article of known identity. If deliverable grades are narrow, the practical working of the system is different according to the quantity of grain, or the proportion of the crop, that will make that grade from year to year. A system of narrowly specified deliverable grades facilitates manipulation and corners. On the other hand, if the deliverable grades are broad, millers and others will be less willing to take delivery, because they will not be able to tell what sort of grain they are going to get by this means. Contract grades ought, if possible, to be such that the miller will be ready, if necessary, to take delivery. Although the volume of future trading may be greater under a system of broad deliverable grades, because of the less likelihood of a corner, the proportion of deliveries will be less, and thus the connection between the cash market and the futures market may become somewhat artificial.

Chicago is quite definitely committed to a policy of broad and elastic provision of contract varieties and grades. The Chicago Board has tried to group a number of related grades and qualities for delivery on contracts, so as to prevent the possibility of, or at least render improbable, a corner. It seeks to make all wheat available on that market deliverable, under discount if necessary. This policy is the natural result of its being the world market for futures, but its present position has been achieved only gradually and after it became the world market.

Whether a broad or narrow policy as regards the enumeration and definition of contract grades is preferable depends upon the use made of the futures market at the particular exchange concerned. A market with a tributary area producing a quite definite variety of wheat will generally adopt the opposite of the Chicago policy, and the one that a priori might be considered correct generally. In such a market not only will buyers prefer, but sellers will be more disposed to grant, delivery of a specific variety. But for hedging in general, a broad market is necessary. If the deliverable grade is made specific and narrow, the future prices based upon it will not only be abnormal if the proportion of this grade in a particular crop is markedly changed, but also possibly if the grain from a particular region is withheld from the market. In the case of Chicago, not only does the market draw upon widely varied and distant sources for cash grain, but it also aspires to be and is the great hedging and speculative futures market for the country; hence the Chicago Board is concerned with deliveries chiefly as a check upon future prices and possible manipulation, and comparatively inattentive to the possible use of its futures as a means of getting grain. Indeed, the gist of the complaint of Chicago traders with regard to the so-called natural corner in May, 1917, wheat was that the purchasers for our Allies bought expecting to take delivery. That broad deliverable grades make the

market safer for the seller is obvious. And it is better in most cases for a miller trying to place a buying hedge to know that he will get some kind of grain of near enough value to trade off or substitute for the specific grade he wants than to be compelled to place selling hedges against virgin grain bought-and not covered by flour contracts—in a narrow market.

The policy of having a large volume of deliverable grain, however, does not necessarily mean that a large number of grades and varieties. should be made deliverable. The ideal condition would obtain where some one definable representative variety and grade regularly constituted the major portion of the crop. But in order to include the major portion of the crop several grades and varieties must usually be included. Premiums and discounts are a comparatively unsatisfactory recourse, since they can not be so devised as normally to give the seller full compensation for the grain he delivers on futures without making the standard contract grade a nominal matter. Deliveries of overgrade grain, or of undergrade at a discount, are in effect emergency measures.

GRESHAM'S LAW IN GRAIN.-The effect of the use of several varieties of grain, subject to fluctuations of comparative value for contract delivery is illustrated by the following quotation from the in-. augural address of the president of the Chicago Board for 1896:

In our transactions on Change, No. 2 spring wheat and No. 2 red winter wheat are each a legal tender on contracts. We have the double standard, and for years past we have seen that it is the kind that has least commercial value that weighs upon the market. The better or more valuable grade disappears― is either hoarded or shipped away-while the cheaper or less desirable kind remains.1

The statement was made apropos of the "sound-money" issue. The process was referred to as a "familiar illustration of the operation of the Gresham law." It is worth noting that an important argument of the bimetallists was that the use of a double monetary standard meant a stabilization of values. In one important respect the illustration quoted needs qualification. The different varieties of wheat are much more closely similar to one another as regards the uses to which they may be put and as regards their commercial value than are gold and silver.

VARIATION IN THE PROPORTION OF WHEAT GRADES AT MINNEAPOLIS.Wheat, of the three grains largely dealt in by way of futures, is the one for which the choice of a contract grade constitutes a considerable problem. How important the problem is appears from the record of receipts by variety and grade at Minneapolis from year to year. Proportions are shown in the following table. Unfortunately,

'Annual report for 1895, p. LXXIV.

2 Data are from the Miller's Almanac for 1918, p. 210.

the figures are for calendar years instead of crop years, and the variation is, therefore, doubtless somewhat reduced from the actual differences. The variations doubtless reflect in part changes in grading standards and practices.

TABLE 19.-Per cent distribution of spring-wheat receipts at Minneapolis, by grades, calendar years, 1883-1917.

It appears that No. 1 northern has, since 1883, ranged between 69 per cent and 8 per cent of the total spring wheat receipts; or, if the 1917 figure be left out of consideration, between 69 and 14 per cent. For the combination of Nos. 1 and 2 northern and No. 1 hard the range of variation is, of course, much smaller. The proportion ranges between 90 and 20 per cent; or, disregarding 1917, between 90 and 39 per cent. In only three instances is the proportion less than 50 per cent, while for No. 1 northern by itself the proportion is more than one-half in only 8 years out of the 35 covered by the table. Including together No. 3 and all higher grades, the lowest proportion is 62 per cent, except for the 34 per cent of 1917.

With reference to eliminating the effect of the calendar-year basis of the above compilation upon the results, the following table for a five-year period for crop years has been compiled. The range of variation is considerably greater than in the calendar-year figures

for a similar period. The maximum proportion of No. 1 in any of the five crop years is 69 per cent. The minimum is 14 per cent for 1916-17. This is somewhat above the corresponding 10 per cent ratio for the first half of the following crop year, but much below any other of the calendar-year ratios.

TABLE 20.-Per cent distribution of grades of spring wheat in relation to total spring, and proportion of each variety to total wheat, cars inspected-in at Minneapolis, crop years 1912-13 to 1916-17.

Similar

VARIATION IN THE PROPORTION OF GRADES AT CHICAGO. figures for wheat, corn, and oats, as inspected in at Chicago for the five crop years 1912 to 1916, are shown in the following table. The number of varieties of wheat distinguished is noteworthy. Some condensation of grades enumerated was found desirable in making up the table. The use of the new Federal grades makes it impossible to bring the table down to date upon the same basis, and the table is not carried further back because five years serve present purposes sufficiently well.

TABLE 21.-Per cent distribution, by varieties and grades, of wheat, corn, and oats, inspected-in at Chicago, crop years 1912-13 to 1916–17.

TABLE 21.-Per cent distribution, by varieties and grades, of wheat, corn, and oats, inspected in at Chicago, crop years 1912-13 to 1916-17-Continued.

1 Such grades were: Nos. 1 and 2 red winter, No. 1 northern spring, Nos. 1 and 2 hard winter, and (after July 1, 1913) No. 1 velvet chaff.

The proportion of contract grade to total wheat received at Chicago during the two years 1915 and 1916 was barely half as great as in the three preceding years. In the five years the maximum proportion reaching contract grade was 66 per cent in 1913-14, and the minimum was 27 per cent in 1915-16. For corn the proportion is more nearly constant, ranging between 20 per cent and 38 per cent, the minimum occurring in the crop year 1913 and the maximum in 1914. For oats the range was between 6 per cent and 37 per cent,