wheat, an influence that was not merely that of a speculative squeeze, but such as to be felt throughout the world, it is entirely unjust to attribute to them the great rise in price and consequent hardships, for "the high prices of wheat from August to June were not mainly the work of Mr. Leiter. For the first time in many years the bears in the wheat market were destined to learn the lesson that the production of wheat might run far short of the required needs, and, whatever direction the efforts at manipulation had taken, the price of wheat was bound to make remarkable advances in the season 1897-98. Leiter was wise enough to recognize the way things were going and to early put himself in a positon to profit from the inevitable outcome, and it was only when he tried to control the market in the face of adverse conditions that he failed."1

It is claimed that an international corner of the surplus wheat of the world was proposed to the United States by the Russian government in 1896. The two governments were to buy wheat at $1 a bushel, and were to sell none below the price which would cover all expense of buying it. The theory was that all of the wheat which could be produced at that price would be needed for food, and that the consumers would pay the price without either government having to buy any wheat. This visionary plan met with no support from the United States.

Public Gambling and "Bucket Shops."-The ordinary dealer or producer can do nothing more foolhardy than to risk his small capital in speculating and "playing the market," for he has no means of adequately knowing the world-wide conditions which determine price, he has not the judgment for properly interpreting such conditions even if he could know them, and those conditions often bring about results of such a magnitude as to sink a fortune completely in a very short time, if the speculator does not keep in touch and harmony with pricedetermining events. The character of speculation has changed somewhat with the increase in wheat supply, and fortunes are now made by men who watch the drift, and shape their way from day to day, "like prudent merchants, according to the current."

The "bucket shop" made its first appearance about a quarter of a century ago. It is always ready to take the opposite side 1 Emery, Econ. Jour., 9:62.

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 the Chicago Board of Trade, a fact recognized by the United States Circuit Court of Appeals in more than one instance. In view of the business which the bucket shop is diverting from the regular exchanges, it is but natural that the 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 designate' 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.'

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.