South Bend news-times. (South Bend, Ind.) 1913-1938, 1917-06-03
BY d. VI. ANDERSON, JR.. PHI. ID.
assistant Professor of Economics.
Harvard University

Mems memories are short. and IL
is perhaps too much TO ask that
congressman of today should have
freshly in mind the efforts made by
the federal congress in 1854 TO sta
Billie the value of the greenbacks
by closing the speculative exchanges
where gold and greenbacks were ex-
changed for one another. and for
bidding futures" in gold and for
eign exchange. Buying and selling
OF gold welt on, despite the closing
OF the organized markets CLOSING
the great organized market meant
merely that there were organized
and ACKNOWLEDGEMENTS Prices
of gold in greenbacks were much
more erratic than before, and green
backs sank TO almost the lowest
point they reached during the whole
OF their history. The act became a
law on June II. 1864. II remained
a law only two weeks ON the day
it passed gold was quote0 at 1913 in
sreenbacks. The next day gold
went TO EOS. the next TO 23O. and at
the end of the month to $50. The
congress repealed the act, without
debate. on July ,.
Functions of Speculation.
Economists are pretty well agreed
that normally the speculator per-
forms certain vital functions. it is
customary TO point out that specula-
ton to be socially useful must or
dinarily be competitive. No econo-
mist defends the efforts of a Letter
TO corner the wheat market, or
any other effort TO get so much Of
a commodity under a unified con-
troll that the group controlling it
can dictate prices. The functions
of competitive speculation ordinarily
emphasized by economists are:
1. The creation of time values, as
by carrying wheat over from the
time of abundance TO the time Of
scarcity
3. The leveling of prices through
out the year. giving higher prices TO
the producer at the time of harvest
and lower prices TO the consumtr la
ter in the year.
3. The risk-hearing function.
4. The directive or regulating
function.
To these should be added Rfth,
not so widely emphasized in discus
sions in America, though we'll recos-
nized by writer's who deal with the
London market. namely. that specu-
lators make il safe for banks 10 n
nance commodities in transit. and
commodities held for a later season,
by making a ready market for them,
them liquid"
/ wish to explain these functions
briefly, and 20 raise the question as
to how far the present situation rep
resents a breakdown of the normal
theory.
Aids I'm Providing Capital.
The first two functions art closely
connected. The man who carries
ice over from winter TO summer
creates time-values. His work in
wolves two elements. For one thing,
there is the physical storing of the
ice. But there is, further, the ii
nancing of the operation. the pro-
viding of capital TO pay for the
work done in the winter. when the
return is not TO come till the sum
mer. Some one must meet the in
terest charge on this. There are
further elements of uncertainty, II
may be a cold summer. and the OPP
Grafton may not prove paying one.
Some one must bar this risk.
Now the grain speculator is not
concerned with the work of storing
the grain in an elevator. His task y
to provide capital to carry il, and 10
bear the risk that is involved IN
carrying it, In practice. as a result
of the active market which specu-
lation creates, spectators need
provide only a part of the capital.
margin" Banks and brokers can
safely provide the rest because the
commodities are so marketable. But
the work of the Spectator Is need
ed TO get the capital provided.
Banks would not. and could not, as
sumo the risk involved in providing
ii all.
Let us assume a market which
would buy 900 bushels of wheat
at 30 cents per bushel, or $4,000 bu-
shells at so cents, or $4,000 at S1.1O,
OF 40. 1000 at 81, or 10000 at So.
Let us assume that at the harvest
time the farmers all sell their
wheat. 1000 bushels, at what they
can get. namely. 40 cents. Farmers
are discouraged. Next year, man.
of them will not plant wheat Whe9t
is wasted. IL is fed to the hogs Mil
lers handle IL carelessly. II is
CHEAP. Bread is thrown away. II
is cheap. Six months later, there Is
a famine. There are only 10000
bushels on the market. Wheat Is
selling at 81 per bushel. People are
hungry. Now l.. in the period OF
the harvest, a speculator sees these
possibilities, and buys 10000 bushels
of grain. takes il out of the mar
ket. and then. in the time of IA
mine. puts il back upon the mar
ket he has performed highly i'm
portant social service. He has taken
wheat away from the hogs, and fec
il 10 human beings. He has created
tive-values. He has prevented the
waste of bread in the time OF plen-
~. that there may be enough bread
in what would otherwise be a time
of famine Moreover, he has rails
ed the price 10 the farmer He can
not buy 10000 bushels of wheat at
H.