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who know nothing at all of their workings. The laws of trade require to be as just as those of legislation, and to protect without imposing a bondage or constraint other than that of honesty and fair dealing.
We submit that there are evils in option trading, as there are evil features of all business transactions of great magnitude, but that it would be impossible to draw the line by a government decree abolishing all option trading, without doing greater harm to a larger number engaged in legitimate business than are now injured by the abuse of the privilege.
It would be putting an absolute and arbitrary power in the hands of men unable to discriminate and judge impartially. The grain business is conducted in a rapid manner and the telegrams are largely done in cipher. Any telegraph operator might hinder or prevent a merchant from consummating any trade by demanding an affidavit, in the preparation of which the time lost would cause the loss of the business opportunity. There would be no need for public grain elevators, because if the safeguards that now permit large and small merchants to hold hedged stocks of grain or flour were abolished, none but the very wealthy merchants could afford to take the risk of carrying stocks of grain on speculation, and the public elevators would either become private elevators for the monopolists or be done away with entirely. No legislator has the right to stigmatize associations of honorable merchants as commercial criminals, and the question arises whether he is not a greater offender against our liberties who endeavors to deprive commerce of the right to flow freely in its accustomed channels.
How is the postmaster to tell what letters are contraband without violating the sanctity of private correspondence, and if the postal officials are given that right over the mail of the grain merchants, is that not a violation of the letter and the spirit of the Constitution of what has been called free America?
The farmer, the miller, the merchant, the elevator man, and the exporter have combined to make the large grain exchanges their clearing houses, through the simple and natural process of evolution, just as the banking houses in large cities have simplified their exchanges with each other by the creation of central clearing houses. Instead of the first national or any other individual bank carrying its batch of checks that it receives daily to the various other banks of the city for payment, it deposits them with the clearing house, which credits the bank depositor with the total so deposited, and charges that bank with the total of checks drawn against that bank that have been deposited by other banks, settling upon the difference. Thus is the business that amounts to hundreds of thousands or millions of dollars daily expeditiously and simply cleared and settled. Quite as simply is the business of the grain exchanges settled by the exchange of contracts; if there were no exchanges, A would have to deliver his grain to B, who might have to tender it to C, etc., and all the delicate machinery that had been perfected by years of experience would be thrown away. It would be just as practical to require the merchant who owed for the wheat to pay the actual cash instead of by check, and just as sane to inquire whether the treasury note had bullion behind it each time that a transaction required the payment of money, and to force the people to take the gold or silver instead of the more conveniently handled bit of paper with its promise to pay that has always been regarded as money. The option trade or future is just as much the promise to pay as the treasury note, and as entirely legitimate. It would be a manifest impossibility and hardship to require of each buyer and seller an affidavit that he had the actual wheat to deliver or that his desire to purchase grain for future delivery would be based upon his actual need for the grain. This provision seems to be an attempt to intermeddle with private business that should be and by right is beyond the province of any government of a free people. So far as speculation is concerned, and especially the speculation in commodities, the efforts of most speculators in the grain markets have been to enhance the price of grain, by controlling, through purchase, the stock or supply and to thus, directly or indirectly, benefit the producer rather than work to his injury. The consumers are usually those that actually suffer, but the desire to do away with the exchanges does not seem to come from them. Speculation is usually pretty well balanced, and helps to make stable markets and prices. In the old days before the exchanges, when the information was not at the service of all, it might have been and probably was possible for one man to control prices by reason of superior facilities for obtaining private information, but of late years and since the expansion of the exchanges the buyer and seller have equal access to price and statistical information, and if one gets any advantage over the other, it is because he is possessed of superior business acumen. Possibly the Federal Gov. ernment might be invoked to legislate that all men should have the same business judgment and the same brain power; that would be as sensible and practicable as some of the other bills now sought to be placed upon the statute books.
Anyone that has studied the history of prices may readily see that every step forward has been to the advantage of the producer, and that he has gained by every movement of the grain exchanges to gather from and distribute to all parts of the world the open prices in the world's markets, until, as at present, the smallest farmer may have free of charge in his daily or weekly paper, the information that fifty years ago was not to be obtained even by the favored few; for the exchanges have given free access to newspaper and trade representatives, and have distributed gratis the information, to obtain which an army of men has been well paid. That this information is now so easily to be had comes from concentration, organization, and development.
