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Mr. Lever. Now I want to ask you one other question. If these boards of trade refuse upon their own initiative to eliminate these gambling transactions through their own rules, do you think Congress would be going too far in the exercise of its power to enact legislation to eliminate it?

Mr. Culver. I think if the boards of trade stand in the way of the commerce of this country it is time then for Congress to step in and pass such laws as to wipe them out; but under the existing situation, and the condition that our markets are now in, with the foundation of our finances in the grain business, backed by the fact that we can hedge our stuff and protect our stuff or insure our stuff, I do not believe you could do it without disturbing our country in such a way that it would practically wipe out every exchange and the small dealers of the West.

The Chairman. Are there any further questions on the part of members of the committee? If not, you may proceed, Mr. Sims.

Mr. Sims. I understood you to say that all the mills buying or consuming the wheat practically hedge on your market?

Mr. Culver. Yes, sir.

Mr. Sims. And I understand that they hedge first by buying the wheat

Mr. Culver. They buy the wheat that comes in from the farmers in vast quantities, and the grain merchants in vast quantities consign it to their large elevators.

Mr. Sims. The first hedge by the soft miller is the purchase?

Mr. Culver. No; he purchases for cash first, and as fast as he fills up his elevator, he hedges against it.

Mr. Sims. I know; but the people who furnish the soft wheat are the growers?

Mr. Culver. Yes, sir.

Mr. Sims. And in that way the grower and the consumer of the soft wheat are brought together, through the medium of your exchange?

Mr. Culver. Yes, sir.

Mr. Sims. And when he has gotten the wheat, and the farmer has delivered it, to whom does he sell the hedge?

Mr. Culver. To the large investors, the men with money that make a business of coming into the market. For instance, say December wheat is selling at $1

Mr. Merrill. Through the medium of the exchange.

Mr. Culver (continuing). And May wheat is selling at $1.06 or $1.07, which would aggregate that man 6 per cent on his money, as an investment. This man steps in and buys that December and sells the May against it; which insures him his profit, or interest on his money between the two dates.

Mr. Sims. The miller sells then to the elevator, or the character of people who are simply speculators in options. Is not that true?

Mr. Culver. You may call it so.

Mr. Sims. I mean the contracts. I do not mean to be offensive in my language.

Mr. Culver. You may call it speculation. We call it an invests ment.

Mr. Sims. It is an investment in a contract; but not in wheat?

Mr. Culver. No, sir; when the investment is made in December wheat, he takes the actual wheat.

Mr. Sims. When December comes around; provided he does not beforehand sell out the contract.

Mr. Culver. He carries that receipt, or the receipt for that much

frain, and sells it back as the miller wants it, taking it in on the asis of the May contract.

Mr. Sims. Now, let me ask you one more question, which I am confident you can answer; and you have been so candid that I believe you will answer it. Do you think it is possible to operate successfully a hedging market, unless it is also patronized by speculators who intend to make the profit out of the contract between the time of the purchase and sale and the date of the ultimate execution of the contract?

Mr. Culver. I do not. They are the safety bank of the grain trade.

Mr. Sims. I think you have answered exactly right. I agree with you.

The Chairman. Do you wish to ask a question?

Mr. E. T. Brooks. Yes, sir.

The Chairman. You may do so.

Mr. Brooks. The telegram that you read there seemed to want to draw a very fine distinction and difference between a bucket shop and an exchange.

Mr. Culver. Yes.

Mr. Brooks. Do you agree with the telegram?

Mr. Culver. Yes, sir; perfectly.

Mr. Brooks. What I want to ask is, what is the difference, so far as the man engaged in it is concerned, between a purely bucket-shop transaction, and calling in a man between the bucket-shop man and the man that is the customer, and calling him a broker, and paying; him a commission for holding the stakes?

