The outbreak of the Second World War in 1939 and the difficulties in importing raw cotton into Liverpool that resulted, led the British Government to take direct control of cotton importation and the supply of raw cotton to the industry. Following the end of the war in 1945, the newly-elected Labour Government decided to retain government control of the cotton supply and a 'Raw Cotton Commission', based in Liverpool, was created to undertake this task.
In the 1950s, the British Government decided to return raw cotton importation and trading to the private sector and the Raw Cotton Commission was closed down. However, the British Cotton industry was by now in serious decline. By the mid 1960s, Britain was importing more cotton goods than it was exporting and the Liverpool cotton market had consequently shrunk dramatically. In the later 1960s, the Liverpool Cotton Association (the organization that regulated the Liverpool cotton market and owned Liverpool's Cotton Exchange), decided to sell the Cotton Exchange and the building was subseqeuntly dramatically changed.
However, Liverpool's long experience in trading cotton and regulating cotton transactions meant that the Liverpool Cotton Association retained a leading role in international cotton trading, through its rules and contracts for trading cotton and arbitrating in trading disputes. This international role is reflected in the recent change of name of the association to that of the "International Cotton Association". Liverpool therefore remains central to international cotton trading.