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FUTURE TRADING
FUTURE TRADING
UPON
ORGANIZED COMMODITY MARKETS
IN THE
UNITED STATES
by
G. WRIGHT HOFFMAN
Professor of Insurance in the University of Pennsylvania

Consulting Economist to the Grain Futures Adminis-
tration United States Department of Agriculture
PHILADELPHIA
U N I V E R S I T Y OF PENNSYLVANIA P R E S S
London: Humphrey Milford: Oxford University Press
1932
Copyright 1932
UNIVERSITY OF PENNSYLVANIA PRESS
Printed in the United States of America
To
Florence Fernstrum Hoffman
PREFACE
The purpose of a preface is usually two-fold: to permit the
author to acknowledge his indebtedness to others, and to allow
him to venture an opinion regarding the place and use of his
treatise. In both of these matters, the statements of authors are
always greatly abridged and, partly because they are abridged
and partly due to the inherent difficulties of the task, are usually
defective. The present preface is not an exception in these re-
gards.
In the matter of indebtedness to others, I am sincerely grate-
ful to my colleagues in the University of Pennsylvania for
counsel and assistance and particularly to Professors S. S.
Huebner and H. J. Loman. I am, also, greatly indebted to my
associates in the work of the Grain Futures Administration in
the United States Department of Agriculture, particularly to
Dr. J. W. T. Duvel, Chief of the Grain Futures Administration,
Mr. J. M. Mehl, Assistant Chief, Mr. H. S. Irwin, Agricultural
Economist, and Mr. Ε. M. Blaylock, Assistant Chief Account-
ant.
Beyond the limits of these two groups, I am indebted to a
number of men actively engaged in the grain and cotton trade.
These include Mr. W. G. Reed of Geo. H. McFadden and
Brother, Mr. Lowell Hoit of Lowell Hoit and Company, Mr.
A. R. Marsh of the New York Cotton Exchange, Mr. Louis
Sayre of the Rosenbaum Grain Corporation, Mr. J. H. Frazier
of the Commercial Exchange of Philadelphia, Mr. Karl H.
Rehnberg and Mr. E. J. Dies both of the Chicago Board of
Trade. Each of these men read portions of the manuscript and
supplied valuable criticism which I am glad here to acknowl-
edge. From Mr. Reed and Mr. Hoit especially, I have had most
generous help. The secretaries of the various exchanges have
kindly supplied me with needed reports and information. To
these and many others whom I have called upon for informa-
tion or counsel my sincere thanks are due.
vii
viii PREFACE
Concerning the purpose of this study, my main object has

been to describe accurately the nature of future trading. Accu-
rate description in this field as in most others implies unfolding,
apprehending and explaining cause and effect among many ap-
parent interrelationships. No one is aware more than I how im-
perfectly this has been done in the present study. All too often
examples believed to be representative have been substituted
for adequate sampling, and approximations rather than gener-
alizations have followed. Beyond the limits of my main objec-
tive, I have at appropriate points, suggested possible solutions
to certain of the more important problems and matters of policy
in this field, all of which are ventured with due regard to the
difficulties involved.
For those having no knowledge of future trading, the whole
of Part I should be read before attempting Part I I ; for those
having a general knowledge of the form of trading in futures,
Chapters I and VI of Part I are suggested as a prerequisite to
a reading of Part II. Chapter summaries and a general sum-
mary in Chapter XXII enumerate the principal points consid-
ered.
G. WRIGHT HOFFMAN
Philadelphia,
October, 1931
CONTENTS
PARTI
ORGANIZATION AND OPERATION OF

FUTURE MARKETS
Page
Chapter I. ECONOMIC POSITION OF FUTURE TRAD-
ING
Chapter II. EVOLUTION OF FUTURE TRADING : GRAIN

AND PROVISIONS 13
1. Development of the American grain trade.
2. Types of grain trading.
3. Standardization of the to arrive" contract
4. Future trading.
5. Organization of grain future markets.
6. Summary.
Chapter III. EVOLUTION OF F U T U R E T R A D I N G : COT-
TON AND O T H E R COMMODITIES 35
1. Cotton.
2. Coffee, sugar, cottonseed oil, flaxseed.
3. Development since the World War.
4. Summary.
Chapter IV. GRAIN MARKETING 58
1. The marketing process.
2. Marketing at country points.
3. Terminal marketing.
4. The grading of grain.
5. Summary.
Chapter V. COTTON MARKETING 79
1. The production and consumption of cotton.
2. The classification of cotton.
3. Local marketing.
4. The central markets.
5. Summary.
Chapter VI. T H E FUTURE CONTRACT AND ITS U S E . . 99
1. The future contract.
2. Cash vs. future contracts.
3. Legal nature of the future contract.
4. Summary.
Chapter VII. T H E MARKET STRUCTURE : TRADING F A -
CILITIES 119
1. Physical equipment.
2. Market reports and news.
IX
CONTENTS
Chapter V I I I . T H E M A R K E T S T R U C T U R E : BROKERS A N D
TRADERS 133
1. Brokers.
2. Traders.
3. Summary.
Chapter IX. ORGANIZATION AND RULES OF EX-
CHANGES 147
1. The nature of an exchange.
2. Organization of exchanges.
3. Rules and regulations of Exchanges.
4. Summary.
Chapter X. T R A D I N G PROCEDURE 161
1. The operations of trading.
2. Kinds of orders.
3. Other trading operations.
4. Summary.
Chapter XI. C L E A R I N G OF F U T U R E CONTRACTS 185
1. The need for a clearing system.
2. Development of clearing methods.
Chapter XII. C L E A R I N G OF F U T U R E CONTRACTS ( C O N -
TINUED) 201
3. Present-day methods of clearing contracts.
4. Legality of the clearing process.
5. Summary.
PART I I
PRICE ASPECTS AND PROBLEMS OF

FUTURE TRADING
Chapter X I I I . T H E PRICE STRUCTURE 233
1. The determination of price.
2. Demand.
3. Supply.
4. Quantitative comparisons of supply and
price.
5. Seasonal movements in price.
6. The market in commodities used for fu-
ture trading.
7. Summary.
Chapter XIV. INTERRELATION OF C A S H AND FUTURE
PRICES 254
1. Why cash and future prices are similar in
movement
2. Cash prices built up from future prices.
3. The principal reasons for variations in the
relation of cash to future prices.
4. Summary.
CONTENTS xi
'Chapter XV. DIFFERENCE SYSTEMS AND T H E I R EFFECT

ON FUTURE PRICES 277
1. Occasion for a difference system.
2. Types of difference systems.
3. Some price limitations in difference sys-
tems.
4. Summary.
Chapter XVI. DELIVERABLE CASH SUPPLIES AND F U -
TURE PRICES 306
1. Ideal conditions.
2. Natural factors causing abnormal condi-
tions.
3. Artificial factors causing abnormal condi-
tions.
4. Remedies.
5. Summary.
Chapter X V I I . MARKET OPERATIONS AND T H E I R R E L A -
TION TO FUTURE PRICES 324
1. Some general aspects of trading and price.
2. Individual trading factors in their relation
to price.
3. Remedies.
4 Summary.
Chapter X V I I I . GOVERNMENTAL REGULATION OF EX-
CHANGES 351
1. The background of regulation.
2. State regulation.
3. Federal regulation.
4. Summary.
Chapter X I X . HEDGING 377
1. Reasons for hedging.
2. The process of hedging.
3. Types of hedging in grain.
Chapter X X . HEDGING ( C O N T I N U E D ) 397
4. Types of hedging in cotton.
5. Trading in basis.
6. The extent of hedging.
7. Summary.
Chapter X X I . T H E M A R K E T - M A K I N G FUNCTION 419
1. Continuous character of the market.
2. Dissemination of market news and quota-
tions.
3. A two-sided market,—short selling
4. The influence of arbitraging.
5. A sensitive market.
6. Price leveling.
7. Price forecasting.
8. Summary.
xii CONTENTS
CHAPTER X X I I . S U M M A R Y AND OUTLOOK 444
APPENDIX A . FIRST 12 SECTIONS OF THE UNITED

