Finance and production in the Chicago wheat market, 1859-1914

The paper reconstructs the history of the Chicago Board of Trade since its foundation through World War 1, discarding an institutionalist approach (Lurie 1979) and testing the hypothesis of a class conflict between producers and traders of grains. Actually, the diachronic analysis of the Board’s members shows an established predominance of middlemen who, since the beginning, trade different kinds of «future» contracts. The so-called «ring» of futures was made possible by the warehouse receipts and, in turn, by the standardization of the wheat’s qualities. In the long run, the statistical series of wheat’s price document the stabilizing role played by the futures. Unlike different interpretations (Levy 2006), the activity of the Board concentrated the market in a physical place, making it possible a «price-discovery» function, instead of mere speculation. The repeated attempts of «corner» by large purchases of wheat, as well as the long battle against the bucket shops demonstrated the difference. Conversely, the real enemy of the farmers-producers did not correspond to the «gamblers» convened at the Board, but the absence of a local banking system which would be able to provide credit and support. Famously, the «free banking era» of the mid-nineteenth century delayed the development of strong financial institutions until the Federal Reserve Act of 1913. As a consequence, local banks were undercapitalized, remote and eventually too weak to sustain the farmers’ financial necessities. The Chicago Board of Trade replaced them, but serving only the interests of financial élite; the small, independent, agricultural entrepreneurs were doomed to give way to larger, stronger, and possibly oligopolistic companies.