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If the Commission should make a mistake and fix the limit too low, it can easily be remedied. The exchanges have no cause for fear on that point. They ought not to worry about their ability to persuade the Commission to fix a reasonable limit, when on two occasions in the past they have been able to persuade two different Secretaries of Agriculture to suspend entirely one of the most important provisions of the present Grain Futures Act, the reporting requirement. On both occasions the market, instead of advancing, as it was claimed it would, declined. It is possible that the Government may be less gullible in the future, but there is no reason for believing that the Government will not be fair.

Mr. Grimes, who testified here and who has worked very hard on the grainexchange code, raised a question regarding the responsibility of the Grain Futures Administration in connection with the price debacle of last summer. In his testimony here he asked, as anyone might ask, whether our office, the Grain Futures Administration, did not contact with the business conduct committee of the Chicago Board of Trade and advise with it concerning the situation that existed at that time. We did not, and the reason is plain.

The arrangement which the board of trade had made with the Secretary of Agriculture in the latter part of October 1932 was still in effect. The reporting requirements under that agreement had been suspended and the business-conduct committee of the board was to require its own reports and police its own affairs.

The reporting requirements of the Grain Futures Administration had been suspended once more to try out the theory of self-regulation, and the Grain Futures Administration had no means of informing itself concerning that situation. I will say, however, that on the 13th day of May, 2 months before the price collapse, the present Secretary of Agriculture, Henry A. Wallace, had called upon the Chicago Board of Trade to furnish him with an abstract of the reports which the business-conduct committee was getting on its own responsibility. To the best of my knowledge, that information has not been furnished to this day.

Am I taking too much time, Mr. Chairman?
Mr. HOPE. I would like to ask a question, Mr. Chairman,
The CHAIRMAN. Mr. Hope has a question.

Mr. HOPE. It has been suggested during the course of the hearing that it was not necessary to have legislation at the present time because of the adoption of the grain-exchanges code. I would like to have your opinion as to how far you think the code will eliminate the abuses which you say the bill will correct.

Mr. MEHL. The grain-exchange code was the next point which I had expected to discuss, Mr. Hope. Mr. HOPE. Very well. The CHAIRMAN. You may proceed, Mr. Mehl.

Mr. MEHL. Mr. Hope, we have no quarrel with the exchanges as regards the grain-exchange code. In fact, we have labored with the exchanges and with the exchange representatives, trying to get a code that was workable. In their panic of fear that there would be legislation they have been willing to write into the code almost anything, whether it was workable or not. We are trying to work with them. We are going to do the best we can. We shall help in every possible way to make the grain-exchange code a success.

But the position taken by the exchanges now, namely, that the code is to take the place of permanent legislation is utterly at variance with the position taken at the time the code was being considered. When certain reform measures were urged to be included in the code it was said that these were more properly regarded as subject matter for legislation.

Now, if there are any provisions in the code that are not in this bill and which the exchanges desire should be perpetuated, why not write them into this bill, so that their benefits may be permanent? If they are good for a year and are helpful in the same direction as this bill, why are they not good also as permanent measures and as a part of this bill? In any event, we must not forget that the grain-exchange code is a voluntary code and can in no sense operate as an amendment to the Grain Futures Act or as a substitute for this bill. Therefore it is rather difficult to see how the code argument is really germane to this discussion.

Mr. BOILEAU. You say that the code is a voluntary proposition?
Mr. MEHL. Yes.

Mr. BOILEAU. Has not the Government the right under the N. R. A. to force the code upon those who do not come in voluntarily?

Mr. MEHL. I think the Government has the right under the N. R. A. to write a code if any industry does not come in voluntarily, but the policy, I understand, has been to let the industry come in voluntarily rather than to force a code upon Mr. BOILEAU. Yes; but after it signs the agreement it is bound by the code, in other words, after they sign the agreement and the code is completed they are bound by the provisions of the code.

Mr. MEHL. Yes.
Mr. BOILEAU. And they have signed this code, have they not?
Mr. MEHL. I understand they have.
Mr. BOILEAU. So that they are really bound by it now.
Mr. MEHL. Yes.
Mr. BOILEAU. Yes.
Mr. HOPE. May I ask you a question there, Mr. Mehl?

Mr. MEHL. Yes. May I just state again that the code is not operative as an amendment to the Grain Futures Act, however.

Mr. HOPE. In other words, as I understand it, the code proposes to control excessive speculation by imposing heavier marginal requirements after certain limits in trading are reached

Mr. MEHL. Yes.

Mr. HOPE. And, of course, this bill is seeking to get at the same thing by giving the Commission power to limit the amount of trading a man may engage in.