STATES COTTON F U T U R E S A C T 456
APPENDIX B . T H E G R A I N FUTURES A C T 462
BIBLIOGRAPHY 471
INDEX 475
TABLES
Table Page
1. The Principal Exchanges and Commodities in which Future
Trading is Maintained in the United States Judged by the
Total Value of Trading in the Year 1929 10
2. Early Growth in the Grain Exports of the United States 15
3. Inspections of Grain into Chicago Elevators, June 15-De-
cember 31, 1858 26
4. The Volume of Trading in Cotton Futures on the New York
Market for 1869 and 1870 and upon the New York Cotton Ex-
change for Specified Years, 1871-1929 43
5. The Volume of Future Trading and an Estimate of its Aggre-
gate Value, by Commodities and by Exchanges, for the year
1929 54
6. Monthly Marketings of Wheat by Fanners, in Percentages,
Average of the 10-Year Period, 1920-1929 61
7. The Consumption of Cotton and the Active Cotton Spindles
in the United States, by Sections for the Years 1870 and 1928,
Showing the Growth of the Cotton Industry in the South . . . 81
8. The List of Grades Constituting the Universal Standards for
American Upland Cotton Showing the Estimated Proportions
of each Grade Composing the 1930 Crop 85
9. The Estimated Quantity and Distribution of Staple Lengths
for the 1930 Crop of American Upland and American-Egyp-
tian Cotton 88
10. The Amount of Grain Used to Fulfill Future Contracts on
the Chicago Board of Trade for the Three Futures 1924 Sep-
tember, 1924 December, and 1925 May, Combined 107
11. Cotton Future Contracts Fulfilled by the Delivery of Ware-
house Receipts on Two Leading Cotton Exchanges, for the
Three Crop Years 1919-20, 1920-21, and 1921-22, Combined 108
12. Cash and Future Contracts Contrasted 109
13. Interaffiliations of Commodity Exchanges through Firm
Membership 123
14. Average Changes between Cash Sales Prices of Various
Wheats at Beginning and End of Crop Year, for a Twenty-
one Year Period 249
15. Twenty-two Year Average of Monthly Cash Prices for
Wheat, Corn, Oats and Cotton Based on the Periods, 1900-
1914 and 1921-1929 250
16. Car-lot Purchases of Wheat and Oats made by a Leading
Firm upon the Chicago Board of Trade on August 11, 1930,
xiii
xiv TABLES
Table Page
Showing Premiums and Discounts Based upon the Septem-
ber Future 261
17. A Limit Sheet Sent by a Cotton Firm to its Representative
to be used as the Basis of Purchase of Spot Cotton at Country
Points 264
18. Grades of Grain Deliverable on Future Contracts upon the
Chicago Board of Trade during 1929 Showing the Differen-
tials Over or Under the Contract Price for Each Grade 281
19. Points "on" or "off" the Contract Price Paid by or Allowed to
the Seller of Cotton Futures for Various Grades of American
Upland Cotton Measured by the Mean of the Spot Prices Pre-
vailing on Ten Designated Spot Markets, January 11, 1930 . . 289
20. Car Inspections of Wheat at Chicago Showing the Proportion
of No. 2 Winter to All Grades for Ten Years, 1920-1929 293
21. Classification of the 1928 American Cotton Crop by Type,
Color, Grade and Staple 295
22. The Average Grade of Each American Upland Cotton Crop
as Reported by Shepperson Annually from 1915 to 1928 . . . 296
23. The Volume of Trading and the Open Commitments in Wheat
Futures upon the Chicago Board of Trade Compared with
the Receipts and Visible Supply of Wheat at Principal Mar-
kets, for Six Crop Years, 1924-1929 326
24. Number of Days on which the Net of Individual Purchases
and Sales of 500,000 Bushels or Over and the Future Price
Moved in Same Direction, for Wheat, for Leading Specu-
lators, All Futures Combined, from January 2, 1925, to De-
cember 31, 1926 :.... 335
25. An Illustration of a Hedged Transaction in Oats 384
26. An Illustration of a Hedged Transaction as a Problem in
Basis 385
27. An Illustration of the Use of a "Give-up" in Hedging, Using
Two Different Future Prices 395
28. Aggregate Long and Short Positions in Wheat Futures of
Members of the Millers' National Federation, for Quarterly
Dates, 1926-1931 416
29. The Average Monthly Fluctuation (in per cent) in the Whole-
sale Price of a Group of Food, Farm and Miscellaneous Prod-
ucts, for the period 1890-1925 (excluding 1914-1921) 433
30. Correlation of September Future Prices of Oats during the
Growing Season with Cash Prices in September 437
CHARTS
Figure Page
1. The Principal Channels of Trade in the Merchandising of the
Wheat Crop 63
2. Relation of Cash to Future Contract 106
3. Trading Floor of the Chicago Board of Trade Facing page 121
4. Pit Broker's Trading Card 162
5. Customer's Confirmation of Purchase 163
6. Price Signals Used in Floor Trading 165
7. Diagram of the Course of a Trade in Futures 167
8. Customer's Account of Purchase and Sale 170
9. Customer's Monthly Statement 171
10. Warehouse Receipt for Grain 174
11. Warehouse Receipt for Cotton 175
12. Market Positions Set Up between Brokers and Customers as
a Result of a Transaction in Futures 186
13. Market Positions Set Up between Brokers as a Result of
Two Completed Transactions by Customers 187
14. Direct Settlement of 10,000 Bushels of May Corn Futures . . 190
15. Ring Settlement of 10,000 Bushels of May Cora Futures 191
16. Settlement by Transfer of 10,000 Bushels of May Corn Fu-
tures 192
17. Settlement by Warehouse Receipt or by Transferable Notice
of 10,000 Bushels of May Corn Futures 193
18. A Delivery or Transferable Notice Used in the Clearing of
Trades 194
19. Gearing Money Balances through the Use of a Settlement
Price 197
20. Confirmation Slip Used to Verify Oral Trades between Clear-
ing Members 204
21. Purchase and Sales Sheet Used in Clearing Trades 206
22. The Recapitulation Statement Used in Gearing Trades 208
23. Form Used to Call for an Additional Variation Margin 211
24. Street Book Used as Record of Inter-broker Transactions in
Futures 217
25. Steps Involved in Executing a Selling order in Futures 220
26. Illustration of a Demand Curve for Wheat 236
27. Dlustration of an Elastic and of an Inelastic Demand 237
28. Supply-Price Relationship for Oats 243
29. Supply-Price Relationship for Cotton 243
30. Supply-Price Relationship for Corn 244
31. Supply-Price Relationship for Wheat 244
32. Seasonal Variation in the Price of Four Commodities: Wheat,
Cotton, Oats, and Corn 248
xv
xvi CHARTS
Figure Page
33. Relation of Cash to Future Prices for Four Commodities for
the 10-year period October, 1920-September, 1930 255
34. The Seasonal Trend in No. 2 Hard Winter Wheat Prices, Chi-
cago, During Crop Year, 1928-1929 270
35. The Seasonal Trend in Cash Prices Relative to the Price of
Futures, for Wheat, Corn, Oats, and Cotton, Averaging 9
Crop Years, 1921-1930 272
36. Comparison of Spot Price of Middling Cotton at New York
and the Average Spot Price of Middling at New Orleans,
Memphis, Galveston and Houston with the Price of Future
Contracts for the Spot Month on the New York Cotton Ex-
change, Fridays, September, 1906-August, 1907 297
37. An Illustration of the Effect of a Relative Change in the Spot
Prices of Cotton 302
38. The Influence of Supplies of Corn in Store, Chicago, upon
the Relative Levels of Future Prices, 1921-1930 313
39. A Comparison of the Fluctuations in the Volume of Future
Trading in Wheat with the Fluctuations in Wheat Future
Prices, Chicago Board of Trade, by Months, for 6 years,
1924-1929 329
40. The Combined Position in Wheat Futures of 5 Leading Spec-
ulators Compared with the Price of Wheat Futures, Chicago
Board of Trade, by Days, for the Period April 30-December
31, 1926 333
41. The Net Position, All Wheat Futures Combined, of Each of
5 Leading Speculators, Chicago Board of Trade, by Days, for
the period April 30-December 31, 1926 337
42. The Combined Position in Wheat Futures of the Customers
of 15 Clearing Firms Compared with the Price of Wheat Fu-
tures, Chicago Board of Trade, by Days, for the period April
30-December 31, 1926 339
43. Illustration of the Shifting of Price Risk by Hedging 383
44. Reproduction of a "Call" Contract for Cotton 401
45. Changes in Spot Cotton Prices Relative to Future Prices, New
Orleans Cotton Exchange, by Weeks, for 9 Crop Years, 1921-
1930 408
46. The United States Visible Supply of Corn Compared with the
Combined Net Position of 67 Large Hedging Accounts, by
Weeks, for the period October, 1924-September, 1928 415
47. The Intra-annual Variability of Wheat Prices and of Cotton
Prices, 1867-1930 430
48. Diagram of Price Forecasting as of October 1, in which the
General Level of Prices is Shown as an Expression of Prob-
able Market Conditions a Few Weeks Hence, with Specific
Future and Spot Prices Adjusted to this General Level . . . . 440
PART ONE
ORGANIZATION AND OPERATION OF

FUTURE MARKETS
CHAPTER I
ECONOMIC POSITION OF FUTURE TRADING
There is perhaps no place in the world where speculation is

carried on with such care-free abandon as in the United States.
It sweeps along from one object of interest to another invad-
ing, at various times and with varying degrees of intensity,
every economic activity of this country. At one time, interest
is centered upon the untold possibilities of agriculture; at an-
other time, promising developments in the means of transporta-
tion attract attention to be later replaced by assuring improve-
ments in the field of public utilities. So, from farm land to
suburban real estate, from mining to manufacturing processes,
from the products of agriculture to the products of new and
untried inventions, we freely risk our capital in the hope of un-
usual gain.
While its effect varies widely between individuals, there can
be little doubt that this speculative bent is, to society as a
whole, a highly valuable asset This is particularly true in a
new and rapidly developing country. An industry once estab-
lished can frequently continue to operate successfully for long
periods of time with a fair assurance of success. But for all
types of new enterprise, and for undertakings which are an in-
novation to a going concern, and at all times for certain types
of established business, unusual hazards must be assumed. In
the absence of those willing to enter these fields, improvement
and progress are certain to be retarded.
The corporate form of organization has been of inestimable
value in encouraging individuals to enter new or hazardous
fields of enterprise. By incorporating and offering shares of
small denominations, thousands who could not otherwise par-
ticipate are able to share in the risk and possible gain of any
undertaking. Students of economic history tell us that indus-
trial progress in the past was retarded as much if not more by
1
2 FUTURE TRADING
a lack of available capital than by any absence of known meth-

ods or new improvements. Inventive genius had little to en-
courage it as long as it was known in advance that adequate
funds could not possibly be obtained to promote an improve-
ment and this was not due so much to an absence of capital
as to an inability to mobilize it. Through the medium of cor-
porate shares, comparatively small amounts of capital can be
drawn together from many sources to undertake and to per-
petuate enterprises which must of necessity be large to be suc-
cessful.
Risk and Insurance.—While it is true that the element of
risk is present in every phase of economic activity and in this
broad sense all must share in assuming it, it varies widely in
amount and incidence between different groups. Thus in a
simple business undertaking, labor and capital are brought to-
gether by the enterpriser. From the income derived, payment
is first made to the first two groups, the balance going to the
enterpriser. The amount of the income to be received from the
business each year is for this reason much more uncertain for
the enterpriser than for the laborer or capitalist group. Be-
tween the various types of enterprise there is also a wide varia-
tion in the element of risk. The railroad industry for example
involves much less uncertainty than the steel industry, the pro-
duction of necessities involves less risk than the production of
luxuries, and the manufacture of goods in general involves
less uncertainty than their marketing and distribution.
It is only in those phases of business where the elements
of risk are large that the role of risk-bearer assumes any prac-
tical importance. It is here we find the speculator, the enter-
priser, the underwriter, the insurer. The risks, when traced to
their source, assume a wide variety of forms. They may consist
of natural hazards such as those of weather or plant and ani-
mal disease. They may pertain to human hazards resulting in
sickness, accident, or death. They may include social hazards
such as strikes, adverse legislation, or wars. Finally, and by far
the most important in their effect, they may involve the hazards
ECONOMIC POSITION OF FUTURE TRADING 3
causing unforeseen changes in market price.1 All of these risks

