Museum of Trade, Finance, and the Fed
Exhibit 3: More Essentials: Exchanges and Clearinghouses
In January 1871, 18 New Orleans businessmen, including cotton buyers, cotton factors, cotton brokers, and bankers, created the foundation of what would become the New Orleans Cotton Exchange. The founders of the cotton exchange had two simple goals: to collect and disseminate speedy and accurate cotton market information and to develop futures trading in cotton to guard against risks and losses the cotton trade had known in the past.
The exchange did not buy or sell cotton, nor did it set prices. It was simply a meeting facility where buyers and sellers came together. Here, members of the exchange established classification standards and rules and regulations governing transactions related to cotton trade. Prices were agreed on by open bidding, and the exchange recorded and publicized the prices. The main activity in the exchange involved the trading of cotton futures, which were contract amounts agreed on in advance for cotton that would be delivered in the future. The exchange provided a year-round market for a normally seasonal crop.
The sugar exchange
By the middle of the 19th century, the Louisiana sugar industry had become one of the major economic forces in the state. It therefore became necessary to create a separate exchange for the handling of sugar transactions. Founded by prominent sugar planters and businessmen on March 6, 1883, the Louisiana Sugar Exchange was one of only two exclusive sugar exchanges in the world at the time (the other was in Greenock, Scotland). In 1889, the sugar exchange became the Louisiana Sugar and Rice Exchange.
The slave exchange
The city of New Orleans was central to the U.S. slave trade. Being a port city, slaves were brought there from Africa and the Caribbean and then sold as laborers to meet the growing demands of the sugar, cotton, and tobacco industries. While other key port cities—such as Charleston, South Carolina—catered to the eastern plantations, New Orleans was the ideal location to provide slaves for the Mississippi Delta region.
In addition to being closely linked with commerce on the Mississippi River, New Orleans was a prime nexus of commodities trading, including cotton, and thus well-positioned as a clearinghouse for slave owners in the Deep South. As this trade grew in the first half of the 19th century, New Orleans became the largest slaveholding city in the country. By one estimate, more than 23,000 slaves were residing there in 1840.
Clearinghouses
A clearinghouse is a voluntary association that facilitates the clearing and settling of accounts between institutions. The modern clearing system originated in London in 1773. Back then, the growth of commercial transactions made the transfer of precious metals from one individual to another for payment increasingly difficult. Written promises to pay on demand became accepted for specified quantities of gold. These promises, called banknotes, often circulated for long periods of time before the person in possession of the note decided to claim the gold. Banks were established, and written orders—checks—became accepted methods of payment. Clearinghouses then arose so that clerks from each bank would not have to go to all the other banks to receive the amount due in banknotes.
Isaac N. Maynard founded the Clearing House of New Orleans in 1872. Maynard initially met with resistance by local bankers, but by the mid-1880s, all the banks in New Orleans except one were members of the association.
For more information on the early central banks and the New Orleans Mint:
The Philadelphia Fed website has more information about the first and second Banks of the United States.
The website of the Louisiana State Museum has more information about the New Orleans Mint.