I would like to have your opinion as to whether the method of marginal control would be as effective as the method that you advocate in this bill?

Mr. MEHL. Well, in my opinion, if the purpose of the higher margin, which is 25 percent on a line over 2,000,000 bushels, is to place a limitation upon large speculative lines, I should think it would be preferable to have a definite and fixed limitation so that it would operate with certainty and with fairness to all. The margin requirements under the code will affect only the man who does not have the financial means with which to meet them. If the purpose of the higher margin is to limit large lines, then I should say the provisions of this bill are more desirable because they will operate more certainly and more fairly. In the light of our observation we think the method provided for in this bill will best accomplish the purpose of limiting speculative lines.

Mr. HOPE. Do you think that the high marginal requirement in the code will tend to discourage speculation?

Mr. MEHL. Yes; I think it will.
Mr. HOPE. You do not think it will go far enough; is that your opinion?

Mr. MEHL. Well, I am not prepared to pass definitely on that, because we do not know what effect it is going to have. This part of the code does not take effect until the 1st of August. It is reasonable to believe that it will tend somewhat to reduce speculation.

I was very much surprised the other way when counsel for the Chicago Board of Trade informed us that four cooperative associations were members of the Chicago Board of Trade, that all of those were Capper-Volstead organizations, and that none other were entitled to membership on a contract market. That was news to me, and I was disposed to argue that last point with Mr. Ellis after the hearing, but the quashed me by referring to the opinion of the United States Circuit Court of Appeals in the Farmers' National Grain Corporation case.

I read that decision again, and I am willing, for the time being, at least, to accept Mr. Ellis's view. If counsel for the board of trade, representing the best legal talent in the country, and the United States Circuit Court of Appeals agree upon a proposition, it ought to be taken seriously. I am taking it so seriously that I am going to suggest at this time a change in this bill.

Mr. DoXEY. Right at that point, do you accept his interpretation of that decision?

Mr. MEHL. I am just assuming that it is correct.

Mr. DoXEY. You will remember that I asked him some questions about that, and, in fact, he admitted that it was not the strength of the exchange case so much as the weakness of the National Grain Corporation case

Mr. MEHL. Yes.

Mr. Doxey. Because they did not show that they were a Capper-Volstead association.

Mr. MEHL. Yes.
Mr. Doxey. You were here and heard the statements about that?

Mr. MEHL. Yes, Mr. Doxey; but for the purpose of this discussion I am willing to take his view of it.

Mr. Doxey. I think it is a pretty violent presumption to take that view as being correct.

Mr. MEHL. Well, for the purpose of this discussion only, Mr. Doxey, I was assuming that it was correct.

There are thousands of cooperative associations in this country that cannot possibly qualify as Capper-Volstead organizations. There is no reason why they should, since they are law-abiding and have no need for claiming the immunity from prosecution under the antitrust laws provided for by the Capper-Volstead Act.

There are hundreds of cooperative elevators in Iowa, Illinois, Kansas, Nebraska, Texas, and Oklahoma, and the Dakotas that make no claim to being CapperVolstead organizations. There are many in the Illinois Farmer Grain Dealers' Association represented by Mr. Grommon and Mr. Farlow. Mr. Farlow, in this statement yesterday, said that only about 40 percent of the members of his association were Capper-Volstead organizations.

I doubt whether the Plainfield Grain Co., Mr. Grommon's own local company, pretends to be a Capper-Volstead organization, although it is one of the four named by Mr. Ellis-İ do not know that it was named by him—but I am sure it was among the four which he says enjoy membership privileges on the Chicago Board of Trade.

The reason I question whether it is a Capper-Volstead organization is because Mr. Grommon said there were 415 members in the company, but that it had 1,800 active accounts, so there must be four times as many customers as there are members.

Would it not be the irony of fate, after the fine help Mr. Grommon and Mr. Farlow gave the exchanges in opposing this bill, if the board of trade should discover that the Plainfield Grain Co. is not a Capper-Volstead organization and kick it off?

I have nothing against the Farmers' National Grain Corporation. I appreciate why this organization is interested in section 6a, and I disagree with Mr. Ellis' contention that section 6a, proposed to be added by this bill, changes the substantive law. It does nothing of the kind. It merely changes the method of procedure, preserves the status quo of the parties pending appeal, and I think every layman and every lawyer will agree that is a pretty good law.

Mr. Doxey. Do you

The CHAIRMAN. Can you suspend for a few minutes, Mr. Mehl?
Mr. MEHL. Yes; but I would like to complete just this one thought.

