powers of the Congress to pass a law forbidding a man to sell a product for future delivery. Some of us think that if we can not pass such a law that there is an evil existing that is rather hard to reach by legislation.

Mr. HARLAN. Yes.

Mr. TINCHER. Some have suggested a criminal statute to prevent the use of the mails or the wires in interstate commerce. Others say they think that we could better reach the matter by a tax law, distinguishing between the man who deals in the article and the man who has no notion of dealing in the original article.

Mr. MCLAUGHLIN of Michigan. Can you explain how a man is dealing in the original article when he enters into a hedging transaction?

Mr. TINCHER. I do not contend that for a minute.

Mr. MCLAUGHLIN of Michigan. You used that expression in there? Mr. TINCHER. No; I have never said anything that could be by any process of reasoning or construction switched into an intimation that the man who deals in hedges or futures is dealing in the original article. I do not mean that at all. There is nothing in my bill that would indicate I meant anything of that kind. If a man actually buys grain and wants to sell it for future delivery my bill would say, all right, you can do that. He might answer and say, I do not know just how much I am going to have, because I am in this business, but if you sell more than three times the amount of the purchase, then you meet the condition in the bill. There is no man who can say that that proposes to legalize certain kinds of gambling and make other kinds of gambling illegal, because if a man wants to pay a tax on dealing in more futures than that he can, under the bill, go ahead and make the deals and pay the tax. I do not mean to say that my bill is any better than any other bill that attempts to regulate it, by forbidding the use of the wires or the mails. The only reason I was afraid of that was that there would be so much intrastate business that we would not reach the evil.

The CHAIRMAN. Are there any other questions? grateful to you, Mr. Harlan.

Mr. HARLAN. I am much obliged to you.

We are very

Mr. TINCHER. I think it is only fair to say to you, Mr. Harlan, and to the people of your country, that the greater part of your testimony has been on a hypothetical basis, that the cooperative grain men of your country were selling futures. I am advised, but I do not know how accurate my information is, that while they sell grain in your country for future delivery, yet your legitimate grain dealers do not hedge on grain futures. I do not know whether I am right or not, and you tell me you do not know whether that is right or not. Mr. HARLAN. Mr. Sharp, I think, can tell you about that. The CHAIRMAN. Thank you. We will hear Mr. Sharp.

STATEMENT OF MR. W. Z. SHARP, A BANKER AND GRAIN DEALER IN SIOUX FALLS, S. DAK.

Mr. SHARP. Gentlemen of the committee, all I will state is to say briefly the way we use the market as a hedge. At Cedar Rapids, Iowa, we have what is known as a clearing house or transfer house. We buy merchandise, our own stuff, and we use the board of trade to keep our sales and purchases even. Sometimes we buy and some

times we sell. For illustration, if we get an order from a cereal company for 300,000 bushels of oats, and we only have on hand 50,000 bushels, we would immediately purchase 250,000 bushels of oats on the board of trade, at the option nearest to the delivery point of the actual stuff.

I used to have a line of small country elevators in South Dakota, 15 in number. It is always the case every year that I have known in that country for our elevators to absolutely fill up in the fall, during what we call the rush season. You have either got to stand long on that grain all through that season or you have got to sell futures against it.

Right here I want to say, in reference to the farmers' elevators in that country, some gentleman here having asked if they ever used the board of trade; I will say if they had done it they would not have gone broke. Nearly every farmer's elevator from Edan to Woonsocket, S. Dak., has gone broke recently, and the reason of it was that they had large elevators and had them filled with grain and did not hedge on a declining market and therefore had no protection. That is, just briefly, my side of it.

Now, we loan money to farmers' elevator companies. That is, we take their paper through our correspondent banks. We only take it when they get at least half a dozen farmer directors who are worth at least $50,000 to $100,000 to indorse the paper personally, and that is for the reason that in my estimation there is no business as hazardous as the grain business. The market fluctuates and we can not tell what it is going to be.

Mr. YOUNG. Of course, you do not know much about the cotton business?

Mr. SHARP. No, sir. I have known a number of men go into the grain business and make a great success in three or four or five years and then go broke in one year by being on the wrong side of the market. That has been demonstrated.

Gentlemen of the committee, that is all I have to tell you, but I will try to answer your questions as best I can.

The CHAIRMAN. Any questions?

