enough wheat in St. Louis elevators to supply their wants. Our grain merchants, however, contracted the wheat with them, and protected themselves by buying wheat for delivery in December and May, and as fast as the wheat was shipped they would sell out their contracts for future delivery.

To-day there are millions of dollars invested in mills, elevators, and the grain business in general. The business has been fostered and developed until it is one of the most important in the country. Our banks loan us money on warehouse receipts for almost the full value of the grain, because they know we are protected by sales for future delivery. Without this protection they would want a big margin, which would curtail the volume of our business and drive out the small merchants.

Our exchanges disseminate and distribute valuable market information which enables the farmers to know the value of their commodities at any time. It is of vital importance to the farmer to dispose of his grain at a profit-to get all he can out of it. In order to accomplish this, it must be handled by the grain dealer and miller as economically as possible. By the present system of trading in grain for future delivery we are able to handle the business on a very small margin. For instance, when we send out bids to the country grain dealers we base our bid on the price at which the nearest month for future delivery is selling; if we get an acceptance, we then sell the future. Frequently on our purchases particularly of corn-our profit will be only a half a cent per bushel. We pay drafts of $900 per car on corn when our profit is sometimes less than $7.50 per car gross-less than 1 per cent. There is no other business in the world handled on such a small percentage.

If you do away with trading in futures, when the grain crops of the country begin to move the millers and grain dealers throughout the country would only pay prices that would be so low that there would be absolutely no chance for a loss. This would fall heaviest on the small farmers and renters who have no facilities for holding grain and who would be forced to sell at low prices. This would be a bonanza for the big mills and elevators, and the big concerns controlling a large number of line elevators who have facilities for storing and holding large quantities of grain. They could fill their houses with low-priced grain and after the surplus had been disposed of could command their own prices for their stocks. In a few years, you would see a gigantic grain trust that would put all other trusts to shame.

Just look for one moment at the tobacco industry. There is no method of trading in tobacco for future delivery, and there is a continuous warfare between the growers and warehousemen throughout the tobacco districts. The crimes that have been committed in the tobacco section of Kentucky are a disgrace to the nation. You never hear of the cotton planters or grain raisers having a war with the warehousemen.

Trading in futures affords a continuous market where almost any quantity of grain can be disposed of without sacrifice.

All business is more or less speculative, but as society is now organized speculation seems a necessity. To the uninitiated speculation is often confounded with gambling. This is a grievous error. Speculation is a venture based on calculation; gambling a venture without calculation, blind chance. The law makes this distinction. It

recognizes speculation; it condemns gambling. Federal Judge Grosscup, in a recent decision, said:

Legitimate grain exchanges balance like the governor of an engine the otherwise erratic course of prices. They focus intelligence from all lands and the prospect for the whole year by bringing together minds trained to weigh intelligence and to forecast the prospects.

If this bill becomes a law, you will drive all trading in futures into Canada and other foreign countries.

When the Argentine Republic first became an exporter of grain they had no system of trading in grain for future delivery and the exporters made great fortunes. Now they have adopted the system and the farmers are getting more for their grain than they ever got before.

A few years ago the farmers of Germany thought that speculation or trading in grain for future delivery was a great menace to them, so the agrarian element in the Reichstag succeeded in getting a bill passed abolishing trading in futures. One season sufficed to show them their mistake and the farmers were the first to ask for the repeal of the bill. On April 2, 1900, the produce bourse was reopened; the Government conceded to the dealers the right to resume buying and selling for future delivery and to publish time quotations. One of the capital aims of the bourse law was to restrict speculation, but at no point did it more thoroughly disappoint its authors.

A wise business man profits by the mistakes of others. Let us profit by the experience of Germany.

The CHAIRMAN. I would like to ask you just one or two questions. In regard to the statement you have just made, touching the experience in Germany: Are you quite sure you are right in the statement that the law prohibiting future selling was repealed after a year's experience?

Mr. MESSMORE. I would like to quote you from an article I have on that subject. (Reading:)

From the moment that the produce section of the bourse quit their old quarters there was an interregnum in the grain trade of the country; the modern method of produce dealing was virtually abolished. What was the result? The eldest of the merchants say in their report for 1900: "At nearly every one of our meetings at the beginning of the bourse interregnum we had to answer inquiries from the commissary departments of army and navy, from railway managements, municipal administrations, statistical offices, etc., for trustworthy grain prices, but we were only able to answer that we did not know." The report goes on to show that the only persons getting any advantage from the extinction of the produce bourse were the provincial dealers, who charged higher premiums for their increased risk growing out of the lack of Berlin quotations. In other words, they paid less to the farmers and asked higher prices from the millers. The Government at once recognized the disadvantages arising from all business interests through the lack of a produce exchange with universally accepted quotations for grain. Hence the minister of commerce opened negotiations with the seceded brokers several months after the dissolution of their organization looking toward reestablishing it. These negotiations were continued for nearly three years before all parties were ready to bury the hatchet, which was done in January, 1900.

