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as in Chicago or New York. This greatly facilitates dealing in wheat, for a contract can be fulfilled by delivering a receipt. Under ordinary conditions such receipts can be purchased in the open market at any time, and consequently it is possible to make a contract to deliver in the future receipts not yet owned. Short sales of receipts complete the speculative machinery. "Hedging Sales."—Two lines of compensating contracts are frequently carried by dealers and manufacturers, one in their business and one in the speculative market. For example, if a merchant buys 10,000 bushels of wheat for export, he sells the same quantity of wheat in the speculative market. Later, when he sells his wheat, he buys in the market. Hedging in this manner is widely practiced by persons who deal in wheat for trade profits only, for it eliminates all risks due to fluctuating prices.

Arbitrage Transactions consist in buying in one market and selling in another when there is difference enough between the prices of the two markets to make such operations profitable. Arbitrage continues until the relative supply and demand of the two markets is so changed that prices in both markets are practically the same. This does not mean, however, that speculators change prices at will by manipulating supply and demand in the various markets, for the speculative supply and demand in the market are, under normal conditions, entirely dependent upon the actual supply and demand existing outside of the market.

The Functions of Speculation.—Speculation is the flywheel which imparts to the modern commercial machine a motion so uniform that all of its parts operate continuously and simultaneously. As men produce and consume, as well as exchange, according to comparative prices, it also directs the production and consumption of commodities into the most advantageous channels. Professional speculators are the men best equipped for securing and interpreting news of variations in supply and demand, and they determine a price that, with slight local variations, prevails throughout the wheat industry of the entire world. Price, in turn, is a sensitive barometer which records the influence of every event which immediately or mediately affects supply or demand. Speculation anticipates price-determining events to such an extent that it relieves the producer from the risk of growing wheat that he may be obliged to sell below the cost of production on account of an unforeseen change in the market. The directive control exerted through prices "is its service to society in general." The "risk-bearing function is its service to trade as such." That the need of speculation is proportionate to the magnitude of the risk element is axiomatic. Through the speculative market flows a continuously moving stream of business which will carry the risks of merchant, producer, manufacturer and consumer alike, and at any time or place. Speculation alone makes hedging transactions possible. By its anticipations, it lessens price fluctuations. The short seller is the most potent influence in preventing wide fluctuations in price, for he "keeps prices down by short sales and then keeps them strong by his covering purchases."1 The producer always finds a ready market, and large stocks of wheat can be carried over from a season of abundance to one of scarcity without great risk of loss.

The Speculator.—The American is unquestionably the greatest and most typical of all wheat speculators. The stupendous undertakings which he sometimes assumes are characterized with an importance, as well as with a boldness and a brilliancy, that excites world-wide interest. He is practically the manager and director of the world's wheat movement. If objection is made to the great scope of his influence, it must be remembered that experience has already taught him that he cannot continue long in his position of importance unless he solves the mighty world problem that is ever presenting itself, the problem of providing bread for the non-producers of wheat. Eminently practical and clearheaded, his future vision is as keen and penetrating as was that of the prophets of old. He is necessarily a cosmopolite, and he knows the traits and needs of many races. His facilities for acquiring information are unsurpassed. The governmental weather map shows him the rising storm which threatens Kansas wheat. The experiment station bulletin informs him that the next year's crop will be damaged 20 per cent by the Hessian fly. The state government weighs and grades his wheat. He knows the progress of harvesting in Australia and Argentina. The transportation companies give him regular quotations of freight rates to all parts of the world. Telegrams and cablegrams give him immediately the changes of 1 Emery, Speculation, p. 121.

price in the principal markets. He has an intimate knowledge of the visible supply of wheat that is stored in the world's great terminal elevators, and of the wheat that is being transported in car and vessel. His eye is always on the fine wavering ratio line between supply and demand, and from its movements he determines the form of his price line. The markets make wheat so liquid for him that the banks will advance him money at the lowest rates on elevator certificates in larger proportion to their value than they will on the safest real estate.