Mr. YOUNG. I want to ask you this question: They have in foreign countries boards of trade and exchanges that do a similar class of business to the boards of trade in this country with reference to grain products, haven't they?

Mr. SHARP. I do not know.

Mr. YOUNG. Well, that is true with reference to cotton. They have those exchanges, and we have been troubled by this question for 10 years in my own experience, and I have always been confronted by the proposition that whatever we do, if we were to destroy the exchanges in this country, still when there are similar exchanges dealing in commodities produced here that are operating under the laws of other countries, what would be the result? Do you think that is true in reference to wheat and grain?

Mr. SHARP. I do not know about that.

Mr. YOUNG. They do have them in other countries so far as cotton is concerned. You can readily see what sort of trouble we would have in the case of a commodity like cotton, a majority of which is exported. As to wheat, only a small part of that which we pro

duce is exported. But 65 per cent of the cotton crop is exported. They have their exchanges over there, and whatever we do here by way of regulating or abolishing the machinery of them, we could not affect their exchanges, and I want to know what effect that would have on the general market if we should abolish our cotton exchanges?

Mr. SHARP. I do not know. I can not work that out. I do know that it would be very difficult for a large concern to be able to transact business rapidly without the chance for some protection. For instance, we get an order from the Universal Oats Co. for 400,000 bushels of oats, and we only have 50,000 bushels on hand. We sell them the oats, and then we protect ourselves. In the meanwhile they protect themselves.

Mr. PURNELL. What determines the price of grain from day to day as it fluctuates, up and down?

Mr. SHARP. Well, I think eventually the law of supply and demand decides more than any other one thing.

Mr. PURNELL. Suppose we were sitting around a blackboardand I have never had any occasion to actually indulge in that pasttime-but there are shown quotations on a given product, and they rise and fall during the open hours of the market. What determines the rise and fall of quotations on a given product?

Mr. SHARP. Well, I think the law of supply and demand, and sentiment. For instance, when the war broke out you know what happened, and how it was busted.

Mr. PURNELL. Does the buying or selling by individuals, that we class here as speculators, who have no grain to sell and do not anticipate delivering any grain, affect the price?

Mr. SHARP. Yes, sir; I think they do in the same way that our real estate is handled.

Mr. PURNELL. Is it your opinion that those speculators, who have no product to sell and who do not anticipate delivering any product, are necessary for the purpose of stabilizing the market?

Mr. SHARP. Well, I think we would have to have somebody there, whether you call them speculators or not. I would look upon them the same as we do in our live-stock business-our stockyards—that we have to have the speculators there.

Mr. PURNELL. You differentiate between the speculator and the manipulator, of course?

Mr. SHARP. Yes; I think so. The manipulator, of course, is the fellow who trys to corner the market and get everything his own way and make everybody settle on his own basis. I term them a good deal like Old Hutch, if you want to go back to ancient history, or George Phillips in the corn market. At that time they were a very great benefit to the producer.

Mr. PURNELL. Suppose it were possible to limit by some legislation the speculator-and I mean by speculator the man who has no grain to sell and who does not sell in anticipation of actual delivery; suppose we could eliminate him by legislation, as well as the manipulator, what would be the result on the general market?

Mr. SHARP. Well, personally-do you ask for my opinion?
Mr. PURNELL. Yes.

Mr. SHARP. I do not believe it can be done successfully.

Mr. PURNELL. For the sake of the argument, let us assume that it can be done by legislation. I want to find out what the effect of that legislation would be on the man who received grain and who must find a market for it? I mean the man who raises the grain and wants to find a market for it.

Mr. SHARP. Well, I would think that everybody that handled his commodity would demand a larger margin for the handling of it in order to protect themselves.

Mr. PURNELL. That has been the testimony of the other witnesses before the committee. In other words, you think that by reason of this present system they do business on a narrower margin?

Mr. SHARP. Yes, sir; I do.

Mr. PURNELL. You think the farmer profits by the present system? Mr. SHARP. Yes, sir.

Mr. PURNELL. That is all I wish to ask.

Mr. MCLAUGHLIN of Michigan. The preceding witness said it was generally recognized that there were evils and abuses in the methods now pursued on the boards of trade, and I think that is true, and that they ought to be corrected. He was asked to state what those abuses are and a remedy therefor, and he said that he did not know but that you could tell us all about it. Now, go ahead and tell us.

