Contemplating delivery: Futures trading and the problem of commodity exchange in the United States, 1875-1905

American Historical Review

Volumn 111, Issue 2, 2006, Pages 307-335

  Levy, Jonathan Ira ^a  

^a UNIVERSITY OF CHICAGO   (United States)

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EID: 33749817430     PISSN: 00028762     EISSN: None     Source Type: Journal    
DOI: 10.1086/ahr.111.2.307     Document Type: Review

References (222)

1. Henry Demarest Lloyd, "Making Bread Dear," North American Review, August 1883, 118.
2. Frank H. Knight, Risk, Uncertainty, and Profit (1921; repr., Chicago, 1971), 199.
3. House Committee on Agriculture, Fictitious Dealings in Agricultural Products: Hearings on H.R. 392, 2699, and 3870, 52nd Cong., 3rd sess., 1892, 186.
4. Between 1875 and 1905, organized commodities futures exchanges appear at the Chicago Board of Trade, New York Produce Exchange, New York Cotton Exchange, St. Louis Merchant's Exchange, Kansas City Board of Trade, Baltimore Corn and Flour Exchange, Toledo Board of Trade, New Orleans Cotton Exchange, Minneapolis Chamber of Commerce, Wichita Board of Trade, San Francisco Chamber of Commerce, Galveston Cotton Exchange, Detroit Board of Trade, Philadelphia Grain Exchange, Milwaukee Chamber of Commerce, Duluth Board of Trade, Omaha Grain Exchange, Seattle Grain Exchange, Portland Grain Exchange, New York Petroleum Exchange, Bradford Petroleum Exchange, and Oil City Petroleum Exchange. See Jerry W. Markhan, The History of Commodity Futures Trading and Its Regulation (New York, 1987), 7, 8;
5. S. S. Huebner, "The Function of Produce Exchanges," in Emory R. Johnson, ed., American Produce Exchange Markets (Philadelphia, Pa., 1911), 2;
6. Lloyd, "Making Bread Dear," 118;
7. and Merrill A. Teague, "Bucket Shop Sharks," Everybody's Magazine, 4 pts. (June-September 1906), pt. 1 (June), 723-725.
8. On the European exchanges, see G. Rühland, The Ruin of the World's Agriculture and Trade: International Fictitious Dealings in "Futures" of Agricultural Produce and Silver with Their Effect on Prices, trans. Charles W. Smith (London, 1896), 60-61,
9. and Fictitious Dealings, 101;
10. on Canada, see Robert E. Ankli, "The Decline of the Winnipeg Futures Market," Agricultural History 56, no. 2 (1982): 272-286;
11. on Argentina (and the global spread of futures trading in the twentieth century), see Secretariat of the United Nations Conference on Trade and Development, Commodity Exchanges around the World (Geneva: UNCTAD Secretariat, 2000), 6.
12. Fictitious Dealings, 48.
13. House Committee on the District of Columbia, Prohibition of Bucketing and Bucket Shopping, and Abolition of Bucket Shops, 60th Cong., 1st sess., H. Rep. 1387, 3.
14. The countries were Argentina, Austria, Belgium, Bulgaria, Denmark, Greece, Hungary, Italy, the Netherlands, Norway, Portugal, Romania, Russia, Serbia, Spain, Sweden, and Switzerland. See also Rühland, The Ruin of the World's Agriculture and Trade, 61, which cited the 1894 U.S. congressional hearings as a harbinger of 1896 German legislation restricting futures trading on the Berlin Produce Exchange.
15. Rühland, The Ruin of the World's Agriculture and Trade, 13.
16. Fictitious Dealings, 169.
17. The classic novel is Frank Norris, The Pit: A Story of Chicago (New York, 1903).
18. For social-scientific discussions, see Albert C. Stevens, " 'Futures' in the Wheat Market," Quarterly Journal of Economics 2, no. 1 (October 1887): 37-63,
19. and Henry Crosby Emery, Speculation on the Stock and Produce Exchanges of the United States (New York, 1896).
20. For only a few examples of print journalism, see Van Buren Denslow, "Board of Trade Morality," North American Review, October 1883, 372-388;
21. Richard Wheatley, "The New York Produce Exchange," Harper's Monthly Magazine, July 1886, 189-219;
22. J. R. Dodge, "Discontent of the Farmer," The Century, January 1892, 454;
23. Egerton R. Williams, "Thirty Years in the Grain Trade," North American Review, July 1895, 24-35;
24. and Charles Conant, "The Function of the Stock and Produce Exchanges," Atlantic Monthly, April 1903, 434.
25. For uses of these terms, see, for instance, Fictitious Dealings, 244;
26. Lyon v. Culbertson, 83 Ill. 33 (1876);
27. McGrew v. City Produce Exchange, 85 Tenn. 572 (1886);
28. and Senate Committee on Agriculture, Subcommittee on Agricultural Depression, Agricultural Depression: Causes and Remedies, 53rd Cong., 3rd sess., 1895, S. Rep. 787, 33.
