Into a Distant Mirror: the 1870s
March 2011
Hilary Till
Research Associate, EDHEC-Risk Institute
and Principal, Premia Risk Consultancy, Inc.
A version of this article was originally published in the March 2011 issue of Commodities Now, http://
www.commodities-now.com.
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On October 16th, 2010, the front page of the Wall Street Journal (WSJ) carried a story entitled,
“Flashback to 1870 as Cotton Hits Peak” (Cancryn and Cui, 2010). The newspaper included a
graphic of the iconic Edgar Degas’ 1873 painting, “The Cotton Exchange at New Orleans” (See
Exhibit 1). The article noted that cotton prices had not been this high since at least 1870.
Exhibit 1
Degas, Edgar, “The Cotton Exchange at New Orleans,” 1873, Musée Municipal, Pau, France.
Since this WSJ article was published, cotton prices have continued to reach new highs. (See
Exhibit 2.) So we may continue to see the Degas cotton painting in illustrating the present cotton
bull market.
Exhibit 2: Rolling front-month ICE cotton Futures prices (1/70 to 1/11)
Data Source: The Bloomberg.
If one looks into the distant mirror of the 1870s, one can spot other parallels to our current
circumstances beyond the similarly explosive cotton price rally. As a result, one can find some
very interesting, and potentially useful, historical lessons to draw on from that era.
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The book, “Degas and the Business of Art: A Cotton Office in New Orleans” (Brown, 1994)
provides a contemporary account of Degas and his family when Degas painted this portrait. At
the time, Degas’ extended family had been prominent in the cotton business of New Orleans.
The historical context of the painting is not encouraging, so there may be an unintended irony
in using this painting to illustrate historical analogies to the present time. Degas completed
this painting in 1873, which was the year of a significant stock-market crash and an ensuing
economic depression, which by some accounts, was much worse than the depression of 1929,
according to “The Real Great Depression” (Nelson, 2008). Nelson (2008) describes the complex
financial engineering of the 1870s that preceded the 1873 crash and draws an uncomfortable
parallel to the financial engineering that preceded the 2008 financial meltdown. “As in 1873, a
complex financial pyramid rested on a pinhead,” writes Nelson. The historian also recounts the
stresses to social cohesion that occurred in both the United States and Europe after this financial
crash.
Returning to Degas’ iconic painting, the portrait is actually of an office owned by Degas’ relatives
and is not a proper market exchange. An additional irony of the portrait is that around the time
of its completion, the family business dissolved, likely because of the dislocations in finance at
the time. Amongst other reasons, the family business was already fragile because of important
changes in competitiveness that resulted from various communications improvements. These
improvements include the “progressive expansion of … telegraph systems” and the successful
“laying of the Atlantic telegraph cable,” notes Brown (1994, pp. 34-35.) This meant that various
market inefficiencies were no longer the case, and one could not operate in such a complacent
fashion, as illustrated in the painting. We may conclude that our era of “disruptive technologies”
definitely has a long tradition.
Other authors who have noted lessons from the 1870s include Babson (1911) and Mixon (2008).
Babson (1911) used insights from the Panic of 1873 as well as other “great panics” to make
financial predictions. By 1911, Babson had constructed financial-and-economic-indicator
indices as barometers of the health of financial markets so that investors could be “fully prepared
for the next period of [financial] readjustment.” See Exhibit 3. He later used these insights to
successfully predict the 1929 stock-market crash. “Economic indicator dashboards” are now a
common way of condensing fundamental information.
Exhibit 3: Babson’s business barometers
Bank Clearings
Railroad Earnings
Foreign Trade
Gold Movements
Crop Conditions
Other Fundamental Figures
Source: Babson (1911).
Recently, Mixon (2008) combed through 1870s financial data and found that one could have
used both option prices and bond spreads of the time to anticipate the 1873 stock-market crash.
This is analogous to how numerous financial participants had advance warning of the fragile
state of various financial institutions by viewing their credit-default-swap-spread levels in 2007
and 2008.
Returning again to Degas’ painting, it includes portrayals of Degas’ uncle (Michel Musson) and
two brothers (René and Achille DeGas). Brown (1994, p. 59) provides further background on
Degas’ relatives. We find out about the disastrous foray into cotton futures trading by René
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DeGas as well as the family’s ill-fated investments in Confederate bonds (of the US Civil War era.)
In present terms, one might refer to the latter speculation as a disastrous foray into sovereigncredit trading.
Brown (1994, p. 60) describes how the DeGas and Musson family responded to their financial
misfortune. After the 1873 Panic, Degas’ extended family attempted to settle outstanding debts
in order to preserve the family’s reputation and honor, which included striking personal sacrifices.
Also, Degas himself had difficulties in finding a buyer for his completed cotton painting.
The painting may have been too literal a portrayal of commerce to fit into what buyers of
Impressionist art were interested in at the time. But Degas did eventually succeed in selling his
painting five years later, seemingly against the odds, despite the prevalent fashion as well as
financial dislocations of the time.
We still may have much to learn from the 1870s, whether it is:
• in how to anticipate financial dislocations, as explained by Babson (1911) and Mixon (2008); or
• in how to avoid social disruptions that have historically followed financial dislocations, as a
lesson from Nelson (2008); or
• in how to individually persevere amidst adverse economic conditions, as shown by Brown (1994)
in recounting the lives of Degas and his extended family.
That’s what I see when I look into the distant mirror provided by Degas’ cotton painting.
References
• Babson, Roger, 1911, “The Recovery from the Great Panic of 1873,” New York Times, 9 April.
• Brown, Marilyn, 1994, Degas and the Business of Art: A Cotton Office in New Orleans, University
Park, Pennsylvania: Pennsylvania State University Press.
• Cancryn, Adam and Cui, Carolyn, 2010, “Flashback to 1870s as Cotton Hits Peak,” Wall Street
Journal, 16 October.
• Mixon, Scott, 2008, “The Crisis of 1873: Perspectives from Multiple Asset Classes,” The Journal
of Economic History, Vol. 68, No. 3, 2008, pp. 722-757.
• Nelson, Scott Reynolds, 2008, “The Real Great Depression: The Depression of 1929 is the Wrong
Model for the Current Economic Crisis,” The Chronicle of Higher Education: The Chronicle Review,
17 October.
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