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of any speculative transaction which may be proposed. It deals on margins only, and as a rule its transactions are never executed either in a market or on a board of trade. It acts as a clearing house for the deals of its patrons by matching contracts, that is, purchases and sales. Those contracts that are matched cancel each other, at least as far as the bucket shop is concerned. Being simply booked, they never come into the market, and can have no effect on prices. It is only when the bucket shop has a large balance of contracts on one side of the market that it sometimes fears a loss and seeks insurance by itself making the counterbalancing transactions in the speculative market. It is only this small fraction of the bucket shop's transactions that really comes into the market and affects prices through the medium of the speculative supply and demand.

According to the law of chances, the bucket shop has an entirely safe and sound basis from its own point of view. By matching contracts it makes its patrons carry the greatest part of its insurance. The remainder of the insurance is carried by the bucket shop itself. Its advantages over its patrons are in three ways. It carries the risks of only a small fraction of the contracts involved. As a result of this, on a relatively smaller amount of capital, its chances of permanency are greatly increased. By being in continuous existence it secures the effects of advantageous changes in price as well as the disadvantageous ones. These will, at least in a measure, offset each other. It charges the same commissions as the exchanges and thus has a substantial income. The speculator, however, not only must carry all of his risks himself, but usually his capital is also very limited and he has no regular income from transactions. When his capital has been engulfed by a disadvantageous change in price, his operations must cease, and he secures no benefits from subsequent advantageous changes. The great revenue of the bucket shop consists chiefly of its commissions, but it is also continually acquiring the capital which is sunk by its patrons. How certain a process this is, is shown by the fact that the list of names of those dealing with the bucket shop usually changes completely within a few years. If the game were a profitable one to the speculator, it is quite safe to assume that his name would remain permanently on the list.

Not only is it true that "the local bucket shop is as efficacious" as the board of trade in enabling the "novice prophets" to exploit their theories and lose their money, but it is proving itself to be more so. Varying estimates assume that there are from 10,000 to 25,000 bucket shops scattered throughout the whole country. This is ample evidence of the profits of the business. Competent observers have estimated that these establishments have deflected from the regular speculative exchanges from 50 to 75 per cent of the business that would otherwise go to them. The New York stock exchange requires the speculator to deposit a 10 per cent margin on his transactions, and the smallest unit traded is 100 shares. The consolidated exchange in Chicago requires a 5 per cent margin, with 10 shares as a minimum unit traded. These minima are large enough to keep out a large class of persons with small capital whose operations are pure gambling. The bucket shop, however, usually requires a margin of only 1 per cent, and the minimum unit traded varies from ten to two shares. The bucket shop is prepared to do business with a half point margin on two shares. What is true of stock is also true of wheat as to the relative size of margins required and units traded on regular exchanges and on bucket shops. Consequently the bucket shop affords greater opportunity than the exchange to "play the market" and it is more frequently sought by those who have little capital and less knowledge on which to "speculate."

The professional speculator has a true economic function in our system of distribution, but gambling by outsiders is pernicious, and should be done away with as soon as this is practicable. Such gambling, however, is not more pernicious when done on the floor of a bucket shop than when done on the floor of tlic Chicago Board of Trade, a fact recognizedaJMt the United States Circuit Court of Appeals in more than ojHHstance. In view of the business which the bucket simp is Svertinsr from the regular exchanges, it is but natural that ifae latter should oppose the bucket shop with all their powers. Greatly as the boards of trade pride themselves over the high and lofty plane of honor upon which they transact business, they do not hesitate to designate1 uncompromisingly as "pernicious gambling" 1 Hill, N. Y. Commercial, Sept., 1903. Indus. Com.. Vol. 6.

the operations of bucket shops—the very operations, in a large measure, that were formerly carried on upon the boards of trade. This opposition is merely an effort to regain that part of their business which has attached to it the bulk of the evils of all their business. Brokers "bucket" orders on their own account, a practice which the exchanges endeavor to stop.

Manipulations in General.—Speculation depends upon price fluctuations, but price fluctuations are decreasing. There is then the tendency to resort to all possible "manipulations" in order to cause abnormal fluctuations in price. Fraudulent and immoral means are often utilized in such efforts. In the produce market price can be influenced by the operator in only two ways. "He must either buy or sell the commodity himself, or he must persuade others to buy or sell." By such operations, however, a speculator with sufficient capital may bring about a rise or fall in price, but it seems to require unexpected crop conditions favorable to the manipulation in order to bring success.

