GEOG_130 (6/5)

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University of California - Berkeley
GEOG 130
Nicole C.List

GEOG 130 (6/5) Overview Markets (Cronon) ● Role of technology & Board of Exchange ● Understanding of Futures Market (why important, why traders like it) ● Corners The Dust Bowl (Worster) The Dust Bowl (Ken Burns) From Sack to Elevator: Commodifying Grain ● Grain moved on river, ownership tied to specific batches/sacks of grain until sold @ destination to Chicago/St. Louis ○ Bags important b/c easier to move ● Every batch qualitatively different from others (rated, buyers decided quality to buy) ● Shift to railroads necessitated/enabled change ○ After railroads, St. Louis lost out to Chicago b/c St. Louis w/ better port but railroads went to Chicago ○ Cost to move grain cheaper = more could be moved = produce more ○ Grain shipments in ‘car loads’ (bushels) rather than sacks ● Increased production = new technology = Grain elevators mechanized (1843 steam powered grain elevator) ○ 3 categories of wheat (1-3) ■ White winter wheat ■ Red winter wheat ■ Spring wheat ○ Elevators could separate types of grain through grading = mix/store from different farmers ■ Farmer would get paper recording the amount stored, not sack/type ○ Scale too great: keeping different farmers’ batches of grain separate not economical = mixing of different qualities of grain ○ Need to make batches qualitatively identical so that they could be quantitatively equivalent The Chicago Board of Trade (The ‘Change) ● 1848 as private membership organization - not popular ○ Started to settle disputes, promote trade ● Growth catalyzed by boom in demand for grain during Crimean War (1853-56) ○ Double volume, triple value ○ Consumption increased ● Introduced grain grading system & associated regulations (1856) ○ pg 116: claimed grain of certain grade, not grain of owner (bank) ○ Receipts allowed creation of Future’s Market ● Chartered under Illinois law (1859) as ‘quasi-judicial entity w/ substantial legal powers’ ● Grading system allowed elevators to sever link between ownership rights & physical grain ○ Instead of specific sacks of grain, one bought & sold paper claims on type of grain ■ Development of Future’s market Commodification? ● Already happened before the ‘Change ● Issue: abstraction of grain-property rules (meaning of ownership) based on inherent qualities ○ Grading system homogenized grain within grades, erasing variability of actual lots of grain ○ Receipts symbolized a claim on a certain amt of the total supply of that grade of grain The Futures Market Revolution ● Railroads & elevator “effectively created a new form of money, secured not by gold but by grain, obscuring physical identity and displacing it into the symbolic world of capital” (120) ● Telegraph enabled near-instant communication between Chicago/New York ○ Take advantage of imbalance ○ Grain money by inequality (traders) ○ Faster equality of price in places ○ Buy receipts before product in hands ● Unified market at national and international scale ● Local events such as frost/drought became less important ● Futures market was a market not in grain but in the price of grain ○ Why engage in future’s market? ■ Contract: Farmer agrees to sell grain at certain price before grow/finished growing = bet on drought/good year ■ Farmer has security in case bad year (hedging risk) or lose money if good year & trader makes money ■ If drought, not a lot of corn & prices go up, buyers hedge bets & make sure have enough supply for production ■ If contract not fulfilled, can buy receipt elsewhere ○ How speculators gain? ○ Regulated by Board of Exchange Problems of Classification & Representation ● Where were the boundaries between grades of grain? (grain inspectors vs. farmers - farmers could not determine which elevator and grading of their grain) ○ Determined by? ■ Grain inspectors ○ Enforced by? ■ Grain inspectors/elevator operators, graded a farmer’s grain in lower category but would pocket the money once sold at a higher category ■ If shortage of grain, print more receipts like printing more money ● What if “currency” (grain receipts) were corrupted or devalued? ○ Who knew what? ○ When? ● Grain inspection became a public (State of Illinois) function (1871) Risks inherent to the ‘Change ● Speculation ○ Could sell grain that didn’t exist ○ Trade in values x10 what actually existed (credit) ○ Settle difference in cash → cornering market ● Corners ○ Buying up grain and holding it until such shortage, price high → sell at high price ■ Or buying up futures contracts & physical grain ● When contract comes to an end, buyers don’t accept cash/ contracts & demand grain ● Since buyers own grain, they can sell at much higher
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