Mr. SHARP. Well, I will tell you that I thought he was getting a little strong on that. I do not think I can tell you all about it. I think, no doubt, as in all other kinds of business, some evils have crept in, but I could not answer your question.

Mr. MCLAUGHLIN of Michigan. Perhaps that question may be divided, and I will now ask you for a statement of the abuses?

Mr. SHARP. Well, I think the larger proportion of the abuses on the boards of trade are such abuses as are permitted only by the people who do the acts themselves. For instance, some young fellow, or I have seen an old farmer do it, who may think he is pretty wise and knows which way the market is going, would go into one of these places and lose $500 or $1,000, or maybe $2,000, and then he might try to get even.

Mr. MCLAUGHLIN of Michigan. Who would he lose it to?

Mr. SHARP. That is something we do not know. You generally go on the board of trade and a member buys or sells when the market. goes either way.

Mr. MCLAUGHLIN of Michigan. Would the market show that?

Mr. SHARP. Of course, the fellow who sells does not know who gets it. These individual members attend to that, as I understand. Mr. MCLAUGHLIN of Michigan. Then we might pass a law forbidding the young fellow or the farmer to trade on boards of trade. What other abuses are there?

Mr. SHARP. Well, excuse me for suggesting something, but when you pass that law then you pass a law that prohibits the farmer who has a matured crop of corn, like he did have two months ago and was satisfied to sell at the price of two months ago, from stepping in and selling his crop at that time. It has made him a lot of money this year.

Mr. MCLAUGHLIN of Michigan. That is an abuse that we can not pass a law to prevent?

Mr. SHARP. Yes; you can not stop the one without the other.

Mr. MCLAUGHLIN of Michigan. Tell us of some evil that you think exists that can be corrected and then make good the statement of the previous witness and tell us how to correct it?

Mr. SHARP. Well, I can not do that. I have not given it thought enough.

Mr. MCLAUGHLIN of Michigan. What abuse exists that you think ought to be corrected, then, if you do not know of a remedy yourself? Mr. SHARP. Well, I do not know. I am pretty well satisfied the way it is now. I do not think I can suggest anything.

Mr. MCLAUGHLIN of Michigan. Then you differ from him in saying that there are abuses?

Mr. SHARP. No; I think there are abuses, but I do not think you can get at anything of the kind but what there will be abuses practiced by somebody. If you prohibit the one, you will interfere with the other. It is just the same as though you were to say you would pass a law forbidding a man to own any land or buy any land unless he was going out to farm it. The speculator has stepped in and got on the land the same as the speculator has got on boards of trade and is betting on options.

Mr. MCLAUGHLIN of Michigan. No; isn't there a difference? The man who has gone out and bought land owns land, but the speculator dealing in wheat has not bought any wheat?

Mr. SHARP. Oh, yes he has.

Mr. MCLAUGHLIN of Michigan. Oh, no.

Mr. SHARP. Oh, yes. If a man buys 5,000 bushels of May wheat, he has actually bought 5,000 bushels of May wheat if he keeps that purchase until delivery is to be made to him.

Mr. MCLAUGHLIN of Michigan. Oh, yes.

Mr. SHARP. Well, he has bought it. The transaction is based on the actual stuff.

Mr. MCLAUGHLIN of Michigan. I do not want to quibble and I do not want you to do so, if you will pardon me for using that word. When one of these men you speak of buys this protection he does not buy wheat at all, does he?

Mr. SHARP. Yes, sir; he does.

Mr. MCLAUGHLIN of Michigan. In how many cases do you know of delivery being made on any such deal?

Mr. SHARP. I think in very few cases, because if a man buys that protection as a matter of insurance, he has to buy the actual stuff. For instance, if a man sells to protect himself from the danger of having an elevator full of grain, he can sell in Chicago, and when the market got to the point that he wanted to buy the actual stuff the differential might be in favor of Minneapolis, by 2 or 3 cents a bushel. He would turn around and sell his actual grain in Minneapolis and at once cover his option in Chicago. These markets are all influenced by one another but they sometimes spread a little.

Mr. MCLAUGHLIN of Michigan. My insistence is, though I may be wrong, that these transactions are not in the actual commodity at all?

Mr. SHARP. Well, I think you are absolutely wrong about that.

Mr. MCLAUGHLIN of Michigan. The statement was made on yester day by a gentleman from Peoria, a statement the like of which we had not heard before from anyone else, and to the effect that in hi line of business there was actual delivery on at least one-half of thes option transactions.