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was restricted, the transactions made legal would be impossible to execute, for there would be no market. There is where your speculator comes in. A broad active market with fractional fluctuations between trades is essential to hedge on. The speculator creates and maintains that kind of a market. Without him no market moving with any degree of regularity would be possible.

If it were desirable to permit so-called legitimate transactions and prohibit speculative, the separation would be impossible. Transactions, legitimate or speculative, would be defined by intent. Varying circumstances so often change the intent that no one could define where one began and the other ended.

Exchange transactions are often defined as legitimate or speculative, implying that the speculative transactions are not legitimate. Every transaction recognized by the rules of the exchanges is legitimate. The hedging transactions are entered into by conservative merchants who want to avoid speculation. There are other transactions, and a vast number of them, which are speculative. They are not as conservative as the hedging transactions, but they are just as legitimate and are just as necessary a part of the whole, in that they maintain the equipoise of the market and prevent violent; abrupt changes.

The worst form which speculation can assume is an actual or attempted corner of the market. It ruins legitimate business, and public sentiment on the exchanges is against it. Every exchange should have a rule making a close corner impossible. No rule can be made limiting the amount of grain an operator can buy, and his purchases, if large enough, may under favoring conditions create a cornered condition of the market, but a rule can be made to prevent the corner from becoming operative. Such a rule has been in operation on the New York Produce Exchange for many years and has proved a complete success. We have such a rule. The farmer can generally be relied on to break any attempted corner. He is the real price maker, and either by the free delivery of his product or by withholding it can ruin the manipulator. Legitimate speculation avoids manipulation. If it were possible to prevent speculation by legislative act it would not be wise to do so; but, if legislation could prevent manipulation it would be most desirable.

Futures are dealt in largely in the open market on the exchanges of Liverpool, Berlin, Budapest, and Paris and no attempt is made there to restrict speculative transactions. Liverpool a few years ago recognized its system and largely adopted American methods as the best in existence. Since then its trade has increased enormously and is now world-wide.

Now, Mr. Messmore spoke of this Prussian agrarian law that was passed, and said there must be some difficulty about it. I have mentioned it here, and I will tell you later where my authority came from. I do not know what technical points there may be about it.

We have a precedent of the disastrous effect of legislation which abolished trading in futures in the experience of Prussia. In 1896 the agrarian majority passed a law prohibiting transactions in the products of agriculture for future delivery on the theory that speculators by short sales depressed values. The law remained in force until 1900, and was then repealed by the same agrarian vote which made it. Under its operation the farmer received less for his product, the consumer paid more for his food, and the great merchants with

large capital made what the farmer and the consumer lost. That is my information.

Mr. LAMB. Where do you get that report?

Mr. CUSHING. If you will pardon me until I get through with my statement I will give you that.

Mr. LAMB. I wish you would.
Mr. CUSHING. I will.

Russia has no system of open future trading and the business there is dominated by a comparatively few large merchants.

Until recently there were no exchanges in the Argentine Republic, which is our greatest competitor in the export of grain. There the business is absolutely controlled by a few large capitalists, who handle it on their own terms at what, from our standard, would be considered an enormous profit taken from the farmer. An exchange has now been established in Buenos Ayres with open future trading, which, no doubt, in time will distribute the business, but it has not yet become important.

Our grain crops could and would be handled if every exchange in the country was wiped out. But how? By large aggregations of capital. None else would take the risk, if there were no means of hedging.

In the modern control by great corporations, termed “trusts," of most of the important industries in this country, the grain business stands almost alone as a great business which is free and open.

This is due to the enforcement of the interstate commerce law and the open market of the exchanges. Without the interstate commerce law there would, without much doubt, be an enormous grain trust to-day made possible by the control of freights. The exchanges alone could not prevent it. The combination of the interstate commerce law and the exchanges now makes the deal so free and open that there is no chance for a monopoly and hence no chance for a trust. If by legislation free and open trading on the exchanges was so restricted that a distribution of the risk by hedges became impossible, there would then be an opportunity for the formation of a grain trust which by its weight of capital could take such risks in a season's play that moderate capital could not live and would gradually be forced out, leaving the trust in a position where it could dominate grain as completely as the American Tobacco Company now dominates tobacco.

The best weapon to use against a trust is that which prevents it. While, singly, neither the interstate commerce law or the exchanges could prevent a grain trust, the combination of the two presents an insurmountable barrier, and national legislation which would impair the effectiveness of the combination seems most unwise.

Laws which debase the common people create despotism under whatever conditions they are enforced. In governments, if the common people are debased, a despotic monarchy is created. In finance, if the common people—that is, those of moderate capital-are debased, a financial despotism is created, the trust.

The CHAIRMAN. You said that you would give us your authority for the statement you made in relation to the German legislation ?