Mr. Culver. One is an organized body of men of commercial honor, and the other—well, I would hate to put in the record what I would like to say with reference to the other class of men. I will modify it, though, and say they are sharks. They have no honor. They do not contemplate delivery. They take their money, and they steal all their quotations, and steal their news from the different markets. You may get a quotation on your board that is right, and you may not. They are the curse of our grain trade to-day. That is the difference between the two bodies. One is a legitimate, honorable body of men and the other is not.

Mr. Brooks. Have any of the customers of the bucket shops, since they have been outlawed in certain States, turned around and become customers of the exchanges?

Mr. Culver. Not that I know of. Their contracts would not be taken in our markets, if they were.

Mr. Merrill. He means the patrons.

The Chairman. The committee will stand »djourned until 2 o 'clock this afternoon.

(The committee thereupon, at 12.15 o'clock p. m., took a recess until 2 o'clock p. m.)

AFTERNOON SESSION.

The committee met at 2 o'clock p. m., Hon. Charles F. Scott (chairman) presiding.

The Chairman. On account of the fact that a hearing before this committee on another subject is set for to-morrow, it is a matter of a good deal of importance that we should conclude the hearings in relation to the grain exchanges this afternoon, if possible.

Mr. Merrill. We have only Mr. Cushing and myself to be heard now, Mr. Chairman. Mr. Cushing is a member of the New York Produce Exchange. It is not my purpose to occupy much of your time in my remarks, and therefore the matter of time will rest largely with the committee, and will depend largely on the amount of crossquestioning they desire to do. There are a few subjects which I shall want to call your attention to, as the last speaker for the exchanges. If you are ready to proceed, Mr. Chairman, Mr. Cushing is here.

The Chairman. We are ready to proceed. My remark was intended only to suggest to the members of the committee as well as to the witnesses that the hearing should be as brief as is consistent with presenting the matter properly.

Mr. Merrill. The only point is that the morning was taken up in cross-questioning largely, far beyond anything we contemplated, and thereby the committee used up the time rather than ourselves, so that if we should be put in the attitude of not completing our representation, we should wish to be heard briefly on another date, and if possible before I leave the city.

The Chairman. In order that there may be no doubt about it, I will ask the members of the committee and others to refrain from asking questions until your statements have been made. We will hear from Mr. Cushing now.

TESTIMONY OF MR. EDWARD T. CUSHING, REPRESENTING THE NEW YORK PRODUCE EXCHANGE.

(The witness was sworn by the chairman.)

Mr. Cushing. Mr. Chairman, all these questions have been so thoroughly thrashed out, all the different phases of hedging and manipulation, that I am not tempted to make any further argument. What I have aimed to do is to file the objections of the New York Produce Exchange to the passage of this bill in a memorandum, as it were, making a positive statement without attempting to bring out any arguments in favor of that statement, which I will leave to the committee; so that, if you will allow me, I will present this statement which I have prepared, and I would suggest that if you allow me to do so you will save time, because you will then have it before you for your consideration.

The Chairman. We would be very glad to have you do that, Mr. Cushing.

Mr. Cushing. The enactment of national legislation, which would destroy an established system, in use on the great exchanges engaged in handling the products of agriculture, is a matter of grave importance. If the evidence already submitted by us is in any way deficient and this committee desires further information, the exchanges would welcome and assist a special committee in making a most searching personal investigation into every detail of the rules of the exchanges and into every detail of their economic function in handling the crops.

The interests involved are vast and far-reaching, affecting alike the producer, the consumer, and our foreign trade.

The present business system of the exchanges is the outgrowth ol experience and in operation has thus far proved the best System which intelligent, practical minds have been able to devise.

Existing methods have been fully sustained by decisions of the Supreme Court, but if it can be shown that any part of the system is against public policy the exchanges would modify their rules to comply with public sentiment.

They have already gone on record at this hearing and now further express their earnest desire to cooperate with this committee in formulating any further rules which are dictated by public policy.

I would ask Mr. Merrill if he would allow us to make that statement for all the exchanges.

Mr. Merrill. Certainly.

Mr. Cushing. For personally I only represent the produce exchange.

