Uncommon Grounds Part 3

Though undoubtedly stale by the time it was brewed, the coffee proved an instant success among the miners, too frantic searching for gold to waste time stirring their green beans over a campfire. In 1851 Bovee bought a steam engine and moved to larger quarters. Meanwhile Jim Folger's older brothers returned from their not terribly successful mining venture. Henry, the middle brother, booked pa.s.sage for the East, but Edward set up a whale oil business next door to his brother's coffee roasting establishment.

For a time Jim Folger, by now eighteen, left to open a store to service gold miners at a spot called "Yankee Jim." One miner's 1852 diary from the area noted, "The young man from Nantucket, Jim Folger, is most courageous-at his tender age he has more sense than most of us." Soon, however, Folger sold out and rejoined Bovee, now as a clerk and traveling salesman. The same miner's 1858 diary entry noted that Folger was "in business for himself down in Frisco and selling coffee to every d.a.m.ned diggings in California."

By the time he was twenty-four, Folger was married and a full partner in the firm, along with Ira Marden, who had bought out Bovee. For a time the business flourished, then foundered in the general economic collapse following the Civil War. The firm went bankrupt in 1865, and Jim Folger bought out his partner, determined to revive the business and pay off his debts, which took him nearly a decade. "This payment being unexpected, I hereby gratefully acknowledge the honorable transaction of a n.o.ble merchant," one grateful creditor wrote on an 1872 receipt to Folger. It helped when he found a wealthy German partner, Otto Schoemann, who brought $10,000 to the partners.h.i.+p.

Renamed J. A. Folger & Co., the firm thrived during the 1870s. In 1875 the Dun credit agent reported that Folger had paid off half of his debt and intended to pay the rest. "They are doing an excellent business and gaining right along." In 1877 August Schilling, age twenty-seven, who had been clerking with the business, bought Schoemann's share. He was later to branch off with his own coffee enterprise. At decade's end Folger was sending his salesmen as far afield as Montana, Oregon, and Was.h.i.+ngton.

By the late 1870s there were similar success stories in most major cities of the United States, as well as throughout Europe. Most roasters grew out of wholesale grocery businesses whose owners had the foresight to see that specializing in coffee could make their fortune. The time was ripe for a trade publication to admonish, t.i.tillate, lecture, and instruct this growing industry.

Jabez Burns, Editor: Keeping Coffee and Women in Their Place In 1878 Jabez Burns commenced publication of the Spice Mill Spice Mill-the first trade journal to cover coffee, tea, and spices-though the majority of its pages were devoted to coffee. It was a quirky publication given over entirely to the opinions of its editor. "We call our paper the Spice Mill Spice Mill," he wrote in the first issue, "because we intend to deal in a spicy way with the spice of active manufacturing business life." He added that he wanted to deal not only with facts and figures but also to reduce "habits, tricks-and frauds frauds-to powder."

Jabez Burns loved the art of roasting. "Coffee," he wrote, "you develop, and by skill and judgment change from caterpillar to a b.u.t.terfly, as it were-you bring out a hidden treasure." He recommended sample roasting small batches of beans before buying them (a recent innovation at the time), rather than judging them solely on their looks. He endorsed a swift, hot roast rather than a slow bake, warning that "the very best coffee in the market may be made insipid trash for the want of sufficient roasting." When coffee is roasted it doubles in size, but it loses anywhere from 15 to 20 percent of its weight as the water is driven off. To reduce this weight loss, many roasters resorted to extremely light roasts that produced bitter, undeveloped cups of coffee.

Burns denounced "the abuse of water [and] the plastering on of compounds of every variety in the shape of glaze." When the beans were dumped out to cool, many roasters sprayed the beans to "quench" them quickly-still a common practice. There is nothing wrong with this, so long as the quick spray simply halts the roasting process, the water hissing off as steam. Some roasters (then and now) applied an overabundance of water, however, adding weight and waterlogging the beans. Others put on glazes made with egg, sugar, b.u.t.ter, or other compounds, purportedly to preserve freshness. This may well have been the case, but others abused the practice simply to add weight or to hide defective beans from view.

When he strayed from coffee, Jabez Burns revealed a less appealing side, spicing his Spice Mill Spice Mill with racist jokes and slurs. He also disapproved of the fight for women's rights. He lamented "our agitating women of the present day," urging businessmen never to employ women because "it pains us to see a woman out of her sphere." Burns emphasized that he was only trying to protect the ladies from "the insult of the rude strange youth, the cunning of unprincipled employers, and the immorality of the vicious men she must meet in nearly every department of manufactory or shop work." with racist jokes and slurs. He also disapproved of the fight for women's rights. He lamented "our agitating women of the present day," urging businessmen never to employ women because "it pains us to see a woman out of her sphere." Burns emphasized that he was only trying to protect the ladies from "the insult of the rude strange youth, the cunning of unprincipled employers, and the immorality of the vicious men she must meet in nearly every department of manufactory or shop work."

In other words, coffee men men were all right, but not coffee were all right, but not coffee women women. Burns's att.i.tude was not unusual. Front Street, the New York bastion of the green coffee importers, was for years an all-male enclave. Women who entered the business had to claw their way through the prejudice of the industry.