represent, from an economic point of view, the possible loss
of something of value. The hazards of weather affect the value
of farm crops, of transportation and of innumerable minor
interests. The human hazards remove or diminish the income
and thus the economic value of the lives affected. The social
hazards, at times, are equally severe, decreasing the value of
life and property. And the wide range of unforeseen forces
which adversely affect the prevailing price of property repre-
sents an ever-present and all inclusive source of loss in value.
Some of these risks have been segregated and separately pro-
vided for. In this form they are said to be insured. Willett
defines insurance as "that social device for making accumula-
tions to meet uncertain losses of capital which is carried out
through the transfer of the risks of many individuals to one
person or to a group of persons."4 Insurance thus involves the
shifting of risk either to some special fund as in self insurance
or mutual insurance or to some special interest or group defi-
nitely created for that purpose. In either case it relies upon a
superior knowledge of the hazards assumed, or an application
of the law of large numbers or both to operate successfully;
and it is of social value only if it results in a net saving in the
long run to all of the interests affected. For a considerable list
of risks such as those covered by life, fire, marine and casualty
forms of insurance, a successful application of these principles
has been attained. But in other fields, and notably in those in-
volving unforeseen changes in price, insurance is afforded only
to restricted groups and under very limited circumstances.
Those risks which cannot be separately handled by transferring
to an insurance carrier must be borne in conjunction with
other business operations. As a rule they are carried as a part
of the responsibility of the enterpriser though not infrequently
' Cf. Hardy, C. O., Risk and Risk Bearing, The University of Chicago
Press, 1923, p. 2 ff.
* Willett, A. H., Economic Theory of Risk and Insurance, Columbia
Univ. Press, 1901, p. 106.
4 FUTURE TRADING
the work and reward of laborers as well as capitalists depend

chiefly upon the risks assumed.
The Nature of Future Trading.—The subject matter of fu-
ture trading constitutes a part of the broad field of risk and in-
surance. The entire activity of future trading consists in either
assuming risk as speculators or in shifting risk as hedgers. The
hazard involved is the highly important one of unforeseen
changes in market price. Speculators, in buying and selling con-
tracts for the future delivery of commodities, freely assume
this hazard with the hope of profitable gain. Hedgers, who are
engaged in the business of merchandising commodities, buy and
sell futures for the express purpose of transferring this hazard
to the shoulders of others and principally to speculators willing
to assume it. Hedging is, therefore, a form of insurance in which
a wide variety of merchandising and marketing interests com-
pose the insured and a much wider variety of speculators con-
stitute the insurer. We will find later that a major part of the
entire body of future contracts currently carried forward
arise out of hedging operations. In so far as this is true, the
institution of future trading is a price insurance agency.
Whatever its form or subject matter, speculation embodies
the common characteristic of attempting to forecast or under-
stand that which is not known. As a mental process, to speculate
is to ponder or contemplate the various aspects or relations of a
subject. In general business usage, the term is applied to the
field of ventures the outcome of which is relatively uncertain
and hence from which the profits or losses are likely to be large.
More specifically, and particularly as it is applied to the field
of future trading, speculation is an attempt to profit from un-
certain fluctuations in the price of either wealth or rights to
wealth. Those who speculate in futures risk their capital in an
attempt to accurately foresee and profit from future changes
in price. The field of future trading is thus a part of the broad
field of risk, taking the form of speculation for those who as-
sume the risk and the form of hedging or insurance for those
who transfer the risk of uncertain price changes.
Future Trading a Political Football.—Dealing as it does

with the course of prices, future trading necessarily exerts a
vital effect upon interests immediately concerned with the com-
modities in which it is maintained. These commodities are
principally in the field of agricultural products and for this
reason the interests of the farmer, the shipper and warehouse-
man, the merchant, and in a broad way the entire body of con-
sumers are involved. Of these groups, the farmer has generally
opposed the practice of future trading (particularly if prices
are low or declining), the intermediate merchandising groups
have usually favored the practice, and the consumer has taken
little active interest except to complain occasionally when prices
are high or advancing rapidly. Here then is an excellent field
for controversy and one which political leaders have exploited
to the fullest extent. The farmer has not been in a position to
study closely the operations and effects of future trading. His
vote is an important one in the agricultural states of the Central
West. For these reasons politicians have usually aligned them-
selves with the fanner and have freely fanned the flame of dis-
cord. The result has been that trade interests in general and ex-
changes in particular have had to assume the defense. In doing
so they have naturally been willing to advance only those argu-
ments and aspects of the subject which appear favorable to the
practice.
Taylor states that in Illinois as early as 1874 "the Grange
element of the state which was very strong and which had never
been in sympathy with the Board of Trade or its methods,
favored the passage of a law declaring all transactions in
'futures' to be gambling operations."* Later in 1883 New York
State made an investigation into the methods of trading being
carried on by the New York Produce Exchange. 4 In this same
year a similar investigation was carried on by the State of
* Taylor, C. H., History of the Board of Trade of the City of Chicago,
Vol. I, p. 501.
4
Special Senate Committee, Testimony and Report . . . on the System
of Making Corners and Dealing in Futures, Sen. Doc. No. 45, Albany,
1883.
6 FUTURE TRADING
Illinois regarding the trading methods of the Chicago Board of

Trade® while Congress at the same time was considering a bill
to prohibit the use of the mails for messages involved in the
purchase and sale of futures." The first clash of outstanding im-
portance, however, did not occur until the early nineties when
the Butterworth Bill and later the Hatch Bill were before Con-
gress and at which time a prohibitive act barely failed of pas-
sage. Since that time an almost continuous series of regulatory
and prohibitive measures have been considered by Congress,
no less than 164 having been introduced up to 1920T and with
no apparent slackening in volume up to the present.
A running fight of such length and intensity strongly sug-
gests some merit in the contentions of both interests. But all
too often the facts to be had have been either purposely avoided
or obscured in a mass of irrelevant material. In the Congres-
sional hearings, for example, lengthy consideration is given
from time to time to the proposition that the present practice
of hedging could be effectively maintained without the practice
of short selling. And strangely enough the debate is sometimes
settled in the affirmative. Considerations of this sort strongly
suggest that little can be accomplished in ironing out differ-
ences of opinion until a more thorough-going understanding is
had of the fundamental nature of future trading.
Approach.—It is proposed in this study to marshal the avail-
able facts in the field of future trading for the purpose of better
understanding its nature. To this end, we will need to know
the essential features of the contract used as a medium for
trading; we will need to know the process and technique of
trading; we will need to know the effect of trading upon prices
'Report of the Special House Committee to Investigate the Chicago

Board of Trade, together with testimony taken before the Committee.
Springfield, 1883.
Ή. R. 5007, 48th Cong., 1st Sess., (1883-84) : "to prohibit mailing of
letters and money orders relating to future contracts."
7
Cf. Phillips, C. L., History of the Subject of Options and Futures in
Congress as Reported in the Congressional Record (typewritten), U.S.
Dept. of Agr., 1920.
and upon the various interests involved. Finally, we will need

to know the principal functions or uses for which this type of
transaction is regularly employed.
An initial requisite to any scientific investigation is that it be
approached with honesty and fairness. This involves something
more than a mere willingness to consider any or all of the
various aspects of a subject. It involves, also, a willingness to
critically examine and, if need be, recast concepts already con-
stituting an important part of one's beliefs upon a subject. Our
opinions are strongly influenced by environment: our home life,
our early economic status, our present business and social
connections, all of which play an important part in influencing
our thinking. It is impossible to free oneself entirely from the
background of these experiences. But if an appraisal is made
of them with an attempt to place one's point of view beyond
their limits, a much larger measure of validity will be attained
in considering any subject.
It is especially desirable that our approach to the present
study be from a detached or objective point of view. The sub-
ject of future trading is a controversial one. Some of the opin-
ion growing out of it is based upon a detached and careful
analysis of the various phases of the subject but most of it is
not. All too often in the past the circumstance of training or
occupation has served as a determining element in appraising
the practice, and where this is the case some measure of bias
or prejudice is certain to play a part. We need, therefore, in
considering the various aspects of this subject, a point of view
entirely beyond the limits of the groups immediately äffected
and to consider how this practice operates and how it affects
these various groups. We can then bring together pertinent in-
formation, marshal it according to its importance, analyze and
interpret it, bringing to bear upon it as careful judgment as
possible.
Limits of the Study.—The present study is limited to eco-
nomic phases of future trading. Principally because it can be
used as a basis for gambling, there are, however, in addition
8 FUTURE TRADING
certain ethical and social aspects to this subject. These will not
be considered beyond an occasional reference necessary to an
adequate understanding of some economic feature. By thus
limiting the field, a larger measure of consideration can be
given to the economic phases of the subject although it is clear
that in excluding the ethical-social problems the broadest pos-
sible appraisal of future trading cannot be made.
To know the nature of future trading in any thoroughgoing
fashion requires something more than a general consideration
of its operations and functions. At certain points it is essential
to study closely the detailed methods employed in order to ob-
tain an accurate estimate of what is accomplished. For this
reason our analysis and illustrations will be taken from only
two types of commodities: grain and cotton. In doing this, it
will be possible to build up for these two commodities a back-
ground of essential trade information which will greatly aid in
analyzing particular phases of the subject. It is in these two
commodities, also, that the practice of trading in futures has
been developed to the most advanced stage and in which by far
the major portion of the entire volume of futures is transacted.
In selecting these commodities, emphasis is being placed, and
properly so, upon the leaders in the field.
The Extent of Future Trading.—In the United States, fu-
ture trading had its origin just prior to the Civil War in grain
and pork products. Cotton followed in the latter part of the
sixties, coffee in 1882, cottonseed oil in 1904 and raw sugar in
1914. Since the World War, a long list of products has been
added including rubber, cocoa, eggs, butter, hides, silk, cotton-
seed and cottonseed meal, mill feeds, tin and copper. Classified
by commodities, the list includes at the present time (1931)
over twenty-five individual products; and the future markets
for these commodities also number more than twenty-five.
Their total volume of trading during the year 1929 amounted
to approximately 42 billion dollars.8
It is of interest to note in connection with the growth and
* See Table S at the end of Chap. Ill, pp. 54-55.
present size of the trade in futures its comparative importance

with organized markets in stocks. Stock and commodity mar-
kets have similar structural equipment in exchanges, private
wire and news facilities and brokerage offices; and through in-
ter-broker membership connections, they appeal in large meas-
ure to the same body of speculative trade. The market value of
the trade in stocks upon the leading exchanges in 1929 ap-
proximated 125 billion dollars, an amount about three times
the size of the trade in commodities. Future trading in com-
modities thus represents an important fraction of the exchange
trading in stocks though the latter has a much wider popular
appeal.
Of the various commodities and exchanges, those in grain
and cotton are of outstanding importance. The trade in grain
futures during 1929 constituted two-thirds of the total trade
in all commodities, and together with cotton accounted for a
total of over 92 per cent of the value of all future trading. Not
only is the trading concentrated in these two commodities but
it is also centered in large measure upon two exchanges,—the
Chicago Board of Trade and the New York Cotton Exchange.
Upon these two boards occurred three-fourths of the trading
during 1929. These facts are summarized in Table 1.
The data of Table 1 are to be considered only as broadly
representative, since trading varies widely from year to year
and in these variations some markets gain or lose in business
relative to others. For many years, however, the trade in wheat,
corn and cotton upon the Chicago Board of Trade, the New
York Cotton Exchange and the New Orleans Cotton Exchange
has held a commanding position in the future business of the
United States; and for earlier years the proportions for these
three exchanges and commodities were, of course, larger than
those shown for the year 1929.
Competition vs. Cooperation.—In an effort to obtain timely
insight into probable price changes, speculators and trade in-
terests have built up an elaborate news gathering and reporting
system extending to important points throughout the world.
10 FUTURE TRADING
A veritable network of private wires brings to the exchange

floor a reflection of this news. No less than 500 cities and
towns in the United States located in 45 states have private
wire connections with the Chicago Board of Trade; and to
this count should be added a large number of points in Canada
and abroad. Through the medium of these facilities, all varie-
ties of price factors are focused at one central point, there to
T A B L E 1 . — T H B PRINCIPAL EXCHANGES AND COMMODITIES IN WHICH F U T U R E