The CHAIRMAN. Very well. Mr. MEHL. I have nothing against the Farmers' National, but I do have a lot of feeling for the local farmers' elevators, such as represented by Mr. Farlow's organization, because for many years I was intimately connected with this type of cooperative and have been more or less of a farmers' elevator “fanall my life. I want this type of cooperative to have the privilege of representation on contract markets also, and therefore suggest that on page 2 of this bill, H. R. 8829, the definition of "cooperative association” be so enlarged as to remove any doubt regarding the right of any bona fide cooperative association, otherwise qualified, to have the benefit of the Grain Futures Act, regardless of whether it is a CapperVolstead organization or some other type.

Now, in closing, Mr. Chairman, I want to say that we appreciate why the exchanges desire to avoid legislation. We appreciate that to some extent such legislation seems to them to be a reflection upon their ability to govern themselves. It should not be so considered, for in a business that is so involved and has so many ramifications, and where temptation and human selfishness are so intimately related to the public service which these markets perform, it is simply inevitable that some independent and unbiased body should act as umpire and see that there is fair play and fair dealing as between the various interests involved.

The CHAIRMAN. We desire to thank you, Mr. Mehl.
Mr. MEHL. Thank you, Mr. Chairman.
The CHAIRMAN. We will next hear Dr. Duvel.

STATEMENT OF DR. J. W. T. DUVEL, CHIEF GRAIN FUTURES ADMINISTRATION,

DEPARTMENT OF AGRICULTURE, WASHINGTON, D. C. Dr. Duvel. Mr. Chairman and gentlemen of the committee, I realize the time of the committee is limited this morning and I hardly know where to begin. But I would like to make a very few comments on some of the provisions of the bill. In the first place, there seems to be some misunderstanding as to what this bill covers with reference to commodities. Some members of the committee, I fear, have the idea that it is intended to cover new commodities. We have in this bill wheat, corn, oats, barley, rye, flaxseed, grain sorghums, and mill feeds. Mill feeds, one of the commodities named, is the only one in the bill that is not in the present Grain Futures Act, and that is put in because mill feeds are so closely related to grain.

In section 4a of the act, which relates to the commission, consisting of the Secretary of Agriculture, the Secretary of Commerce, and the Attorney General, the question has been raised a number of times as to the creation of this commission and the authority given to it.

This is not a new commission. This is the same commission as now provided for by the Grain Futures Act. This bill, however, takes away from that commission some of their present responsibilities and assigns them to the Secretary of Agriculture for the sake of simplicity of operation.

It does, however, leave to this Commission the power to deal with the Broad problem of fixing limits. Our feeling is that such power is safer in the hands of the Commission than in the hands of the Secretary. There are some people, however, with whom I have discussed this matter, who think that the authority to fix the limit of speculative trading should be delegated to the Secretary. If the committee so desires, we in the Grain Futures Administration have no objection. But the recommendation has been made that this power be left with the Commission so that there will be 3 men instead of 1 charged with that responsibility.

It likewise has been advocated here that any limitation fixed is going to ruin the futures market so that it cannot function as a hedging market.

From the arguments presented it is clearly evident that when this matter comes before the Commission we are going to be subjected to the same difficulty, the same arguments, that we have met here. Personally, I think perhaps it would be as well to settle the matter of limits on speculative trading by writing it into the bill, especially as such limits may apply to wheat and corn; fix the limit in the bill and have it over with.

Mr. MITCHELL. I do not understand how it operates, but you can pick up the paper now and see how the price of corn is jumping up and down 5 and 6 cents a bushel. Now you are talking about regulating the margin while that is going on, from day to day; the price just jumping up and down. For instance, the Government loans 45 cents a bushel on corn, and corn is down to 42 cents, yesterday, and 3 or 4 points higher today. I do not know anything about the gambling business, but I am thinking about how you are going to stabilize the price.

Dr. DUVEL. Well, the actual stabilization of the price is extremely difficult. Mr. MITCHELL. How is that?

Dr. DUVEL. The actual stabilization is extremely hard; where you have a futures market there is sure to be some fluctuation.

Mr. MITCHELL. What keeps it jumping up and down that much? One day it is up and another down, and who is served by it?

Dr. DUVEL. Let me give you a little background for that. I think Mr. Mehl stated the situation very well when he said that the wide fluctuation yesterday is simply the outgrowth of the situation which developed last summer. That slate has not yet been wiped clean, and it must be wiped out some way.

Mr. MITCHELL. Will this bill stop that kind of practice, or can you suggest how you can stabilize the price to the producer?