On another trade issue, however, Burns disagreed with other coffee men who descried any adulteration of coffee with other substances. Burns preferred his coffee mixed with chicory. "There are a number of prepared coffees, well-understood mixtures of course, that are really superior in flavor and appearance to the bean itself." As long as the public knew that it was not buying pure coffee, and that the price was consequently lower, he saw no problem. "The compet.i.tive spirit of the age" would ensure quality, since "every grocer is aware that the goods he sells are compared with those of his neighbor."

Unfortunately, this compet.i.tive spirit did not always work to the benefit of the public. Some U.S. manufacturers produced fake whole coffee beans made from rye flour, glucose, and water. "Sometimes the retailer is deceived," a contemporary Scientific American Scientific American article noted, "but nine times out of ten he is the one who introduced adulteration. The ground article is very easily produced in the proper color, and an aroma is infused by using strong decoctions of coffee essence." The sale of coffee essence itself was usually a con job, made with blackstrap mola.s.ses, chicory, and perhaps a dash of genuine coffee extract. article noted, "but nine times out of ten he is the one who introduced adulteration. The ground article is very easily produced in the proper color, and an aroma is infused by using strong decoctions of coffee essence." The sale of coffee essence itself was usually a con job, made with blackstrap mola.s.ses, chicory, and perhaps a dash of genuine coffee extract.

"The adulterations of coffee are so great," groused one 1872 consumer, "that pure coffee is rarely to be had except in private families where the head of the house attends in person to the preparation of the precious cup." Three years later a letter in the New York Times New York Times complained, "In this City, veritable coffee has become almost extinct." In his cla.s.sic complained, "In this City, veritable coffee has become almost extinct." In his cla.s.sic Coffee: From Plantation to Cup Coffee: From Plantation to Cup, Francis Thurber observed, "The adulteration of coffee and the vast scale on which it is practiced, are well-known facts," which is one reason he suggested each family grind its own beans. Unlike Burns, Thurber despised chicory and repeated with relish the story of a coffee lover who asked at a restaurant, "Have you any chicory?"

"Yes, sir."

"Bring me some." After the waiter brought a small can of chicory the guest asked, "Is that all you have?"

"We have a little more."

"Bring me the rest." The waiter brought another can.

"You have no more?"

"No, sir."

"Very well. Now go and make me a cup of coffee."20 Chicory was not the only coffee additive. The list of coffee adulterants indeed is amazing: almonds, arrowhead, asparagus seeds and stalks, baked horse liver, barberries, barley, beechmast, beetroot, box seeds, bracken, bran, bread crusts, brewery waste, brick dust, burnt rags, burrs, carob beans, carrot, chickpeas, chicory, chrysanthemum seeds, coal ashes, cocoa sh.e.l.ls, comfrey roots, cranberries, currants, dahlia tubers, dandelion roots, date seeds, dirt, dog biscuits, elderberries, figs, gherkins, gooseberries, haws, hips, holly berries, horse chestnuts, Jerusalem artichokes, juniper berries, kola nuts, lentils, linseed, lupine, malt, mesquite, monkey nuts, mulberries, parsnips, pea hulls, pumpkin seeds, quaker-gra.s.s roots, rice, rowan berries, rutabaga, sand, sa.s.safras, sawdust, sloes, sunflower seeds, turnips, vetch, wheat, whey, wood chips-and more. Even used coffee grounds were employed to adulterate coffee.

At least none of those myriad items would kill anyone, unlike some of the coloring agents applied to beans. "Very dangerous powders or mixtures are used to color the beans," Thurber noted, "the practice being resorted to in order to meet the prejudices of consumers in certain sections for a bright yellow, black, or olive-green colored bean." An 1884 headline in the New York Times New York Times blared, "POISON IN EVERY CUP OF COFFEE." An investigation revealed that Guatemalan and Venezuelan coffee had been "taken to two mills in Brooklyn, and had there been treated with coloring matter, so as to make them resemble Government Java. This deception has been going on for years." The coloring matter contained a.r.s.enic and lead. "A careful a.n.a.lysis led to the conclusion that every cup of coffee made from the colored beans, which are put upon the market as Java, contains one-sixtieth of a grain of a.r.s.enious acid, which is a virulent poison." Rio coffee was also polished and colored to produce a handsome green rather than a dull gray. Chemists a.s.serted that "it requires an almost white heat to destroy the a.r.s.enic, but even then the lead will still remain." blared, "POISON IN EVERY CUP OF COFFEE." An investigation revealed that Guatemalan and Venezuelan coffee had been "taken to two mills in Brooklyn, and had there been treated with coloring matter, so as to make them resemble Government Java. This deception has been going on for years." The coloring matter contained a.r.s.enic and lead. "A careful a.n.a.lysis led to the conclusion that every cup of coffee made from the colored beans, which are put upon the market as Java, contains one-sixtieth of a grain of a.r.s.enious acid, which is a virulent poison." Rio coffee was also polished and colored to produce a handsome green rather than a dull gray. Chemists a.s.serted that "it requires an almost white heat to destroy the a.r.s.enic, but even then the lead will still remain."

John Arbuckle, always ready to take advantage of a compet.i.tor, printed an Ariosa ad in which the text read: "Help us drive out of the market the poisonous Coffees that are now being so largely sold; 3,000,000 pounds of Coffee have been colored during the past year with a.r.s.enic, Venetian-Blue, Chrome-Yellow a.r.s.enic, Venetian-Blue, Chrome-Yellow and other ingredients." and other ingredients."

