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case of pork, unless the grade is specified in the contract, mess pork is understood. On the cotton and the coffee exchanges the rules are different. Like the produce exchanges, the New York Cotton Exchange provides for a grading and classification of cotton with sworn inspectors and the like ; but it has an entirely different feature in its quotation and revision committees. These committees fix the price of the various grades of cotton in terms of one particular grade, Middling Uplands. The form of contract, therefore, does not specify the delivery of any particular grade, but the price reads for Middling Uplands, and any -grade from Good Ordinary to Fair, inclusive, may be delivered, with allowance in the price (as fixed by the Revision Committee) for its variation from Middling in quality. Some of the effects of such a provision will be considered in a later chapter.

Besides these fixed stipulations regarding grades that are uniform for all contracts, there are on all the exchanges stereotyped conditions regarding the amounts to be delivered. Contracts are made in terms of a fixed unit of amount. On the Chicago Board of Trade the unit in the case of grain is 5000 bushels. Contracts are made in multiples of this unit as a matter of convenience, and all deliveries on contracts are made in lots of 5000 bushels. The same unit is used in New York. Where wheat or corn is sold, however, in “boat-load lots to arrive,” 8000 bushels is understood. In such cases 10 per cent deficiency or excess from the contract amount does not vitiate the delivery. In the regular contract a 5 per cent variation is allowed in New York, and a 1 per cent variation in Chicago. In any case the excess or the deficiency is to be settled for at

1 The Quotation Committee consists of seven members, and meets twice a day to fix the official quotation of Middling Uplands and of all other grades in terms of this one, according to the relative differences established by the Committee on Revision of Quotations. This latter committee consists of nine members, who meet nine times a year, and determine the relation of the values of all other grades to the value of Middling, which becomes the basis of the official quotations until the next revision. The same is true of the New Orleans Cotton Exchange and the New York Coffee Exchange. In the latter exchange the Spot Quotation Committee posts daily the values of all grades in terms of No. 7 (Low Ordinary), and any question of the revision of the comparative values of the standard is referred to the governing board.

the closing price of the day of tender. Similar units of sale exist for other products; for example, in mess pork and lard 250 packages for large sales, 50 packages for smaller sales ; in cotton 50,000 pounds “in about 100 bales”; in coffee 32,500 pounds - in about 250 bags.” In the European exchanges similar rules exist. In the case of wheat in Berlin, the minimum or Schluss is 1000 Zollcentner, about 1900 bushels, in Budapest 1000 Metercentner, about 3750 bushels, in London 250,000 pounds. Similar allowances are also made for deliveries in slight variation of the contract amount.

Another feature of the time bargains made on the produce exchanges is the determination of the time of fulfillment. The products which are sold for future delivery come into the market continuously, and yet irregularly, and cannot be promised for delivery on any fixed day. At the same time, the date of delivery within certain limits is rigidly fixed in the contract. In this country the universal practice is to specify the month of delivery and allow the seller the option of delivering on whatever day of the month he may prefer. Thus if wheat is sold for May delivery, “ seller's option,” the wheat may be delivered on any day of the month, and must be taken and paid for by the ultimate purchaser whenever he is served with due notice of intention to deliver. On the other hand, if it is not delivered before, the seller is bound to deliver on the last day of the month. Occasionally the option as to the day of the month is given to the buyer, and the contract then reads " buyer's option " ; but this is unusual, and seller's option is always understood unless otherwise stated.

There are no regular sales on American exchanges for which the option for delivery extends beyond a single month. In Europe, however, sales are frequently made for a longer option, — for two months, or even for four or six months; in Paris, for example, for the four premiers mois, January to March, or four chauds

By this is meant the time within which delivery may be made. Futures may be sold six months or more ahead, but the contract specifies some one month in which delivery is to be made. Although no longer options than one montli are quoted, there are sometimes sales of year corn,” that is, corn to be delivered (seller's or buyer's option) at any time within the current year.

mois, May to August. There are also in Germany and Austria specially fixed periods, March and April, called the FrühjahrTermin, and September and October, called the Herbst-Termin. The delivery is effected in a similar way, however, as in American exchanges, the only difference being the length of option.