29. On Canada, see Ankli, "The Decline of the Winnipeg Futures Market," and on Argentina, see United Nations Conference on Trade and Development, Overview of the World's Commodities Exchanges, 2001 (Geneva: UNCTAD Secretariat, 2001), 3.
30. On the Chicago Board of Trade, see William Cronon, Nature's Metropolis: Chicago and the Great West (New York, 1991);
31. Jonathan Lurie, The Chicago Board of Trade, 1859-1905: The Dynamics of Self-Regulation (Urbana, Ill., 1979);
32. and Ann Fabian, Card Sharps, Dream Books, and Bucket Shops: Gambling in 19th Century America (Ithaca, N.Y., 1990).
33. On agrarian revolt, see Lawrence Goodwyn, Democratic Promise: The Populist Moment in America (New York, 1976);
34. on corporate reconstruction, see Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass., 1980),
35. and Martin J. Sklar, The Corporate Reconstruction of American Capitalism, 1890-1916: The Market, the Law, and Politics (New York, 1988);
36. on Wall Street, see Steve Fraser, Every Man a Speculator: A History of Wall Street in American Life (New York, 2005);
37. on consumption, see William Leach, Land of Desire: Merchants, Power, and the Rise of a New American Culture (New York, 1994).
38. On the growth of financial instruments in early modern Europe, see Fernand Braudel, The Wheels of Commerce (Berkeley, Calif., 1992);
39. Simon Schama, The Embarrassment of Riches: An Interpretation of Dutch Culture in the Golden Age (New York, 1987), 343-371;
40. and Stuart Banner, Anglo-American Securities Regulation: Cultural and Political Roots, 1690-1860 (New York, 1998).
41. On the political significance of speculative finance in early national America, see Stanley Elkins and Eric McKitrick, The Age of Federalism: The Early American Republic, 1788-1800 (New York, 1994).
42. An abstract, mediated character is a feature of all capitalist exchange relations. See Moishe Postone, Time, Labor, and Social Domination: A Reinterpretation of Marx's Critical Theory (New York, 1996).
43. On the tendency of speculative finance, or "fictitious capital," to alter the geographical and temporal bases of capitalist production and exchange, see David Harvey, The Limits to Capital (New York, 1982).
44. For an overview of contemporary finance capitalism, see David Held, ed., Global Transformations: Politics, Economics, and Culture (Palo Alto, Calif., 1999).
45. Fictitious Dealings, 246.
46. See Louis Menand, The Metaphysical Club (New York, 2001),
47. and, especially on the matter of probability, Ian Hacking, The Taming of Chance (New York, 1990).
48. James Livingston has noted an epistemological shift in the political economy and. culture of the U.S. during these years. His focus, however, is the corporation and the construction of a new "social self." See Livingston, Pragmatism and the Political Economy of Cultural Revolution, 1850-1940 (Chapel Hill, N.C., 1997).
49. Board of Trade v. Christie, 198 U.S. 236 (1905).
50. So, for example, suppose that on May 1, trader A sold to trader B 45,000 bushels of "September wheat" at $10 per bushel. Then, come September 1, the price of "September wheat" fell to $8 per bushel. If need be, trader A could have gone into the pit and purchased 45,000 bushels of "September wheat" from a third-party, trader C, at $8 per bushel. Trader A would have delivered that contract to trader B. Trader B would have paid trader A the "contract price" of $10 per bushel, and so trader A, by this practice of "selling short," would have profited $2 by a factor of 45,000 bushels, or $90,000. If the price had instead risen to $12, trader B would have stood to profit by $90,000 on his "long" position. Eventually, traders dispensed with trader C altogether, and simply "set off on the difference between contract price and market price.
51. See, for one example of "time contracts," Barnard v. Backhaus, 52 Wisc. 593 (1881), 599,
52. and, for trading in "differences," Fictitious Dealings, 202.
53. The description of Sawyer's business throughout this section is taken from Fictitious Dealings, 29-40, 64-71.
54. Approximately 70 percent of the acreage in Minnesota and the Dakotas in the early 1890s was in wheat, and 85 percent of that wheat was exported. See C. Knick Harley, "Transportation, the World Wheat Trade, and the Kuznets Cycle, 1850-1913," Explorations in Economic History 17, no. 3 (1980): 232.
55. Henry Demarest Lloyd reported that at the New York Produce Exchange, orders were received from London, Liverpool, Glasgow, Edinburgh, Dublin, Cork, Bordeaux, Marseilles, Zurich, Le Havre, Antwerp, Amsterdam, Berlin, and Hamburg. Lloyd, "Making Bread Dear," 121. On the formation of a world market for agricultural products between 1876 and 1913, see Ronald Findlay and Kevin H. O'Rourke, "Commodity Market Integration, 1500-2000," in Michael D. Bordo, Alan M. Taylor, and Jeffrey G. Williamson, eds., Globalization in Historical Perspective (Chicago, 2003), 41-43.