The swift rise of Brazilian coffee explains the popularity of the poisonous coloring. Owing to Brazil's climate and soil conditions, its beans produced inferior coffee to the traditional Java and Mocha, and sold at a considerable discount. Consequently many retailers pa.s.sed off beans from Brazil or other parts of Latin America as coming from Yemen or Indonesia, particularly Old Government Java, which referred to coffee held in go-downs go-downs, or storehouses, by the Dutch government for seven years or longer. During this process coffee beans age, mellow, and turn a shade of brown. This coffee, like fine old wine, commanded a premium price and was worth imitating.21 The Indispensable Beverage By the 1870s, according to Robert Hewitt Jr., coffee had become "an indispensable beverage" to citizens of the Western world-especially to Americans, who consumed six times as much as most Europeans. In his 1872 book Coffee: Its History, Cultivation, and Uses Coffee: Its History, Cultivation, and Uses, Hewitt added that "there is scarcely any other item of commerce that has made more rapid progress in the world, or gained for itself more general acceptation with all cla.s.ses." As a Harper's Harper's commentator put it in the same year, "The proud son of the highest civilization can no longer live happily without coffee. . . . The whole social life of many nations is based upon the insignificant bean; it is an essential element in the vast commerce of great nations." The coffee industry had become Big Business, as Thurber observed in 1881: commentator put it in the same year, "The proud son of the highest civilization can no longer live happily without coffee. . . . The whole social life of many nations is based upon the insignificant bean; it is an essential element in the vast commerce of great nations." The coffee industry had become Big Business, as Thurber observed in 1881: After leaving the plantation and before reaching the consumer, it has paid tribute to the transporter, to the s.h.i.+pping bankers of that country; to the s.h.i.+ps which carry it abroad; the custom-houses of importing countries, to their stevedores, storage warehouses, insurance companies, and bankers; to the brokers who sample and sell it, the weighers who weigh it, and the wholesale merchants who buy it. Then comes its cartage or lighterage, its roasting and sale to retail merchants, and its transportation to the point where it is finally distributed and consumed. Twelve hundred millions of pounds of coffee annually pa.s.s through this routine, and probably a hundred millions of people, besides the consumers, are directly or indirectly benefited. Factories have been brought into existence to manufacture the machinery required in the cultivation and preparation of this staple; great mills work throughout the whole year on the bagging required for the packages; warehouses worth millions have been provided for its storage; mighty fleets of vessels are created and maintained for its carriage on the sea, and railroads for its transportation on land.

By 1876 the United States was importing 340 million pounds of coffee annually, accounting for nearly a third of all coffee exported from producing countries. Of all the coffee consumed in the United States, nearly three-quarters came from Brazil, where coffee had not even been a meaningful export crop two generations earlier. As the steady flow of Brazilian beans became a flood, three powerful American coffee barons-known as the Trinity-struggled to maintain their lucrative domination of the market.

4.

The Great Coffee Wars of the Gilded Age Speculation seeks to discount the future in hope of much and rapid gain, and strengthens the popular tendency to wrestle with scarcely calculable forces, and to enter blindly upon ventures in which rational foresight sees but little hope of eventual good.

-Richard Wheatley, "The Coffee Exchange of the City of New York" (1891)

The coffee market has always been volatile. Rumors of Brazilian frosts cause price hikes, while surprisingly large harvests produce dreadful declines, along with misery for farmers and laborers. Market forces, complicated by nature and human greed, have resulted in extended cycles of boom and bust. Since coffee trees take four or five years to mature, the general pattern has been for plantation owners to clear new lands and plant more trees during times of rising prices. Then, when supply exceeds demand and prices fall, the farmers are stuck with too much coffee. Unlike wheat or corn, coffee grows on a perennial plant, and a coffee farm involves a major commitment of capital that cannot easily be switched to another crop. Thus, for another few years, a glut ensues. All of this is complicated by the effects of plant disease, war, political upheaval, and attempts to manipulate the market.

As the coffee industry boomed during the 1870s, large importing firms made huge profits, but at substantial risk. One syndicate of U.S. importers dominated the coffee scene, comprising three firms known as the Trinity: B. G. Arnold and Bowie Dash & Company of New York, and O. G. Kimball & Company of Boston. It was headed by B. G. Arnold, known as "the Napoleon of the Coffee Trade," described by one trade insider as "a born trader, a fighter, commercial wizard, an experienced merchant in politics, weather and geography." For ten years, according to a contemporary, Arnold had "ruled the coffee market of this country as absolutely as any hereditary monarch controls his kingdom."

The firm of R. G. Dun a.s.sessed business credit risk during the Gilded Age, and its agent's annotations on Arnold's firm tell their own story: Jan. 6, 1872: Concern is said to have made fully a million during the past year, having a monopoly of the coffee trade. . . . Their business is mainly speculative.

June 5, 1875: Estimated worth at least 1.5 million dollars. In the long run have made a large amount of money in their coffee operations. Occasionally the market will go against them but it is more than made up by after rise.

Then, in 1878, it became clear that the Brazilian state of So Paulo was going to flood the market with coffee. The Trinity struggled to maintain its stranglehold on the market, but the tide had turned. Two years later the Dun agent wrote: Nov. 20, 1880: The firm are known to have lost heavily lately, yet they are not seriously affected.

