In the case of securities the cost of transportation is so small that there is to-day but one price for any active stock in all markets.

Arbitrage between international markets, as, for example, between London and New York, is very closely connected with the whole business of foreign exchange. Securities are a familiar means of making international payments, and a foreign exchange house must know at every moment whether the greatest profit comes from the remission of gold, or bills, or securities.1 The moment a security in London, for example, is higher than in New York by a sufficient amount, an exchange dealer who wishes to remit may sell that security in London, buying at the same time here, and using the debt of the London purchaser to settle the account for which he desires to remit. International arbitrage dealings may be carried on by any one, but in New York the business is chiefly in the hands of a few houses, since the greatest profit in it comes from its use in connection with foreign exchange, a subject beyond the limits of the present discussion. The ordinary speculator does not figure in this field.

The extremely narrow differences in price which prevail between different markets well illustrate the suggestion made above, that perfect speculation destroys itself. Arbitrage business can probably never greatly increase (except as international payments increase), and can never be more than an adjunct to the great mass of time dealings. It has found its limits in its success. Indeed arbitrage, at least in the case of securities, is not speculation at all. If both prices are actually known at the same moment, to buy at one price and sell at another is not to take a risk, and so is not speculation. It is trade. Transatlantic arbitrage has scarcely reached this point as yet, and in any case the nice questions of exchange make the calculation of profits uncertain except to the expert. But the old form of arbitrage dealings between the New York Stock Exchange and the stock exchanges of Boston and Philadelphia was a perfect case of nonspeculative trading of a quick kind. Private wires between

1 Ehrenberg says such dealings began among the bankers of Genoa and Florence in the fourteenth century. See Handwörterbuch der Staatswissenschaften, article, "Arbitrage."

the cities, telephones in the exchanges, and operators quick to translate and transmit the signals of the brokers on the floor, constituted an effective machinery for operations of a very interesting kind. By means of these devices the same man was practically trading in Boston and in New York at the same time. A change in price in either place was known by the broker on the floor of the other within less than thirty seconds. This was trade reduced to its finest point. It is not necessary to point out how completely such dealings bring about a uniformity of price. The New York Stock Exchange in 1894, however, put an end to such dealings by requiring communications from the floor to the telephone to be sent by a messenger. This made the two markets no longer identical, because of the longer time for communication. This action was taken solely for the practical purpose of bringing the business of other centers to the New York market, and to maintain commission rates more strictly. It was a backward step from the economic point of view, and, on the practical side as well, the opinion is not uncommon that it diminished rather than increased business.

Practices of a very similar kind occur in the case of produce. The simplest transaction is that of buying grain in the market where it is low, selling it at the same time for forward delivery in a high market, and then making a shipment to fulfill the contract. The theory of uniform prices by means of arbitrage dealings is, however, never completely illustrated in practice. Even in the case of those commodities in which speculation is most common, small divergences are sometimes surprisingly constant. The complaint is heard in New York that the Chicago market is "out of line" for considerable periods of time. The same complaint is made in western markets. In theory we should expect this to be corrected by an increased shipment to Chicago, the higher market, and a consequent fall in price there. But it is said that such results do not follow, that in fact the difference between New York and Chicago may continue for some time to be less than the cost of transportation. At such times. to buy grain in Chicago, sell ahead in New York, and make shipment accordingly, is to incur loss. This divergence must

be due to some kind of economic friction which keeps goods from accumulating at that particular center in sufficient quantity to reduce the price. Furthermore the conditions may not always be as they seem. When it is said that Chicago is "out of line with the seaboard," it may be that the statement is true as based on nominal freight rates, but that cut rates to some particular ports make shipment profitable. In any case, the amount of comment and complaint which is brought out by a market's being slightly out of line, and the fact that the condition is so widely recognized are striking evidence of the tendency shown by speculative markets to come to uniform prices. If the rule were not very general in its application, the occasional exception would not cause so much comment. Goods follow prices, says Kohn, by a kind of economic gravitation. But the economic gravitation does not mean that goods always go to the highest market, any more than physical gravitation means that bodies always fall to the ground. In both cases there may be resisting forces. In both cases the law states only a tendency.