The foregoing description of the conditions of the contract for future delivery makes it possible to summarize in the form of definitions the conclusions reached. It is common experience that commerce cares little for definitions, and that accuracy in terms is generally secured only after more or less has been written on a subject of this nature. The Germans, for example, have arrived at a distinct use of terms which we can hardly equal unless we go beyond the familiar language of business. The “future,” as distinguished from other forms of time dealings, evidently depends upon the existence of warehouse receipts issued in terms of fixed and accepted grades, by which means a commodity is made entirely representative. It also depends upon an organized market, for without strict regulations from a central body the grading and classification of commodities would be impossible, and the difference in form of contract would be too confusing to admit of any great extension of that kind of business. It is then perhaps correct to define a “future” 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. At least futures not so inade are a rare exception.

Another important class of transactions are the dealings " for cash.” These “ cash ” or “spot” contracts are merely the outright sale and purchase of goods for immediate delivery. They do not necessarily imply a cash payment, as the seller and buyer can make their own arrangements as to the giving of credit.

1 In the midst of the transactions on the board actual delivery of the receipts at the moment of contract is evidently impossible, but “ spot” contracts are stereotyped in form, and delivery under the rules is postponed until the close of business on that day.

They do, however, represent actual goods available in the market at the moment. It is a mistake, nevertheless, to associate “spot" dealings with “ actual business," and futures with speculation. Spot dealings may be purely speculative, as where a person buys and sells in order to profit by daily fluctuations in the spot market, or buys “spot stuff” outright to hold for a rise, or, finally, makes cash purchases to settle on future contracts previously made. On the other hand, contracts for future delivery are as much a part of trade contracts as cash sales are a part of speculative contracts. It may be by futures that the dealer sells and the miller buys his wheat, or that the merchant sells and the manufacturer buys his cotton.

The amount of futures sold on the exchanges, however, far exceeds the amount of cash dealings. The figures for the Produce and Cotton Exchanges of New York for 1895 are:1

" futures," "spot,"

WHEAT
1,443,875,000 bushels

43,405,076

COTTON futures,” 63,828,300 bales "spot,”

240,456

When it is remembered that the unprecedented wheat crop for 1891 in the United States was little more than 600,000,000 bushels, it will be seen that the annual sales on the New York Exchange alone far exceed the amount of the annual crop. Yet the New York market is small compared with that of Chicago. No comparative figures of spots and futures are available for the latter market. The amount of clearings on future contracts, however, under the method of clearing differences to be described below, gives some idea of the enormous extent to which such tradings are carried on in Chicago.”

CLEARINGS

BALANCES

1891
1893
1895

$104,083,529

68,707,668
78,133,437

$32,430,827
26,896,677
28,726,400

Though the sales in New York are only a fraction of those in Chicago, they are far greater than those of any other grain exchange.

1 See Brulstreet's, January 4, 1896. It is doubtful if these figures, though official, include all the transactions made.

CHAPTER XIII

PRICES

1. The Relation of Retail Prices to Wholesale 1

So far as I have been able to ascertain, there are no instances of constant and definite relation between wholesale and retail prices; and in most cases, if not always, the fluctuations are greater in wholesale than in retail prices. The fluctuations in wholesale prices have probably increased in frequency with the facilities for rapid carriage and rapidly conveyed intelligence by telegraph and telephone, but have been kept within a narrower range. If all trade were free and all dealers solvent and sufficiently wealthy for the purposes of their trade, fluctuations would be reduced to a minimum, but they would by no means cease, so long as buyers and sellers differed in business ability, mental constitution, and social habit, qualities which enter into and influence prices to a degree greater than might at first be thought possible.

One would expect to find the relation between wholesale and retail prices much nearer uniformity in those articles of commerce which are prime necessaries of life,- such as bread, meat, fuel, clothes, - than in the case of other articles, because of the universal interest in their cost and the greater publicity of their wholesale prices arising from such interest. In the case of wheat there is probably as near an approach to uniform relation in its wholesale price to the retail price of bread as in the case of any article of general consumption. The variations in this relation are those chiefly which are common to almost every case, such as skill in buying, command of capital, and tricks of trade within very limited range. One reason of this comparative

1 By Robert Newman. Reprinted from the Economic Journal, Septeinber, 1897.

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