Mr. BURLESON. And that closes the transaction?

Mr. FITCH. Yes, sir.

Mr. BURLESON. And the board of trade has not had a thing on earth to do with it?

Mr. FITCH. That is just what I am contending, Mr Burleson, the board of trade has nothing to do with the thing; it is the members of the board of trade.

The CHAIRMAN. The point Mr. Burleson is making is that the transaction is not on the board of trade.

Mr. FITCH. Everything that is done in the way of an execution of that kind, or a trade of that kind, is done under the rules and is subject to the regulation of the board of trade. If, for instance, I charged him more- -suppose the price of the wheat was to be one twenty-three, and I came down to him and said, "I can get the wheat for you at one twenty-three and a half;" I am looking to skin off $50if I was found out in doing such a thing they would expel me in a minute.

Mr. BURLESON. That is not the point.

The CHAIRMAN. The point that Mr. Burleson had in his mind is that the transaction you have outlined could have taken place if the Chicago exchange had never been in existence.

Mr. LEVER. Or any of its members.

Mr. FITCH. As I stated before, in my comparison of the proposition on Water street, the exchange is necessary because of the rapidity and enormity of our business.

The CHAIRMAN. We understood that perfectly, and for the most part I think you made no statement in your entire address to which any member of the committee would take the least exception; I think we understand entirely the commercial propriety and commercial necessity of the great body of the transactions to which you allude and point out. The point to which we desire particularly to have you address your remarks, of course, is the point touching these deals. We want to find out why it is necessary, in order that a farm product shall be transferred from the producer to the consumer, that there should be a system involving innumerable transactions in which no transfer of that product is made at all; we are hardly able to understand at least we would like to have your opinion upon the proposition that these innumerable transactions in futures on the Chicago Exchange are necessary in order that the miller at Atlanta may buy wheat in Chicago on the best terms.

Mr. FITCH. Well, I started to tell Mr. Burleson a moment ago one little incident. The miller at Atlanta might have an excellent chance to sell 2,000 barrels of flour for shipment within the next sixty days at a price that is eminently satisfactory to him, and the minute he makes that sale he knows there is a place in the world where he can buy insurance, so he buys 10,000 bushels of May wheat against that. The CHAIRMAN. Suppose the miller to whom the wheat is sold should insist upon delivery?

Mr. FITCH. Yes, sir.

The CHAIRMAN. The miller would have to accept any one of the three grades, and there would be two chances to one that he would not be able to get a grade that he would use at all. Would that future contract be in one?

Mr. FITCH. You say that the miller who has the other end of that product would insist upon delievry of the grade that the miller did

not like, but the millers understand that thoroughly. There is no subterfuge about it, nothing under cover, or anything of that kind. I will take you to any miller in this country, large or small, and he will show you at once that he himself has a thorough understanding of just what he is doing.

Mr. MCLAUGHLIN. What is to insure that he is not simply making a bet upon what the price of the wheat might be?

The CHAIRMAN. You are in the wheat business, and you buy and sell wheat, but I have understood the drift of your argument to be that the exchange was necessary, the system of future contracts was necessary that the millers might hedge.

Mr. FITCH. I did not say millers. If you will remember, I spoke of the grain trade of the world. I didn't speak of the millers or the elevator people. I spoke of a system that was in vogue; of sixty years

of work.

The CHAIRMAN. I will broaden my expression to correspond with your statement. Now the millers are an important element in the grain trade.

Mr. FITCH. Yes, sir.

The CHAIRMAN. If it should happen that a large number of millers, perhaps a majority of them, do not need the future system, would it argue in your mind that perhaps the importance of that system was exaggerated?

Mr. FITCH. I could not answer that question.

The CHAIRMAN. To put it frankly, and not beat around the bush at all, I have had letters from scores of millers in different States of the country, answering directly the question as to whether they found the future system valuable to them, and I think not to exceed 3 per cent have answered that question in the affirmative.

(At 1 p. m. a recess was taken until 2 p. m.)

AFTER RECESS.

The committee met at 2.30 o'clock p. m., pursuant to the taking of recess, Hon. Charles F. Scott in the chair.

MR. WALTER FITCH RESUMED THE STAND FOR FURTHER

EXAMINATION.