The factors of civilization are so many that it would be necessary to go into a lengthy dissertation to tell what methods have best served to attain the great ends, that once would have been deemed impossible of achievement; but speaking for the grain exchanges alone, it must be granted that the present day information as to the world's crops, the daily or often hourly fluctuations in the great markets of the world, the news of crop conditions, visible supply, world's requirements, and all the great mass of valuable statistics obtained by the use of the electric wire, is as much the result of human enterprise and cooperation as that electric wire over which it passes.
Hand in hand with the progress in the publication of information has the farmer found the railroad working to his ultimate benefit. Not so many years ago, less than twenty, the farmer in far Nebraska burned his corn in preference to selling it for 5 or 10 cents per bushel to buyers for Chicago, or the Atlantic export markets, and the railroad received 25 or 30 cents per bushel to carry the grain to the Atlantic seaboard. The progress of railroad development opened the road to the Gulf and now the farmer in Nebraska can sell his grain to exporters at New Orleans or Galveston for as high a net price as that paid those competitors in Ohio or Indiana who ship to the Atlantic seaboard. These advantages have come, like the information that the exchanges furnish, from development.
Undoubtedly some individual has, or individuals have, suffered from errors of the telegraph, or from exactions or oppressions of the railroad companies, and others have suffered from wrongdoing of members of exchanges, for man, the instrument, is only human and history is filled with tales of man's error, oppression, and crime; but despite all these, mankind has benefited from all three of these great instruments of wheels of progress.
If the Government is asked to break up the exchanges by prohibiting their dealings, why not legislate to take down the telegraph wires and tear up the railroad beds?
What benefit will it be to the farmer to abolish option trading in grain? At present the producer of a crop can read in his paper the daily prices of his grain, and get a better idea of its value in all parts of America or Europe than the producer of any other commodity in the world. He has the benefit of the world's competition, for the buyer can protect himself in its purchase by a hedging sale in any one of a dozen different markets. The buyer, if a miller, can buy large quantities in safety, because he can have his hedge open until he shall have milled his grain, or have sold his product for future milling and delivery. The exporter can hedge his sale of actual grain, which is not always obtainable for immediate shipment, by a purchase of a hedging option, or if he has a surplus stock of actual grain, can contract against it for a future delivery of a similar quantity, and thus minimize his risk in business, and the farmer, if not ready to deliver his grain immediately, although anxious to sell at the ruling price, can sell a proportionate quantity for future delivery in his nearest large grain market. His or their profit is then covered, and he is, or they are, not subject to the fluctuations or declines that may follow, for he is hedged, and all that is necessary for him or them to do is to unloose the hedge when delivering, milling, or shipping the actual grain.
If the exchange as a body were to deal as monopolists in grain and had the power to depress or raise prices at will, that would be a matter for lawful restriction, but as the exchanges are only meeting places for the operations of individual merchants embarked in the one business, and the individual dealing is governed by rules that prescribe honorable methods, dishonorable transactions are prohibited by stringent regulations or punished by expulsion; the exchanges are no more deserving of being put out of business than any other merchant or merchants are to be deprived of their right to buy or sell.
Through the exchanges the small dealer has been made the equal of the merchants of large resources, and the information at the command of one is not denied to the other. Speaking for our own organization we may truly assert that the bulk of our membership is composed of men who began in a small way, and whose business has grown from a retail trade into more or less large proportions. We have no monopolists, but do have knowledge of many members whose business ability and enterprise have been rewarded through the possession of such qualities.
The western or producing section of our country is represented upon our floor by brokers, who, as agents for western shipping houses, located either in the large centers or such cities as Peoria, Columbus, or Indianapolis, or a host of other places in the grain districts, offer grain for sale. No one is forced to buy or to sell, and the farmer is
just as free to trade directly with the merchants if he chooses to offer his grain direct to the eastern buyer.