The syndicate of B. G. Arnold, Bowie Dash, and O. G. Kimball had artificially held up the price of Java coffee for many years. As vast amounts of Brazilian beans began to flood the market, the Trinity increasingly had difficulty holding so much of the available stock that its members could demand favorable prices. Whereas they had heretofore specialized in quality Java beans, they now began to buy Brazilian beans in a desperate bid to boost prices. In October one coffee importer failed, but it was known to be overextended. On November 25 a tea importing firm went bankrupt. Front Street (shorthand for the coffee district) tensed for the next blow.

A Coffee Suicide?

On Sat.u.r.day, December 4, 1880, O. G. Kimball died in Boston. Only forty-two, Kimball had no known health problems. He played cards on the Sat.u.r.day night of his death, making "a great effort to appear unusually cheerful," according to a friend. He retired before his wife at 10:00 P.M. She found him dead on his bed an hour later. "The fact that his death practically dissolved his firm caused considerable uneasiness among his creditors to learn the exact condition of his affairs," wrote a New York Times New York Times reporter on December 8. "It also inflicted a blow to the credit of B. G. Arnold & Co." The newspaper that day attributed the death to "congestion of the lungs" but added that "his death was hastened by the anxiety and reverses of the past few months." reporter on December 8. "It also inflicted a blow to the credit of B. G. Arnold & Co." The newspaper that day attributed the death to "congestion of the lungs" but added that "his death was hastened by the anxiety and reverses of the past few months."

Rumors of suicide flew on the street-though Kimball's friends denied that he would have done away with himself. Regardless, his death spelled the end for his two cohorts in the Trinity.

On December 8 the New York Journal of Commerce Journal of Commerce reported on the suspension of B. G. Arnold & Company. "At first the report was not credited," the reporter wrote, "as the house had always borne the highest reputation for financial stability, and its dealings have been on a gigantic scale. But about noon the announcement was officially made." Later it came out that the firm was left owing over $2 million. reported on the suspension of B. G. Arnold & Company. "At first the report was not credited," the reporter wrote, "as the house had always borne the highest reputation for financial stability, and its dealings have been on a gigantic scale. But about noon the announcement was officially made." Later it came out that the firm was left owing over $2 million.

The following day, "there was no attempt to do business, everyone being suspicious of his neighbor," recalled Abram Wakeman, a veteran coffee man. Two days later Bowie Dash & Company suspended business transactions, with liabilities of $1.4 million. The losses for coffee amounted to nearly $7 million in 1880, with $3 million more lost the following year. "The history of the trade for the twelve months [of 1880] is a record of loss and disaster such as never was experienced before in the coffee trade in the United States," observed Francis Thurber.

Creating the Coffee Exchange: No Panacea Some who had been worst hit by the ruinous 1880 collapse decided to begin a coffee exchange. Though complex in execution, a coffee exchange is a simple concept. A buyer contracts with a seller to purchase a certain number of bags at a specified time in the future. As time goes by, the value of the contract changes, depending on market factors. Most real coffee men would use the contracts as hedges hedges against price changes, while speculators would provide the necessary against price changes, while speculators would provide the necessary liquidity liquidity, since every contract requires a willing buyer and seller. Though a speculator may profit, he also may lose his s.h.i.+rt. Essentially he provides a form of price risk insurance for coffee dealers.

"It was contended," recalled Abram Wakeman, "that had there been an Exchange . . . the crash would not have taken place. Also, roasters wis.h.i.+ng to have a certain price to figure on could, by buying futures, tell just what the coffee would cost." Besides, it would be good for New York, concentrating the trade there. The exchange could arbitrate disputes and police the growing trade abuses. Those in favor of a new coffee exchange also argued that, with fixed standards for grades of coffee, outsiders and bankers would take an interest in coffee, carrying additional quant.i.ties that would help the market.

Others argued against a coffee exchange, predicting that speculators would push out real coffee men-a charge that has since been repeated many times. Nevertheless, the exchange was duly incorporated on December 7, 1881, exactly a year after B. G. Arnold & Company had gone bankrupt. Benjamin Arnold was one of the incorporators and became the first president. For quite some time no one trusted the exchange, which became "the laughing stock of the trade, very little business being done," as Wakeman recalled. Eventually, however, it became a frenzied scene of buyers, sellers, and speculators yelling and screaming at one another in the pit. Rather than discouraging attempts to corner the market, however, the exchange only added new wrinkles to the power play, as the ticker tape became the heart-stopping center of attention, spitting out price symbols.

A great boom occurred in 1886-1887, for instance, on news of a Brazilian crop failure. Several large houses in Brazil, Europe, New Orleans, Chicago, and New York-led by Tammany boss Joseph J. O'Donohue-joined forces to bull the market (artificially raise prices by purchasing stock or future contracts) up to a target of 25 cents a pound for December options. O'Donohue took his profits at 17.5 cents by selling his position, but a Brazilian bull syndicate, represented by B. G. Arnold, continued to boom the market up, with December futures closing above 21 cents in June 1887. On Monday, June 13, hundreds flocked to the exchange to witness "the slaughter of the bulls," as the December option price plummeted to 16 cents.

