market for the purpose of hedging their grain. All buying on the Canadian Northern and all buying on the Canadian Pacific stopped during this period when they closed the Winnipeg exchange, and there was what you might term, in moderate degree, a period of chaos. Everything stopped. When the market opened again the buying opened up, and everything went along about as before.

The Winnipeg market at this time was a large and growing market in accord with the development of Canadian territory.

Mr. MCLAUGHLIN of Michigan. Did you say you did not know why the council did that?

Mr. CANBY. No, sir. It was something in connection with the food administration changes. They changed from one policy to another, and for a period of three days everything stopped while they were making this change. I do not know what the purpose was; I have no means of knowing.

Now, one of the points which we must bear in mind in considering the entire question-because we are unconsciously but very naturally affected by the conditions in the recent past is that for the past three or four years everything practically in the world has been unnatural, has been to a certain extent artificial, and markets and marketing systems have not reflected, as they do in normal times, the progress of events as applied to prices.

In 1913 and 1914, before the war, the entire fluctuation of grain for a period of nearly 15 months was only 16 cents a bushel. Of course there were weeks when the fluctuation was not 2 cents. There were days when the fluctuation was not three-quarters of a cent or half a cent. The market had reached what might be termed the equilibrium, and that is the tendency of all markets.

In the readjustment that is now going on we have finally arrived at a point where prices and conditions are stabilizing themselves, with the market influences reflected in the price that represents those market conditions. For example, last week the range from Monday to Saturday in May corn was only about 13 cents, and during that period not only were there large quantities received and sold on track which were hedged on the future market, but in addition to that there was a constantly accumulating quantity of hedges placed against corn which will be held in the cribs during the winter.

Now, I think it is fair to state that there is no such thing as complete perfection in the world. There is nothing perfect. In my business experience, and my life covers a span of nearly 50 years, I have never yet come in contact with anything in a commercial way that was perfect, and I can truthfully say I never expect to. But I do believe that as far as it is humanly possible to conduct a system, to construct marketing methods, the system of buying and selling for future delivery, with the participation of the speculator, is as economically desirable as anything that in an imperfect world we can hope to bring about.

That system has several advantages which are of unparalleled value in trade. One of them is that it permits the participation, from the country station all along the line of men who have not large means, and it permits them to compete on terms of equality with the man that has a million dollars capital. I think that is a priceless advantage of this system.

Furthermore, it conserves capital, and when money rates are high and money is scarce, capital is something the conservation of which is of the greatest importance. At the present time I have no doubt that the difference between the collateral value of grain, which is established-of course, you understand that grain, intrinsically, has a high collateral value. I want to establish that fact, that grain has a high collateral value as grain, but that collateral value is increased by any degree of safety by which you can surround the ownership. If you could surround the ownership of that grain with perfect safety to the man who is on the note which accompanies the grain as collateral, you would have an absolutely perfect system. But that does not exist, and probably will not. It has some drawbacks, which I will allude to.

Now, the marketing system is a highly competitive one. If you will permit me, I just want to emphasize that, because in the first part of my business career about all that anyone ever talked about was the Sherman Act. For a number of years all the men that were older than I was and had had larger experience in business talked about the Sherman Act. It was the topic of conversation everywhere. I think that law was enacted in the late eighties. The Sherman Act prohibits combinations in restraint of trade. Its cardinal principle is to establish free competition, and it does that by prohibiting any combination in restraint of trade. And if we will apply that general principle to the system of trading for future delivery we will see that it does encourage and does establish, as far as it is possible to do so, freedom of competition and independence of individual action.

The competitive system and the open-market system also help to cause wide publicity of prices from day to day. It seems to me that there is not anything of greater importance to all concerned all along the line in this entire chain than that they should know that these prices represent the untrammeled opinion of a free-market place. Consequently, in summing it up, I would say that a system of this character is essential to the narrowing of the spread between the producer and the manufacturer or consumer, and this is generally supposed to be the most desirable end that can be attained in the handling of and merchandizing of a commodity. It has been frequently stated in regard to many commodities that the basic price is "seven-eighths and nothing" and the price to the consumer is a dollar. In the grain trade we believe that by a system which facilitates the handling of grain we are performing a great public service in elimination of cost.