Dr. DUVEL. Our experience over 10 years indicates that practically all of these wide fluctuations are coupled directly with the transactions of some large operator; not always, but in the majority of cases. Therefore we believe that by some limitation of speculative operations on the part of individuals who trade in large volume, will, in large measure, prevent these wide fluctuations. Aside from that there is no other way to prevent it, except as provided in the code, to fix limits through which the price can move in any one day.

Mr. MITCHELL. I am just mystified at a situation where the Government will advance 45 cents a bushel on corn and then read where it is down to 42 or 41 cents; and closed at 46 or 47 cents; that is just shell gambling, is it not?

Dr. DUVEL. And the market opened 1% lower this morning.
Mr. MITCHELL. Yes.
Dr. DUVEL. And wheat at 1%4 less this morning.
Mr. MITCHELL. There should be some way to get at that.

The CHAIRMAN. Dr. Duvel, if it will not interrupt your line of thought I would like to ask you a question.

Dr. DUVEL. Yes.

The CHAIRMAN. The question was raised here as to the delay in filing the proceedings against Mr. Cutten. I would like to have you tell us why earlier action was not taken.

Dr. DUVEL. Mr. Chairman, I will be glad to answer that question. Perhaps it is just as well to do that now because some of these other matters have been covered more or less completely.

The charge has been made that there was delay in order to bring it out at the time of this hearing. It was likewise stated that the information was available and if it had been brought to the attention of the business-conduct committee in 1930 and 1931, that committee would have taken action.

The gentleman who made that charge, Mr. Boylan, forgets, or apparently overlooks, or did not have the opportunity to ascertain, that the complaint is based on the fact that these reports were not made in 1930 and 1931. We did not have the information through failure of Mr. Cutten to make proper reports.

The CHAIRMAN. Mr. Cutten did not make the reports?
Dr. DUVEL. Did not report as required under the law.
Mr. HOPE. To the board of trade?
Dr. Duvel. No; to the Grain Futures Administration.
Mr. HOPE. Under your regulations?
Dr. DUVEL. Yes; under our regulations.
Mr. HOPE. Issued pursuant to the Grain Futures Act?

Dr. DUVEL. Our regulations require commission houses to report accounts whenever they reach 500,000 bushels or more; likewise, individuals are required to report their transactions in the market when they have 500,000 bushels or more under their control.

Mr. BOILEAU. That is under the Grain Futures Act?
Dr. DUVEL. Report them to the Grain Futures Administration.

The CHAIRMAN. And Mr. Cutten paid no attention to the regulations of the Department?

Dr. DUVEL. He made some reports, but the majority of his operations he did not report. His operations were scattered through a great many different commission houses, and some of the commission houses through which he carried on his transactions failed to report them. Therefore it would seem clearly evident that we could not have brought these violations to the attention of the businessconduct committee in 1930 and 1931.

The CHAIRMAN. When did you get the final report on his transactions?

Dr. DUVEL. The last information was secured on March 13, just 30 days prior to the time that Mr. Boylan made these charges; March 13, 1934.

Mr. BOILEAU. May I ask you a question there?
Dr. DUVEL. I would like to give you the whole story.
The CHAIRMAN. Let us have the full story before the questions.
Mr. BOILEAU. All right.

Dr. DUVEL. As a result of the heavy short selling in 1930 and 1931, as I showed you the other day on this chart (indicating), covering the period from April 1930 through June 1932—it was deemed desirable to make a survey of all transactions in futures as of a given date so that more specific data would be available for the members of this committee and others as to the operations of all classes of traders, both large and small. This investigation covered the open commitments as of the close of business June 30, and the trading on July 1, 1931.

As a result of that survey which we started the latter part of 1931, we uncovered these large accounts. That information was compiled, in part, in 1932, and then for the first time we realized that many of the accounts belonging to Mr. Cutten had not been reported to us as required by the regluations under the law.

We then undertook to ascertain a complete record of all accounts that had not been reported. I do not care to go into it too fully, and probably it is not fair to undertake to set forth all of this matter at this time in advance of the hearing, which is set for May 14, but this question seems to be of vital importance to this committee and to the country as a whole, and to the market that we want to preserve.

Our reporting requirement at that time was 500,000 bushels or more. Account after account showed 495,000 bushels; and so long as accounts did not reach 500,000 bushels the commission houses did not have to make a report.

Having that information and knowing that this trader was in the market, we assigned an auditor to complete the investigation and to ascertain just where these trades were and something of the character of them. That investigation continued through 1932. As the information was brought together from the various houses it did not harmonize. The purchases and sales would not check out.

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