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at the higher prices. On a very small scale such manipulation is frequent. Much of it is unsuccessful, but there are at least constant attempts to bring about slight changes in price within a single day and then to profit from them before a genuine competition can be started. This causes occasional quotations that are “ artificial” in the sense that they are due to these attempts at manipulation. So far as they go they are a disturbing element in trade. They are, however, less common in the produce market than in the stock market; they are confined within very narrow limits; they continue but a short time; the volume of transactions is small; and they have little effect on the general course of prices. The attempt to carry out the same kind of manipulation over a longer period, to actually keep the regular market price down (or up) for a considerable time, and to make the covering (or liquidating) transactions at the new prices, is a very different matter. It is true that it is a possible performance, it is true that such a thing has occasionally occurred; but it is utterly wrong to suppose that such practices are easy or common. Mr. W. E. Bear, for example, gives the impression that with a large capital and a small conscience, any one may confidently undertake such a manipulation. The very fact that every one does not adopt so easy a road to fortune would seem to indicate that there is some difficulty of which account has not been taken. Despite certain ideas to the contrary, the professional speculator takes no special delight in disorganising trade, except when he can make money by so doing; and the reason why he so seldom tries a big manipulation is because it does not pay. It is almost impossible to make such a manipulation successful. A sufficient body of short sales will depress the price, but, if all conditions remain the same, the price will at once react when the operator begins to cover. His purchases send the price up as his sales brought it down, and he is obliged to cover a considerable amount at a high price, while in order to depress the market he had been forced to sell a good deal at a low price. The dangers are so great that a big bear manipulation is seldom successful, and indeed is seldom attempted. Moreover, added to the inherent difficulty of the undertaking is the probability of bitter and active opposition from persons equally well equipped for the contest. The biggest operations on the short side of the wheat market in recent years were those of Mr. Pardridge in Chicago in 1891–92. This operator persistently sold wheat in the face of predictions from
1 “Market Gambling," in the Contemporary Review, June, 1894, and “Market Wrecking,” Fortnightly Review, April, 1897.
the leading statistical authorities of a shortage in supplies. Millions of bushels were sold and the price was kept below what was considered the real value of the commodity. The question was, could Pardridge buy back these millions at the low prices ? If the opinion of the market had remained the same regarding conditions of supply, the feat would have been impossible, but the final event proved that the authorities had been wrong and Pardridge right. The crops turned out to be abundant, there was plenty of wheat to go round, and, the low price being the result of an abundant crop, Pardridge was able to cover his contracts without creating a sudden “bulge.” It may almost be stated as an axiom that no big manipulation succeeds unless supported at the end by the conditions of “actual” supply and demand. Then, however, it loses its character of manipulation, which properly is a determination of prices independently of such conditions. If by shrewd foresight speculators see that a fall in price must come, and by their operations bring it on gradually before it would otherwise have come, they are merely putting the price where it ought to be, and the public avoids the effects of a sudden fall. If the same result occurs through the good fortune of the speculator rather than shrewd foresight, the effect on the public is the same.
This is by no means the whole story however. Although the operations of a few men may be putting the price where events prove that it ought to be, the fact that the course of prices depends on them is in itself an evil. One-man power in a market is extremely dangerous, for to whatever use it is put it makes all conditions uncertain and the trade nervous and disorganised. If the power is being exerted in the direction warranted by the future conditions of supply, the benefit which this should bring is largely lost through the uncertain condition of trade which accompanies the operation. If on the other hand the manipulation is really in contradiction to actual conditions, the evil in this case is two-fold. In the case of the Pardridge operations for instance, the active selling depressed the price in the first place, independently of future events. If those events had turned out favourable to a rise in price, the deal would have proved a failure and the operator would have lost heavily, but in the meantime the price would have been artificially depressed for a considerable length of time, with consequent evil results to the trade and to the producers. An attempted manipulation on a large scale which proves itself wrong is then more disastrous than a success
ful one which is supported by the subsequent conditions of supply.
The methods and difficulties of manipulation on the bull side of the market are of course much the same. Bull operations, however, may culminate in a corner, a condition of things which is of particular interest in view of recent events in the wheat market. The Leiter operations differed in several ways from the ordinary attempts to control the market, and a word of comparison between this deal and other attempts at corners in recent years will serve to bring out the nature of these operations.