Mr. DICKINSON. Mr. Canby, who carries the expense of the spread that you have just mentioned?

Mr. CANBY. The extent between the consumer and the producer, whatever that is?

Mr. DICKINSON. Yes, sir.

Mr. CANBY. The spread between the producer and the consumer is separated; that is, the parts of the cost are separated. For instance, the producer might pay the freight rate to a certain point, and the consumer pay it from that point on. But I do not exactly catch your question.

Mr. DICKINSON. Who carries the spread between the cash price and the future price in any commodity?

Mr. CANBY. The future month absorbs the difference between the two.

Mr. DICKINSON. Yes; but somebody must pay it. Who pays it! Mr. CANBY. It is not essential that anyone pay it.

Mr. DICKINSON. Well, suppose it is a decline or a loss; who pays it! Mr. CANBY. I do not know. There might not be any loss even in the event of a decline.

Mr. DICKINSON. What is the benefit of having speculators there then?

Mr. CANBY. Well, there is, of course, a distribution of losses that do occur. I have just said that there might not be any in an individual case, but the speculators do lose if a market declines and they are on the long side. I presume that they lose just the same as they would with any commodity.

Mr. DICKINSON. What if the volume of commodities became so large that the speculative interest did not carry that loss in the spread, if there was a loss? Would not your system break down? Mr. CANBY. No, I think not; I do not see how it could break down in any event.

Mr. DICKINSON. Don't you think the speculator is an essential element in this system?

Mr. CANBY. Yes, sir.

Mr. DICKINSON. You think that if he were taken out of the business the system would fail?

Mr. CANBY. I think that the free and open market, the constant market, would disappear.

Mr. DICKINSON. Every commission man that has testified here has testified that he carries his investment in futures for protection and for insurance. Now, somebody must pay that insurance, must they not?

Mr. CANBY. Certainly.

Mr. DICKINSON. Who pays it?

Mr. CANBY. Why, in the event of a decline I assume that is spread over all the different parties in interest that intervene between the original price and the ultimate price. In other words, if you should sell to me 100,000 bushels of grain for May delivery I might transferif the market should decline I might transfer that to 5, 6, 8, or 10 others. They on their part within a few days might transfer the same interest again to a half dozen others, and consequently there might be 200 or 300 participants in that loss, making the percentage of loss to each one comparatively trifling. That is, I think, the best feature of the insurance scheme, that the loss is not concentrated on anyone but is distributed over a very large number. There might be 200 in that one transaction.

Mr. DICKINSON. Well, most of these transfers in futures, that are simply quick changes, as you would call them, are made by the speculator, are they?

Mr. CANBY. I do not understand that question exactly.

Mr. DICKINSON. You spoke of the transfer of this sale

Mr. CANBY. No; a sale.

Mr. MCLAUGHLIN of Michigan. That is a dividing up rather than a transfer, is it not?

Mr. CANBY. You do not transfer; you make a new contract. For instance, if you sell it to me and I sell it to him, that in effect

might be a transfer, but it is not. I have to take care of your contract and he has to take care of his. It is the making of a new contract.

Mr. DICKINSON. Well, if there is a declining market and the man is beginning to lose on his contract, he makes a sale of his future contracts to that date and pays his losses? Is that the way you make those settlements?

Mr. CANBY. Not necessarily; no, sir. That transaction might not be settled until the month of May, when the grain would come from some one, perhaps, along the various lines and be delivered from one to another. No, sir.

Mr. DICKINSON. Then you do not think the speculator carries the spread?

Mr. CANBY. Oh, yes; I guess I did not comprehend what you were talking about-in this way. There is no such thing as a decline in values without someone losing money. That is impossible-or a decline in price. Someone loses something when prices and values decline.

Mr. DICKINSON. In the short-period hedge, your experience with which you have detailed, is it not true that that worked to the disadvantage of the man that wanted to accumulate grain in the fall and carry it until the May delivery, as well as to the man that cribbed corn in Iowa ?