TRADING I S MAINTAINED IN THE UNITED STATES JUDGED
B Y THE TOTAL VALUE OF TRADING IN THE Y E A R 1 9 2 9 .
Principal Exchanges Principal cominodities
Per cent of Per cent of

Exchange total trading Commodity total trading
Chicago Board of Trade 59.1 Wheat 55.5

New York Cotton Exchange 18.3 Corn 11.1
New Orleans Cotton Exchange 7.2 Oats 1.1
Minneapolis C. of Commerce 4.2 Rye 1.1
Kansas City B. of Trade 3.0 Cotton 25.7
N.Y. Coffee and Sugar Exch. 2.0 Sugar 1.4
Other exchanges* 6.2 Other commodi-
ties 4.1
Total 100.0 Total 100.0
* No one exceeding 2 per cent.
create through the composite opinion of thousands of individ-

uals a highly competitive market.
One of the primary uses of future trading is this market-
making function. Nowhere are markets to be found more
keenly and at the same time openly competitive than those upon
organized stock and commodity exchanges. The rules and
methods of trade are carefully drawn to afford equal oppor-
tunity between buyer and seller; the trading contract is highly
standardized to minimize uncertainty in the details of trade;
easy access is had to the market itself and to all variety of
governmental and private information making possible a free
and open expression of opinion. Here if anywhere in our eco-

nomic structure the law of one price still prevails.
Markets of this type deserve close study in view of the
present-day trend toward economic integration. Cooperative
effort for the immediate or ultimate purpose of price control is
very much the order of the day. It is found in varying measure
in all phases of industrial activity necessitating year by year
a gradually increasing measure of governmental regulation.
The attitude of business leaders toward this movement is an
interesting one. While anxious to merge with, buy out or other-
wise dictate the operations of their chief rivals and thus to
lessen the severity of competition, they are equally anxious to
avoid the obvious consequence of such a policy viz., State and
Federal regulation.
To the extent that cooperative effort is effective in dictating
the level and direction of prices, to that extent the force of
competition is weakened. Organized commodity markets must
be free from price control if they are to be successful. It is true
that a measure of cooperation is present and desirable in the
most highly competitive markets; and it is equally true that a
measure of competition is always present among the most
closely regulated monopolies. But this measure of cooperation
or of competition should not be permitted to direct the course
of prices if either plan of operation is to be effective. Competi-
tion and cooperation constitute, in their principal features, al-
ternative plans of procedure.
It is not the intention of the author either to defend or deny
the claim that competition as exemplified by organized ex-
changes is best suited for agriculture. Rather, it is desired to
emphasize the point that we cannot have an effective exchange
system and a fully developed cooperative plan at the same time.
Numerous examples of exchange failures in the past bear out
this point. Both systems have certain desirable and certain un-
desirable features. It is a question of choice between the two as
a broad policy best suited for agriculture and the welfare of
the country as a whole. In view of the extensive agricultural
12 FUTURE TRADING
cooperative undertakings of recent years, this question is of

unusual timeliness. Organized exchange methods as well as
organized cooperative plans are very much on trial. The ques-
tion of whether they are to continue to effectively operate or
are to give way to newer methods is one which should be de-
cided with an adequate knowledge of how exchanges operate
and what they accomplish.
CHAPTER II
EVOLUTION OF FUTURE TRADING: GRAIN

AND PROVISIONS
Trading in grain futures had its origin in the development

of the grain trade of the United States. While there were
ample precedents to be found in the English trading methods
in iron warrants and, in particular, in the highly developed
Japanese future exchanges in silk and rice, these precedents
were apparently unknown in this country or, if known, were
not availed of. Instead, future trading developed with our com-
merce in grain and since 1850 has formed an integral part of
it. We need to review, therefore, the salient points in the growth
of our grain trade to appraise properly the place of future trad-
ing in it.
1. D E V E L O P M E N T OF T H E A M E R I C A N G R A I N T R A D E
The westward expansion of the United States during the

19th century is a familiar story. In this, agriculture naturally
played the dominant role. In the census of 1840, the states of
Pennsylvania, New York and Ohio led in the production of
wheat while Tennessee, Kentucky and Virginia were the lead-
ers in corn production. But by 1860, the center of production
for wheat had moved westward to Illinois, Indiana and Wis-
consin, while Illinois, Ohio and Missouri led in corn production.
Later in the century Iowa joined Illinois as an outstanding
leader in corn, while the North Central states of Minnesota and
the Dakotas together with Kansas and Nebraska drew the cen-
ter of wheat production to its present location.
Westward Development.—It is difficult to say at what point
this westward expansion reached its height or to select exact
dates of significant development. The characteristic of import-
ance was the growth or change taking place. In the first quarter
of the 19th century, our grain trade was largely a local affair;
13
14 FUTURE TRADING
by the third quarter it had become distinctly international in

character. In this transition, markets and means of transporta-
tion were of primary importance.
The Mississippi River and its tributaries were early availed
of as a means of transportation and with the development of
the steamboat they were for a time of great importance. Bogart
states that the number of steamboats on the western rivers in-
creased from 14 in 1815 to 450 in 1842. The commerce on the
Mississippi and Ohio made St. Louis, New Orleans and Cin-
cinnati prominent trading centers during this period, their im-
portance being aided somewhat by the rapid development of
cotton culture in the lower Mississippi area which supplied a
partial market for the agricultural products of the North.
But despite the flourishing character of this river commerce,
it was destined to be inadequate. It was slow and dangerous.
Accidents due to uncertain and treacherous currents made it
costly. The completion of the Erie Canal in 1825 together with
a system of canals a few years later in Pennsylvania, New
York, and other eastern states supplied, in conjunction with
the Great Lakes, an additional outlet for some of the products
of the Central West as well as diverted some of the traffic
from the Mississippi.
But it remained for the railroad to solve the problem of
transportation for this region and to bring to its door the in-
dustrial markets of the East and Europe. Actual construction
was accomplished largely between the years 1845 and 1860, and
as a result, where in 1840 our grain trade was a local affair, by
1860 it was international in scope. The following table taken
from the Eighth Census of the United States, 1860, giving the
value of grain exports by ten-year periods, illustrates well this
change.
The railroads linked the Middle Atlantic and New England
states to the Central West. The grain trade turned from the
North Central states Eastward instead of Southward and as a
result Chicago and Buffalo and Eastern points of reshipment
developed and Southern points relatively declined.
EVOLUTION OF FUTURE TRADING: GRAIN IS
Chicago's Early Leadership as a Grain Center.—In this de-

velopment, Chicago, at the outset, took the leading role. From
;a fortress and trading post of 350 in 1833 it had grown to a
ttown of 7,500 by 1843. By 1853 it was a city of more than
'60,000 inhabitants. During these formative years, events of
far-reaching importance to the commercial life of Chicago
were happening in rapid succession. Some of these events were
;a product of the initiative of the city's pioneers, but most of
ithem and certainly those of permanent importance were the
result of the city's location.
Chicago became a large city because of its location: firstly,
iin the heart of a vast and rich agricultural region, and secondly,
T A B L E 2 . — E A R L Y GROWTH I N T H E G R A I N EXPORTS OF T H E U N I T E D STATES
Aggregate value of Per cent of increase

Period grain each year. each ten years.
From 1823 to 1833 $ 67,843,211 ....
From 1833 to 1843 73,303,440 8.0
From 1843 to 1853 198,594,871 170.9
From 1853 to 1863 512,380,514 158.0
on Lake Michigan where, in conjunction with the railroad, low

freight costs to the East were possible. The initial impetus to
Chicago's growth was the building of the Illinois and Michigan
Canal by the State. It was opened in the spring of 1848. Prior
to this, receipts of farm produce into the city were either by
wagon or, in the case of livestock, driven in. The completion of
the canal, which connected the Illinois River with Lake Michi-
gan at Chicago, was for a half dozen years an important factor
in Chicago's commerce.
Problems of Transportation.—It is hard now to visualize
the difficulties of transportation in this country before the time
of the railroad. For Chicago, the problem was especially acute
for much of the territory surrounding the town was marshy
and at times the roads, due to the great volume of traffic, be-
came congested and almost impassable. Writing on April 10,
16 FUTURE TRADING
1849, a local newspaper facetiously describes Chicago's main

thorough-fare thus: "Lake and Randolph [streets] are staked
out with guide boards and finger posts so that there is no
danger of disappearing without full warning beforehand. . . .
A post set on its edge has a placard upon it with the informa-
tion, 'No drugstore below this.' Another post is surrounded
with several hats, a pair of boots, feet uppermost, an umbrella
and other articles appertaining to this life, with the inscription:
'As I am, you may be,
Taking this road you'll follow me, etc."
The handicap of poor transportation was removed with the