If the exchanges were abolished, or option trading prohibited, where would be the benefit to the farmers? So far as our own exchange is concerned, we have no option trading upon our own floors to lose, for we have found it necessary to do our hedging in the exchanges at the large and active markets, such as Chicago or Minneapolis, where the concentration of that form of business, consequent upon their nearness to the grain fields, gives us the opportunity to find always the buyer or seller. We can get along without what some call the “speculative” trading, because there are better option markets open to us, whose figures come to us on the electric wire as rapidly as they can be recorded. We recognize the necessity for such trading as a part of our legitimate business, and the farmer would quickly find, if the trade were deprived of such facilities, the same necessity for his own protection. The power to hedge must exist somewhere, and, like water seeking its level, that location which has evolved from trade demand is the fittest. If you take away the power to trade, by which the exchanges are held together, you take away their support, and if the exchanges are abolished what will the Federal Government substitute for them? Can the Bureau of Agriculture take the place of thousands of trained and experienced merchants? And can the system which has developed from the combined experience and enterprise of several generations of trained merchants be equalled by that of a government bureau that is the creature of a single administration? It must be remembered that the great array of statistical information that is now furnished, was developed by the need for information to guide both the option and cash grain trading, and that if the occupation of the exchanges as a trading body is to be taken away the information will not be accessible, because there will not be the means to provide it. Then the farmer will be more at the mercy of the buyer of his grain than ever before, for he will lack the guidance of that information and be put back to the methods of 1850, or a time when everything was chaotic, and he shall have nothing but his own judgment to help him to tell what the value or price of his grain should be. Perhaps by that time under a government bureau system he may be taken over entirely by a department and sell only under that department's instructions, but it is more probable that within a very short time he would be as eager to get back that which had been legislated out of existence as his legislative agents are now to take it away from him.
We do not assume that under present conditions the exchanges are acting for the good of the farmer alone. Men enter the grain business as they do any other requiring the exercise of their wits and the investment of their capital, to make what they can out of it. We do assume, however, that the grain merchant is in as honorable a class as any other engaged in other branches, either of business or agriculture. It is not necessary for him to resort to fraud or chicanery to make a living or his fortune, and he is as much entitled to the fruit of his labor and the protection of the law as any other merchant or farmer. The grain exchanges have not been built upon the sandy foundations of dishonorable dealing, or they would have gone out of business like the disreputable bucket shops and lotteries long ago. The honesty of the country is not confined to any class, either farmers or legislators, any more than the wisdom of our people. The Government has no more right to prescribe one branch of honorable business than another, and could as legally interdict the purchase by a railroad of a quantity of rails for delivery during the year, or restrain a merchant from buying in the winter his stock of spring clothing for forward shipment, as it could a miller from buying his wheator selling his flour in advance of the time of delivery, or an exporter from contracting to buy a cargo of grain for future delivery, or from selling it upon similar terms. Shakespeare says, somewhere, that "you do take my life when you take away the means of preserving it," and the grain business is our method of preserving life. The Constitution of our country, framed by men who were at least the equals of the present custodian of our liberties, wisely left something to the power of our States besides guaranteeing us certain inalienable privileges. Are we in this day of boasted enlightenment to go back to the sway of a despotism, masking behind the title of the United States of America?
Saml. L. McKNIGHT, President.
C. H. BELL. Mr. MERRILL. Mr. E. P. Peck, of the Omaha Exchange, wishes to make a brief statement with reference to the attitude of that exchange toward the bill.
The CHAIRMAN. Very well.
TESTIMONY OF MR. EDWARD P. PECK, OF OMAHA, NEBR., REPRESENTING THE OMAHA GRAIN EXCHANGE.