*

Even the agrarians had come to recognize the necessity of a produce exchange, for they had bitterly felt the lack of authoritative quotations. True, they still had the liberty to sell their crops in advance of delivery; but they found that they were unable to do this advantageously without quotations recognized by all interests, and without some board of appeal for settling disagreements as to grading. *

*

*

The produce bourse was accordingly reopened on April 2, 1900. The Government conceded to the dealers the right to resume buying and selling for future delivery and to publish time quotations.

Such are the main features of Germany's recent bourse legislation. What has been the result?

* *

One of the capital aims of the bourse law was to restrict speculation, but at no point has it more thoroughly disappointed its authors. *Nothing can be clearer than the complete failure of the law to diminish speculative ventures, and never was the outsider so active and so fully in control of the Berlin market as in the years immediately following its enactment.

The moral effects of the law have been extremely bad.

The abolition of buying and selling grain or produce for future delivery has been equally disappointing. The position of Berlin as a grain market has been seriously shaken. During the last few years the papers have frequently printed comparative quotations in the leading central markets which prove that German prices have become sluggish in responding to upward movements abroad, and that therefore German farmers are failing to get as quick an advantage from rising prices as those of other lands.

The CHAIRMAN. My opinion is that the German law as originally passed not only prohibited dealing in futures in farm products, but also in industrials and other stock, and that, so far as the latter were concerned, they were restored within the year; but the Agrarians distinctly declined to accept any proposition to restore futures in farm products.

Mr. MESSMORE. I have gotten the best information I could, and I am informed that futures in farm products have been restored.

Mr. BURLESON. I would like for you to give us the author of the article you read.

Mr. MESSMORE. I don't know whether this states who the author is or not. It simply says a writer in the Century Magazine for December, 1903.

The CHAIRMAN. Who is the author of the pamphlet that you have there?

Mr. BURLESON. It is the same pamphlet that was sent to all of us two years ago.

Mr. MESSMORE. I presume it is. It does not say here who wrote it. Mr. BURLESON. If, as a matter of fact, the agrarian element has positively refused to permit a repeal of that law, in so far as farm products are concerned, you will admit that your argument falls to the ground, because it is based largely on the assumption that that has been repealed.

Mr. MESSMORE. But I understand from exporters and others there that futures are dealt in.

Mr. BURLESON. But I say, as a matter of fact, if it has been repealed. Mr. MESSMORE. It has not been repealed, but the Government has conceded the right to trade in futures in farm products. Mr. BURLESON. In violation of the law?

Mr. MESSMORE. There is a kind of a modification of the law. Mr. BURLESON. If, as a matter of fact, it has not been amended, that part of it

Mr. MESSMORE. It may not have been amended, but, as this article states, the commissioner of agriculture, or whoever he is, has conceded that.

Mr. BURLESON. Am I to understand you to take the position that if transactions upon boards of trade in which the seller has no intention of delivering and the buyer has no intention of receiving that which is sold are eliminated it will destroy the future-contract system? Mr. MESSMORE. Well, we don't do business on our exchange that way.

Mr. BURLESON. No such transactions take place?

Mr. MESSMORE. We expect to deliver every sale we make.

Mr. BURLESON. If you prohibit transactions of that kind, your exchange would not be hurt?

Mr. MESSMORE. It would ruin us if we destroyed this grain trade. Mr. BURLESON. Then you admit that future-contract system on the exchange can not exist unless it permits transactions where the seller has no intention whatever of delivering and the buyer has no intention of receiving what is sold?

Mr. MESSMORE. We don't make contracts that way.

Mr. BURLESON. Then if this bill of Mr. Scott strikes at such transactions alone, you would not be hurt?

Mr. MESSMORE. We don't have any such transactions.

Mr. BURLESON. You don't think it would hurt you, then?

Mr. MESSMORE. Not if it was not against our regular trading on 'change, no; but every time we make a contract on the floor of the exchange we expect to deliver that stuff, whatever it is.

The CHAIRMAN. Nobody is proposing to interfere or interrupt such transactions as those. The transactions aimed at in these bills are those in which there is no intention to deliver.