coming of the "iron horse." The first ten miles of railroad lead-
ing into Chicago were built in 1848. By 1855, a network of
lines had been completed, no less than six systems running
West to the Mississippi with other important extensions to the
North and South and Eastward. These served as feeders to
Chicago and made it at this early date the leading primary
grain market of the world. During the year 1855, receipts of
grain amounted to over 19 million bushels of which 66 per
cent was shipped in by rail, 29 per cent by canal and less than
5 per cent by wagon. The shipments of grain from the city
were handled almost entirely by lake to an eastern point of re-
shipment and thence by rail or canal. According to Taylor,
during this year "the number of vessels arriving by lake and
reporting at the customs house was 5410."2 To use a modern
expression, Chicago, by the year 1855, had "arrived" as a com-
mercial city.
Widespread Speculation.—The practice of trading in grain
futures developed at Chicago, gradually and naturally, from
early methods of trade in the physical product itself. To under-
stand how and why this came about, it is especially essential
to visualize the commercial and financial spirit of the time.
Picture a city which suddenly finds its importing radius ex-
1
Cited in Taylor, C. H., op. cit., Vol. I, p. 153.
2
Ibid., p. 216.
EVOLUTION OF FUTURE TRADING: GRAIN 17
tended from a few miles by wagon haul to a hundred miles and

more by rail; whose grain receipts, accordingly, mount by mil-
lions; whose markets have expanded from the meeting of
purely local requirements to the meeting of demand abroad;
and whose merchants eagerly await the daily despatches giving
news of Europe's needs from the latest vessels arriving at New
York. The rapid sky-rocketings of price or drastic breaks in
price were the rule rather than the exception, and speculation,
accordingly, became very much the order of the day. This was
particularly true after 1854 when the Crimean War stimulated
prices through 1855, followed by the depressing effect of the
panic of 1857, later by the influence of the Franco-Italian war
against Austria in 1859 to be followed by the unparalleled
effect of our Civil War.
Speculation assumed a variety of forms during these early
years. The monetary system was especially poor all through
this period and many varieties of paper currency were in use
each having its own measure of value relative to gold.3 This
one factor was a source directly of a large volume of specula-
tion and, indirectly, it added greatly to the possibility of un-
usual gain or loss in all forms of wealth. City real estate offered
untold possibilities for profit and supplied an active field for
those inclined to speculate. Farm land offered another oppor-
tunity especially if currency depreciation could be maintained
or increased. Finally, farm produce, being the mainstay of com-
merce for the Central West and being influenced in price by so
many uncertain factors, supplied an excellent medium.
2 . TYPES OF GRAIN TRADING
Of the various kinds of farm produce, grain became the

leader as a speculative medium. Prior to 1848, it was brought
into the city by wagon and sold on arrival to dealers. With the
coming of die railroad and the development of lake traffic, the
* See Wentworth, J., Early Chicago, (lecture given May 7, 1876) for a
very interesting description of the varieties and uncertainties of money
during this period.
18 FUTURE TRADING
receipts and shipments grew rapidly and by 1855 Chicago's

grain trade had assumed the size and certainly the complexity
of a modern market
Curb Trading.—Concerning the busy life of the traders,
Taylor gives the following vivid description, quoting in part
from the Press and Tribune, a daily newspaper of the time.
They are "the hardest worked race of beings on the face of the
earth. They get up at sunrise, bolt their steak and rolls, and rush
down to the 'first board/ which meets at a well known corner
between 8 and 11 o'clock. At 11 the 'second board' met at the
Board of Trade rooms, but buyers and sellers waited for the
New York dispatches, which were due about noon. Early in
the afternoon the 'third board' congregated on the corner be-
fore mentioned (called Gamblers' corner by some unregenerate
rascal), where nothing was heard but 'No. 1 red,' 'Standard,'
'my option all next week,' 'your option next ten days,' etc.,
until the court house bell striking 6 o'clock cleared the sidewalk
and allowed pedestrians to pass unmolested. The 'fourth board'
met on the sidewalk opposite the Tremont House an hour later,
and trading continued until 9 o'clock, when the overworked
grain traders went home for a few hours' sleep."
B. P. Hutchinson.—It was amid a scene of this sort that
B. P. Hutchinson, perhaps the most cunning of all grain
speculators, made his debut. He had been a shoe manufacturer
in Lynn, Massachusetts, but had failed in the crisis of 1857. He
went West and in 1859 bought a membership on the Chicago
Board of Trade for $5 and began trading. We are indebted to
Andreas for the following picture of his early operations which
gives, also, a glimpse of the trading methods of this period.
"He had the genius of a careful speculator, but was not a
daring one. He understood fully, and acted upon, the first half
of Ricardo's great maxim, 'cut short your losses.' He had no
pride of opinion, but could change with the varying tide of the
market. He was at one time a bull, and at another time a bear,
and often both by turns, within the compass of an hour. No
man ever had a keener perception of what the crowd was do-
ing, as well as what particular operators were doing. No man

on 'Change, who dealt largely, could long hide his schemes
from O l d Hutch,' as the boys soon began to familiarly call
him. Many a time he has escaped but narrowly being a victim
to the great operators, but he has always escaped. Whenever
he scented danger he ran.
"In the early days he would run small 'corners' himself,
but they were little affairs, for options, at the longest, run
scarcely longer than a week, and the main business was done
in cash grain. But 'corners' were not to his taste, his great
principle of speculation being to get in and out of the market
quietly, and before the 'tailers' could perceive what he had been
doing. He may be called, without exaggeration, the Prince of
Scalpers. Between 1859 and 1863, he had amassed money
enough to pay all his Lynn debts, and to have a fortune esti-
mated at $150,000."
Arrivals, actual and prospective, of vessels of all sizes and
description, steamers, propellers, sailing vessels, made up al-
most the whole of the demand for grain during this period.
Cargoes were needed "at once," "within three days," "by May
1," or perhaps "upon the opening of navigation." These were
for various quantities and various grades.
In some cases the buyer might also want the privilege of
saying what day during the month he would take the grain,
in which case the contract of sale was known as a buyer's op-
tion. This was especially useful when buying in advance of the
arrival of a vessel or before available ship space had been ob-
tained. In other instances seller's option as to time of delivery
was allowed, this being especially useful to a dealer who
planned to obtain the supply to fulfill his contract from country
arrivals but not being certain just what day he could deliver.
Exporters bought their supplies from grain dealers or mer-
chants who in turn bought from the country. But the grain
merchants' business was not simply a hand-to-mouth affair.
While only a few of the larger merchants owned elevator space,
there was ample public storage to be rented and, if resources
20 FUTURE TRADING
permitted, the dealer could hold his purchases in store for

higher prices. This was frequently done where future pros-
pects indicated a better price. Chicago had, according to And-
reas,4 twelve elevators by 1857 with an aggregate capacity of
4,095,000 bushels.
"To Arrive" Contracts.—From the preceding section, it
can be seen that buying and selling grain by contract calling
for delivery some time in the future was a natural development
to meet the needs of the trade at the time. With receipts from
country points doubtful, with shipping arrivals and departures
uncertain, and, especially, with orders from the East and Eu-
rope varying widely with corresponding variations in price,
both buyers and sellers frequently sought to provide for their
needs by contracting forward for specific quantities and grades
of grain. These time contracts were usually referred to as "to
arrive" and were quite common throughout the fifties. They
were the fore-runner of the future contract proper and for
that reason deserve more than passing reference.
From the Democratic Press, a prominent daily newspaper
of Chicago at the time, the following review of the Chicago
market is quoted in part. The selection illustrates the wide
variety of contracts in use as well as the common use of for-
ward orders.
Oct. 25, 1854.—"Corn.—Transactions during the week
were as follows:—On the 18th, sales 5,000 bu. at 55fi afloat
—4,000 bu. in lots at 55^ on board and 4,000 bu. afloat
at 54^—3,000 bu. in lots from depot at 58^ on the track and
2,000 bu. delivered to warehouse. . . . On the 21st, sales 12,000
to 15,000 bu. deliverable within 10 days, and 15,000 bu. deliv-
erable within 15 days, at seller's option upon 3 days' notice at
54^ on board (the latter quantity to be called for under 8 days)
—26,000 bu. immediate delivery at same figure.—On the 23rd,
—On Saturday a sale of 15,000 bu. deliverable on board from
1st to 20th of Nov. on 3 days' notice at 5 4 ^ " Quotations
'Andreas, A. T., History of Chicago, Vol. I, p. 581.

similar to these were also given for wheat and oats and other
grains though they were less frequent than those for corn.
In the issue of January 30, 1855, during the period of the
year when lake traffic was closed, we read: "In wheat there
is nothing doing; . . . in corn, there is something doing for
Spring delivery; a sale made today of 10,000 bu. is reported
at 50fS afloat, cash in hand, deliverable in April on 3 days' no-
tice." A few days later, February 7, 1855 the market reviewer
observes: "Closing contracts for Spring delivery of corn and
oats has served to lend something of animation to the grain
market but even in this department of business, so little has
been done in comparison with previous years at this part of
the season that we are compelled to call it very dull."
The quotations just given illustrate the practice of buying
and selling grain "to arrive," a type of trading well established
in the early fifties. Furthermore "to arrive" contracts were
used not only at Chicago but also to a limited extent at other
markets and notably those of Milwaukee, New York and St.
Louis. But it is on the Chicago market that this form of con-
tract first developed into the highly standardized future con-
tract and it is for this reason that this market merits special
consideration."
Speculation in "To Arrive" Contracts.—The "to arrive"
contract permitted of a wider and freer type of specula-
tion than dealing in the spot product and this fact was appar-
ently recognized by traders on the Chicago market at an early
date. We find frequent references to speculators and "opera-
tors" and usually they were buyers or sellers of some form
of contract permitting postponed fulfillment.
There were two underlying reasons for this preference. First,
the use of time contracts permitted a trader to operate profit-
ably for a fall in price as well as a rise. This was accomplished
by selling short a contract calling for delivery say three weeks
hence. If, in the interim between the date of contracting and
* See Second Annual Statement, Milwaukee Chamber of Commerce, p.
13. Also, especially, Taylor, Op. Cit., pp. 206-207.
22 FUTURE TRADING
the day when the supply of grain was actually acquired, the
price declined, the short-seller would profit by that amount. In
contrast, trades requiring the immediate delivery of grain of-
fered no opportunity to sell short. A speculator could buy grain
and hold for higher prices if the outlook appeared good; but
if he were "bearish" regarding the future, he could dispose of
his holdings to prevent loss but beyond that he was unable to
profitably act on his opinion.
It should be stated, in passing, that, for a time, short sell-
ing was also accomplished by borrowing warehouse receipts
for delivery on spot contracts, later returning to the lender
another receipt of the same grade which called for the same
amount of grain. By this means, the borrower of the receipt
realized a profit or sustained a loss amounting to the difference
between the price at the time of borrowing and at the time of
acquiring another receipt to be returned to the lender. This
is the method of selling short in general use on American stock
exchanges.
But it did not meet with favor in grain trading, for as early
as 1859 the Directors of the Chicago Board of Trade, accord-
ing to Taylor, resolved "that the custom which prevails among
certain warehousemen of lending grain which has been stored
with them by other parties, or in speculating in the same them-
selves, is prejudicial to the interests of the members of the as-
sociation, and exercises a false influence on the market, and
ought to be discountenanced by the Board." Three years later
there appears in the Fifth Annual Statement of the Board as
a part of the general regulations governing the grading of
grain, a provision condemning the practice; this was appar-
ently sufficient to discourage its use altogether. It remained
for short selling to be accomplished by the only other method
possible; that of trading in time contracts or those calling for
delivery at a date subsequent to the contract of sale.
"To arrive" contracts were preferred to spot contracts as a
speculative medium, secondly, because of their convenience. To
buy a cargo of grain to hold for higher prices involved the
trouble of weighing, inspecting, storing and insuring, together