Legal Restraints.—The feeling against speculation in the United States has been strongest when prices were depressed. In the early nineties it resulted in the introduction of several "anti-option" bills in congress. None of them became a law, but two of them passed one branch of congress, and there was much public sympathy in support of the measures. Much earlier some of the state legislatures made an effort to stop trading in futures. Some very stringent laws were passed by various states during the eighties. They generally considered short selling and trading on margins as gambling. The tendency to legislate in this direction seems to have lessened, and some of the statutes which were passed were soon repealed.

Speculation in Foreign Countries.—Sales of grain before it was threshed were forbidden in England in 1357, and in the Hanse cities in 1417. Time dealings in grain were forbidden in Antwerp in 1698. During the first half of the eighteenth century, practices similar to those of the modern speculative market were common in the European grain trade. The system did not become widely developed, however, until the nineteenth century. In 1883 the Liverpool clearing house was established in connection with the maize and wheat trade. It began after the American fashion, but was not extensively used before the close of the decade. The London produce clearing house began business in 1888, and wheat was one of the products dealt in. Business in futures, however, seems to have appeared in London as early as 1887. This first effort was a failure on account of the prejudice against speculation, and because several standards of wheat were dealt in. The London clearing house made another effort in 1897. Only Northern Spring No. 1 wheat was dealt in, and to make certain of the grade, a Duluth elevator certificate was always demanded. The grade in futures grew slowly at first, but seems to have become permanently established now.

In Germany, a drastic law forbidding grain futures was passed in 1896. On the whole its effect does not seem to have been advantageous. As a result, Berlin, formerly one of the most influential grain markets of Europe, has fallen to the rank of a provincial market. Berlin merchants transferred some of their speculations to Liverpool, New York and Chicago. Commission merchants have disappeared, price fluctuations have been greater, and the small dealer has been at a special disadvantage.1

Legislation against speculation seems to have been very general by the time of the last decade of the nineteenth century. One exception seems to have been France, where options and futures were practically sanctioned by law. In Hungary, Sweden and Norway there was no legislation on futures. The courts of Belguim treated futures under the general betting law. In Switzerland the law prohibited dealings in which there was .no intention to deliver the goods. The deal was not legal in Austria unless the amount concerned had actually been paid or deposited. In Greece dealing by payment of differences was held to be null and void under the old Roman law, which was still in force. Sales entailing payment of differences only were illegal in Argentina.

General Results of Speculation.—The speculative grower who held his wheat until it seemed an opportune time to sell was the far-sighted, conservative man of the first part of the nineteenth century. Conditions have so changed that, unless there is lack of transportation facilities, or lack of competition among buyers, he is the greatest and most reckless of all speculators, if the 1 U. S. Consular Reports, 64:438-444.

degree of ignorance under which he is operating is the test of recklessness. Even many of the large milling and elevator companies insure themselves regularly by hedging.

Statistics show that since the advent of speculation, fluctuations in the price of grain have been of smaller extent, comparing year by year. Such fluctuations as do remain are changes of a more gradual nature, and the gradations are much finer. For example, wheat was formerly quoted in fourths of a cent a bushel, while now it is quoted in sixteenth* of a cent a bushel. A half century ago, traders required a margin of 10 cents a bushel for carrying wheat. Now the margin is 2 cents. With the minimizing of risks, profits for carrying them fell. In part, these changes are doubtless the result of other concomitant developments, but there is no question of their being chiefly due to the development of speculation.1 As to the agreement of present prices of futures with future cash prices, little, if any, increased accuracy of prediction is shown. While there have been improvements in the methods of speculation, there has also been an increase in the size and complexity of the world wheat market, a factor which would tend to decrease the accuracy of prediction.

The increasing uniformity of price tends to decrease the amount of business done upon the exchanges, for this business is dependent upon price variations. This tendency of prices to remain more steady will be increased with the further concentration of commercial wheat interests. A similar development has taken place in the case of other commodities, such as oil and pork. In these commodities prices are practically fixed by a small group of men who know, and, in a measure, control supply and demand, and there are few price fluctuations left to serve as a basis for speculative dealings. Consequently operations no longer have their former magnitude. Local consumption of wheat will increase with the growth of population, and less actual wheat will be bought and sold at the terminal and export markets. The force of these influences is certain to be reflected on the speculative exchanges. The opportunity for men to indulge their gambling proclivities by means of the bucket shop; the growing prosperity of the country; the increasing steadiness of the price of wheat on account of the

1 Emery, Speculation, pp. 124-165.

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