THE PRICE OP WHEAT 143 



cost of production (including rewards for managing 

 capabilities) will approximate closely. The less the 

 degree to which this freedom is realised, that is, the 

 greater the economic friction, then the greater will be 

 the diversity between cost of production and normal 

 price. 



Cost of production in the long run is the determinant 

 of value, and over long periods the price of wheat cannot 

 diverge widely from the expenses of producing it. Just 

 as the minimum limit to price is the cost of production, 

 so the maximum limit is fixed by the utility to the 

 consumer. The tendency of economic forces, however, 

 we have seen is to fix a price which is a close 

 approximation to cost of production, including fair 

 profits to the producers. 



Under normal conditions, such are the factors which 

 enter into the determination of the price of wheat. 

 Certain other influences operating of recent years are 

 of specific importance, and require passing reference. 



5. Speculation. 



The market for wheat affords, perhaps, the best 

 example of the latest developments in the mechanism 

 of speculation. The speculator undertakes an important 

 function in the marketing of wheat, and in examining 

 the factors under which wheat prices are fixed it is 

 necessary to give an account of his work, and to estimate 

 his influence on the market. This is the more imperative, 

 in view of the fact that this matter is the object of much 

 ill-informed criticism. But the complex nature of the 

 problems connected with modern speculation necessitates 

 careful treatment. At the outset we are confronted with 

 a great divergence of views on the ethical side of the 

 subject. Hostile criticism on this point arises from two 

 rather conflicting points of view. In the first place, it 

 is alleged that speculation is mere gambling, and has 