56. Fictitious Dealings, 31, 37-38.
57. Any precise number is an educated guess. Judge Wilbur F. Boyle of St. Louis calculated that estimate. Boyle compiled the volume of futures trades from all the U.S. exchanges. The only exchange that did not keep figures was the Chicago Board of Trade, but Boyle computed a number for Chicago by extrapolating from the volume of grain delivered to Chicago and from the widespread belief that futures trading in Chicago was "fifteen times" greater than in St. Louis. Fictitious Dealings, 245.
58. See also the very similar calculations of Rühland, The Ruin of the World's Agriculture and Trade, 5.
59. See Cronon, Nature's Metropolis, 97-148.
60. Minutes, April 5, 1877, Board of Managers, New York Produce Exchange, Archives of the New York Historical Society; Rühland, The Ruin of the World's Agriculture and Trade, 47.
61. Yet even the greatest nineteenth-century scholar of futures markets, Henry Crosby Emery, admitted that "It is difficult to say how early dealings in 'futures' in the United States began." Emery, Speculation, 40.
62. But the 1870s and early 1880s appear to be the likely period. Speculation in the petroleum trade had begun in 1873. Even more indicative, the first U.S. clearinghouse to "set off multiple transactions at once appeared in Chicago in 1884. The first clearinghouse in produce was actually adopted in Liverpool in cotton in 1876. See Emery, Speculation, 41, 69.
63. Economist Jeffrey C. Williams contends that futures trading, in effect, was present as early as 1848. Williams, "The Origins of Futures Markets," Agricultural History 56, no. 1 (1982): 306-316.
64. The organized exchanges were tight-lipped about trading practices in the public record, but fantastical descriptions of trading can be found in legal testimony. See especially the testimony throughout in U.S. Supreme Court Briefs and Records, no. 280, Board of Trade, 198 U.S. 236, which totals 1,562 pages.
65. Also Fictitious Dealings,
66. and Emery, Speculation, 32-74.
67. For a listing of commodities traded, see Board of Trade of the City of Chicago, The Thirty-fifth Annual Report of the Trade and Commerce of Chicago for the Year Ending December 31st, 1892 (Chicago, 1893), 2-249.
68. The Amsterdam "Bourse" of the seventeenth-century Netherlands was described by the Sephardic Jew Joseph de la Vega in his Confusion de Confusiones of 1688. On the tulip mania, see Schama, The Embarrassment of Riches, 343-371.
69. Negotiable financial instruments were not unfamiliar to early modern Britain, either, but were mostly in the form of stocks and bonds, not commodities. See Banner, Anglo-American Securities Regulation.
70. On the market in securities and bonds in antebellum New York, see Walter Werner and Steven T. Smith, Wall Street (New York, 1991).
71. See Postone, Time, Labor, and Social Domination,
72. and Harvey, The Limits to Capital.
73. For descriptions of bucket shops, see Fictitious Dealings, 53-59, 94, 125, 152, 165, 175, 180, 187, 230, 246, 281, 305;
74. John Hill, Jr., Gold Bricks of Speculation (Chicago, 1904), 19-93;
75. Patton Thomas, "Bucket Shops in Speculation," Munsey's Magazine, October 1900, 68-70;
76. Teague, "Bucket Shop Sharks," pt. 1 (June), 723-725;
77. Teague, "Bucket Shop Sharks," pt. 2 (July), 33-43;
78. Teague, "Bucket Shop Sharks," pt. 3 (August), 245-254;
79. Teague, "Bucket Shop Sharks," pt. 4 (September), 398-408;
80. C. C. Christie, "Bucket Shop vs. the Board of Trade," Everybody's Magazine, November 1906, 707-713;
81. and Christie, Shall the Chicago Board of Trade, Aided by the Kansas City Board of Trade, the Minneapolis Chamber of Commerce and the New York Cotton Exchange, Be Allowed to FORMA TRUST in the Great Agricultural Staples of the United States? An Answer to Merrill A. Teague's Denunciation of Bucket-Shops (Kansas City, 1906).
82. The British traveler James Bryce noted in 1888 with reference to bucket-shopping in securities, "In many country towns there are small offices, commonly called 'bucket shops,' " whose clientele included "the whole community, not merely city people but also store keepers... even farmers, even domestic servants." Bryce quoted in Werner Sombart, Why Is There No Socialism in the United States? (White Plains, N.Y., 1976), 134.
