“…the emergence of large-scale grain markets in Chicago during the middle of the nineteenth century.
Before 1850, grain was bought and sold in large, open air marketplaces near the waterfront of Chicago. . . . Grain was sent by the sackful from a farm to a merchant, who would haggle face-to-face with buyers in an effort to obtain the best price. The merchant acted as a middleman for the farmer, who retained ownership over his grain and paid the merchant a commission for each sale.
“…the rise of the railroads transformed this mode of exchange and ‘transmute[d] wheat and corn into monetary abstractions.’ Railroads allowed crops to be efficiently transported from outlying farms into Chicago, rapidly increasing the amount of grain that entered the city’s market. When it became clear that bulk grain was more efficiently sold at market, traditional grain sacks were abandoned and farmers pooled their crops into freight cars. But combining grain from different farms raised the question of how to deal with the ownership of the grain that each farmer contributed to a given carload.
A private industry consortium, the Chicago Board of Trade (CBOT), eventually solved the problem through standardization. The CBOT designated three categories of grain and four levels of quality (‘Club,’ ‘No. 1,’ ‘No. 2,’ and ‘Rejected’). Farmers putting grain into a train car re ceived a receipt indicating a quantity of grain and a quality level. The receipt was redeemable for an equal quantity of the same quality grain-not the same grain, but its func tional equivalent.
Once standardized, grain became abstracted into a commodity. The receipts could be bought and sold with out regard to the specific identity of the farmer who originally produced the grain. People with no interest in grain production could make a profit by buying and selling receipts. Famously, the CBOT also facilitated the rise of a vigorous trade in ‘futures,’ speculative contracts betting on the future price of grain.”