(The witness was duly sworn by the chairman.) The CHAIRMAN. State the character of your business to the reporter, so that it may be a part of the record. Mr. PECK. I am here, Mr. Chairman, representing the Omaha Grain Exchange, and, in behalf of that exchange, which handles almost entirely cash grain, we wish to enter our protest against the passage of this bill, which in our judgment we feel would be very detrimental to the cash grain interests of Omaha and Nebraska. That is all I care to say. The CHAIRMAN: Would you mind answering a question or two, because I would like to get your views upon some matters? Mr. PECK. No, sir. I would be glad to answer. The CHAIRMAN. Suppose that the construction put upon this bill would be such that it would not be used, if .."into law to interfere in any way with the hedging process as it is now carried on in the grain trade. In your judgment would it then interfere harmfully with the grain business? Mr. PECK. If I understand your question correctly, do you mean would we be able to continue hedging as we now do? The CHAIRMAN. Exactly. Mr. PECK. I can not consider it would be detrimental if we are allowed to hedge as we do now. The CHAIRMAN. Your protection in the market is largely in the facility that hedging gives you? Mr. PECK. Yes, sir. We buy cash grain and hold it. Mr. HAUGEN. In the event we pass this bill, would it be possible to hedge? r. PECK. In the event you pass this bill I can not see how you could hedge. Mr. HAUGEN. It would absolutely do away with hedging? Mr. PECK. Absolutely, as I understand it. Mr. MERRILL. I would like to ask one question: In hedging on grain, you do not contemplate delivery of that grain } Mr. PEck. Very rarely. Mr. BURLEsoN. But the hedging in grain is based on a real transaction in grain, is it not? Mr. PEck. Yes, and no. Mr. BURLESON. Will you give me a transaction in hedging that is not based upon a real transaction in grain? Mr. PECK. I think I can. Mr. BURLEsoN. All right; give it. Mr. PECK. I have purchased 100,000 bushels of cash wheat, an Mr. BURLESON. You start right out with an actual transaction. That is the very point. You said you could give a case of hedging that did not involve an actual transaction. Mr. PECK. If you will allow me to finish, I think I can make myself clear. May I finish : ... BURLEsoN. Certainly you may finish. But I would like to have you understand the question before you start. Mr. PECK. I understand it. Mr. BURLEsoN. Then go ahead.
Mr. PECK. I purchased 100,000 bushels of wheat. I hedge that wheat in Chicago. I have no intention of shipping it to Chicago, because the milling interests North and South would make a better market for me than it would be to fulfill that contract with Chicago to deliver, and consequently in sixty days from now, instead of filling that contract with Chicago, I would ship that wheat either to Minneapolis or the South, so that when I answered your question and answered “Yes, and no,” I did so because, when I made this hedge in Chicago, I knew I would never ship the wheat there.
Mr. BURLESON. Yes; but, Mr. Peck, you start out with an actual transaction in actual grain, a bona fide transaction in actual grain. Now, my question was, Could there be a case of hedging without an actual transaction in grain, or a transaction in actual grain ?
The CHAIRMAN. In other words, there would not be any occasion for the hedge, would there, unless grain was to be handled somewhere along the line ?
Mr. PECK. There would be no occasion for me to hedge unless I had bought the grain.
Mr. BURLESON. If this bill confines itself exclusively to transactions where there is no intention whatever on the part of the seller to deliver or the buyer to receive, and if it has no connection whatever with an actual transaction in a product, could it hurt you?
Mr. PECK. If I have got to make an affidavit to the fact that when I sell this wheat I am going to actually deliver that wheat, it does, because I have no intention of delivering it when I make the sale.
Mr. BURLESON. But you have bought an amount of wheat before you attempt to hedge, and you do expect to receive that particular quantity of wheat which you are attempting to hedge ?
Mr. PECK. Yes.
Mr. PECK. But I have no intention of filling that hedge when I make the sale.
Mr. John W. SNYDER, of Baltimore, Md. You simply do that to protect your profit?
Mr. PECK. Yes, sir.
Mr. Haugen. The hedging is a matter of insurance? It insures you against loss?
Mr. PECK. Yes, sir.
The CHAIRMAN. Are there any further questions to be asked of Mr. Peck? If not, we will excuse you, Mr. Peck.
Mr. MERRILL. Mr. Chairman, I now present Mr. E. J. Furlong, of the Milwaukee Exchange.
evr. Pecky beat I am going of delivering
TESTIMONY OF MR. EDWARD J. FURLONG, OF MILWAUKEE, WIS., FIRST VICE-PRESIDENT OF THE MILWAUKEE CHAMBER OF COMMERCE.
(The witness was duly sworn by the chairman.)
Mr. FURLONG. Mr. Chairman and gentlemen, I represent the Milwaukee Chamber of Commerce, an exchange of over 600 members, which deals very largely in grain, and a very large volume of cash grain is dealt in on this exchange. We merely wish to state that in our opinion this bill will work incalculable harm to the grain trade and kindred trade.