Market Manipulation: WHEN THE 1856 BUTTER MARKET IN ST. ALBANS WAS CORNERED FOR FINANCIAL GAIN AND THE SILVER MARKET OF THE 1970’s

A HISTORICAL PERSPECTIVE

The term “cornering the market” means obtaining sufficient control of a particular stock, commodity, or other asset in an attempt to manipulate the market price.  This has been tried a few times over the years. It happened just over one hundred and fifty years ago, in 1856 when St. Albans, Vermont was considered to be the butter capital of the world. In my generation, many of you may be familiar with the Hunt Brothers from Texas in the 1970’s attempting to control the price of silver.

According to records, the greatest growth in Vermont agriculture took place from 1850-1880, with 35,000 farms at the end of that period.  Butter making was the primary commercial agricultural product that dominated the State into the early 20^th Century.  With the advent of railcars with ice, St. Albans become one of the leading providers of butter to Boston, with trains leaving once every Tuesday of the week.  Butter was considered to be Vermont’s signature product of the 19^th Century.  St. Albans was a very active town on these days. “On Tuesday during the spring, summer, and fall, teams of horses with wagons full of butter and cheese would be hitched to every post on Main Street, and hotels and barns would be full.  Butter was King.”  Tuesday was considered to be market day, with up to 300 teams of horses with wagons coming from every direction.  Buyers of what was considered to be some of the best butter would also descend on the town on that day.

By the 1890s the Franklin County Creamery Association had the World’s largest butter factory, turning out 25,000 pounds of butter each day, and some 35 million pounds were being produced in the state each year.   During this period, Vermont butter won two international awards for its quality, one for 1^stplace at the Paris Exposition in 1890, and another at the Columbian Exposition in 1893.  By 1915, there were nearly 300 butter factories in the state. 

St. Albans continued to be the prominent butter production area in the world until the early 1900’s when the demand for fluid milk in the cities increased and Vermont lost its competitive price in the butter market.  

Having what was considered some of the best butter, and a demand for that butter in the Boson Market, set up the conditions at that time for attempts to control the market and thus increase the price to sellers.  One successful attempt by B. F. Rugg to do so took place in 1856. 

Rugg was the prominent dealer in butter in the County and in the State.  He developed a plan to control the supply of butter to the Boston Market.  It is said that he had the brains, energy, confidence, and contacts and financial resources to do so.  His scheme was to buy butter in the spring when prices were low and quietly store it in cellars.  He continued this practice in July and August sending only small supplies to the market each week to avoid detection.  He continued to buy and buy and hold product until the price was at a level where he could make a substantial profit. The demand in the Boston Market was so great that eventually they had to agree to his price.  The profit of Rugg’s adventure in controlling the supply that year amounted to a sum of $18,000, or about $531,670 in today’s dollar value.  It is said that he tried to repeat his scheme again the next year but for many reasons was not successful.

Manipulating the silver market in the 1970’s was much more complicated than cornering the butter market in St. Albans in 1856. According to the history of the time, the Hunt Brothers did not trust the U.S. Government or the reliance on the value of the US dollar. Like their Dad before them, the Texas brothers made their tremendous fortune in oil and were considered among the richest people in the world in the 1970’s. They believed that inflation would eat away at their tremendous wealth and the collapse of the dollar was inevitable.  The only alternative in their minds was to turn to tangible assets like gold and silver…they chose silver.  Determined to protect their wealth, it is said that they “erected one of the greatest bubbles in the history of financial markets”, pushing silver prices from six dollars an ounce in 1979 to just around fifty dollars an ounce in early January 1980, an increase of 713%. They owned $6.6 billion of silver at the top of the market. They saw silver as a safe haven for their tremendous oil fortune and invested very heavily into silver bars and silver future contracts, borrowing to do so, not depending on their cash or financial resources.   At the height of their leveraged investment, they controlled 69% of all silver futures traded on the Commodity Mercantile Exchange in New York, and 1/3 of all silver not held by the federal government.  It is said that they even chartered jets to fly their silver, under armed guard in the middle of the night, to Switzerland for safekeeping.  This financial position they had could not be held when the new Chairman of the Federal Reserve, Paul Volker, took actions to keep inflation under control by limiting speculative lending by banks.  In addition, the Commodity Exchanges took action to limit the investment in silver futures and also restricted the holding of silver.   On March 27^th, 1980, called “Silver Thursday”, the Hunt’s attempt to control the silver market came to an end with prices falling by one-half.  The Hunt Brothers could not make the $135 million margin call on the future contracts they had purchased at a higher price.  As a result of this failed attempt, the Hunt Brothers spent decades settling lawsuits, and in 1988 they filed the biggest personal bankruptcy in Texas history with Nelson Hunt agreeing to give up his prized collection of 500 horses.  It has been written “that this is a nice look at how a couple of extremely wealthy men got their asses handed to them by trying to manipulate the market.”

