Financial History Issue 127 (Fall 2018) - Page 28

of grain-derived time instruments, be they option, forward or futures contracts. In 1892, the Hatch and Washburn Anti- Option bills passed both houses of Con- gress; each failed narrowly on technicali- ties of reconciliation. Perhaps the most colorful and persis- tent challenge to futures trading and in particular, the CBT, arose from bucket shops. A bucket shop was, in the modern parlance of sports betting, a bookmaker; it enabled anyone to bet on the daily fluc- tuations of commodity futures prices. In their attempts to appear legitimate—or, at the very least, to appear no less legiti- mate than commodity exchanges—bucket shops chose names such as the Christie Grain and Stock Company and the Public Grain Exchange. To casual observers (who no doubt observed CBT members fre- quenting bucket shops), bucket shops and exchanges were one and the same. In the 1880s, several states, including Illinois, outlawed bucket shops. Conse- quently, the CBT sought to distinguish itself from these alleged imposters and, most importantly, deny them access to its market-clearing price quotes, without which bucket-shop-styled bookmaking would be impossible. The CBT, bucket shops and the telegraph companies fought in court for decades over the rights to CBT price quotes. In 1905, the Supreme Court sided with the CBT; bucket shops faded away by 1915. Curiously, despite the bucket shop threat, the anti-option movement and grassroots opposition more generally, futures trading remained largely self-reg- ulated until after World War I. In the late- 19th century, those who opposed futures trading sought in vain to outlaw it; a strat- egy to regulate futures trading was alien to the political landscape in the Gilded Age. In the early 20th century, relatively high commodity prices mollified the opposi- tion. Federal regulation began with the Grain Futures Act (1922) and culminated with the Commodity Futures Trading Act (1974), which established the Commodity Futures Trading Commission. In the closing paragraph of The Pit, Frank Norris chillingly describes Laura’s bleak and disturbing last impression of Chicago as she and her husband Curtis leave the city, never to return. She gazes one last time upon the: Pile of the Board of Trade building, black, monolithic, crouching on its foundations like a monstrous sphinx with blind eyes, silent, grave—crouch- ing there without a sound, without sign of life, under the night and the drifting veil of rain. Speculative malpractice enabled by this sphinx and the futures contract it fash- ioned destroyed Curtis Jadwin, “leaving Death and Ruin in its wake.” More trou- bling still, The Pit is a case of art imitating life: recall, the very same sphinx enabled the destruction of Joseph Leiter. Nevertheless, the 19th-century futures contract was, in essence, a risk-manage- ment instrument. Trading futures con- tracts was, in general, a far less lethal business than classic literary depictions or actual isolated accounts might otherwise suggest. In truth, speculators absorbed price risk that commercial interests, including creditors, would have assumed otherwise. Moreover, this transfer of risk likely reduced the volatility of US grain prices and interest rates. Then as now, the futures contract afforded its willing par- ticipants a market in which to speculate or hedge, depending on their financial circumstances and risk preferences.  Joseph M. Santos is a professor of eco- nomics and Dykhouse Scholar of Money, Banking and Regulation at South Dakota State University, where he teaches mac- roeconomics, monetary economics and banking. Joe writes on US monetary and financial history and policy. Chandler, Alfred D. The Visible Hand. Cam- bridge: Harvard University Press. 1977. Clark, John. G. The Grain Trade in the Old Northwest. Urbana and London: University of Illinois Press. 1966. Commodity Futures Trading Commission. Annual Report. Washington, DC. 2003. Ferris, William G. “The Great Corner: Joseph Leiter and P.D. Armour Fought the Battle of the Wheat Corner in the Pits of the Chi- cago Board of Trade.” The Farm Quarterly, Spring (1966): 107–123. Hieronymus, Thomas A. Economics of Futures Trading for Commercial and Personal Profit. New York: Commodity Research Bureau, Inc. 1977. Hoffman, George W. Futures Trading Upon Organized Commodity Markets in the United States. Philadelphia: University of Pennsylvania Press. 1932. Lurie, Jonathan. The Chicago Board of Trade 1859–1905. Urbana, Illinois: University of Illinois Press. 1979. Odle, Thomas. “Entrepreneurial Cooperation on the Great Lakes: The Origin of the Meth- ods of American Grain Marketing.” Business History Review 38, (1964): 439–55. National Agricultural Statistics Service. “His- torical Track Records.” Washington, DC: Agricultural Statistics Board, US Depart- ment of Agriculture. April 2004. Norris, Frank. The Pit: A Story of Chicago. New York: Penguin Group. 1903. Peck, Anne E., ed. Futures Markets: Their Economic Role. Washington, DC: Ameri- can Enterprise Institute for Public Policy Research. 1985. Rothstein, Morton. “Frank Norris and Popular Perceptions of the Market.” Agricultural History 56 (1982): 50–60. Sources Santos, Joseph M. “Commodity Futures Con- tracts: Furnishing an Elastic Currency in the 19th Century.” Journal of Macroeconomics 25 (2003): 561–578. Baer, Julius B. and Olin G. Saxon. Commodity Exchanges and Futures Trading. New York: Harper & Brothers. 1949. Williams, Jeffrey C. “The Origin of Futures Markets.” Agricultural History 56, (1982): 306–16. 26    FINANCIAL HISTORY  |  Summer 2018  |