"Collapse was inevitable and precipitated panic," wrote contemporary journalist Richard Wheatley. "Immense quant.i.ties of coffee were thrown overboard by holders unable longer to carry them." The bears themselves came to the rescue, however, buying huge amounts of cheap coffee. Tammany boss O'Donohue joined with Hermann Sielcken, of W. H. Crossman & Brother, and bought 100,000 bags at declining prices. For this they were "loudly cheered for their bravery." Of course they also made money on both ends of the market swing. Sielcken, a brilliant German immigrant, would soon become a major force within the coffee world-feared, respected, and loathed by many in the trade. At this point, however, Sielcken was the hero who saved the market, bidding the price back up to 17 cents.

The Most Speculative Business in the World By century's end, technology had made worldwide communication virtually instantaneous. Coffee exchanges in major European ports corresponded rapidly with New York. "Silently the submarine cable ticks off the news that supple fingers chalk and print of steamers leaving Rio and Santos on certain days, and with what cargoes," wrote Richard Wheatley in 1891. Traders could ascertain the stocks of coffee at eight princ.i.p.al European ports in each month of the past two business years. "These facts and conditions, comparisons and symptoms, of the world's commerce in coffee daily, weekly, and yearly, are under the eye of the broker," Wheatley continued, "and guide his judgment in the contracts made so explosively on the floor of the Exchange." Despite such sophistication-or perhaps due to it-speculation and attempts to outguess or corner the coffee market continued unabated.

In ensuing years the coffee drama repeated itself many times, with rumors of over- or underproduction, war, disease, and manipulation. With the era of larger and larger Brazilian crops, especially since 1894, prices dropped for several years, down to 4.25 cents a pound for Brazilian beans in November 1898. In 1899 Brazil was quarantined due to a serious outbreak of bubonic plague. Turning bullish, the coffee men, rejoicing in the sorrows of others, called it the "bubonic plague boom," as coffee advanced (temporarily) to 8.25 cents.

John Arbuckle, the coffee magnate, took the stand to testify in an ant.i.trust case in 1897: "There will be a failure of the crops . . . in Brazil, and the price will run way up; they will have a big crop and it goes way down; the fact is, since I have been in the business here, since 1870, nineteen or twenty of the men have failed on that account. . . . There appears to be no help for it; coffee is the most speculative business in the world."

In 1904 novelist Cyrus Townsend Brady penned The Corner in Coffee The Corner in Coffee, a melodramatic tale of love, betrayal, bears, bulls, and coffee speculation. He conducted research by interviewing coffee dealers, brokers, and members of the Coffee Exchange. "I acquired enough information about speculation in coffee to cause me to make a solemn resolution never to touch it except as a beverage," Brady wryly noted in his preface. In the book the original mastermind behind a coffee corner reverses himself to save his girlfriend's money. He helps to break it in the most dramatic scene of the book: The corner was breaking, it was broken!

He . . . forced his way through the great crowds until he reached the floor of the Exchange. Around the coffee pit pandemonium reigned. It was the centre, the vortex, of a seething maelstrom of pa.s.sion. One sale succeeded another, and the market was going down. Down, down, down! . . .

Screaming men were frantically shaking their nervous hands aloft before Drewitt, the junior partner of Cutter, Drewitt & Co., who was selling as imperturbably as he had bought. The Exchange was in a perfect roar. . . . Clothes were torn, a man fell and was trampled by the maddened crowd. . . . Coffee fell 20 cents a pound in two hours.

Eventually, by the turn of the century, it became more and more difficult to manipulate the overwhelming volume of beans that flooded the market. The crops of 1901-1902 came in at 15 million bags-much bigger than anyone predicted-and demoralized the coffee market throughout the world. "The position of the coffee-producing countries was pitiful," Wakeman wrote. "Many were ruined. This was especially so in the mild coffee districts, located at great distances from the ports of s.h.i.+pment."

The Great Coffee-Sugar War As the nineteenth century roared to its climactic end, business t.i.tans John Arbuckle and H. O. Havemeyer clashed. Arbuckle used an enormous amount of refined sugar for his coffee glaze. At first he simply ordered most of it from the American Sugar Refining Company, owned by H. O. Havemeyer, the king of the sugar trust. Then Arbuckle decided to diversify from coffee into sugar. Why not package sugar in one-pound packages, just as he did his coffee?

Known as a predatory businessman, Havemeyer already had driven most compet.i.tors out of business. Outspoken, gruff, and dictatorial, Havemeyer saw nothing wrong in predatory pricing to drive out compet.i.tion, but he was of course happy to allow Arbuckle to sell sugar, as long as the coffee magnate bought his product.

Arbuckle, who had always sought vertical integration (control of a business at every stage of production), decided to build his own sugar refinery and go into compet.i.tion with Havemeyer. Late in 1896 Havemeyer summoned coffee broker Hermann Sielcken. "He asked me in which way he could do a large business in roasted coffee," Sielcken recalled later. "I told him that the brand had to be known, princ.i.p.ally to the women, who are usually the buyers of coffee." He suggested buying the Lion brand, owned by Ohio-based Woolson Spice Company, which had been paying 100 percent dividends per year.

