Warehousing is as American as Apple Pie (and Whiskey)tags: capitalism, Goldman Sachs, warehouses, warehousing, markets, Daniel S. Margolies
Daniel S. Margolies is Professor of History at Virginia Wesleyan College and the author of "Spaces of Law in American Foreign Relations: Extradition and Extraterritoriality in the Borderlands and Beyond, 1877-1898" (University of Georgia Press, 2011).
Whiskey barrels held in a bond warehouse, 1929. Courtesy Library of Congress.
Today we are given new evidence that Goldman Sachs has raised global aluminum prices by slowing down delivery times with slippery, but not illegal, warehousing practices. Strategic warehousing creates supply limits in ever-more concentrated commodity markets. This is a powerful enough factor to raise aluminum prices overall, as well those of everything made from aluminum, from cans to cars. A fascinating New York Times story explains how through the purchase of a company called Metro International Trade Services and the aggressive warehousing of 1.5 million tons of aluminum, or more than a quarter of the global market supply, Goldman has slowed the wait for shipment down enough to produce the doubling of spot market prices in the past three years. Reporter David Kocieniewski writes “the inflated aluminum pricing is just one way that Wall Street is flexing its financial muscle and capitalizing on loosened federal regulations to sway a variety of commodities markets.”
This story, worth reading in full, highlights the remarkable and growing power and reach of speculative financial institutions in commodity markets as well as the inadequacies of global governance systems such as the London Metal Exchange, which oversees warehouse wait times. In what seems like a supremely dubious but unsurprising position, until recently the Exchange was owed by Goldman and other speculators it oversaw. The Exchange continues to earn one percent of warehouse rents paid worldwide.
This story also helps bring attention to seemingly prosaic sites of global commerce such as warehouses. They are far more than mere buildings holding stuff. Historians have begun to explore warehouses as significant factors in foreign trade strategy and in the overall trajectory of modern American capitalism. In the right circumstances, with amenable trade and zonal laws, relaxed state controls, and effective private sector coordination and planning, warehouses can produce the kind of market dominance and savvy market timing that leads to global influence and stunning profit.
What we are witnessing today can be seen as the logical endpoint of a system created by the U.S. to facilitate profit extracted from global trade itself in addition to the value of the goods in global markets. Unsurprisingly, American financial institutions focused on maximzing profit at all costs have vigorously pursued this goal with creativity and success. It brings to mind Matt Taibbi’s caustic and legendary description of Goldman Sachs in Rolling Stone as “a great vampire squid wrapped around the face of humanity relentlessly jamming its blood funnel into anything that smells like money.”
Warehousing strategy became a key focus of U.S. trade policy quite early in the nation’s history, and it has remained a key technology in evolving form ever since. Since the early years of the United States, effective and strategic warehouse policy was understood to be essential for supremacy in global markets. As early as 1827, Secretary of the Treasury Richard Rush argued that “amongst the expedients for augmenting the foreign trade of a country, otherwise than in the exports of its own productions, none are believed to be more important than the warehousing system.” European nations, and especially Great Britain, had created an enviable special warehouse system to great advantage, and if the United States wished to assert dominance in global commerce it needed to do the same. “The situation of the United States…point them out as peculiarly fitted to derive advantage from this system,” Rush wrote. After twenty years of political wrangling, a bonded warehousing system emerged to reap these advantages.
Warehouses can be viewed as strategic structures of global capitalism in which goods are harnessed to a deeper pursuit of controlling space in order to capitalize on time. The control of space in a warehouse allows the owner to time goods entering the market and therefore to generate profit out of the system itself as well as out of the goods. The state has had a principal role in making this happen through promotion of warehousing interests and corresponding legislation, and it has continued to play a role in establishing and regulating warehouses. Or in choosing not to regulate them, depending upon on the era and goods held in the warehouses.
These bonded warehouses, which locally suspended customs enforcement, were not without controversy. Protectionists in the Senate, like Daniel J. Morrell of Pennsylvania, looked at two decades of bonded warehousing in 1868, and saw the product of “scheming and speculative mind[s]” that carved out trade laws as a means both to further free trade and to build “facilities to foreigners to command our markets.” Warehousing opponents were especially alarmed by the ways the buildings afforded control over time in markets: “under the warehousing system a reservoir of goods is accumulated, to be poured upon the market at the first sign of improved prices in our domestic products. They are held by their foreign keepers ‘—like greyhounds in the leash,/Straining upon the start,’ to be let loose upon our home manufacturers, whose fate is to be hunted like hares in their own thickets.”
The intentionality of the bonded warehouses to capitalize on space-time was extended in 1934 with the creation of Foreign Trade Zones, which put whole areas within U.S. ports administratively and legally “outside of the customs territory of the United States” for periods of time. The FTZs have continued to expand since that time and there are currently hundreds of them across the United States, spaces of trade designed to control time protected from full national jurisdiction. But their utility has been slightly diminished with the rapid expansion of free trade agreements around the globe and the capitalist rationalization of global space around market imperatives. In this globalized and interconnected system, any warehouse can provide unprecedented space-time advantages in global markets so long as the scale and commodity control is big enough.
It is interesting that today the emphasis in markets has shifted from timing entry into trade for goods in the interests of manufacturers to limiting supply in an effort to create artificial scarcity and higher prices outside of any productive interest. The shift has been from a nationally shared benefit of warehousing for merchants and manufacturers to a very narrow benefit for the top financial institutions most interested in influencing, if not outright manipulating, global commodity prices. Instead of stimulating a national economy in which the benefits of increased trade trigger continued economic expansion and development, as the longstanding theory of market capitalism promises, new warehousing and commodity strategies are today harnessed by Wall Street in the service of real profits extracted via fake limitations. The increased commodity costs coupled with higher prices for anyone using any products made from these commodities, makes us all those “whose fate is to be hunted like hares in their own thickets,” perhaps.
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