83. For the extant secondary literature on bucket shops, see Cedric B. Cowing, Populists, Plungers, and Progressives: A Social History of Stock and Commodity Speculation, 1890-1936 (Princeton, N.J., 1965), 25-74,
84. and Fabian, Card Sharps. At a typical bucket shop, customers placed a margin with the proprietor of the shop to secure the transaction. If the market went in the shop's favor, the transaction was closed out as soon as the fluctuation equaled the margin. If the market went in the customer's favor, he or she could close the transaction at will and collect the difference. Most often it seems that customers wagered on rises, leaving the shop owners in a perpetual short position. This might account for the many closings of shops (if prices suddenly rose).
85. Legal cases are the most effective register of the wide presence of bucket-shop trading in commodities futures. See, in Alabama, Queen City Stock & Grain Co. v. Cunningham, 29 So. 583 (1900); in Arkansas, Fortenbury v. State, 1 S.W. 58 (1886); in Colorado, Pendleton v. Smissaert, 29 P. 521 (Col. Ct. App. 1892); in Connecticut, State v. Flint, 28 A. 28 (1893); in the District of Columbia, Lappin v. District of Columbia, 22 App. D.C. 68 (D.C. Cir. 1903); in Georgia, Dancy v. Phelan, 10 S.E. 205 (1888); in Indiana, Fleming v. Yost, 36 N.E. 705 (1894); in Iowa, People's Savings Bank of Des Moines v. Gifford, 79 N.W. 63 (1899); in Kansas, Carey v. Myers, 141 P. 602 (1914); in Kentucky, Smith v. Western Union Telegraph, 2 S.W. 483 (1887); in Louisiana, State ex. rel. v. Shakespeare, 6 So. 592 (1889); in Michigan, People v. Hess, 48 N.W. 181 (1891); in Minnesota and North Dakota, Merchants National Bank of Grand Forks v. Sullivan, 65 N.W. 924 (1896); in Missouri, State v. Crab, 26 S.W. 548 (1894); in Nebraska, Watte v. Wickerman, 43 N.W. 249 (1889); in North Carolina, State v. Clayton, 50 S.E. 866 (1905); in Ohio, Cone v. Bright, 68 N.E. 3 (1903); in Oregon, Mellott v. Downing, 64 P. 393 (1901); in Pennsylvania and Maryland, Baxter v. Deneen, 57 A. 601 (Md. Ct. App. 1903); in Tennessee, McGrew v. City Produce Exchange, 4 S.W. 38 (1886); in Texas, Goldstein v. the State, 36 S.W. 278 (Tex. Ct. Crim. App. 1896); in Utah, Overholt v. Burbridge, 79 P. 561 (1905); and in Vermont, State v. Corcoran, 50 A. 1110 (1901). Merrill Teague's 1905 exposé of bucket-shop trading in Munsey's listed bucket-shop firms in numerous cities and towns in the United States. Teague, "Bucket Shop Sharks." State statutes confirm a presence in California, West Virginia, New Hampshire, Wisconsin, and Mississippi;
86. see T. Henry Dewey, Legislation against Speculation and Gambling in the Forms of Trade, Including "Futures, " "Options, " and "Short Sales " (New York, 1905), 13-14. The predominantly rural state of West Virginia actually had legislation condoning bucket shops.
87. For instance, Teague, "Bucket Shop Sharks," pt. 2 (July), 41,
88. and Sereno Pratt, The Work of Wall Street (New York, 1903), 381.
89. Bucket shops in the East, whose heyday appears to have been after 1900, tended to deal more in stocks, while bucket shops in the West usually dealt in grain futures, and those in the South in cotton futures.
90. Dewey, Legislation against Speculation and Gambling, 7.
91. "Number of Bucket Shops Closed," New York Times, March 28, 1895.
92. Quoted in Hill, Gold Bricks, 54.
93. It is also how a great many Americans came in contact with speculative financial trading. On the lack of popular participation in formal securities markets until the 1920s, see Fraser, Every Man a Speculator, 389, 391.
94. For the example of the Chicago Board of Trade's regulation of itself, see Lurie, The Chicago Board of Trade, 23-52.
95. Pickering v. Cease, 79 Ill. 328 (1875), 329.
96. On the common law of contract and wagering, see Roy Kreitner, "Speculations on Contract, or How Contract Law Stopped Worrying and Learned to Love Risk," Columbia Law Review 100, no. 4 (May 2000): 1096.
97. Pickering, 79 Ill., 329.
98. On "executory contracts," see Morton J. Horwitz, The Transformation of American Law, 1780-1860 (Cambridge, Mass., 1977), 160-210.
99. The court here was seemingly drawing upon notions of the "general welfare" explicated in William Novak, The People's Welfare: Law and Regulation in Nineteenth-Century America (Chapel Hill, N.C., 1996).
