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market. Under normal conditions, the wider market determines the price. After world markets had arisen, the local market became an insignificant factor in determining prices, even within its own circle of distribution. This change took place in the United States about the middle of the nineteenth century. Before this date prices of grain were determined chiefly by local conditions.

Concentration of Price-Determining Influences now occurs in the world market. Modern transportation, which enables the California wheat grower to send his product to the Liverpool market, and modern communication, which has practically eliminated the time element in sending news, are the factors which have made the whole world tributary to the great central markets, where the changes that affect supply and demand are continually recorded, and given their due weight by the keenest of experts in the modification of prices. These changes vary greatly in character, and they are reported from every wheat raising quarter of the globe. If a telegram is received saying that the monsoon in India is overdue; that the drought in Kansas has been broken; that a swarm of grasshoppers has been seen in Manitoba; that a hot wind is blowing in Argentina; that navigation on the Danube is unusually early; that bad roads in the Red river valley are preventing delivery; that ocean freights to China have risen; or that Australian grain "to arrive" is freely offered in London, prices rise or fall to a degree that corresponds to the importance attached to the news. New inventions and discoveries, legislative enactments and international agreements, political, commercial and industrial complications—all have their effect upon prices. The Rise of the Speculative Market.—When the local market was the center of all distribution, the producer, having under his own observation all of the factors which determined price, endeavored to hold his products for sale until such a time as when he would receive the highest price. This was the first form of speculation, and it must have arisen very early in civilization. It has had a continuous existence until the present day. Practically every wheat grower who holds his crop for a rise in price, instead of selling it as soon as it is threshed, is a speculator of this class.

Dealers in Grain as a class became differentiated from the producers at an early date. They frequently bought and sold wheat, not merely for trade profits, but to make an additional profit by taking advantage of the fluctuations of price resulting from variations in supply and demand. They bought wheat outright, and held it for a higher price, and thus they belonged to the same class of speculators as did the producers who held wheat. With the great development of the arts of transportation and communication during the middle of the nineteenth century, there arose the market which covered the entire civilized world. In this world market, great, sudden and unforeseen changes in the conditions of supply and demand occurred, and the uncertainties of trade became so great that the possibility of a total loss of the capital of the dealer grew very burdensome. Before the great and varied mass of phenomena which affect the price of wheat, the producers and ordinary dealers stood quite helpless, as far as forming an adequate judgment of effect on prices was concerned, even if they could secure timely reports of changed conditions. As a result, dealers became differentiated into two classes. One of these classes, the wheat dealer proper, is in the market simply to secure those trade profits which always exist independently of speculative profits. The other class is that of professional speculators. This special class formed organizations in the large exchanges, all of which existed as commercial institutions in pre-speculative times. The organized speculative market arose in direct response to conditions which brought risks that were intolerable to the ordinary dealer and its development was hastened because it took place at a time when the risks usually incident to the wheat trade were greatly augmented by those resulting from the Civil War. While two typical classes of persons, dealers and speculators, are engaged in the grain trade, it must not be understood that these classes are mutually exclusive. There are large millers and producers, for example, who keep well enough informed on the market to engage properly and profitably in speculative dealings.

The Machinery of Speculation.—The early speculator stood ready to purchase wheat at the current price, and he assumed the risk of a fall in price in the hope that he might gain from a rise in price. "Bull" speculation, which consists of first buying, and then selling at a later date, is the term by which the operations of this speculator are designated. He always desires a rise in price, and endeavors to bull the market by buying. He operates on the "long" side of the market. This speculator also contracts in the present to purchase wheat at some future date at a price which he now fixes. Here also he assumes the risk of a fall in price in the hope that he may gain from a rise, for if the price rises above what he has agreed to pay at the fixed future date, known as the date of delivery, then he is able to sell his wheat on or before this date at a higher price than he paid. In the present contract for future purchase is involved one form of the transaction technically called the "future." This term is defined by Emery as a "contract for the future delivery of some commodity, without reference to specific lots, made under the rules of some commercial body in a set form, by which the conditions as to the unit of amount, the quality, and the time of delivery are stereotyped, and only the determination of the total amount and the price is left open to the contracting parties."1

The other type of speculation is "bear" speculation, which consists of first selling, and then buying at a later date. In such speculation, the operator stands ready to sell wheat at the current price for present delivery, or at a fixed price for delivery at a given future date. This speculator assumes the risk of a rise in price in the hope that he may gain from a fall in price. His operations generally consist of selling in the present for future delivery. Most frequently he owns no wheat at the date of sale, but hopes to secure the contracted grain before the date of delivery (which is called covering the sale), and at a price below that at which he sold. He always desires a fall in price, and endeavors to bear the market by selling. He operates on the "short" side of the market, and his "short-sales" are always "futures.''

