Yorkville enquirer. [volume] (Yorkville, S.C.) 1855-2006, 1913-12-16

a b
2. In this diagram alb Is the price
level, &C the premiums on the option,
be the last or highest option. II alb
is raised, &C is raised with it; II alb is
lowered, &C is lowered accordingly. Alb
can therefore never be raised up to or
above &C, but &C may Of Its own
weight come down to or disappear be-
low alb. There is no equivalent power
or force in the market, or what
amounts to the same thing. in the
supply and demand, to overcome the
factor be.
4. II the result Of examples and
2 Is correct 1t must follow that the
premiums are never an integral part
Of the normal price. but are always
distinct factor in themselves, and that
as such 1t must be possible to separ-
ate them again from the normal price
to which they have been arbitrarily
added. This Is done by the practice
of milking the premiums out Of the
market by means Of transactions call
ed spreads"
The system altogether 1t presup-
poses a steady and continuous ad-
vance in price, would no doubt work
tolerably we'll in market, in which
all transactions would be liquidated by
actual deliveries, but 1t is altogether
out Of place in market whose vol
ume @ef trades is overwhelmingly
purely speculative.
w.
A trading system that can be ex-
plotted, or in palmer words that can
be beaten, is not capable Of establish
ing strictly neutral and impartial con-
ditions for trading; 1t helps to in
crease the load on the market and Is
therefore injurious to the producer.
The amount Of charges extracted from
the market by means Of the premium
on options to carry the imaginary sup
plies is estimated at eight times the
amount Of the charges incurred by
the actual supplies. yet the spots bear
the entire burden.
This injurious effect Is not the only
one that must be charged against the
present trading system; there Is yet
another perhaps even more serious
one; but both point to the neglect or
disregard of the same economic law
as their cause. I stated at the begin
ming that commodity market Is or
ganized for the purpose Of carrying
and distributing the supplies, and that
the total volume Of trades must be
regarded as the economic force which
carries out or accomplishes this pur-
pose; in other words, each trade must
in proportion to it's volume share In
the task of carrying and distributing
the supplies. But II all the trades arr
to have the same effect-are to per-
form the same function in the purpose
of the market, they must necessarily
have the same connection with the
supplies which they carry and dis
tribute. 1t Is the proper function OF
the trading system to establish this
common connection or basis for all
the trades. But the present trading
system fails to do this; 1t has estab-
lished two different bases one Of the
actual supplies for the physical trades
and an imaginary one for the purely
speculative trades. The support Of the
actual supplies devolves therefore en-
tirely on the physical trades, while the
market at the same time Is burdened
with the additional cost Of carrying
the imaginary supplies. The market
cannot be expected to respond to the
task imposed upon 1t If its real sus-
tanning power Is curtailed or limited
to only a small proportion Of the
trades; for If the support which the
speculative trades are supposed to
give to the supplies Is withheld, the
absence of this support must neces-
sarily be hurtful to the market and
lead to a corresponding decline in
price. 1t follows then that the natur-
al tendency Of the market to support
supplies in proportion to its increas-
ing activity and broadness Is COM
p,etely reserved by the present prac-
tice Of speculative trading, resulting
in the anomaly that the pressure
which actual supplies exert on the
market increases with the volume of
speculative trades and the activity Of
the market instead Of being diminish
ed thereby.
V.
tions has already indicated the rem
edy that must be applied in order to
bring the trading system into har-
mony with the economic principle
that govern the trade in staples in
speculative market. Speculative trad
ing does not really differ from other
trading; it can therefore not claim
any distinct economic laws Of its own
that would not be also applicable to
other branches Of business.
The question simply is to discern
these laws, express them in proper
form, and apply them correctly. II
this were done we would find that
speculation in staples, while tempted
by expected profit, Is in its economic
effect nothing else than trading for
the one purpose Of giving cooperative
support to the supplies Of the staple