was wise enough to recognise the way things were going and to early put himself in a position 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. Besides his big line of futures, Leiter was said to be carrying about 15,000,000 bushels of cash wheat in the North-West and all along the line to Europe when he failed, and this in face of the coming crops. Yet the continuous purchases of the Leiter group could not fail to have a marked influence, and an influence, it should be remembered, far greater than that of an ordinary speculative squeeze, since in controlling so considerable a part of the available supply they made their influence felt throughout the world. Compare, for instance, the facts that when wheat went to $200 a bushel in Chicago in 1888, it stood but little above a dollar in New York, and when it went to $1.85 in May, 1898, it rose to $1.91 in New York. It is idle to speculate as to the exact degree of influence which the bull operations had on price. The abnormal conditions of December and May were largely the result of their activity, but their influence throughout the whole period has doubtless been greatly exaggerated in the popular mind. To hold them. responsible for all the misery that found its expression in bread riots is absurd. In the same way the benefit of these operations to the producers has been greatly exaggerated. In an exporting country the bull operator is likely to be looked on as a public benefactor, and it was not an uncommon opinion in this case that Leiter was putting the price up to the foreign consumer and that millions of dollars of European money would flow into the pockets of the American farmer. Some one has said that to the producing class he seemed an economic Moses to lead them out of the years of bondage into the promised land. It is, however, very doubtful if in the long run Leiter has been of any great service to the farming class. There can be no question of the prosperous condition of American farmers during the year ending June 30th, 1898, but they would have been prosperous without the efforts of the bull clique. There were particular periods when the control of the available supply by Leiter gave great profits to those farmers who were able to market their wheat at the high prices, but few farmers can take advantage of these sudden advances. There is little wheat, for example, in farmers' hands in April or May available for delivery in May. Nevertheless, it must be admitted that many farmers sold their wheat at higher prices because of the Leiter deal. On the other hand, many have sold at lower prices because of it-namely, those who have sold since

the collapse. Space does not permit a discussion of the course of prices since June 13th. Suffice it to say that after the first drop the market ruled fairly strong through June and into July, because of the strong combination formed to carry Leiter's big holdings. But eventually the price fell off, and for a considerable period the existence of these holdings seeking a market, combined with the disorganised condition of the trade, resulted in low prices. By the middle of August the price of wheat had settled down to somewhere near a 65 cent basis, and since then prices have been ruling under 70 cents. It is true that the new crops were apparently to be very large, but, on the other hand, the existing stocks were extremely low. At the end of the second week in August the world's visible supply, as given by Bradstreet's, was about 5,000,000 bushels less than at the same. time in 1897 and the price 30 cents lower, while it was 80,000,000 bushels less than in 1895 and the price about the same for the two dates. When these facts are considered, despite the prospect of good crops, it is impossible not to attribute the low prices of the summer and autumn to the conditions brought about by the Leiter operations in at least as great degree as the high prices of the previous months may be attributed to them.

Whatever its effect in the long run on prices may have been, there is no doubt that the Leiter deal succeeded in completely disorganising the wheat business for a matter of ten months. The extraordinary fluctuations are sufficient evidence of that, but, as suggested above, this fact is made still more striking by an examination of the utterly abnormal divergencies in price which prevailed between different markets and different options. Ordinary dealers in wheat, exporters and millers, were completely in the dark regarding the course of events, and all business became speculative. The price of flour of course advanced with that of wheat, but with fluctuations of 10 cents a day a common thing, and occasional changes of 20 and 30 cents, any close control of flour prices by wheat, or any normal insurance became impossible. Whether individual millers lost or won in the process, their profits or losses were not the results of their manufacturing business but of the ups and downs of the speculative market.