100. Pixley v. Boynton, 79 Ill. 351, 353.
101. On the problem of establishing intent, see Julius Aroni, Futures (New Orleans, La., 1882);
102. T. Henry Dewey, A Treatise on Contracts for Future Delivery and Commercial Wagers, Including "Options, " "Futures, " and "Short Sales" (New York, 1886);
103. Morton John Stevenson, "Gambling Contracts," Michigan Law Journal 35 (1897): 35-40;
104. and Reitner, "Speculations on Contract," 1105.
105. The case in which the Illinois court developed the doctrine of contemplating delivery and moved away from Pickering was Pixley, 79 Ill., 351. See also Wolcott v. Heath, 78 Ill. 433 (1875); Sandborn v. Benedict, 78 Ill. 309 (1875); and Lyon v. Culbertson, 83 Ill. 33 (1876).
106. Prior to 1884, courts that interpreted traders' trading intentions as favorable to their interests included, in a Missouri federal appeals court, Williams v. Tidemann, 6 Mo. App. 269 (Mo. Ct. App., 1878); in New York, Kingsbury v. Kirwan, 77 N.Y. 612 (N.Y. Ct. App., 1879); and in Michigan, Gregory v. Wendell, 40 Mich. 432 (1879). Striking down futures trading for not adequately contemplating delivery were, in Nebraska, Rudolf v. Winters, 7 Neb. 125 (1878); in Kentucky, Wallace v. Taggart, 14 Bush 727 (Ken. Ct. App., 1879); and, once again, in Illinois, Tenney v. Foote, 4 Ill. App. 594 (Ill. Ct. App., 1879), and Beveridge v. Hewitt, 8 Ill. App. 467 (Ill. Ct. App., 1881); in Alabama, Hawley v. Bibb, 69 Ala. 52 (1881); in Iowa, Melchert v. American Union Telegraph Co., 11 F. 193 (Cr. Ct., 1882); and in Kansas, Cobb v. Prell, 15 F. 774 (Cr. Ct., 1883).
107. Barnard, 53 Wis., 600.
108. Not coincidentally, the organized exchanges found it in their own interest to keep members' disputes out of the court. For the example of the Chicago Board of Trade, see Lurie, The Chicago Board of Trade, 23-52.
109. Irwin v. Williar, 110 U.S. 499 (1884). Post-Irwin decisions unfavorable to brokers were, in Indiana, Whitesides v. Hunt, 97 Ind. 191 (1884); in Illinois, Pearce v. Foote, 113 Ill. 228 (1885); in Missouri, Crawford v. Spencer, 4 S.W. 713 (1887); the Supreme Court decision Embrey v. Jemison, 131 U.S. 336 (1889); in Ohio, Kahn v. Walton, 20 N.E. 203 (1889), and Lester v. Buel, 30 N.E. 821 (1892); in Iowa, First National Bank of Creston v. Carrole, 45 N.W. 304 (1890); in Maryland, Billingslea v. Smith, 26 A. 1077 (Md. Ct. App., 1893); in Missouri, Connor v. Black, 24 S.W. 184 (1893); and in Tennessee, McGrew v. City Produce Exchange, 4 S.W. 38 (1886).
110. In response to farmers' agitation, a few state legislatures passed laws purportedly banning futures trading in the 1880s. Yet state courts often interpreted them according to their own, more lenient standard of "contemplating delivery," effectively nullifying their intent. On state laws, Dewey, Legislation against Speculation and Gambling, 13, 14,
111. and Carl Parker, "Governmental Regulation in Produce Markets," in Johnson, American Produce Exchange Markets, 126-155.
112. For an example of state courts' nullifying the intent of the law through invoking "contemplating delivery" by fiat, see Fortenbury v. State, 1 S.W. 58 (1886).
113. A process similar to what occurred in Arkansas took place in Illinois; see Dewey, A Treatise on Contracts, 104.
114. See, for one example of agitation against futures by state farmers' organizations, Sawyer's home state of Minnesota, The Minnesota State Fanners' Alliance: Constitution and By-laws, Declaration of Principles, Resolutions, Officials, Etc. (St. Paul, Minn., 1890), 15.
115. The ban in the Omaha platform was the culmination of previous national alliance meetings that had also condemned futures. See Proceedings of the Annual Session of the Farmers and Laborers Union of America at St. Louis, Mo., December 3 to 7, 1889 (Washington, D.C., 1890), 51;
116. Proceedings of the Annual Session of the Farmers and Industrial Union at Ocala, Florida, December 2 to 8, 1890 (Washington, D.C., 1891), 33;
117. and Proceedings of the National Farmers'Alliance Eleventh Annual Meeting, Omaha, Nebraska, January 27, 28, and 29, 1891 (Des Moines, Iowa, 1891), 5.
118. The Senate held hearings as well. Representatives of the exchanges reiterated these themes before the Senate. See Dealings in "Options" and "Futures": Protests, Memorials and Arguments against Bills Introduced in the Fifty-second Congress, Issued by the New York Cotton Exchange, New Orleans Cotton Exchange, Board of Trade of the City of Chicago, New York Produce Exchange (New York, 1892), 1-135.