Havemeyer said he had heard rumors that Arbuckle was going into the sugar business, and that he would not wait for that to happen. "If Arbuckle Brothers had the intention of going into the sugar business," Sielcken said, "he would go into the coffee business." Sielcken traveled secretly to Toledo, Ohio, where he purchased 1,100 out of 1,800 outstanding shares of the company for Havemeyer, then made a second trip, where he purchased all but 61 shares that the owners refused to sell.

Just as Havemeyer got into the coffee game, overproduction hit and prices slid. Determined to drive Arbuckle under by slas.h.i.+ng prices, Havemeyer directed Sielcken to buy the cheapest Brazilian beans and to undercut Arbuckle's prices, even at the risk of losing money.

It became clear to John Arbuckle by the beginning of 1897 that "no matter at what price we might put our coffee they would put a lower price; they intended to drive us out of the market." He added, "If we would say today that we would stop building our [sugar] refinery, I think they would stop roasting coffee." Arbuckle had no intention of backing down, however, and a battle of mammoth proportions commenced.

Cutting the Thing Wide Open H. O. Havemeyer sent word that he wanted to see Arbuckle. They met at Havemeyer's New York home. Havemeyer told him, "I want to buy 51 percent of your [sugar] refinery." Arbuckle shot back, "Mr. Havemeyer, as long as I live and have my senses, you will never own a dollar's worth of it. But this world is big enough for all of us."

"Well, I have got 11,000 stockholders to take care of," Havemeyer answered, "and I have got to take care of them."

"You could take care of them a good deal better by treating others in a more kindly way," Arbuckle observed. The meeting ended in a stalemate, and the war continued.

Arbuckle countered by pouring more money into sugar production. "We went to work and increased our refinery, and now it is between 7,000 and 8,000 barrels of sugar a day-we can run to 8,000 barrels a day. But it is probably not profitable to do that. When you strain a thing, you do not get the best results." Nonetheless, Arbuckle had to "strain" things in the fierce price wars with the sugar trust. "Yes, at times we would sell at a loss. . . . We started the refinery in 1898, and there was a loss that year; I think there was a loss the next year, and . . . a profit the year following; and then there would be a fight started . . . and sometimes we would not make a penny."

While he preferred to call on "kindlier feelings," Arbuckle knew that "moral suasion did not appear to have very much effect" on Havemeyer. Consequently, as Arbuckle said, "we would get our temper up, and then cut the thing wide open."

Havemeyer and Sielcken discovered that an Arbuckle crony owned the outstanding stock in Woolson when they were slapped with a lawsuit, brought by the minority stockholder, Thomas Kuhn. The suit alleged that the sugar trust had bought Woolson for the purpose of "crus.h.i.+ng of the Arbuckle Brothers and compelling them to abandon their intention of engaging in the sugar business." To do so, Woolson had repeatedly dropped prices for coffee. As a stockholder, Kuhn asked for an injunction, alleging that Woolson was losing $1,000 a day. The court ruled in favor of the sugar trust, refusing to grant the injunction, and a subsequent appeal was denied.

At that point John Arbuckle brought suit in his own name against the Woolson Spice Company, demanding as a stockholder to see the company's books and to receive the transfer of stock he owned. He wanted to know why no dividends were ever paid, when the company had been so generous prior to the Havemeyer takeover. On February 18, 1901, three judges concluded that Woolson was in contempt of court for refusing to obey the court order to hand over the books. The sugar trust had until March 5 to file a pet.i.tion in error. A secret legal settlement was worked out shortly, however, and the lawsuit was dropped. Arbuckle apparently never got to look at the Woolson books.

In the meantime, Havemeyer and Sielcken moved behind the scenes in Ohio. Because the Woolson Spice Company contributed so much to the state's economy, they persuaded Joseph E. Blackburn, the dairy and food commissioner for Ohio, to single out Ariosa Coffee as adulterated, hoping to erode its legal customer base. In the words of Blackburn's affidavit: "Ariosa" consists of a cheap and inferior grade of coffee which is coated and covered with glutinous mixture, for what purpose, affiant deems it unnecessary to state, but with the manifest result that by such glutinous coating and covering, the inferiority of said coffee is concealed, and it is made to appear better and of greater value than it really is.

On February 5, 1901, Blackburn issued a circular to the grocery trade about the "coffee situation," stating that "the only firm that has refused and still refuses to accept the ruling of this department . . . is Arbuckle Bros., of New York."

Although Blackburn's action did not const.i.tute an outright ban on Ariosa, it hurt business and outraged John Arbuckle, who inst.i.tuted a lawsuit to make Blackburn take back his allegations. He lost all the way through the Supreme Court in 1902, but he did make an impressive case for himself. Harvey Wiley, the chief of the Division of Chemistry for the U.S. Department of Agriculture and the country's most renowned consumer watchdog, testified that he had inspected the Arbuckle plant and found it to produce "as near as possible a perfect product." Wiley described the process of roasting and glazing in some detail. "It does not conceal inferiority," he a.s.serted. "It [glazing] does not add a cheaper to a dearer substance. On the contrary, this added material is wholesome and digestible. It a.s.sists in the clarification of the coffee when the beverage is made; it preserves the aroma and flavor of the roasted berry, and prevents the absorption of moisture which would take place on long standing in the air."

Despite such testimony, the courts simply refused to enter a state regulatory matter. Ariosa apparently continued sales in Ohio, regardless of Blackburn's opinion-and indeed took over the greater share of the market. Arbuckle sold about a million bags a year when the total U.S. consumption was between 4 million and 5 million.