Both the Pardridge and the Leiter incidents in the wheat market show, first, that prices are in the main always determined

1 Since the above was written the depressed condition of the market has been overcome, and during the first month of the new year the price of May wheat in Chicago was well over 70 cents. with every prospect of a steady rise.

by the actual conditions of supply and demand, and, secondly, that for a given time a single individual, or a group of individuals, supported by sufficient capital, may so disorganise the market as to deprive speculation of all its normal benefits. Whether or not measures may be devised to put an end to the evils of the system without seriously disturbing its proper action is a question of great difficulty. Operations of the one kind shade so gradually into those of the other kind that it is impossible to specify a particular class of contracts that calls for suppression. The anti-optionists aimed first at the prohibition of short-selling, but even they were forced to see that contracts to deliver what one does not at the moment possess may be indispensable to "bona fide business." Then the effort was made to forbid all such contracts which should not be fulfilled by the delivery of the actual goods. This distinction, however, is not a practicable one. All contracts on the exchange are precisely alike in stipulating for delivery. It is not known beforehand by either party, whether, when the contract matures, an actual delivery will prove the most satisfactory method of settlement or not. In the individual case there is at no time any outward sign that marks the transaction as speculative. The great deliveries of Armour in December show how absurd such a legal distinction would be, since his operations were highly speculative and would not have been altered in nature by an outside settlement of some of his contracts. Recent events have certainly shown that big actual deliveries do not lessen the evil effects of a manipulation.

The plan to abolish the speculative market altogether is neither desirable nor practicable. It is not desirable because, as has been shown above, organised speculation renders very important services to trade. But in any case it is not practicable since the speculative market is the natural outcome of trade conditions and an essential part of trade machinery. Until a government is able to do away with price fluctuations, it cannot do away with speculation. It can only drive traders to seek refuge in secrecy and subterfuge, and so lessen the good results. of speculation by discouraging its most desirable features, and removing the control of publicity. The German Government, however, has made the attempt. By the Act of June 22, 1896, all exchange trading for future delivery was forbidden after January 1, 1897. The wording of the statute was careless and seemed to warrant dealing in futures so long as it was not conducted on a regular exchange with official quotations of prices. No. 33.-VOL. IX.

F

A private association was at once formed and the trade continued without much diminution. This association was closed in May under police orders. This sudden action left Germany without a grain exchange. After a while a certain amount of future trading began to be done in such roundabout ways as seemed to evade the law, though this was given as little publicity as possible. More important was the large transfer of business to foreign exchanges, especially to the exchanges of Pesth and Amsterdam. Speculators could operate by telegraph, and traders could make hedging sales in the same way. This outlet of course made the effect of the prohibition much less extreme than it otherwise would have been. Still the speculative trade in grain was pretty effectually broken up for the time being, and the results were certainly not such as would recommend the experiment to the governments of other countries. The first result was to put the producer and the small trader entirely at sea regarding the value of their goods. It was only when the central market was destroyed that they began to realise how important a factor it had been even in their own business. A cry was at once raised for the creation of an institution which should in some way furnish central quotations to the trade. No such institution, however, can be created. A central bureau that issues a list of prices at which goods ought to sell is of no value. Even if only the prices of actual transactions are published, there is no certainty that they can be duplicated later. Central prices can be secured only through a real central market, and prices at which sales may be made at any particular time only through a continuous market. But there can be no central market, much less a continuous market, without an extensive business in futures, that is, without speculation. Under these conditions the big grain dealers in Germany profited at the expense of the small dealers and producers. They were strong enough to carry the greater risks and to use the foreign exchanges to their advantage. In general, German prices became increasingly dependent on foreign markets, and the position of Germany in the international grain trade increasingly subordinate. The disorganisation of trade would have been greater if all speculation had really ceased, and it would have proved greater in the United States than it did in Germany, since in the former country the trade in grain is on a much bigger scale and the speculative market a greater necessity. Furthermore, the great rise in prices throughout the world made the trade so prosperous in the season 1897-98 that the evil effects

of the Act of 1896 were partially obscured. They are likely to become increasingly important under a period of low prices. In general it may be affirmed that if there is to be any reform of the grain market at all, it is retarded rather than advanced by such radical measures as those of the German Act, since a serious reaction is bound to follow in time.1

HENRY CROSBY EMERY

1 For a fuller discussion of the effects of the German statute, see an article by the writer, "The Results of the German Exchange Act of 1896," in the Political Science Quarterly, June, 1898.