The CHAIRMAN. Just before recess this morning I had asked you if I had received the right impression from what you said as to the value and, indeed, the necessity of future trading on the exchanges as a hedge for merchants and manufacturers engaged in the trade. Now, I wish to read extracts from two or three letters that will be fair samples of scores of letters that I have had from men engaged in the grain business either as millers or as bakers or as grain merchants. I might say that these letters were written in response to a letter of my own in which I framed four questions in as noncommittal a way as possible. I attempted to frame them so they would not indicate what my own judgment was in the matter, because I was honestly seeking the opinions of men whose opinions I thought would be of value in passing upon this question.

The character of the questions I asked may be determined by the answers that are given. The first letter that I will read is from an

Oklahoma mill, located at Kingfisher, Okla. It is a small mill, with 100 barrels of flour and 100 barrels of meal capacity [reading]:

We do not find it necessary to resort to the future markets of Chicago or other boards of trade in conducting our business; in fact, we believe we can operate to better advantage without them.

It has been our observation that these future markets are injurious to the miller and farmer alike, for under their manipulations it is impossible to tell what the market will make, and there is nothing for us to base an opinion on as to what will be the next move. Then the wheat corners or high prices usually come at the close of the season when the farmer has no grain left, and he is not benefited thereby.

We can not see where there would be any harm to a legitimate business by the suppression of trading in futures, but to the contrary believe it would be a decided benefit. Instead of having a steadying effect on the market we believe the future markets do just the opposite and often cause a fluctuation which would never be but for the manipulations of such futures.

That is from the Oklahoma Mill Company.

I read next from a letter from the Howards Mills Company, located at Wichita, Kans. The letter is signed by J. E. Howard, president [reading]:

on

We do not find it necessary in conducting our business to resort to future markets or the Chicago or any other board of trade. In the past whenever we have undertook to protect ourselves it has been no protection, but an actual loss.

We think that the future markets are detrimental to the legitimate interest of the mills and the grain growers.

We do not believe that any harm could come to any legitimate business if future trade was suppressed.

We do not believe that the existence of this future markets or option trading has a steadying effect on the price of grain..

Another letter is from the president of the Franklin Mills Company, located at Lockport, N. Y.

(Reading:)

As to margin trading, the writer has been actively engaged in wheat trading for many years and knows from experience that we are forced to deal in options and that the same are a curse to the trade; that it would be infinitely better for the legitimate trade were margin gambling absolutely eliminated. We believe if all the millers of the country were to stand before you at this minute and vote on this question, as the result of their years of experience, they would agree with us that margin gambling is a curse to the trade, and that the milking system of the public should be abolished.

It is the sentiments expressed in such letters that has prompted the inquiry which this committee is now conducting. I have read these letters in order that you may have your mind directed particularly to the subjects which most concern us. You see that these men whose interests, according to your statement, the system developed upon the board of trade is intended to conserve do not think their interests are conserved by that system; many of them express the opinion, on the contrary, that their interests are directly and materíally injured by that system. Do you think they are mistaken?

Mr. FITCH. I would answer that in this way, Mr. Chairman. Anybody in the grain trade or milling trade can furnish you many letters diametrically opposed to what is stated there. You will find support on both sides. I have talked with millers personally; I have talked with millers who talked just the way they wrcte you and many of them who talked just the opposite way. But I have thought a great many times, Mr. Chairman, that those opinions are a question of a particular year.

The CHAIRMAN. The same man may entertain different opinions in different years?

Mr. FITCH. I have so found it.

The CHAIRMAN. Does that depend on which side of the market he may happen to be on?

Mr. FITCH. Very frequently. Self-interest, you know, is a great lever.

The CHAIRMAN. Can you give the committee an idea of the relative proportions of the transactions in the Chicago Board of Trade in which actual delivery is contemplated and in which it is not contemplated? Mr. FгTCH. Yes, sir; I can answer that question. I know what you mean. But a direct answer to your question would be that delivery is contemplated in each transaction; it is so provided in our rules. So you will have to change that question a little bit.

The CHAIRMAN. Well, I will change it. Can you give us an estimate of the total transactions in grain, in wheat for example, on the Chicago Board of Trade with relation to the number of bushels actually dealt in during the same period?

Mr. FITCH. Is actually delivered? Yes. That question is unanswerable. I do not believe there is a man that lives that could answer that question with any chance of its being any more than a guess.