Grain Privileges, or "Puts and Calls."—Insurance against loss in wheat transactions may be secured by buying a "put" or a "call" from a maker of privileges. For example, if a dealer is holding wheat that is worth 80 cents per bushel, for a certain price he can buy the privilege of selling the wheat to a speculator at 79V2 cents per bushel during any period of 1 Speculation, p. 46.

time that may be agreed upon. Having done so, he cannot lose more than one-half cent per bushel, plus what he paid for the "put." If the price advances, he sells at a profit, but if it falls, he delivers or "puts" the wheat to the speculator. Similarly, a "call" is the privilege of buying wheat at a certain price within a given time, and it is most frequently used in protecting short sales. Grain exporters sometimes protect their contracts with privileges. Dealings in privileges, however, have not always been held in the highest repute, and they have even been prohibited by the rules of some commercial exchanges. A privilege has no value unless its maker can meet his engagements.

Deposits Securing Contracts for future delivery may be demanded. In this case, each party makes a money deposit large enough to secure the other from loss in case of failure to fulfill the contract. If one party thus "calls an original margin," he himself must perforce deposit an amount equal to that for which he calls. In New York, the maximum deposit that can be called for wheat is 10 cents per bushel. Additional margins, equal to the fluctuations in price, may be called for, and usually are, even if there was no original margin.

Delivery.—The rules of grain trading on the various speculative exchanges contemplate the actual delivery on maturity of contracts of all wheat sold. Each contract mentions the time for which it is to run, and its maturity is on the last day of this term, which is usually the current month. In the exporting and forwarding of wheat, the time is generally determined by special contract, but in the general speculative markets the current trading is in the deliveries for July, September, December and May. The price for immediate delivery is that current for the next succeeding delivery, less the carrying charge to the beginning of the period of the next delivery.

The operator who sells 100.000 bushels of wheat in a speculative deal has three ways in which he can settle the contract on or before the date of maturity: He must either deliver the actual wheat; buy the same quantity of wheat on the same exchange; or lay himself liable to a damage suit for non-delivery. In comparatively few instances does he deliver the actual wheat, which he might possess, or which he might purchase in another market. If he buys wheat on the same exchange, his operations are settled through the clearing house, which is the same in principle as that of a bank or stock exchange. If A buys wheat from B and sells the same quantity to C, the clearing house settles both contracts for him by having B deliver to C. The great bulk of transactions are settled in this manner, which involves only the payment of differences. The latter may arise from differences in amount or grade of wheat bought and sold, or from differences in price. Thus, if a speculator buys May wheat in April, he can avoid having the actual grain delivered to himself by selling the same quantity of wheat before the date of maturity of the contract. The man who buys wheat for May may do so in two different ways: he may buy actual wheat and store it until May, or he may buy a future. In the same way, the seller for future delivery may sell actual wheat, or he may sell short and cover the sale before the date of maturity. If the speculator has bought May wheat, and wishes to hold the grain longer than until that date, he can do so by selling his May wheat at the date of maturity, and at the same time buying July wheat. He will pay the cost of storage, and he will pay or receive the difference in price, according as July wheat is higher or lower than May wheat. Speculators as well as dealers sometimes buy actual wheat and store it in anticipation of a rise in price. Contracts calling for immediate delivery are called "cash" or "spot" sales.

General Warehouse Receipts.—It is obvious that a commodity can be the subject of extensive "future" dealings only on condition that it has the representative quality. Early lake and canal shipments of wheat were sold ahead by sample "to arrive" and "for shipment" as an insurance against fluctuating prices, but the system of grading and general receipts alone made possible the real future, which is the great modern contribution to the machinery of speculation. These general receipts are usually reliable, although at least one gigantic swindle has been perpetrated by means of fraudulent warehouse receipts. From the beginning, however, the receipts have been considered as good as the wheat which they represented. In other words, wheat had become a perfect representative commodity. Being a staple article when classified, receipts issued against graded wheat are as current and negotiable as a bank check. They have the same meaning in Liverpool or Antwerp

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