The Pit—The Chicago Board of Trade is perhaps the most powerful and famous institution which furnishes an organization for dealing in wheat. When the speculators assemble in the pit, the board become a clearing house of opinion that forms a very picturesque and dramatic institution. Their methods of business are an excellent illustration of development brought about simply by utility. The very life of the institution depends upon the scrupulous honesty of all its members. It is more profitable for the operators to make certain honest gains than to destroy the institution by endeavoring to make dishonest ones, and the degree of integrity that can be attained under these circumstances is truly remarkable. Not that brokers and speculators are an unusually upright class of men, as judged by their actions when not operating on the exchange, but that it simply pays to be honest. Any quantity of wheat can be bought on the floor of the exchange by a sign, a nod or a shout, or by a scrawl on a trading card. Either party to the deal could easily claim that the sign had not been noticed or understood, and the contention could not be disproven, nor could the contract be enforced before any court in the land. Considering the great confusion and excitement of the pit, the ease and rapidity with which fortunes are often made and lost, and the many opportunities and temptations for dishonest dealings, it is certainly an exceptional record that the Chicago Board of Trade finds it necessary to expel on an average only five members a year.

The Volume of Transactions.—Perhaps 90 per cent of all transactions on the Chicago board are pure speculation, neither side expecting to receive or deliver a bushel of grain. The "spot" sales on the New York produce exchange in 1895 amounted to 43,405,076 bushels, while the "futures" amounted to 1,443,875,000 bushels. The New York market for wheat is small compared to that of Chicago. Record of the amount of trading in options is no longer kept, but in a lively market it runs into millions of bushels daily. Under very exceptional circumstances it is said that ten million bushels of wheat have been sold in the Chicago pit in less than ten minutes.

The unit on the Chicago and New York exchanges is 5,000 bushels of wheat. In Chicago 1 per cent variation is allowed on the contract, and in New York 5 per cent. When wheat is sold in "boat-load lots to arrive" 8,000 bushels is understood as the unit, and 10 per cent deficit or excess does not vitiate the delivery.

The Evils of Speculation.—The modern speculative system is of such recent origin, and its operations seem so complex to the ordinary layman who is unacquainted with produce exchanges, that it was and is little understood. Its evils were more easily recognized than its benefits. Without an understanding of speculation, it was easy to ascribe many evils to it with which it had no connection. "The modern system of 'futures' has proved itself a convenient scapegoat for all the evils of the grain trade. It is charged with being the cause of low prices and of high prices, with increasing trade risks, and with diminishing them till there is no chance for profit. A few years ago the farming class clamored for the suppression of the speculative market, while recently the Kansas farmers started a movement to contribute a cent a bushel on all their wheat to a fund for the benefit of the most daring speculator of the Chicago market."1 As the functions of modern speculation were better understood, its advantage became more apparent, and the speculator was looked upon as something more than a mere gambler. Opposition became more rational and less intense. The evils of speculation may be divided into three general classes: (1) Corners; (2) public gambling and "bucket shops;" and (3) manipulations in general.

Corners.—To "corner" wheat is to secure such a control over the existing supply as to be able to dictate its price. Success in this is so difficult that it is very rare. Corners and the opposition to them are not of modern origin, for even in antiquity there were prohibitions to cornering grain.2 Perhaps the first 1 Emery, Econ. Jour. (1899) 9:45. 2 Lexis, Handworterbuch tl. Staatswlssenscliaften, 3:861.

great corner was that of Joseph in Egypt. He bought grain outright. This was the only type of corner that could be effected before the advent of the modern speculative market. The appearance of the world market has made impossible the perfect control of the whole supply of actual wheat. Even partial control is possible only under very unusual and favorable conditions. Neither can any great or extended control over local supply be maintained, on account of the ease and rapidity with which wheat can be transported to any market.

The speculative corner arose with the practice of selling short. This is not a corner of the world supply of wheat, but only of wheat for delivery at a particular time and place. Such a corner is always run by the bulls, who effect the overselling of the market by securing control of local supplies and by inducing short-selling. The result is that there is no wheat with which to cover short-sales. Such a corner is absolutely effective, for the short sellers must cover their contracts before the end of the month, or default. It is not without its difficulties, however. In order that the shorts can move no wheat for delivery except on the terms of the cornerer, he must buy at rising prices all that is offered. Almost invariably the amount that can be offered at the increased prices is more than was calculated. Corners in Chicago have been broken by the big Minnesota millers who, at the last moment, have found it profitable to sell their large stores by telegraph. After the corners were broken, they could buy back most of this wheat before it had left their elevators.

After the supply has been successfully cornered the hardest part of the game is still to be played. The grain accumulated in cornering the supply must be disposed of. This is what Hutchinson, the first great cornerer, called "getting rid of the corpse." High prices were paid for enormous quantities of wheat that must be sold on a continually falling market, for after the cornerer settles with the shorts the price falls at once. He must squeeze enough out of the shorts to make himself whole in selling his own accumulation at the lower price. In such a corner wheat in general does not rise in price, but only wheat for delivery at a particular time in that market where the corner was run.

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