Might I say in that connection, Mr. Chairman, that the passing of contracts back and forth is what makes the sum of actual deliveries, that is, the actual transactions that take place eventually at the expiration of the futures, at the expiration of the dates of the contracts. For instance, to make it plain to you if I can, 100,000 bushels of cash wheat, the actual spot wheat sold and bought for May delivery to-day, for instance, in the Chicago market, might, in the transporting of that wheat, by the time it reached Liverpool, pass back and forth in the pit, carrying out the system of hedges based upon the insurance which the grain buyer takes advantage of, a dozen times, it might pass back and forth twenty times, there would be nothing to prevent its passing back and forth fifty times-as often as the cash wheat would change hands.

The CHAIRMAN. We assume that your contract is morally and legally binding and we will assume for the present that every such contract is entered into in good faith. There are dealers on the board of trade, are there not, who deal in contracts exclusively, who do not execute commissions for the actual purchase and delivery of grain? In the cotton trade they call them scalpers, brokers entitled to seats on the exchange, who buy and sell cotton contracts, having no further interest in the product than the margin of their contracts, who close up each day's business with each day. Do you have a corresponding class on the board of trade?

Mr. FITCH. We do.

The CHAIRMAN. Can you give us an estimate of their transactions compared with the transactions of the men who are actually handling wheat?

Mr. FITCH. Strictly speaking, of the scalping element, I should say the percentage as compared to the whole was small; and in regard to that, if you will allow me to state, Mr. Chairman, a scalper, a man who buys and who sells, for instance, the same day, who buys and who has to stand for delivery of that wheat in case he did not sell it out, there again comes in the question of rapidity with which we do business. If I go too roundabout a way in illustrating this I request you to stop me. But my point is this. A man might buy

a piece of real estate and tie it up with a hundred dollars deposit, and it might be shoved on through and resold to three or four different people.

The CHAIRMAN. We understand that perfectly, if you will pardon me, and now you will not think me offensive if I use the terms that newspapers use, so we can get down to "brass tacks."

Mr. FITCH. Yes, that is what we want to do.

The CHAIRMAN. I think you know what has been in the minds of the men who have written these bills and who have asked for this hearing. There is a general impression that the wheat pit in Chicago is maintained more for the opportunity it affords to gamble in margins than as an exchange where the seller and the buyer of wheat can be brought together. That is what we are trying to strike at. Nobody wants to injure the legitimate trades.

Mr. FITCH. There is some of that there that you speak of, unquestionably, but it is in the minority; and, like all things that are bad, crop out, that are a small factor on the body politic, it is the most conspicuous.

The CHAIRMAN. And it is the one thing that is bringing the whole system into disrepute so far as it is coming into disrepute; it is the one thing that is responsible for your presence here to-day, and the presence of these other gentlemen, and we would like exceedingly to have you suggest, if you could, some better way than is suggested in these bills to eliminate that which you regard as an evil. Is it inseparable, in a word, from the system?

Mr. FITCH. Absolutely, I say, based upon my experience up to the present moment. If you will allow me, I will say that in a conversation I had with William S. Jackson, a former officer and president of the board, one of the highest grade men we have, not only in the grain trade of Chicago, but prominent in municipal affairs and otherwise, in a conversation I had with him I asked him practically that question, "Have you ever given it any study?" I was referring to the separation embraced in your question, Mr. Chairman. Because we must admit that the barnacle is fastened to our ship. It is true it is small, but it is conspicuous. It is not like a barnacle, because it is not under water. I said "Have you ever given the matter thought as to whether there is a possibility of ever putting it right, eliminating that barnacle?" And his answer was this: "Many, many hours have I given to it, but I always come out the same door that I entered; I am lost in the maze within."

The CHAIRMAN. Would it not be possible by some rule of your exchange to minimize this, if not to eliminate it? Just let me read you a single sentence from a marked letter issued by Houston, Fible & Co., who advertise themselves on their letter head as members of the New York Stock Exchange and the Chicago Board of Trade.

Mr. FITCH. I know Mr. Houston very well, and Mr. Fible.
The CHAIRMAN. It is a reputable firm?

Mr. FITCH. So considered, yes.

The CHAIRMAN. On April 26, 1909, that firm issued a letter which came to me, and I have it here, in which appears this sentence:

We regard September and December wheat as a conservative purchase around the existing level for scalping profits.

Now, was that not a plain bid for customers who wanted to gamble on the margin in wheat, for the business of such customers?