Financial History Issue 132 (Winter 2020) | Page 26

TRADING
PLACES
Futures Markets
at the Dawn of
US Agricultural
Policy
By Joseph M. Santos
Readers of Financial History are well
aware of Frank Norris’s classic, The Pit:
A Story of Chicago (1903), in which the
protagonist, a grain speculator, is impov-
erished by the unsympathetic forces of
capitalism embodied by the futures mar-
ket on the Chicago Board of Trade (See
Grinder and Cooper [2019] and Santos
[2018]). Of course, despite early, less-than-
favorable narratives of and popular hos-
tilities toward futures markets, they thrive
relatively unfettered today. Nevertheless,
in the early 20th century, the path from
rudimentary to-arrive grain contracts
to contemporary derivative instruments
written on agricultural commodities was
not a foregone conclusion. Rather, the
private grain trade hung in the balance
as pragmatic policy responses to excep-
tional circumstances during World War
I temporarily nationalized the trade and
ultimately reshaped thinking about the
role of government in the US agricultural
economy. In light of the well-documented
agrarian discontent with the private grain
trade, the outcome of these wartime ten-
sions is rather ironic: a comprehensive
agricultural policy that has intentionally
integrated the private trade and, thus,
futures markets.
At the turn of the 20th century, pri-
vate exchanges settled the daily spot and
futures prices of North American grains.
Meanwhile, markets for credit, stor-
age, transportation and processing, each
largely self-regulated, ushered grain along
its international supply chain. Farmers
resented the private trade for ostensibly
depressing grain prices. Grain prices were
often weakest during and shortly after
harvest, when most farmers endeavored
to sell crops that were in relatively high
supply; and grain exchanges necessarily
registered these prices. What many farm-
ers resented most about grain exchanges
was their so-called disorderly marketing
of grain: trading grain-futures contracts,
thereby allegedly lowering prices more
than necessary to clear markets over time.
Illustration from Frank Norris’s 1903 short story,
A Deal in Wheat, which captures the “bearish”
sort of sale—disorderly marketing—
that farmers loathed.
24    FINANCIAL HISTORY  |  Winter 2020  | www.MoAF.org