Empirical insight and some thoughts on future(s) investigation.

• Author: Simpson, A.W. Brian
• Position: Response to article by Mark D. West in this issue, p. 2574

Comments on Mark West's `Private Ordering at the World's First Futures Exchange'

Some considerable number of years ago, when I was in Chicago, I had a plan to undertake a general study of the origins of futures markets. They fascinated me for a variety of reasons, one being their bizarre nature: traders meeting together, usually in some form of ring, in order to sell, on a huge scale, quantities of commodities which they neither possess, nor intend to possess, to other traders, who have not the least wish to receive such commodities, and nowhere to put them if they did. At first sight it appears a weird perversion of the institution of the contract of sale. So I wondered: How did such markets ever come into existence? In any event, I did some work on the records of the Chicago Exchange and on the Liverpool cotton market. Though I published a piece on the latter, the general study was never completed.(1) This explains why I was especially interested in two of the articles in this symposium, one by Lisa Bernstein and the other by my colleague, Mark West. I shall confine my comments to Mark West's article.

We are not here talking about markets in the modern economists' abstract sense of the term, but in an earlier, more concrete sense -- as a place, not a concept. It is a place where people come together in order to trade with each other. Such markets, by their very existence, facilitate trade by reducing the costs of transactions. They are commonly associated with institutional arrangements that contribute to this end. For example, markets need to be reasonably safe places; they need to have a fixed and predictable location, and be held at known times, so that those who want to trade know where to come and when. Many markets of this kind still exist in the world, and I regularly attend one in Ann Arbor: the Kerrytown Farmers' Market. There are numerous studies of their history, for example in some of the volumes produced by the English Selden Society. Some such markets may provide facilities for the sale of a wide range of commodities and products; some evolve to cater only for trading in a single commodity, such as wheat or cotton. It may be possible to explain why such specialized markets come into existence and why they come to be located in particular places.

Futures markets are an offshoot from specialized commodities markets, where only a single commodity is traded. In futures markets, the rules and customary practices that impose order...