From the time of the laws against engrossing, to corner the market in any commodity has been considered a serious offence against public welfare. Especially has this been true of corners in any of the necessaries of life. Since the development of a world market in these commodities, the actual control of the whole supply has become impossible, and anything more than a very temporary control of a local supply has also become almost impossible because of the ease with which shipments may be made to any market. With the growth of an organised speculation, however, a new kind of corner has made its appearance, which has received a larger share of consideration from the opponents of the speculative system than is warranted by its practical effects. A successful speculative corner occurs when the market is oversold, that is, when the bulls have secured the control of a considerable part of the local supplies and have induced so much shortselling that there is not enough of the commodity available in the market to cover all the short contracts within the required time. When a bull movement is first started there are always those who think the price too high and begin to sell short. Ordinarily the short sellers would expect that, whether they were to make a profit or not, they would be able to cover easily by buying from the longs wishing to liquidate, and that the transactions would all be wound up by a clearing process. If, however, a large part of the purchases have been made by the bull clique, when the time of delivery comes there will be little liquidation of which the shorts can make use. They will be driven then to get the actual commodity for delivery, and if the local supply not controlled by the clique is insufficient, the shorts are cornered, and the price to them will be put up as high as the bulls dare to carry it. For the moment such a corner is more effective than the control of a large part of the actual supply. Consumers can postpone their purchases for a short time at least. Short sellers, however, must settle before the end of the month, or default on their contracts. It is not to be supposed, however, that this is a simple or an easy process. On the contrary it is so difficult that it is carried through successfully only at the rarest intervals. The reasons for this are evident. In the first place, enormous purchases must be made which require a great command of capital. As these increase the existence of a bull clique cannot be concealed, and the shorts become extremely wary about getting in too deep, Furthermore, as the price in the particular market advances, enormous supplies of actual wheat are found available and rushed to the market; especially if it is seen in time that an attempt at a corner is being made. No calculation ever includes all the wheat that can be quickly marketed if the price rise high enough. All this must be taken at rising prices by the clique, for, when they show themselves unable to absorb more, the price breaks with the stoppage of demand and the bubble bursts. Wheat which had gone out of the market will come pouring back if there is profit to be made on it. More than one attempted corner has been broken at Chicago by the action of the big millers of Minneapolis and Duluth in dumping their big stores at the last moment into the Chicago market. In these cases the wheat was sold by telegraph, and only a small part shipped, since, when the corner broke, the millers could buy back, before it had left their elevators, the very wheat which they had sold.
Besides all these difficulties in the way of a corner, there are others with which the operators must reckon. It is not enough to squeeze the shorts at the end of a particular delivery month. Even if that be successfully accomplished the clique is left with enormous quantities of wheat, much of it bought on an abnormally high market. On this interest and storage charges must be paid as long as it is held, while it is extremely doubtful if it can be unloaded on the market without a great fall in price. The calculation which shows the value of all this wheat at the highest price of the squeeze compared with the prices at which it was bought, shows only “paper profits.” The wheat has still to be sold, and none but the shorts are going to pay the high prices. The bulk of it must be sold on a continually falling market. All of this is well known by those who wish to corner the market, and explains the infrequency of these attempts.
Interesting as such a corner is, and disturbing as its effect is on the market of the moment, it would be a mistake to suppose it to be either a great benefit to the producer or a great injury to consumer. A speculative corner is not really a corner in wheat, but a corner in May wheat, or September wheat. It is not wheat in general that jumps in price, but only wheat for delivery at a particular time and a particular place. The occasion on which the highest price for wheat was reached in Chicago in recent years was the famous corner in September, 1888. Contract wheat at the end of the month rose to two dollars a bushel. At the same time it advanced in New York only a few cents, standing slightly above a dollar. The first day of October, that is when the delivery time for September wheat was over, the price in Chicago fell back nearly to the dollar mark. Evidently a corner of this sort has no appreciable effect on the price of bread, and can only injure the consumer, if at all, in a very indirect way. On the other hand, manufacturers and traders may be greatly injured by the disorganised condition of the market which always accompanies and follows such attempts at manipulation. As in the case of the bear movements, it is not only the successful corners, but the attempted corners, which carry these evil effects.
The first point of interest regarding the Leiter operations, which lasted about a year, and came to a close in June, 1898, is the fact that the bull interest did not start out to bring about a speculative corner. Before Mr. Leiter's appearance in the wheat market, it would not have been supposed that any one would be so bold as to attempt to secure control of enough of the available supply of actual wheat throughout the whole country to control prices for a considerable length of time. Yet this is exactly what this operator, a very young man, and hitherto unknown in the wheat pit, proposed to do. He started out to buy wheat on a very large scale, to buy continuously, and to dispose of it gradually as it offered a profit. This was to be no mere deal of the speculative market. He sent his purchasers into the interior, contracted for vast storage space, chartered miles of cars and a whole fleet of vessels, secured large contracts for delivery abroad, and prepared to supply all comers at good prices. To actually control any preponderating part of the total American crop of wheat is of course beyond the power of the most powerful syndicate that could be formed; but Mr. Leiter showed that, large as these crops are, in being moved to the final markets they are narrowed into a small channel, and that the quantity of wheat actually available for delivery at any particular moment is comparatively slight. To block this channel for a while, to control a considerable part of the immediately available supplies, is to become the dominating influence in the market.
Early in the season it became apparent that a bull clique of