Mr. CANBY. Yes.

Mr. DICKINSON. That is all, Mr. Chairman.

STATEMENT OF MR. JOSEPH P. GRIFFIN, PRESIDENT BOARD OF TRADE, CHICAGO, ILL.

Mr. GRIFFIN. Mr. Chairman and gentlemen of the committee, on behalf of the Chicago Board of Trade I wish to express our great appreciation of the privilege of appearing here and the opportunity of explaining our marketing machinery. The position of the grain exchanges is a rather unhappy and unenviable one, as they constantly find themselves the center of two opposing and seemingly irreconcilable forces. I refer to the producer and the consumer.

Practically every investigation of the exchanges and criticism of their methods resolves itself in the final analysis around the dissatisfaction of one element or another in the matter of values. These exchanges, as Mr. Gates explained in his masterful dissertation, are mere market places. They are the modern, up-to-date, improved existing evidence of what formerly was a town or provincial market. Prices are not fixed by the board of trade, but rather they are established by a natural economic law. I refer to the law of supply and demand. Neither our exchange nor any other and, if I may say it, I say most respectfully, in my judgment no legislative body can by legislative enactment control the price of commodities such as wheat, corn, oats, and rye, which are, all but wheat, of unlimited production and of scattered consumption.

A number of bills now pending before Congress have for their object the suppression of future trading and speculation in grain. Of such a character is the Capper bill in the Senate, and the Tincher, Caraway, Hoch, and Dickinson bills in the House. Some of these bills practically prohibit all future trading except for actual delivery;

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others attempt to prohibit speculative trading, and at the same time. to preserve future trading for the purpose of hedging.

It is here proposed to show that:

First. Speculation in grain can not be abolished so long as the prices of grain is subject to fluctuation.

Second. Hedging is highly beneficial, not only to grain dealers, but also to all grain producers and grain consumers.

Third. There can be no hedging by grain dealers unless persons other than grain dealers are permitted to speculate. To prohibit such speculation by persons other than grain dealers is merely to compel grain dealers to become speculators.

Fourth. Speculation in grain by persons other than grain dealers is useful and beneficial and should not be abolished.

Fifth. The evils incident to speculation are largely exaggerated. While the system may not be perfect, its advantages so far outweigh its deficiencies, that its attempted prohibition would result in little economic benefit and very considerable economic harm.

Sixth. Legislative attempts to suppress speculation have uniformly proven unsuccessful."

Speculation in grain can not be abolished so long as the price of grain is subject to fluctuation.

All commodity prices inevitably fluctuate unless monopolized. This is true even of Government bonds, which are the most certain and conservative of investments. Certain issues of Liberty bonds subsequently depreciated almost 20 per cent. Doubtless, before their maturity, these bonds will return to par. If the price of Government bonds fluctuates to this extent, stability of grain prices is hardly to be expected.

Grain prices are affected by weather conditions, drought, rain, heat, cold, good crops, bad crops, crop reports, foreign supply, foreign demand, transportation, car shortage, ship shortage, embargoes, general price conditions, general financial conditions, panics, food boycotts, etc. The result is the incontestable fact that grain prices always have fluctuated and probably always will fluctuate. can be no absolute stability of grain prices unless there is absolute stability in the conditions which make prices. Grain prices fluctuate for the simple reason that controlling conditions fluctuate.

There

Mr. EVANS. May I ask you a question right there? If an aeroplane should be flying here and I would bet $5 or $500 or any amount that it would break before it landed safely and you took the bet, would we be gambling?

Mr. GRIFFIN. Yes, sir.

Mr. EVANS. Suppose that I meet you in the street in Chicago to-morrow, and I bet $50,000 that the market on wheat will go up 1 cent before a given time and you bet it will not. Will I be gambling? Mr. GRIFFIN. I think so.

Mr. EVANS. I go then to my broker, and I instruct my broker to bet $50,000 on the board of trade, and if you are the one

Mr. GRIFFIN. What do you mean by "bet" on the board of trade? You make a contract.

Mr. EVANS. I make a contract; it is the same thing in the end. Mr. GRIFFIN. Not in my mind.