Mr. Merrill. Yes.

Mr. Cushing. The system is complex. Each part is a necessary part of the whole, and the destruction of a part would endanger the whole. The crops for many years have been handled under the

1>resent system, which has the advantage of long experience. Legisation hastily entered into could easily upset this system without offering anything better in its place, and could completely disorganize vast business interests. There is no lack of organization among the grain-producing farmers. If there was any widespread dissatisfaction with the method of handling their products, they would be here to-day. They are not here and, as far as can be learned, are generalb content in their present wonderful prosperity.

If by legislation, uncalled for, the vast structure of economical order, m handling the crops, should be upset and a panic precipitated in grain, which abundant evidence has been submitted here to show would be more than likely, could not the farmers of the great grainproducing States well say: "We were prosperous and content. TVs did not want much. All we asked for was to be let alone, and you would not do so V' Any legislation making transactions in agricultural products for future delivery illegal, or any legislation which would restrict the dealing in future contracts as now conducted under thi rules of the great exchanges would strike at the root of the wholi system, the principles of which are, by the creation of a free and opei market for an article of necessity, in its nature highly speculative, t< give to the producer and the consumer equal advantages with a min imum cost of handling owing to the distribution of the risk by mean! of that open market.

If the aim of legislation were the suppression of bucket shops, when the transactions are pure gambling, every exchange in the countrj would support it, would unite in the formation of a bill to that end and would unite in enforcing the law, but any bill of doubtful inter pretation would directly affect the great exchanges, and the member would be prevented from handling the crops under present methods until they were protected by a decision of the Supreme Court.

It is absolutely essential for the most economical handling of the grain crops that sales should bo made for future delivery and that there should be an active market for such delivery. Every transaction for future delivery on the exchanges carries the seller's obligation to deliver the property and the buyer's obligation to receive and pay for it. Failure to do either constitutes a default which suspends a member until he fulfills his obligation. Settlement by offset is allowed by exchange rules and is upheld both as legal and expedient by a decision of the Supreme Court rendered May 8, 1905.

The main movement of grain is from the farmer to the country elevator or miller. From the country elevator to the terminal cities, where the exchanges and the great elevator systems are located, and from the terminal cities to eastern and southern millers, distributers, and exporters. Some grain is moved directly East from country stations, and some direct export business is done by the interior terminals, but the main movements is as stated. By the open markets of the exchanges, each one in the line, from the farmer to the consumer, knows at any hour of a business day at what price he can buy or sell, all prices being based on the exchange price for delivery during the future month in which the dealings are then most active. That price is made by consensus of public opinion of value focused on the exchanges. The opinion of value is formed by general information of conditions present and prospective.

The exchanges spend large sums collecting this information, and gratuitously, through their members and through the press, distribute it broadcast, the small dealer and the capitalist standing on the same

fround. The best information available is not private information, ut public information from the exchanges.

The system of hedging has been so fully explained by the previous testimony that any further explanations would be superfluous.

If grain moved with regularity, no faster than it was wanted, and as fast as it was wanted, hedging would not be necessary, but it does not. At times the movement is far beyond the demand resulting in large accumulations. At other times the movement does not equal the demand and the previous accumulation is drawn on. It is here that the speculator comes in and performs a legitimate economic function in carrying property over times of plethora and supplying it in times of want.

It is the speculator who largely takes the dealer's hedges, and again enables him to buy them in when he makes sales for shipment. Without the speculator, the broad, active market which we now have and which is necessary for the economical handling of the crops would not exist. The speculator, ever ready to buy or sell, prevents violent, abrupt changes. He anticipates demand and supply and works between. He distributes profits, losses, and risks. He is a leveler, in that by his activity he enables the small dealer to hedge, and places him on a level with the large capitalist. He is a useful and necessary part of the whole.

Hedging transactions are obviously so legitimate and so necessary in the handling of the crops that no doubt legislation would provide for them, but, and here is the point as to speculation, if speculation 36387—A A B—vol 2—10 35

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