The First Year
Unsold cloth had been building up in the warehouses in Bombay (Mumbai). Production had exceeded demand and short time working was inevitable. As indications came that trouble was possible, the American growers hurried to export their crop earlier than usual. Almost enough of the 1861 crop reached Liverpool to supply the mills. Middling Orleans, the type of cotton that was used to gauge the prices, was selling for 7 3⁄4d a pound in June 1861.
It was initially believed that British warehoused stocks of cotton would be adequate to see out the anticipated brief conflict. As all the early Union advances on were driven back it became clear to European observers that the war would not be over quickly. By December, Middling Orleans was selling at 11¾d/lb. The merchants were holding onto their cotton, speculating on a price rise. By the beginning of 1862, mills were being closed and workers were being laid off; one-third of the families in one Lancashire cotton town were in receipt of relief.
The price of Middling Orleans, which had been produced at a cost of 3 3⁄4d and bought by the merchants for 8d in 1861, rose to 2s. 3d. by October 1862, and to 2s. 5d. the following year. It is calculated that the merchants had a windfall of £35 million.
Read more about this topic: Lancashire Cotton Famine
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