119. Fictitious Dealings, 235, 282, 260, 268, 190;
120. Senate Committee on Agriculture, Agricultural Depression, 33.
121. Fictitious Dealings, 282, 297, 48.
122. Charles Pillsbury also leveled the "anarchist" accusations; ibid., Fictitious Dealings 207.
123. On violating the protective tariff, see ibid., Fictitious Dealings 246, 296.
124. Ibid., Fictitious Dealings 22, 157, 124. John W. Labouisse of the New Orleans Cotton Exchange and Dennison Smith of the Toledo Board of Trade made arguments similar to Kneeland's, finding no epistemological distinction to be made between physical delivery and "setting off." Ibid., 98, 224.
125. Ibid., Fictitious Dealings 129, 101.
126. See Held, Global Transformations, 182.
127. Fictitious Dealings, 53, 150;
128. Proceedings of the National Farmers' Alliance Eleventh Annual Meeting, 1.
129. On the issue of play, see also Fictitious Dealings, 202, 210, 311, 330,
130. and Lloyd, "Making Bread Dear," 119.
131. On futures trading as "intelligent," and thus real work, see Fictitious Dealings, 122, 158,
132. and Denslow, "Board of Trade Morality," 375-376.
133. On the professionalization of speculation in general, see also Fabian, Card Sharps, 188, 191, 195;
134. Cowing, Populists, Plungers, and Progressives, 28-30;
135. and Fraser, Every Man a Speculator, 251.
136. The insurance argument mirrored many of the same defenses of "speculation" that appeared in academic circles and the popular press at this time. See Denslow, "Board of Trade Morality," 377;
137. Charles A. Conant, "The Uses of Speculation," The Forum, August 1901, 712;
138. Emery, Speculation, 100;
139. Emery, "The Place of the Speculator in the Theory of Distribution," Publications of the American Economic Association 1, no. 1 (Feb. 1900): 103-122;
140. "The Value of Speculation," Wall Street Journal, April 13, 1903;
141. and Arthur T. Hadley, Economics: An Account of the Relations between Private Property and Public Welfare (New York, 1904), 122.
142. On the insurance of "society" as a whole, see Fictitious Dealings, 139, 215, 227.
143. Ibid., Fictitious Dealings 67.
144. Futures dealers often interjected "consumers" as a class that distribution should be subservient to over producers. Ibid., Fictitious Dealings 21, 284.
145. Ibid., Fictitious Dealings 289.
146. Others have commented on farmers' political responses to high-risk-bearing agriculture, although without focusing on the equity of futures markets as a risk-management institution. See Ann Mayhew, "A Reappraisal of the Causes of Farm Protest in the United States, 1870-1900," Journal of Economic History 32 (1972): 464-476,
147. and, for the original outlines of the argument, Douglass North, Growth and Welfare in the American Past (Englewood Cliffs, N.J., 1966).
148. Farmers' marketing cooperatives were one alternative, but they struggled on account of deficiencies in liquid capital. The testimony of agrarian leader Charles Macune mentioned the lingering practice of sale by physical sample; Fictitious Dealings, 252-255.
149. On the cooperative movement, see, for example, in Sawyer's home state of Minnesota, Steven Keillor, Cooperative Commonwealth: Co-ops in Rural Minnesota, 1859-1939 (St. Paul, Minn., 2003).
150. The added problem, besides the lack of a hedging mechanism, was the lack of funds for storage. In other words, small farmers were left with a one-month period to sell to the likes of Sawyer, who could then store the grain while purchasing a futures contract to hedge against it until the market rose.
151. Under the Populists' "subtreasury plan," the government would provide warehouses and financial incentives for farmers to hold back their products from a depressed market, in effect internalizing risk on behalf of the farmer. See Macune's testimony in Fictitious Dealings, 252-255.
152. In the twentieth century, farmers successfully lobbied for policies that involved greater state involvement in agricultural marketing. See Elizabeth Sanders, Roots of Reform: Farmers, Workers, and the American State, 1877-1917 (Chicago, 1999).
153. See Macune's testimony in Fictitious Dealings, 252-255.
154. On the Hatch bill vote, see Cowing, Populists, Plungers, and Progressives, 18-22.
155. The last hurrah in Congress for agrarian radicals critical of futures was the report on agricultural depression issued by Populist senator William A. Peffer. See Senate Committee on Agriculture, Agricultural Depression, 33.
156. But see also the 1901 report of Congress's Industrial Commission, which included critical passages of speculation in futures. U.S. Industrial Commission, Report of the Industrial Commission on the Distribution of Farm Products (Washington, D.C., 1901), 189-225.
157. For instance, in his exposé of bucket-shop trading in Everybody's Magazine in 1906, Merrill Teague estimated that the number of bucket shops increased from hundreds in the 1890s to easily thousands by the turn of the century.