Mr. MESSMORE. A case will come up where a man fully intends to deliver and can not do it. I will give you a case like that. Last July we had a great deal of high water in Missouri. Perhaps some of you remember it. I bought from a shipper at Dalton, Mo., 10,000 No. 2 red wheat, to be delivered in July and I paid him $1.07, his track for that wheat. The wheat cost me delivered in St. Louis $1.14 cents a bushel. I sold against it for July delivery for $1.15. Toward the end of the month the wet weather had interfered with harvesting and he discovered he could not get his wheat thrashed. In the meantime the market had declined below that price and he asked me what I would do to cancel that trade. I wrote him that, based on that day's market, I could cancel the trade and pay him $225. I would still have my profit of 1 cent a bushel. He wired me accepting it. But I did a little better than that. The next morning when I closed the trade I got $231 for him and I got my $100.

The CHAIRMAN. I don't think any legislation pending here would regard such a transaction as criminal.

Mr. BURLESON. It would not touch it.

Mr. MERRILL. Inasmuch as the subject of hedging is one you have been familiar with, will you kindly enlighten the committee to what extent the proposition submitted by Mr. Burleson would prevent hedging, where it was intended to send the grain into consumption and not to the market where the hedge was made, because the bill would prohibit that.

Mr. MESSMORE. Anything that tends to restrict speculation would narrow the market, and anything that narrows the market would cause violent fluctuation. The broader market we have the more stable market and the more hedge sales it would take without affecting prices.

Mr. MERRILL. The point I wanted to elucidate was this: Suppose you were to buy grain just south of St. Louis and, to save the freight to St. Louis, instead of sending it there and having to ship it back again you wished to sell the grain, say, in the southeast, and having bought it for future delivery to you, you wish to sell it either in your

own market or Chicago, with no intent of bringing the grain to St. Louis or Chicago to the place of hedging, but intending that it should go east, and when ready to go east to be sold you would buy back your hedge; that is the point I wish you to elucidate, because the bill would prohibit that kind of a transaction.

Mr. MESSMORE. Yes, sir; that would be very disastrous in its effects.

Mr. MERRILL. That is the point where the bill will create chaos. Mr. MCLAUGHLIN. In the case of that 10,000 bushels you speak of, did you receive that 10,000 bushels?

Mr. MESSMORE. No, sir. He could not ship it. I bought in my hedge on the exchange. I will give you another case just like it. Suppose he had shipped that wheat to me and had not sold it to me, but just consigned it on the market. When I bought the wheat and paid him $1.07 his track, that was equivalent to $1.14 delivered St. Louis. If he had shipped that wheat the last two weeks, when July would have brought only $1.07, or net only $1.04, he would have lost 4 cents a bushel if he had consigned wheat on the market.

Mr. LAMB. Who lost that money? Somebody lost that.

Mr. MESSMORE. That is hard to say. That is divided up among a number of people.

Mr. LAMB. That is the point here that is what we want to find out. Is that distributed among the trade, or does A, B, or C lose that money?

us.

Mr. MESSMORE. That is hard to answer.

Mr. LAMB. I know it is difficult, but it is on our mind and it worries.

Mr. MESSMORE. There are so many ramifications you can not spot anyone.

Mr. MCLAUGHLIN. There are a great many transactions of that kind. What proportion of the grain you actually contract for do you actually receive?

Mr. MESSMORE. You mean when we send out bids in the country on track?

Mr. MCLAUGHLIN. Yes.

Mr. MESSMORE. We usually get all of it.

Mr. MCLAUGHLIN. This was an exceptional case, then?

Mr. MESSMORE. I had a number of cases last July. They could not get it in on account of the high water. They had the wheat and wanted to ship it, but it was ruined. Now, I will show you the advantage of another case. A man in that same territory, a farmer this was, had 6 cars of wheat. The high water came up and damaged the wheat in the stack. It was all damaged by water. When he thrashed it some of it was not fit to market. He wrote to his house asking them if they could get storage facilities for it and take care of it and keep it from spoiling. They wrote back that they could make a storage rate of 14 cents per bushel for a month, and an eighth of a cent a bushel every time the wheat was run (elevated to air it). But they advised him to sell it out and to buy 5,000 bushels for May delivery. He shipped the 6 cars to St. Louis. They graded No. 4 and No. 3. The No. 4 sold for 954 and the best No. 3 sold for $1.10. He got the cash for all those 6 cars. He then bought 5,000 bushels of May wheat, that is, wheat for May delivery in St. Louis, at $1 per bushel. And up to Wednesday noon if he should sell it out he would