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never so tangible a factor as supply. There is always a large “visible supply” of wheat, for the grain consumed during the entire year is produced within a few months. While the American producers are now well able to carry their wheat, it is, nevertheless, still largely concentrated at the shipping points. Some of the reasons for this are the active competition of the primary markets to make sure of securing the grain by buying at once, the ample facilities for economically storing and handling wheat in great bulk at the terminal markets, and the presence of a class of men who, having capital and commercial capacity, have justified their existence by the manner in which they have handled the reserve supply. As all value is, in its last analysis, a subjective thing, the existence of this great visible supply must have the psychological effect of delaying, and perhaps lessening demand, and thus decreasing price. Since the producer has already thrown the wheat into the market, the distributer must either dispose of it at once, or, if he holds it indefinitely, run the risk of loss from depreciation as the next harvest approaches. This tends to put the consumer in a position to set the final price on wheat, a position that is further strengthened by the fact that competing wheat countries of the southern hemisphere throw their surplus into the world market about midway between North American harvests. Argentina has thus become notorious as a disturber of wheat prices, as have also Australia and India to a lesser extent. During one-fourth of the year, three-fourths of the world's wheat supply comes upon the market. This results in a congestion of supply which exerts a powerful influence in determining the price for the remaining three-fourths of the year. While this tends to give stability of price, it favors the consumer and not the producer. An increase in the local consumption of wheat by milling is decreasing the visible supply. An import duty adds the amount of the duty to the cost of production, and consequently must raise the price of the wheat imported. In the following table are given the import duties on wheat and wheat flour in 1907 in the principal importing countries having such charges.' * Lata furnished by U. S. Lept. of Commerce and Labor.

Wheat flour

Countries Wheat per bushel per bushel Austria-Hungary . . . . . . . . . . . . . . . $0.35 $0.82 Belgium . . . . . . . . . . . . . . . . . . . . . . . free 0.10 France . . . . . . . . . . . . . . . . . . . . . . . . 0.36 0.55 Germany . . . . . . . . . . . . . . . . . . . . . . 0.35 0.66 Italy . . . . . . . . . . . . . . . . . . . . . . . . . . 0.44 0.60 Spain . . . . . . . . . . . . . . . . . . . . . . . . . 0.34 0.58

The Market.—Price is always determined in a market. The old proverb, “three women and a goose make a market,” is true, assuming that the women possess some other commodities which they can exchange, for all the essential primary elements of a market are present, namely: A commodity; its owner; and one or more other persons, each of whom wishes to become the owner of the commodity by exchanging it for a quantity of some other goods. The primary origin of the ‘‘supply’’ and the ‘‘ demand” is external to this market, which is merely the point where the forces of supply and demand meet and attain equilibrium through the exchange of commodities. A market increases in size, complexity and importance as these elements increase in number, as they are modified in form, and as consequent manipulations arise. We found a market at the center of each of the three concentric circles of distribution. The marketing or bargaining is early concentrated in the local market. The local market, so long as it is independent of larger markets, is so limited in all of its factors as to be easily known in every phase and violently affected by every local event of importance. The city market resulted from the conditions of supply and demand pertaining to a much larger territory, and is correspondingly more complex. It is not so violently affected by any single event as is the local market, and events tending to opposite results may offset one another. Prices are always a resultant of the forces or conditions of supply and demand that exist in the whole territory tributary to the market, and that have been there concentrated, directly and indirectly. Prices can no longer be predicted from a knowledge of conditions in any one locality. What is true of the city market is pre-eminently true of the foreign or international 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.’’’ 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 79% cents per bushel during any period of

* Speculation, p. 46.

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