The Minneapolis journal. [volume] (Minneapolis, Minn.) 1888-1939, 1903-04-09
English Spelling Reform.
The Function of Speculation.

Some proposed action by the legislature
of Minnesota has brought out popular
discussion which shows that many, for
aught we know, the majority Of the peo-
pie, look upon stock exchanges, boards OF
trade and chambers of commerce as little
better than highly respectable gambling
houses. The gist. Of the common COM
ment is that members and patrons of
those bodies buy and sell what they, do
not own, and seek gain by guessing at or
betting on the future price of some com
modify or security. r.
Persons who feel that the exchanges are
legitimate institutions, but have been
confused by the sophistries Of their igno-
rant enemies are recommended to read
an article in the April Atlantic Monthly
on ."rhe Function Of the Stock and Pro-
duce Exchanges" by the we'll known
financial authority, Charles A. Conant.
Indeed, the article maybe read with profit
by almost any one who desires to UNDER
stand the parts such institutions play in
modern commercial life. Mr. Conant's
treatment of the practice Of buying and
selling for future delivery is very happy.
It really is, he shows, sort of insurance
to the legitimate dealer in the great com.
modities.
Apropos Of Mr. Conant's lucid explana-
ton OF how this system Of insurance is
operated in general, it is worth while to
illustrate how it daily works at the Min
neapolis Chamber Of Commerce to insure
the miller. Let us suppose that a miller
receives an order for future delivery Of
rs much four8as $4,000 bushels of wheat
will make. He goes to the chamber and
buys an option for the delivery Of So 900
bushels of wheat at 81 busheI, let us
say; it being assumed that he has fixed
the price Of his -four on the basis Of dol
lar wheat When the time comes to make
Z the flour the miller goes into the cash
market and buys $4,000 bushels of wheat
for immediate physical delivery at the
then ruling price, say IS cents. AS the
flour contract was made on the basis of
81 a busfel the miller had he taken his
own risk, and waited until this time to
buy his wheat, would be cents bushel
ahead. His option, however, Is still valid,
and must be gotten rid of, as he is not
speculating. but insuring himself He now
sells his option at IS, losing 50, 500 on it,
since he bought at 81, but that just Off
sets his profits in the decline in cash
wheat. Thus he is neither winner nor
loser on the wheat f1uctuation, and gets
his actual wheat at the same net cost he
had calculated on when he made the flour
contract.
If wheat should go up cents between
the time of making the flour contract
and grinding the wheat the insurance
principle applies just the same. The
miller would have to pay $500 more fol
his actual wheat, but would be able tc
! make $1,000 on his option-since he bought
at 81 and the price Of wheat is now 81. O5
This process of hedging, as it Is
called would be impossible If there were
not in the market men who are ready t.
buy and sell wheat for future delivery
+ without having it and without Intending
to have it. The man who wants actua
wheat gets it. 1t is a matter Of sindiffer.
ence to him from whom he gets it, o,
that he bought and sold for future deliy
cry with men who wouldn't know VIVA
to do with a pound Of real wheat. The,
have insured him against loss in case 5,
q rise in the price Of wheat, and he. in re.
turn. has turned over to them profit tha1
might naturally come to him from d de.
cline
The SPECTATOR in this sort Of j trans.