The Arbuckle Signatures Perhaps the main reason for Ariosa's outstanding success, aside from name recognition and a standardized, reliable product, was Arbuckle's premium program, begun just before the coffee-sugar war commenced. In a distinctive script, "Arbuckle Bros." appeared on each package, along with the printed statement, "CASH VALUE ONE CENT." By collecting a sufficient number of these signatures, customers could redeem them for an impressive array of items in the Arbuckle catalog, ranging from toothbrushes and suspenders to clocks, wringer-washers, guns, and jewelry. For sixty-five signatures, women could buy window curtains. For only twenty-eight, men could secure a razor.

In a typical year the Arbuckle Notion Department was flooded with over 100 million signatures, for which consumers received 4 million premiums. "One of our premiums is a wedding ring," observed one company official. "If all the rings of this pattern serve their intended purpose, then we have been partic.i.p.ants in eighty thousand weddings a year." The company also began to insert a stick of sugar candy-from its own refinery-into each package of Ariosa.

Havemeyer tried to strike back with his own premium plan, but it failed to make a dent in Arbuckle's sales. The only time Ariosa was challenged was when the Woolson Spice Company salesman told Indians in New Mexico and Arizona that owing to the picture of the lion on its package, drinking the coffee would give them the strength of a lion. Mose Drachman, the local Arbuckle salesman, quickly countered this rumor by a.s.sembling the local Indian chiefs. Didn't they see the picture of the angel floating on the Ariosa package? Didn't they know that an angel was stronger than 10,000 lions? The problem was solved. "If Lion wants to beat my angel," Drachman told his wife with satisfaction, "they'll have to put on their label a picture of G.o.d himself."

In the West, where Ariosa dominated, entire buildings were made from the wooden crates in which the coffee was packed. A Navajo baby would be rocked in a cradle made of Arbuckle crates. One reservation physician recalled, "I have seen adults buried in many a coffin built of wood from Arbuckles boxes, and more often than not a package of coffee would be put into the coffin . . . to ease the trip to the Happy Hunting Ground." John Arbuckle included beautifully lithographed trading cards in his coffee for many years and offered alb.u.ms in which they could be displayed. On the flipside of the Ariosa cards were advertis.e.m.e.nts for the coffee and its egg-sugar glaze. "BEWARE of buying low-grade package coffee," the ad continued, taking aim at Lion brand, "falsely purporting to be made of Mocha, Java and Rio; this being a cheap device, employed by the manufacturers, to deceive unwary consumers." of buying low-grade package coffee," the ad continued, taking aim at Lion brand, "falsely purporting to be made of Mocha, Java and Rio; this being a cheap device, employed by the manufacturers, to deceive unwary consumers."

Coffee-Sugar Cease-Fire Despite the cutthroat compet.i.tion, John Arbuckle and H. O. Havemeyer developed a kind of grudging respect for each other. Although Havemeyer was a "man of very, very aggressive temperament," Arbuckle also saw another side of him. "You would go up to his house and find a very accomplished gentleman of refined tastes and good company." He was astonished to find that Havemeyer was a sensitive and accomplished violinist. "Mr. Havemeyer," he told him, "you can not be as bad a man as they think you are, a man who produces such beautiful music as that." Arbuckle observed him to be "lovely in his family; he had his good qualities, and, of course, he had his bad." Havemeyer was proud of saying that he had no friends below Forty-second Street-in other words, in the business district. "I think he took an erroneous idea about business," Arbuckle observed, "that a man in business had to fight everybody, and all that. . . . The fellow that wants to own the world does not always get it."

Although Arbuckle insisted that "there never was any armistice," the great coffee-sugar war really lasted only from 1897 until 1903, when Havemeyer essentially gave up trying to put Arbuckle out of either the coffee or the sugar business. Arbuckle a.s.serted that they never came to a formal agreement, but it is clear from many comments he made that he was extremely careful not to be accused of price fixing. At one point, presumably in 1903, Arbuckle admitted writing a note: "Mr. Havemeyer, you know more about sugar than I do, and I know more about coffee than you do. Of course, we are losing a lot of money"-in other words, let's call off this insanity let's call off this insanity. And with this rather subtle rapprochement the price wars essentially ended. "Kindlier feelings prevailed, and that is what I was working for," Arbuckle recalled. "I knew there could not be any [formal] agreement; but the keynote was always kindlier feelings. 'The world is big enough for us all.'"

By the time Havemeyer gave up trying to drive Arbuckle out of business, he had lost $15 million. Arbuckle Brothers, having lost a mere $1.25 million, clearly came out the winner in the great battle. Havemeyer had been bested. It seemed that for once the less rapacious personality triumphed in the world of coffee, where a man's word was better than a signature. John Arbuckle typified many coffee men of that day: gruff but honest and well-intentioned.

By 1905 Havemeyer sought in vain for a purchaser for the ailing Woolson Spice Company, a thriving business he had virtually destroyed in less than a decade. Two years later H. O. Havemeyer died. In 1909 Hermann Sielcken bought the Woolson Spice Company for its cash value of $869,000-quite a bargain compared to the excess of $2 million that Havemeyer had paid in 1896. Indeed, Sielcken managed to turn the coffee misfortunes of others to his own benefit repeatedly. During this same period, in the early 1900s, he would "save" the Brazilian coffee industry while making himself a millionaire many times over.

