246 L THE BOOK OF WHEAT 



as in Chicago br^New York.' This greatly facilitates dealing i 

 wheat, for a contract can be fulfilled by delivering a receip 

 Under ordinary conditions such receipts can be purchased in th 

 open market at any time, and consequently it is possible t 

 make a contract to deliver in the future receipts not yet ownec 

 Short sales of receipts complete the speculative machinery. 



"Hedging Sales." Two lines of compensating contracts ar 

 frequently carried by dealers and manufacturers, one in thei 

 business and one in the speculative market. For example, if 

 merchant buys 10,000 bushels of wheat for export, he sells th 

 same quantity of wheat in the speculative market. Later, whe 

 he sells his wheat, he buys in the market. Hedging in this man 

 ner is widely practiced by persons who deal in wheat for trad 

 profits only, for it eliminates all risks due to fluctuating prices 



Arbitrage Transactions consist in buying in one market an< 

 selling in another when there is difference enough between th 

 prices of the two markets to make such operations profitable 

 Arbitrage continues until the relative supply and demand o 

 the two markets is so changed that prices in both markets ar 

 practically the same. This does not mean, however, that specu 

 lators change prices at will by manipulating supply and demanc 

 in the various markets, for the speculative supply and demam 

 in the market are, under normal conditions, entirely dependen 

 upon the actual supply and demand existing outside of th< 

 market. 



The Functions of Speculation. Speculation is the flywhee 

 which imparts to the modern commercial machine a motion S( 

 uniform that all of its parts operate continuously and simul 

 taneously. As men produce and consume, as well as exchange 

 according to comparative prices, it also directs the productior 

 and consumption of commodities into the most advantageous 

 channels. Professional speculators are the men best equipped 

 for securing and interpreting news of variations in supply and 

 demand, and they determine a price that, with slight local varia- 

 tions, prevails throughout the wheat industry of the entire 

 world. Price, in turn, is a sensitive barometer Avhich records 

 the influence of every event which immediately or mediately 

 affects supply or demand. Speculation anticipates price-deter- 

 mining events to such an extent that it relieves the producer 

 from the risk of growing wheat that he may be obliged to sell 



