discovery. Yet, speculative activity can have decided disadvantages, such as the increased incentive and ability to manipulate markets resulting in sometimes severe distortions in the pricing process. Periods of turbulence in specific commodity markets where price – discovery apparently failed are often associated with the entrance of speculators not – directly connected to physical trade in the underlying commodity using the leverage associated with derivative contracts to distort market pricing for private gain. Though there were time dealings being conducted in a number of centers throughout the 19th century, the beginning of speculative exchange trading in the US commences with commodity futures contracts traded on the Chicago Board of Trade (CBT) in mid-19th century Chicago, First incorporated as a village in 1833, Chicago had only a population of 4,107 by 1837. In order to promote commerce, the Board of Trade of the City of was founded on with 82 members. This event, in itself, was not particularly noteworthy. The usefulness of boards of trade in promotion had been recognized for quite some time. For example, around 1700 John Law of the infamous Mississippi scheme promoted the creation of a board of trade for the city of Edinburgh (Murphy 1997). From the beginning, there were inherent conflicts between the exchange as a promoter of trade and promoter of the interests of (owner) members. The exchange as a self-regulatory entity was not recognized, e.g., Lurie (1972, p.221): A basic purpose of the Board was to facilitate profitable economic activity by members. Thus its directors had to sense with some accuracy how far they could go in the areas of rule enforcement. If rules were enforced too harshly, board members could either ignore them or decline to remain in the organization. Yet, another purpose of the exchange was to rationalize the commodities market through efficient
discovery. Yet, speculative activity can have decided disadvantages, such as the increased incentive and ability to manipulate markets resulting in sometimes severe distortions in the pricing process. Periods of turbulence in specific commodity markets – where price discovery apparently failed – are often associated with the entrance of speculators not directly connected to physical trade in the underlying commodity using the leverage associated with derivative contracts to distort market pricing for private gain. Though there were time dealings being conducted in a number of centers throughout the 19th century, the beginning of speculative exchange trading in the US commences with commodity futures contracts traded on the Chicago Board of Trade (CBT) in mid-19th century Chicago, First incorporated as a village in 1833, Chicago had only a population of 4,107 by 1837. In order to promote commerce, the Board of Trade of the City of was founded on with 82 members. This event, in itself, was not particularly noteworthy. The usefulness of boards of trade in promotion had been recognized for quite some time. For example, around 1700 John Law of the infamous Mississippi scheme promoted the creation of a board of trade for the city of Edinburgh (Murphy 1997). From the beginning, there were inherent conflicts between the exchange as a promoter of trade and promoter of the interests of (owner) members. The exchange as a self-regulatory entity was not recognized, e.g., Lurie (1972, p.221): A basic purpose of the Board was to facilitate profitable economic activity by members. Thus its directors had to sense with some accuracy how far they could go in the areas of rule enforcement. If rules were enforced too harshly, board members could either ignore them or decline to remain in the organization. Yet, another purpose of the exchange was to rationalize the commodities market through efficient
ch_3_gsm-hist_gp_$.docx