with the risk entailed in any changes in the condition of the
grain during the period held. It is true these items were, in the
long run, covered in the sales price but they involved a measure
of trouble that many preferred to avoid even though a some-
what smaller profit was obtained.
Trading in "to arrive" contracts, in contrast, involved much
less trouble and offered many possibilities. If the speculator
were "bullish" regarding the immediate outlook, he could buy
to arrive say in ten days. If two days later prices had declined
and the trader's view had changed, he could limit his loss by
selling his "to arrive" contract. And so this contract might be
passed about until it lodged in the hands of one who needed
the grain. Likewise, on the short side of the market, he could
sell a "to arrive" contract in the particular grain in which he
expected lower prices and later, if he did not wish to make de-
livery, pass the contract on, realizing any loss or gain involved.
In the illustrations just given, it is implied that the trader
had a complete and continuous market on which he could bar-
gain for and liquidate any kind of contract he desired. Such
was hardly the case during the fifties. There was a very active
market at Chicago and at other grain centers, particularly dur-
ing the years 1854, 1855, 1856 and 1859; but all kinds of con-
tracts were dealt in, involving a variety of periods of delivery,
a variety of quantities and a variety of grades; this lack of
standardization frequently made it necessary for the trader to
mix the function of merchandiser with that of speculator. The
points of importance are that "to arrive" contracts offered the
possibility of selling short, as well as buying; that, compared to
cash contracts, they were much more convenient as a specula-
tive device; and, finally, that due to the wide prevalence of
speculation, the tendency throughout this formative period was
to make an increasing use of time contracts rather than spot
contracts. It remained for this trading to be mobilized through
the use of a highly standardized contract before future trad-
ing could become a general practice.
24 FUTURE TRADING
3. STANDARDIZATION OF THE "TO ARRIVE" CONTRACT
The future contract in common use today is a highly stand-

ardized agreement. The size of the contract is a unit of 5,000
bushels, each bushel weighing a prescribed number of pounds;
the quality of grain called for must be one of the established
grades; the period of time during which delivery can be made
is one month; the seller has the option of choosing the exact
day of delivery and the exact grade to be delivered, and each
contract is made in accordance with a carefully drawn body of
rules and by-laws. It will be necessary for us to trace briefly
how each of these elements became incorporated in the "to ar-
rive" contract to ultimately develop from it the highly special-
ized future contract.
Bulk Handling.—It was apparently the practice to handle
grain in bulk in the Chicago area and eastward at a very early
date. The first warehouse of importance was built in 1848 and
Taylor mentions that prior to that date "grain arriving in Chi-
cago had been stored either in ordinary warehouses in bags, or
in bulk."4 Certainly within the next few years following 1848
it became the general custom to handle grain only in bulk, a
practice in contrast to that in vogue in St. Louis, Chicago's
leading rival at that time, where handling by sacks was con-
tinued.*
The handling of grain in bulk undoubtedly had a bearing
on the practice of buying and selling grain by a weighed bushel
rather than a measured one. Here again the lake ports of Mil-
waukee, Chicago and Buffalo took the lead and we find that by
1854 it was the general rule to buy and sell at these points us-
ing a bushel of standard weight. New York, and possibly other
Atlantic coast points, however, continued to buy and sell by
measure and it was not for several years that they discontinued
the practice.
•Taylor, C. H., Op. Cit., p. 144.
7
In the 1857 Annual Review of the Trade and Commerce of Chicago,
published by the Democratic Press, a Chicago newspaper of that date,
there is an interesting description (p. 8) of the methods employed in the
handling of grain at Chicago and at St. Louis at that time.
Even Lots.—By 1854, also, a measure of standardization

had been effected in trading in grain in even lots of 1,000
bushels and 5,000 bushels or in multiples of these units. The
practice first came into common use about 1850 in the pur-
chase of boat loads of grain (usually corn and very frequently
5,000 bushels) brought in on the Illinois and Michigan Canal,
and in sales to make up lake cargoes, being used in both spot
and "to arrive" transactions. Being of convenient size, this
trading in even lots continued to be used as future trading de-
veloped.
Grading.—Of the various factors contributing to the stand-
ardization of grain trading, the grading of grain was by far the
most important. With a dependable, uniform system of grades,
warehouse receipts could be issued which were general rather
than specific in character, i.e., the warehouseman agreed to de-
liver, upon presentation of the receipt, the amount and quality
(grade) of the particular grain called for by the receipt rather
than a specific, ear-marked lot. This aided in the bulk handling
of grain and greatly reduced the cost of storing grain due to
the elimination of most of the separate binning. In particular,
it greatly broadened the market in time contracts of all kinds
since both buyers and sellers could contract ahead with reason-
able assurance of being able to fulfill their agreement
The Chicago Board of Trade recognized the importance of
grading at its very first meeting in April, 1848, when inspec-
tors of fish, provisions and flour were appointed.* No action
was taken with reference to grain, however, until 1856. Andreas
states that in this year the first steps were taken "for defining and
regulating the standard and grades of wheat. The standards
established were to be designated as 'white wheat' (winter),
'red wheat' (winter), and 'spring wheat.' "*
This classification was largely experimental and in 1858 the
"new system of wheat inspection" was adopted by the Board.
It provided for the centralization of inspection under a Chief
•Andreas, A. T., op. cit., Vol. I, p. 582.
'Ibid., Vol. I, p. 585.
26 FUTURE TRADING
Inspector, with grades of "club," "No. 1," "No. 2 " and "re-
jected" for each class of wheat. Provision was also made for
tiie grading of corn, oats, rye, and barley under a three-fold
classification: "No. 1," "No. 2," and "Rejected." Later in the
year, minimum test weight per measured bushel was added as
a grading factor.
The following table has been prepared from data given in
the First Annual Report of the Chicago Board of Trade.
TABLE 3.—INSPECTIONS OF GRAIN INTO CHICAGO ELEVATORS,
JUNE 15-DECEMBER 31, 1858.
(In thousands of bushels, i.e., 000 omitted.)
GRADE
GRAIN Total
Club No. 1 No. 2 Rejected
WHEAT: Spring 2 189 2,120 648 2,959

White winter 112 112
Red winter 634 360 59 1,053
Com 1,148 801 551 2,500

Oats 404 13 116 533
Rye 17 7 1 25
Barley 21 69 14 104
TOTAL 2 2,525 3,370 1,389 7,286
While incomplete in that only a part of the receipts for the

period were inspected, the table illustrates the completeness
of this initial classification into grades; it also shows the early
commercial importance at Chicago of wheat and corn and for
the former, in particular, the dominance of Spring wheat.
Because of the importance of Spring wheat, and particularly
No. 2 Spring, it became the basic grade for wheat future con-
tracts, and continued to be so used until well into the eighties
when, in order to lessen the likelihood of corners, the contract
was broadened to include several grades. Thus the classifying
of grain enabled speculators to trade in time contracts on the
basis of grade alone. By selecting a grade in which a con-
siderable volume of actual grain was available at any time,

they could freely contract ahead, either purchases or sales, with
assurance that if need be they could meet their obligations.
Optional Period of a Month.—We have already mentioned
the fact that throughout the fifties speculation was carried on
in all kinds of contracts, both spot and "to arrive," calling for
various qualities of grain with various periods of time in-
volved. With the establishment of carefully defined grades and
weights, trading began to centralize into fewer varieties of
contracts. More and more, also, speculation centered in time
contracts permitting delivery during a period of one month.
While it is impossible to say just at what point speculators
adopted the month as the optional period of delivery, the prac-
tice was well established by 186410 and during the next four
years it became the regular practice.
During these early years, and in fact up to 1880, it was the
general practice to trade in futures maturing not more than
two or three months in advance. Thus during the month of
January, in addition to contracts maturing during that month,
trading would also be maintained in February futures and
March futures; and during the month of February, the current
month together with March and April would be traded in.
Thus every month in the year was actively traded in though
not many months in advance. Gradually, however, certain of
the months, and notably May, July, September and December,
were singled out as trading favorites. Gradually, also, it be-
came the practice to trade in each of these futures many months
in advance.
"Although speculative trading was carried on in large volume during
the Civil War, the trade papers of the time did not apparently consider it
worth while to regularly report quotations of the various types of trades.
Occasionally, however, quotations for future delivery were given. Thus
Well/ Commercial Express, a daily trade sheet of the time, quotes wheat
for May 6, 1864: "For future delivery 5,000 bu. No. 2 Spring, seller's option
all the month at $1.20; 5,000 bu. do. on same condition at $1.18." And for
corn on May 16, 1864: "3,000 bu. No. 1 new sold $1.06yi buyer's option all
the month." See also Mar. 3, 4, 5, 7, 8, 9, 11, 1864. However, quotations
were not given every day and only for wheat and corn.
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Title: On the constitution of atoms and molecules
Author: Niels Bohr
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*** START OF THE PROJECT GUTENBERG EBOOK ON THE