Summary:  While the actions to control the butter market for that one year in 1856 succeeded, the attempt by the Hunt Brothers to control the silver market in the 1970’s did not.  Of course, financial and commodity trading regulations over the period of time from 1856 to the 1970’s,  even to today, have dramatically changed.  Due to concerns and the possible impact of market manipulation activities, Congress has provided a number of federal agencies with enforcement powers to prevent manipulation of prices in the market.  These include the Securities and Exchange Commission (SEC), the Commodities Futures Trading Commission (CFTC), The Federal Energy Regulatory Commission (FERC), and the Federal Trade Commission (FTC).  The U.S. Department of Justice and the FTC have anti-trust authority.

Blogger Comments: While I was not schooled on the issues at the time, I had just been hired in 1979 by then Congressman Jim Jeffords of Vermont as his professional staff member on the US House Committee on Agriculture.  The House Committee on Agriculture has jurisdictional authority over the Federal Commodity Futures Trading Commission (CFTC) and due to this the Hunt Brother’s were asked to testify before the Committee.  I remember sitting as a staff member in the packed committee room listening as the two brothers tried to defend their silver scheme, the greatest attempt at the time to control a price of a commodity.  Unlike Mr. Rugg in St. Albans in 1856, they did not succeed.

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References for this blog:

·      “Butter is King”, by R.R. Sherman, Origin of St. Albans Butter Market in 1872, in Vermont Historical Society, Freedom and Unity, Industrialized Vermont, Cheese, Butter then Milk.

·      Life in 1864: Industry and Retail, September 3, 2014 in the St. Albans Raid, by Michelle Monroe, St. Albans Messenger Staff Writer

·      Heller: The Best Butter in the World, by Paul Heller, for the Weekend Magazine, The Rutland Herald, September 14, 2019

·      The Origin of the St. Albans Butter Market, A Paper read before the Vermont Board of Agriculture at its meeting at St. Albans, March 6 & 7, 1872, by Dr. R.R. Sherman of St. Albans

·      Origins and Progress of the St. Albans Butter Market, St. Albans Weekly Messenger, March 22, 1872

·      When Vermont was the butter and cheese capital, by Roger Allbee, in Vtdigger Commentary, August 26, 2018

·      Silver and Thursday: How Two Wealthy Traders Cornered the Market, in www.investopedia.com

·      Bunker Hunt: Attraction to Silver: A History of Cornering the Silver Market, in Silver Monthly, Tuesday Feb. 11, 2020

·      A Silver Tale or How the Hunt Brothers Lost It All, in Daily KOS, Tuesday Oct. 30, 2018

·      Hunt Brothers trying to corner silver market, in www.businessinsider.com, May 17, 2016

·      The Intersection of Market Manipulation Law and Monopolization Under the Sherman Act: Does It Make Economic Sense, by Ledgerwood, Keyte, Verlinda, & Ben-Ishai in Energy Bar Association, 4/23/19