158. Teague, "Bucket Shop Sharks," pt. 4 (September), 407.
159. For examples of dealers' critiques of bucket shops, set Fictitious Dealings, 176, 125, 180, 206.
160. Many "handlers" characterized bucket shops and boards of trade as similarly illegitimate. According to Charles Pillsbury, "in the bucket shop perhaps 99 per cent of the trading is illegitimate," whereas in the pits, "90 per cent is illegitimate." Pillsbury, in Fictitious Dealings, 187.
161. See Christie, Shall the Chicago Board of Trade...Be Allowed?, 14.
162. Historians of bucket shops, such as Ann Fabian and Jonathan Lurie, tend to agree with the Chicago Board of Trade that bucket-shop trading was an immoral, unproductive form of gambling, whereas I argue that farmers most likely sensed their risk-management functions. See Fabian, Card Sharps, 150-203,
163. and Lurie, The Chicago Board of Trade, 75-103, 168-199.
164. Fictitious Dealings, 305.
165. Ibid., Fictitious Dealings 125, 175.
166. Davis accused organized exchanges of leveling the gambling charge at bucket shops for reasons of pure self-interest; ibid., Fictitious Dealings 281.
167. Christie, Shall the Chicago Board of Trade...Be Allowed?, 38.
168. Agrarian radicals, whose real target was the pits, moved such laws through state capitals. Later, toward the turn of the century, precocious progressive reforms supported bills that supposedly attacked the "vice" of gambling in bucket shops, or of "options" in the pits. See Fabian, Card Sharps, 150-203.
169. Illinois, Missouri, and Ohio were the states with laws explicitly banning "options." The anti-bucket shop laws of other states could have been interpreted to encompass options as well. See Dewey, Legislation against Speculation and Gambling, 13-14, for a compendium of these laws, which covered some twenty-one states and the Indian territory. See also Parker, "Governmental Regulation in Produce Markets."
170. The distinctions between an option and a future were inordinately confusing to contemporaries. On the floor of the U.S. Congress in 1894, an attempt to define an "option" brought down laughter from the body. See Anti-Option Legislation: Paternal Interference with Business, Speech of Hon. John De Witt Warner of New York in the House of Representatives, Monday, June 18, 1894 (Washington, D.C., 1894), 6.
171. On the presence of options trading among members of organized exchanges, acknowledged by representatives of the exchanges, see Fictitious Dealings, 95, 167, 175, 182, 221, 245.
172. See also Dewey, A Treatise on Contracts, 89.
173. When the Chicago Board of Trade began its battle against the bucket shops, the exchange cracked down on options trading. Apparently, options sales were then wired to the Milwaukee Chamber of Commerce, where tum-of-the-century observers began citing a Milwaukee market for Chicago options. Legal trading in options would come first to Milwaukee in 1902. See "The Exchanges of Minneapolis, Duluth, Kansas City, Mo., Omaha, Buffalo, Philadelphia, Milwaukee and Toledo," in Johnson, American Produce Exchange Markets, 251.
174. Quoted in Dewey, Legislation against Speculation and Gambling, 52.
175. It is a testament to the bucket shops' competitive strength that the organized exchanges, in great peril to their legal existence, pursued these disputes, especially after 1892. The Chicago Board led the campaign probably because it was the largest speculative market (with New York a solid second), both for hedging purchases and for what can only be described as gambling.
176. New York and Chicago Grain and Stock Exchange v. Chicago Board of Trade, 19 N.E. 855 (1889).
177. Christie's charge was threefold: the board was a monopolistic trust in violation of the federal Sherman Anti-Trust Act; the board's prices were infected with illegal conduct and so could be carried off by anyone; and the board's prices were cloaked with a public use, and should not be withheld from the citizenry. Board of Trade, 198 U.S., 236-246.
178. See Teague, "Bucket Shop Sharks," pt. 2 (July), 40,
179. and Christie, "Bucket Shop vs. the Board of Trade," 713.
180. The nuances of the "bucket-shop war" narrative are necessarily truncated in my account. For a fuller treatment, see Lurie, The Chicago Board of Trade, 75-105, 168-199, and
181. Fabian, Card Sharps, 153-203.
182. Board of Trade, 198 U.S., 236.
183. Board of Trade, 198 U.S., 246.
184. Board of Trade v. O'Dell Commission, 115 F. 574 (Ct. App., 1902), 587, 588. See also Christie v. Board of Trade 125 F. 161 (Ct. App., 1903), and Board of Trade v. Donovan, 121 F. 1012 (Ct. App., 1902).
185. Christie, "Bucket Shop vs. the Board of Trade," 710.
186. "When this species of gambling on the commercial and stock exchanges of the country ceases," that same district court held, "the bucket shops will disappear, and not before." Board of Trade v. O'Dell Commission, 115 F., 588.