The failure of arbitrage transactions to control extreme prices at critical times is due to the fact that transportation is still far from instantaneous. Sales can be made by telegraph, but the contract can be met only by shipment. In consequence the price of some article occasionally reaches an abnormal point in a single market without much effect being felt in other markets. If, for example, there is a short interest in May wheat still out at the very end of the month, the contracts must be covered before the last day, and a squeeze may put the price up to a point limited only by speculative conditions. In this case arbitrage transactions between exchanges are impossible, because no one dares to sell short, and because shipment cannot be made from other points in time to meet the May delivery. The high price is entirely abnormal, and has no relation to the supply of the wheat outside of the single market and the immediate movement. The morning of the 1st of June the price drops back, and after the usual convulsion of reaction the normal course is resumed. In the famous Chicago corner at the end of September, 1888, while the price in Chicago rose more than a dollar in a few days, in New York the rise was only a few cents.

CHAPTER XIV

THE NATURAL HISTORY OF MONEY

1. The Inconvenience of Barter

I 1

To obtain boats to proceed on my Tanganyika cruise was my first consideration; but the owners of two promised me by Said ibn Salim at Unyanyembe were away, and therefore I could not procure them. I discovered a good one, however, belonging to Syde ibn Habib — who had met Livingstone both in Sékélétu's country and in Manyuéma — and managed to hire it from his agent, though at an extortionate rate.

The arrangement at the hiring was rather amusing. Syde's agent wished to be paid in ivory, of which I had none; but I found that Mohammed ibn Salib had ivory, and wanted cloth. Still, as I had no cloth, this did not assist me greatly until I heard that Mohammed ibn Gharib had cloth, and wanted wire. This I fortunately possessed. So I gave Mohammed ibn Gharib the requisite amount in wire, upon which he handed over cloth to Mohammed ibn Salib, who, in his turn, gave Syde ibn Habib's agent the wished-for ivory. Then he allowed me to have the boat.

II 2

A Dyak has no conception of the use of a circulating medium. He may be seen wandering in the bazaar with a ball of beeswax in his hand for days together, because he can't find anybody willing to take it for the exact article he requires. This article may not be more than a tenth the value of the beeswax, but he

1 V. L. Cameron, Across Africa, pp. 176-177.

2 Brooke, Ten Years in Sarawak, I, 156.

would not sell it for money, and then buy what he wants. From the first he had the particular article in his mind's eye, and worked for the identical ball of beeswax with which, and nothing else, to purchase it.

According to Russian annals the most highly prized furs were those of the squirrel, ermine, marten, beaver, and sable. These were the most important articles of export; all nations were eager to get them; the Khosars, Varaigues, and later the Mongols levied in furs the tribute they imposed on the Slavs and Russians when the latter were obliged to purchase peace ; a part of the ordinary taxes must be paid in furs; fines were fixed in this sort of currency; and finally the prices of other commodities were often quoted in furs.

3. Cattle as Money 2

In the Homeric poems, which cannot be dated later than the eighth century B.C., there is as yet no trace of coined money. We find nevertheless in those poems two units of value; the one is the cow (or ox), or the value of a cow, the other is the talent (TáλavTOV). The former is the one which has prevailed, and does still prevail, in barbaric communities, such as the Zulus of South Africa, where the sole or principal wealth consists in herds and flocks. For several reasons we may assign to it priority in age as compared with the talent. In the first place it represents the most primitive form of exchange, the barter of one article of value for another, before the employment of the precious metals as a medium of currency: consequently the estimation of values by the cow is older than that by means of a talent or "weight" of gold, or silver, or copper. Again, in Homer, all values are expressed in so many oxen, as

1 Storch, Cours d'économie politique, IV, 39.

2 William Ridgeway, The Origin of Metallic Currency and Weight Standards, pp. 2-4.