5.

Hermann Sielcken and Brazilian Valorization Planters and producers have been lulled into a sense of security in the belief that the present crisis, like the preceding ones, would be dispelled after short duration.

-El Salvador delegate to 1902 coffee conference

If the United States makes a law that the merchant should not speculate, it decrees the merchant to be a shoemaker or a tailor, and shoemakers and tailors are not fit to make the country great.

-Hermann Sielcken

The coffee industry was an enormous, interconnected global economic force by the turn of the twentieth century. Bankers in New York, London, and Hamburg were vitally interested in Brazilian harvest projections, which loomed ever larger, threatening to swamp the world with too much caffeine. Just as it appeared that the tottering financial coffee structure would collapse of its own weight, Hermann Sielcken came to the rescue. In the process, he nearly landed in prison.

For many years preceding the crisis period, coffee spelled prosperity. From 1888 to 1895 coffee consumption, fueled by improved standards of living and coffee-loving immigrants, rose with production. The big trading houses kept on hand buffer stocks of some 2 million to 4 million bags of coffee (132 pounds per bag), insurance against a small crop caused by frost or drought. Known as the visible supply visible supply, these buffer stocks, which kept well for several years, could then be sold during periods of smaller crops when the price edged upward. Until 1895 wholesale prices remained high, fluctuating between 14 cents and 18 cents a pound on the New York market, leading to vastly increased coffee plantings.

Then in 1896 Brazilian planters flooded the world market with too many beans. The average price per pound for green beans fell below 10 cents and stayed there for years, initiating a boom-bust coffee cycle that continues to this day.

The fiscal philosophy followed by Brazil's New Republic government, after the deposition of Pedro II in 1889, called for money-lots of it. The Brazilian government cranked up the printing presses. The short-term result of this inflationary policy was an enormous economic boom during 1890 and 1891.

Though the constantly devalued Brazilian milreis eventually spelled disaster for internal markets, it helped the coffee grower for a few years, since he paid his local expenses in Brazilian currency while receiving his income in the currency of consuming countries. Even if coffee prices fell, fazenda fazenda owners did not suffer as long as the exchange rate also fell. owners did not suffer as long as the exchange rate also fell.

In 1897 world production increased dramatically, to 16 million bags, and prices fell to 8 cents a pound. The world's visible supply jumped to 5.4 million bags, which hung over the market like a price-suppressing sword of Damocles. The following year Joaquim Murtinho, Brazil's new finance minister, reversed the inflationary policies. Murtinho saw that repeated devaluation of the milreis had made it increasingly difficult to service the federal government's debt to foreign creditors. Meanwhile, lower coffee prices also led to an unfavorable balance of trade payments. As the value of the milreis rose, the coffee growers' profits dwindled.

Murtinho believed that in business and coffee only the fit would survive. The free market would produce optimal results, and if that meant a few failed plantations, so be it. That would leave the industry "in the hands of those better organized for the struggle."

In 1901 a b.u.mper crop, the result of plantings five years earlier, shot total world production up to nearly 20 million bags, over half of which flowed through the port of Santos. The world consumed only 15 million bags or so, leaving a surplus of almost 5 million. The visible supply jumped to 11.3 million bags-over two-thirds of the entire world consumption that year! The price of a pound of coffee fell to 6 cents.

The First International Coffee Conference All the Latin American coffee-producing countries finally recognized that the coffee crisis was not going to resolve itself. In October 1902 most Latin American producers sent representatives to the first International Congress for the Study of the Production and Consumption of Coffee, held at the New York Coffee Exchange, to address "the lack of profit and ruinous price paid for the commodity to the producer."

The producing countries of course wanted high prices for their coffee, while the consuming nations hoped to pay as little as possible. In addition, producers bickered with and recriminated one another, each unwilling to sacrifice for the good of the other. Eventually, the delegates concurred on a few innocuous proposals: they suggested banning export of the worst grade of coffee, known as triage triage, along with a reduction of European coffee import taxes (the United States had abolished its coffee tax in 1873).22 They urged "a constant propaganda spoken or written" to increase the use of coffee. Finally, they sought some mechanism to limit coffee exports so that the visible stock remained at a reasonable 3 million bags, and prices would rise-but the conferees could not agree on how to implement such a quota system. They urged "a constant propaganda spoken or written" to increase the use of coffee. Finally, they sought some mechanism to limit coffee exports so that the visible stock remained at a reasonable 3 million bags, and prices would rise-but the conferees could not agree on how to implement such a quota system.

The committee on the cause of the crisis pointed out that during boom years planters spent extravagantly and "made excessive use of their credit, so that when the crisis came about most of them were in debt." Desperate for cash, they rushed their crops to market, thereby increasing the glut and further lowering the price. Furthermore, "coffee lends itself admirably to become the object of syndicates, trusts, speculation of various kinds [and] to the advantages of a few middlemen." Indeed, the giant importexport houses of the consuming countries in Europe and North America simultaneously acted the part of banker (to the farmer), exporter (from the princ.i.p.al s.h.i.+pping ports), carrier, importer, and lastly, distributor. "This is what in plain language is called monopoly."