CONSTITUTION OF ATOMS AND MOLECULES ***
THE LONDON, EDINBURGH, AND DUBLIN
PHILOSOPHICAL MAGAZINE
and
JOURNAL OF SCIENCE.
[SIXTH SERIES.]
JULY 1913.
I. ON THE CONSTITUTION OF
ATOMS AND MOLECULES.
By N. BOHR, Dr. phil. Copenhagen[1].
CONTENTS
Part I.—BINDING OF ELECTRONS BY POSITIVE NUCLEI.
Part II.—SYSTEMS CONTAINING ONLY A SINGLE NUCLEUS
Part III.—SYSTEMS CONTAINING SEVERAL NUCLEI
Introduction.
IN order to explain the results of experiments on scattering of a rays

by matter Prof. Rutherford[2] has given a theory of the structure of
atoms. According to this theory, the atoms consist of a positively
charged nucleus surrounded by a system of electrons kept together
by attractive forces from the nucleus; the total negative charge of the
electrons is equal to the positive charge of the nucleus. Further, the
nucleus is assumed to be the seat of the essential part of the mass
of the atom, and to have linear dimensions exceedingly small
compared with the linear dimensions of the whole atom. The number
of electrons in an atom is deduced to be approximately equal to half
the atomic weight. Great interest is to be attributed to this atom-
model; for, as Rutherford has shown, the assumption of the
existence of nuclei, as those in question, seems to be necessary in
order to account for the results of the experiments on large angle
scattering of the rays[3].
In an attempt to explain some of the properties of matter on the
basis of this atom-model we meet, however, with difficulties of a
serious nature arising from the apparent instability of the system of
electrons: difficulties purposely avoided in atom-models previously
considered, for instance, in the one proposed by Sir J. J.
Thomson[4]. According to the theory of the latter the atom consists of
a sphere of uniform positive electrification, inside which the electrons
move in circular orbits.
The principal difference between the atom-models proposed by
Thomson and Rutherford consists in the circumstance that the forces
acting on the electrons in the atom-model of Thomson allow of
certain configurations and motions of the electrons for which the
system is in a stable equilibrium; such configurations, however,
apparently do not exist for the second atom-model. The nature of the
difference in question will perhaps be most clearly seen by noticing
that among the quantities characterizing the first atom a quantity
appears—the radius of the positive sphere—of dimensions of a
length and of the same order of magnitude as the linear extension of
the atom, while such a length does not appear among the quantities
characterizing the second atom, viz. the charges and masses of the
electrons and the positive nucleus; nor can it be determined solely
by help of the latter quantities.
The way of considering a problem of this kind has, however,
undergone essential alterations in recent years owing to the
development of the theory of the energy radiation, and the direct
affirmation of the new assumptions introduced in this theory, found
by experiments on very different phenomena such as specific heats,
photo-electric effect, Röntgen-rays, &c. The result of the discussion
of these questions seems to be a general acknowledgment of the
inadequacy of the classical electrodynamics in describing the
behaviour of systems of atomic size[5]. Whatever the alteration in the
laws of motion of the electrons may be, it seems necessary to
introduce in the laws in question a quantity foreign to the classical
electrodynamics, i. e. Planck’s constant, or as it often is called the
elementary quantum of action. By the introduction of this quantity the
question of the stable configuration of the electrons in the atoms is
essentially changed, as this constant is of such dimensions and
magnitude that it, together with the mass and charge of the particles,
can determine a length of the order of magnitude required.
This paper is an attempt to show that the application of the above
ideas to Rutherford’s atom-model affords a basis for a theory of the
constitution of atoms. It will further be shown that from this theory we
are led to a theory of the constitution of molecules.
In the present first part of the paper the mechanism of the binding
of electrons by a positive nucleus is discussed in relation to Planck's
theory. It will be shown that it is possible from the point of view taken
to account in a simple way for the law of the line spectrum of
hydrogen. Further, reasons are given for a principal hypothesis on
which the considerations contained in the following parts are based.
I wish here to express my thanks to Prof. Rutherford for his kind
and encouraging interest in this work.
PART I.—BINDING OF ELECTRONS BY
POSITIVE NUCLEI.
§1. General Considerations.
The inadequacy of the classical electrodynamics in accounting for

the properties of atoms from an atom-model as Rutherford’s, will
appear very clearly if we consider a simple system consisting of a
positively charged nucleus of very small dimensions and an electron
describing closed orbits around it. For simplicity, let us assume that
the mass of the electron is negligibly small in comparison with that of
the nucleus, and further, that the velocity of the electron is small
compared with that of light.
Let us at first assume that there is no energy radiation. In this
case the electron will describe stationary elliptical orbits. The
frequency of revolution and the major-axis of the orbit will
depend on the amount of energy which must be transferred to the
system in order to remove the electron to an infinitely great distance
apart from the nucleus. Denoting the charge of the electron and of the
nucleus by and respectively and the mass of the electron by
, we thus get
Further, it can easily be shown that the mean value of the kinetic
energy of the electron taken for a whole revolution is equal to . We
see that if the value of is not given, there will be no values of
and characteristic for the system in question.
Let us now, however, take the effect of the energy radiation into
account, calculated in the ordinary way from the acceleration of the
electron. In this case the electron will no longer describe stationary
orbits. will continuously increase, and the electron will approach
the nucleus describing orbits of smaller and smaller dimensions, and
with greater and greater frequency; the electron on the average
gaining in kinetic energy at the same time as the whole system loses
energy. This process will go on until the dimensions of the orbit are of
the same order of magnitude as the dimensions of the electron or
those of the nucleus. A simple calculation shows that the energy
radiated out during the process considered will be enormously great
compared with that radiated out by ordinary molecular processes.
It is obvious that the behaviour of such a system will be very
different from that of an atomic system occurring in nature. In the first
place, the actual atoms in their permanent state seem to have
absolutely fixed dimensions and frequencies. Further, if we consider
any molecular process, the result seems always to be that after a
certain amount of energy characteristic for the systems in question is
radiated out, the systems will again settle down in a stable state of
equilibrium, in which the distances apart of the particles are of the
same order of magnitude as before the process.
Now the essential point in Planck’s theory of radiation is that the
energy radiation from an atomic system does not take place in the
continuous way assumed in the ordinary electrodynamics, but that it,
on the contrary, takes place in distinctly separated emissions, the
amount of energy radiated out from an atomic vibrator of frequency
in a single emission being equal to , where is an entire number,
and is a universal constant[6].
Returning to the simple case of an electron and a positive nucleus
considered above, let us assume that the electron at the beginning of
the interaction with the nucleus was at a great distance apart from the
nucleus, and had no sensible velocity relative to the latter. Let us
further assume that the electron after the interaction has taken place
has settled down in a stationary orbit around the nucleus. We shall,
for reasons referred to later, assume that the orbit in question is
circular; this assumption will, however, make no alteration in the
calculations for systems containing only a single electron.
Let us now assume that, during the binding of the electron, a
homogeneous radiation is emitted of a frequency , equal to half the
frequency of revolution of the electron in its final orbit; then, from
Planck's theory, we might expect that the amount of energy emitted
by the process considered is equal to , where is Planck’s
constant and an entire number. If we assume that the radiation
emitted is homogeneous, the second assumption concerning the
frequency of the radiation suggests itself, since the frequency of
revolution of the electron at the beginning of the emission is . The
question, however, of the rigorous validity of both assumptions, and
also of the application made of Planck’s theory, will be more closely
discussed in §3.
Putting
we get by help of the formula (1)
If in these expressions we give different values, we get a series

of values for , , and corresponding to a series of configurations
of the system. According to the above considerations, we are led to
assume that these configurations will correspond to states of the
system in which there is no radiation of energy; states which
consequently will be stationary as long as the system is not disturbed
from outside. We see that the value of is greatest if has its
smallest value . This case will therefore correspond to the most
stable state of the system, i. e. will correspond to the binding of the
electron for the breaking up of which the greatest amount of energy is
required.
Putting in the above expressions and , and
introducing the experimental values
we get
We see that these values are of the same order of magnitude as

the linear dimensions of the atoms, the optical frequencies, and the
ionization-potentials.
The general importance of Planck’s theory for the discussion of
the behaviour of atomic systems was originally pointed out by
Einstein[7]. The considerations of Einstein have been developed and
applied on a number of different phenomena, especially by Stark,
Nernst, and Sommerfield. The agreement as to the order of
magnitude between values observed for the frequencies and
dimensions of the atoms, and values for these quantities calculated
by considerations similar to those given above, has been the subject
of much discussion. It was first pointed out by Haas[8], in an attempt
to explain the meaning and the value of Planck’s constant on the
basis of J. J. Thomson’s atom-model, by help of the linear dimensions
and frequency of an hydrogen atom.
Systems of the kind considered in this paper, in which the forces
between the particles vary inversely as the square of the distance,
are discussed in relation to Planck’s theory by J. W. Nicholson[9]. In a
series of papers this author has shown that it seems to be possible to
account for lines of hitherto unknown origin in the spectra of the
stellar nebulæ and that of the solar corona, by assuming the
presence in these bodies of certain hypothetical elements of exactly
indicated constitution. The atoms of these elements are supposed to
consist simply of a ring of a few electrons surrounding a positive
nucleus of negligibly small dimensions. The ratios between the
frequencies corresponding to the lines in question are compared with
the ratios between the frequencies corresponding to different modes
of vibration of the ring of electrons. Nicholson has obtained a relation
to Planck’s theory showing that the ratios between the wave-length of
different sets of lines of the coronal spectrum can be accounted for
with great accuracy by assuming that the ratio between the energy of
the system and the frequency of rotation of the ring is equal to an
entire multiple of Planck’s constant. The quantity Nicholson refers to
as the energy is equal to twice the quantity which we have denoted
above by . In the latest paper cited Nicholson has found it
necessary to give the theory a more complicated form, still, however,
representing the ratio of energy to frequency by a simple function of
whole numbers.
The excellent agreement between the calculated and observed
values of the ratios between the wave-lengths in question seems a
strong argument in favour of the validity of the foundation of
Nicholson’s calculations. Serious objections, however, may be raised
against the theory. These objections are intimately connected with the
problem of the homogeneity of the radiation emitted. In Nicholson’s
calculations the frequency of lines in a line-spectrum is identified with
the frequency of vibration of a mechanical system in a distinctly
indicated state of equilibrium. As a relation from Planck's theory is
used, we might expect that the radiation is sent out in quanta; but
systems like those considered, in which the frequency is a function of
the energy, cannot emit a finite amount of a homogeneous radiation;
for, as soon as the emission of radiation is started, the energy and
also the frequency of the system are altered. Further, according to the
calculation of Nicholson, the systems are unstable for some modes of
vibration. Apart from such objections—which may be only formal (see
p. 23)—it must be remarked, that the theory in the form given does
not seem to be able to account for the well-known laws of Balmer and
Rydberg connecting the frequencies of the lines in the line-spectra of
the ordinary elements.
It will now be attempted to show that the difficulties in question
disappear if we consider the problems from the point of view taken in
this paper. Before proceeding it may be useful to restate briefly the
ideas characterizing the calculations on p. 5. The principal
assumptions used are:
(1) That the dynamical equilibrium of the systems in the stationary
states can be discussed by help of the ordinary mechanics, while
the passing of the systems between different stationary states
cannot be treated on that basis.
(2) That the latter process is followed by the emission of a
homogeneous radiation, for which the relation between the
frequency and the amount of energy emitted is the one given by
Planck's theory.
The first assumption seems to present itself; for it is known that
the ordinary mechanics cannot have an absolute validity, but will only
hold in calculations of certain mean values of the motion of the
electrons. On the other hand, in the calculations of the dynamical
equilibrium in a stationary state in which there is no relative
displacement of the particles, we need not distinguish between the
actual motions and their mean values. The second assumption is in
obvious contrast to the ordinary ideas of electrodynamics, but
appears to be necessary in order to account for experimental facts.
In the calculations on page 5 we have further made use of the
more special assumptions, viz. that the different stationary states
correspond to the emission of a different number of Planck’s energy-
quanta, and that the frequency of the radiation emitted during the
passing of the system from a state in which no energy is yet radiated
out to one of the stationary states, is equal to half the frequency of
revolution of the electron in the latter state. We can, however (see
§3), also arrive at the expressions (3) for the stationary states by
using assumptions of somewhat different form. We shall, therefore,
postpone the discussion of the special assumptions, and first show
how by the help of the above principal assumptions, and of the
expressions (3) for the stationary states, we can account for the line-
spectrum of hydrogen.
§2. Emission of Line-spectra.
Spectrum of Hydrogen.—General evidence indicates that an atom