187. Christie, Shall the Chicago Board of Trade... Be Allowed?, 22.
188. In an all-night session, the bill lost, 73-63. "Kills Board of Trade Bill," New York Times, May 8, 1905.
189. On the widespread legal doctrinal influence of Christie, see "Nature and Validity of 'Hedging' Transactions on the Commodity Market," American Law Reports 20 (1920): 1422;
190. "Validity of Transactions in Futures," American Law Reports 83 (1933): 522;
191. J. C. McMath, "Puts and Calls and Board of Trade of Chicago," Central Law Journal 99 (April 1926): 114-115,
192. J. C. Judson, "Validity of Transactions on the Board of Trade," Illinois Law Review 19 (April 1925): 644-658;
193. and Edwin Patterson, "Hedging and Wagering on Produce Exchanges," Yale Law Journal 40, no. 6 (April 1931): 843-884.
194. At the time, Christie was widely cited and extracted in a variety of academic, periodical, and print publications. See, for example, A. F. Lindley, "Essentials of an Effective Futures Market," Journal of Farm Economics 19, no. 1 (February 1937): 321-330;
195. George F. Stone, "Board of Trade of the City of Chicago," Annals of the American Academy of Political and Social Science 38, no. 2 (September 1911): 189-205;
196. and Teague, "Bucket Shop Sharks," pt. 4 (September), 408.
197. For the immediate response, see "Sounds the Doom of Bucket Shops," Chicago Daily Tribune, May 9, 1905;
198. "A Judicial Vindication," Chicago Daily Tribune, May 10, 1905;
199. "Speculation According to the Supreme Court," Wall Street Journal, May 10, 1905;
200. and "Justice Holmes Defends Board of Trade Speculation - Its Dealings Are Not Mere Wagers," Washington Post, May 9, 1905.
201. Board of Trade of the City of Chicago, The Forty-eighth Annual Report of the Trade and Commerce of Chicago for the Year Ended December 31st, 1905 (Chicago, 1906), xlix-li.
202. Board of Trade, 198 U.S., 246-249.
203. Christie, Shall the Chicago Board of Trade...Be Allowed?, 24.
204. Oliver Wendell Holmes, Jr., to Frederick Pollock, August 30, 1929, in Mark DeWolfe Howe, ed., Holmes-Pollock Letters: The Correspondence of Mr. Justice Holmes and Sir Frederick Pollock, 1874-1932 (Cambridge, Mass., 1941), 2: 252.
205. Oliver Wendell Holmes, Jr., The Common Law (Boston, 1881), 300.
206. For a recent restatement of some of the distinctions that should be made between Holmes's and James's thought, see David A. Hollinger, "The 'Tough-Minded' Justice Holmes, Jewish Intellectuals, and the Making of an American Icon," in Hollinger, Science, Jews, and Secular Culture: Studies in Mid-Twentieth-Century American Intellectual History (Princeton, N.J., 1998), 44.
207. Oliver Wendell Holmes, Jr., to Harold Laski, March 29, 1917, in Mark DeWolfe Howe, ed., Holmes-Laski Letters: The Correspondence of Mr. Justice Holmes and Harold J. Laski, 1916-1935 (Cambridge, Mass., 1963), 1: 70; Holmes to Laski, January 28, 1927, ibid., 2: 917.
208. William James, Pragmatism: A New Name for Some Old Ways of Thinking (Boston, 1907), 113.
209. The foundational work of scholarship linking the thought of James and Holmes is still Morton White, Social Thought in America: The Revolt against Formalism (New York, 1949),
210. which argues that the two shared a "revolt against formalism." See also Morton J. Horwitz, The Transformation of American Law, 1870-1960: The Crisis of Legal Orthodoxy (New York, 1994), 454-463,
211. and Menand, The Metaphysical Club, 409-433.
212. Others have commented on the intellectual triumph of probability and its ideological consequences in this period. See Hacking, The Taming of Chance,
213. which focuses on another American pragmatist, Charles Sanders Peirce, and Jackson Lears, Something for Nothing: Luck in America (New York, 2003), 187-227, which posits an incomplete victory for a culture of corporate control over a William Jamesian culture of chance.
214. William James, Essays in Radical Empiricism (New York, 1912), 28, 16-17.
215. First published as William James, "Does Consciousness Exist?" Journal of Philosophy, Psychology, and Scientific Methods 1 (1904): 477-491.
216. Board of Trade, 198 U.S., 249.
217. James, Pragmatism, 80; emphasis added.
218. Board of Trade, 198 U.S., 250.
219. James, Pragmatism, 80.
220. Board of Trade, 198 U.S., 250.
221. See Markhan, The History of Commodity Futures Trading;
222. "The Frontline of Futures: Eurex Attacks, Chicago's Exchanges Defend Themselves," The Economist, November 13, 2003.