Making the grade: infrastructural semiotics and derivative market outcomes on the Chicago Board of Trade and New Orleans Cotton Exchange, 1856–1909

Abstract

This article contributes to a socio-technical analysis of derivatives by offering an infrastructural explanation of divergent outcomes on two early American futures markets. It takes as the starting point of analysis the classification systems by which these futures markets were constitutively linked to underlying markets in agricultural commodities. Despite the formal similarity of these systems, their contrasting implementation-i.e., how grading was accomplished and integrated into practice-produced classifications with dissimilar semiotic qualities. This semiotic distinction is shown to have promoted divergent economic behaviors and outcomes on the two markets: high-risk speculation and volatility on the Chicago Board of Trade, low-risk hedging and stability on the New Orleans Cotton Exchange. The article thus argues that treating classifications in their semiotic capacity yields an analysis that can connect foundational infrastructures and market-level outcomes in meaningful, non-deterministic ways. Keywords: derivatives; infrastructure; classification; semiotics; social studies of finance; Chicago Board of Trade; New Orleans Cotton Exchange grading process, which took place in an antagonistic negotiation between buyer and seller at the point of exchange, and produced classifications that were only temporary appellations. 2 These differences led classifications on each exchange to differ along two semiotic dimensions: grades on CBOT failed to index the physical qualities of the commodity to the degree of those on NOCE; grades on CBOT established a permanent relation between their indexical and symbolic functions, while on NOCE this relation was continually negotiated. I then draw a theoretical connection between this semiotic divergence and three distinct types of derivative market trades-speculation, hedging, and cornering-arguing that the semiotic qualities of classifications on CBOT promoted high-risk speculation and corners, while those on NOCE fostered low-risk hedging. In sum, I trace a line of influence from the classifying practices at the root of these derivative markets through to the contrasting levels of volatility seen on each. The article thus outlines a general theory of how infrastructure, through its semiotic characteristics, can non-deterministically influence system-level dynamics and outcomes. Classification and communication Thisarticle conceptualizes classification systems as market infrastructures (Pardo-Guerra 2013). Infrastructures are socio-technical devices that support action locally while enabling coordination globally (Bowker 1994; Star & Lampland 2009; Star & Ruhleder 1996). They undergird large-scale technical systems (Hughes 1987) by harmonizing multiple, independent technologies and communities of practice around a single, common standard (Barry 2001; Bijker, Hughes & Pinch 1987; Edwards, Bowker, Jackson & Williams 2009). When infrastructures work as intended they transparently support everyday action, becoming visible 4 and contested only upon breakdown. Shared classificatio...

Infrastructural power: discretion and the dynamics of infrastructure in action

“…While it was unable to fully reverse changes wrought by the growth of railroad transport and loss of river-based commerce (Shannon 1945, Woodman 1963, Rothstein 1966, the Exchange did re-establish New Orleans's position as the country's premier market for spot cotton sales domestically and internationally, as well as introduce a sizeable futures market (Ellis 1973, Bouilly 1975. Both exchanges during this period operated under comparable legal and regulatory systems (Pinzur 2016).…”

“…Infrastructures draw together a wide range of actors, devices, and practices across technical, organizational, and social environments into (more or less cohesively) attuned wholes that transparently underlie higher-order behaviors (Edwards 2003, Bowker 2010. Infrastructures, in addition to providing information, enable market activities such as price setting (Muniesa 2007), delivery (Pinzur 2016), settlement (Jeffs 2008, Krarup 2019, clearing (Millo 2005), order matching (Pardo-Guerra 2015), risk assessment (Poon 2009), and payment processing (Guseva and Rona-Tas 2014). Providing market infrastructures has become an increasingly important component of global exchanges' business practices (Petry 2020).…”

“…Beyond 'sacrifice,' one can easily imagine a technically-focused, path-dependent relationship (Mahoney 2000) where practical elements of one infrastructure demand particular features in other, linked infrastructures (e.g. the relation between commodity grading and contract settlement infrastructures (Pinzur 2016)). Beyond technical connections, one can imagine sets of infrastructures being discursively linked in relation to a particular organizational vision or goal (e.g.…”

“…Conversely, the NOCE provided a vast amount of coordinated statistical information, which was used widely by its members, while statistics on the CBOT remained scattershot and unreliable. This informational divergence contributed to the production of markets and traders with distinct characters and orientations (Pinzur 2016).…”

Why durability matters? Towards a Comparative Economic Sociology of Market Organization

“…For instance, the emergence of grain futures was tightly linked to the invention of the grain elevator as storage, allowing traders to distinguish between different economic sociology of market organization 53 use, available at https://www.cambridge.org/core/terms. https://doi.org/10.1017/S0003975620000028 quality gradings and close deals on the future delivery of crops [Cronon 1991: 120;Pinzur 2016]. Likewise, the emergence of futures markets for dairy products at the Chicago Butter and Egg Board in 1898 began with trading in relatively durable products, including cheese [1929], that could be kept in cold storage, whereas financial products for more volatile products, such as raw milk, are a rather new phenomenon [Peterson 2010].…”