of hydrogen consists simply of a single electron rotating round a
positive nucleus of charge [10]. The reformation of a hydrogen atom,
when the electron has been removed to great distances away from
the nucleus—e. g.. by the effect of electrical discharge in a vacuum
tube—will accordingly correspond to the binding of an electron by a
positive nucleus considered on p. 5. If in (3) we put , we get for
the total amount of energy radiated out by the formation of one of the
stationary states,
The amount of energy emitted by the passing of the system from

a state corresponding to to one corresponding to , is
consequently
If now we suppose that the radiation in question is homogeneous,

and that the amount of energy emitted is equal to , where is the
frequency of the radiation, we get
and from this
We see that this expression accounts for the law connecting the
lines in the spectrum of hydrogen. If we put and let vary,
we get the ordinary Balmer series. If we put , we get the series
in the ultra-red observed by Paschen[11] and previously suspected by
Ritz. If we put and , we get series respectively
in the extreme ultra-violet and the extreme ultra-red, which are not
observed, but the existence of which may be expected.
The agreement in question is quantitative as well as qualitative.
Putting
we get
The observed value for the factor outside the bracket in the formula
(4) is
The agreement between the theoretical and observed values is

inside the uncertainty due to experimental errors in the constants
entering in the expression for the theoretical value. We shall in §3
return to consider the possible importance of the agreement in
question.
It may be remarked that the fact, that it has not been possible to
observe more than lines of the Balmer series in experiments with
vacuum tubes, while lines are observed in the spectra of some
celestial bodies, is just what we should expect from the above theory.
According to the equation (3) the diameter of the orbit of the electron
in the different stationary states is proportional to . For the
diameter is equal to , or equal to the mean distance
between the molecules in a gas at a pressure of about
; for the diameter is equal to ,
corresponding to the mean distance of the molecules at a pressure of
about . According to the theory the necessary
condition for the appearance of a great number of lines is therefore a
very small density of the gas; for simultaneously to obtain an intensity
sufficient for observation the space tilled with the gas must be very
great. If the theory is right, we may therefore never expect to be able
in experiments with vacuum tubes to observe the lines corresponding
to high numbers of the Balmer series of the emission spectrum of
hydrogen; it might, however, be possible to observe the lines by
investigation of the absorption spectrum of this gas (see §4).
It will be observed that we in the above way do not obtain other
series of lines, generally ascribed to hydrogen; for instance, the
series first observed by Pickering[12] in the spectrum of the star
Puppis, and the set of series recently found by Fowler[13] by
experiments with vacuum tubes containing a mixture of hydrogen and
helium. We shall, however, see that, by help of the above theory, we
can account naturally for these series of lines if we ascribe them to
helium.
A neutral atom of the latter element consists, according to
Rutherford’s theory, of a positive nucleus of charge and two
electrons. Now considering the binding of a single electron by a
helium nucleus, we get, putting in the expressions (3) on
page 5, and proceeding in exactly the same way as above,
If we in this formula put or , we get series of lines in

the extreme ultra-violet. If we put , and let vary, we get a
series which includes of the series observed by Fowler, and
denoted by him as the first and second principal series of the
hydrogen spectrum. If we put , we get the series observed by
Pickering in the spectrum of Puppis. Every second of the lines in
this series is identical with a line in the Balmer series of the hydrogen
spectrum; the presence of hydrogen in the star in question may
therefore account for the fact that these lines are of a greater intensity
than the rest of the lines in the series. The series is also observed in
the experiments of Fowler, and denoted in his paper as the Sharp
series of the hydrogen spectrum. If we finally in the above formula put
, we get series, the strong lines of which are to be
expected in the ultra-red.
The reason why the spectrum considered is not observed in
ordinary helium tubes may be that in such tubes the ionization of
helium is not so complete as in the star considered or in the
experiments of Fowler, where a strong discharge was sent through a
mixture of hydrogen and helium. The condition for the appearance of
the spectrum is, according to the above theory, that helium atoms are
present in a state in which they have lost both their electrons. Now
we must assume that the amount of energy to be used in removing
the second electron from a helium atom is much greater than that to
be used in removing the first. Further, it is known from experiments
on positive rays, that hydrogen atoms can acquire a negative charge;
therefore the presence of hydrogen in the experiments of Fowler may
effect that more electrons are removed from some of the helium
atoms than would be the case if only helium were present.
Spectra of other substances.—In case of systems containing
more electrons we must—in conformity with the result of experiments
—expect more complicated laws for the line-spectra than those
considered. I shall try to show that the point of view taken above
allows, at any rate, a certain understanding of the laws observed.
According to Rydberg’s theory—with the generalization given by
Ritz[14]—the frequency corresponding to the lines of the spectrum of
an element can be expressed by
where , and , are entire numbers, and , , ,.... are

functions of which approximately are equal to ,
,.... is a universal constant, equal to the factor outside
the bracket in the formula (4) for the spectrum of hydrogen. The
different series appear if we put , or , equal to a fixed number
and let the other vary.
The circumstance that the frequency can be written as a
difference between two functions of entire numbers suggests an
origin of the lines in the spectra in question similar to the one we have
assumed for hydrogen; i. e. that the lines correspond to a radiation
emitted during the passing of the system between two different
stationary states. For systems containing more than one electron the
detailed discussion may be very complicated, as there will be many
different configurations of the electrons which can be taken into
consideration as stationary states. This may account for the different
sets of series in the line spectra emitted from the substances in
question. Here I shall only try to show how, by help of the theory, it
can be simply explained that the constant entering in Rydberg’s
formula is the same for all substances.
Let us assume that the spectrum in question corresponds to the
radiation emitted during the binding of an electron; and let us further
assume that the system including the electron considered is neutral.
The force on the electron, when at a great distance apart from the
nucleus and the electrons previously bound, will be very nearly the
same as in the above case of the binding of an electron by a
hydrogen nucleus. The energy corresponding to one of the stationary
states will therefore for great be very nearly equal to that given by
the expression (3) on p. 5, if we put . For great we
consequently get
in conformity with Rydberg’s theory.
§3. General Considerations continued.
We shall now return to the discussion (see p. 7) of the special

assumptions used in deducing the expressions (3) on p. 5 for the
stationary states of a system consisting of an electron rotating round
a nucleus.
For one, we have assumed that the different stationary states
correspond to an emission of a different number of energy-quanta.

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Future Trading upon Organized

Commodity Markets in the United

Industrializing the United States Heather Price-Wright

Market Manipulation and Insider Trading Regulatory

Handbook of Frogs and Toads of the United States and

Latin America Development Programming and United States

United States Anna Obiols

The Legal Effects of Recognition in International Law:

Power and Willpower in the American Future Why the

Reproductive Politics in the United States 1st Edition

Professor of Insurance in the University of Pennsylvania

Concerning the purpose of this study, my main object has

ORGANIZATION AND OPERATION OF

Chapter II. EVOLUTION OF FUTURE TRADING : GRAIN

PRICE ASPECTS AND PROBLEMS OF

'Chapter XV. DIFFERENCE SYSTEMS AND T H E I R EFFECT

CHAPTER X X I I . S U M M A R Y AND OUTLOOK 444

APPENDIX A . FIRST 12 SECTIONS OF THE UNITED

APPENDIX B . T H E G R A I N FUTURES A C T 462

ORGANIZATION AND OPERATION OF

ECONOMIC POSITION OF FUTURE TRADING

There is perhaps no place in the world where speculation is

a lack of available capital than by any absence of known meth-

causing unforeseen changes in market price.1 All of these risks

the work and reward of laborers as well as capitalists depend

Future Trading a Political Football.—Dealing as it does

Illinois regarding the trading methods of the Chicago Board of

'Report of the Special House Committee to Investigate the Chicago

and upon the various interests involved. Finally, we will need

present size of the trade in futures its comparative importance

A veritable network of private wires brings to the exchange

T A B L E 1 . — T H B PRINCIPAL EXCHANGES AND COMMODITIES IN WHICH F U T U R E

Principal Exchanges Principal cominodities

Per cent of Per cent of

Chicago Board of Trade 59.1 Wheat 55.5

Total 100.0 Total 100.0

* No one exceeding 2 per cent.

create through the composite opinion of thousands of individ-

and open expression of opinion. Here if anywhere in our eco-

cooperative undertakings of recent years, this question is of

EVOLUTION OF FUTURE TRADING: GRAIN

Trading in grain futures had its origin in the development

The westward expansion of the United States during the

by the third quarter it had become distinctly international in

Chicago's Early Leadership as a Grain Center.—In this de-

Aggregate value of Per cent of increase

on Lake Michigan where, in conjunction with the railroad, low

1849, a local newspaper facetiously describes Chicago's main

The handicap of poor transportation was removed with the

tended from a few miles by wagon haul to a hundred miles and

2 . TYPES OF GRAIN TRADING

Of the various kinds of farm produce, grain became the

receipts and shipments grew rapidly and by 1855 Chicago's

ing, as well as what particular operators were doing. No man

permitted, the dealer could hold his purchases in store for

'Andreas, A. T., History of Chicago, Vol. I, p. 581.

trouble of weighing, inspecting, storing and insuring, together

3. STANDARDIZATION OF THE "TO ARRIVE" CONTRACT