Mr. CUSHING. Yes, sir. I have here an editorial article from the Post. However, that is not much good. That gives the history of it. But my information came from Mr. E. Pfarrius, who is engaged as an

exporter and does a great deal of business in Berlin, and he gave me these facts, telling me that he had an intimate personal knowledge of them. At the time that that law was put into effect, as he told me, the Prussian commissioner—what do they call him, secretary of agriculture—was very much disturbed, and he resigned and he came over here and he investigated our methods of doing business (futures), and it was from him that Mr. Pfarrius largely obtained this information, and he gave it to me. There was a question that arose here and a statement that that law had been repealed. What technicality there is in regard to that law I do not know, but I do know this, that there is open trading there in future contracts, because Mr. Pfarrius showed me the contracts for quite a large amount of rye, executed for future delivery, within a relatively short time. Mr. LAMB. Will you leave that Washington Post editorial with us? Mr. CUSHING. Ö. that is an old one. That is away back. Mr. LAMB. Does it state the facts? Mr. CUSHING. It gives the history of it; it is nothing but a newspaper article. he CHAIRMAN. Are there any questions? Mr. LEveR. I would like to ask one or two questions. You said that you had a rule of the New York Produce Exchange which prevented corners? Mr. CUSHING. That is right. Mr. LEveR. Will you give us that rule? Mr. CUSHING. Yes. By the way, I want to file in evidence the rules of the produce exchange, and in support of the rules, not only of their legality but of their expediency, I wish to file this decision of Judge Holmes. #. CHAIRMAN. Very well; leave it with the reporter; and will you be kind enough to read into the record the rule you have referred to ? Mr. CUSHING. This rule reads as follows:

DEFAULTS.

RULE 32, SEc. 1. In case any property contracted for future delivery be not delivered at maturity of contract, the purchaser shall notify, in writing, the committee on grain of the failure to deliver, and the committee on grain shall immediately hold a public call, at which they shall read such notice and buy the grain for account of the parties directing the purchase, but no unreasonable price shall be paid, arising from manipulated or fictitious markets, or unusual detention in transportation. That is the rule. The CHAIRMAN. What arrangement is made for determining whether a given price is an unreasonable one? Mr. CUSHING. Mr. Chairman, we have a meeting, and the grain committee get together and decide among themselves what would be a reasonable price. The CHAIRMAN. That is a standing committee of your exchange? Mr. CUSHING, Yes, and a very important one. If any member of the committee is interested in the grain he will not serve. They put on another member. The process is, this. Say they have a public call and there is wheat in default. The committee bids $1.20, $1.22, $1.23, $1.24, $1.25. The committee will pay no more, and all settlements have to be made on that. It is a very just rule. Mr. LEyFR. That rule has prevented, I would assume, any attempt at cornering any grain upon your exchange?

Mr. CUSHING. It does not make any difference, let them attempt it all they like, they can not enforce it.

Mr. LEVER. They never have had a corner on your exchange, as a matter of fact ?

Mr. CUSHING. There never has been a close corner since this rule went into effect, because this means a man may lie down. I do not think he lies down when he takes advantage of the rule, either; he simply announces: “I think this price is manipulated. I will let it be decided by the grain committee, and I will pay what they say.”

Mr. LEVER. I think your rule is a good rule, and the point I am making is, if you on your exchange can prevent a corner and prevent these violent manipulations on the exchange, why do not other exchanges follow your good example ?

Mr. CUSHING. I do not know why they do not. Excuse me, I say I do not know why they do not. I do know that there is a movement on foot at present which Mr. Merrill can tell us a great deal more of, in the Chicago Board of Trade, to make a corner rule. I prefer not to testify in regard to the Chicago Board of Trade because Mr. Merrill knows so much more about it than I do that his testimony is better.

Mr. LEVER. What I want is to get you on record as to this proposition. If it should be brought to the minds of this committee that other exchanges are not going to adopt, and have not adopted, such a rule as you have mentioned here, preventing corners and violent manipulations of the products of the farm, do you think it would be unwise for this committee to step in with legislation to prevent that?

Mr. CUSHING. I do not think there is an exchange in the whole United States that would object to making a corner rule.

Mr. Cocks. Do you not think that the exchanges can make such rules as to eliminate a great deal of what is now considered objectionable trading?

Mr. CUSHING. I do not believe they can. Now, I have statedand Mr. Merrill has given me authority to speak for the other exchanges—that any rules which this committee would suggest the exchanges would be only too glad to take up, if they were in line with public policy; but we must have something which is practical. There are certain forms of speculation which are perfectly legitimate. There are other forms of speculation which we would like to wipe out if we could. I think we would; I do not know; I am only speaking for myself. I would like to wipe them out. You speak of this little outside speculation. Now, if you will allow me to be personal, I do not have any of those accounts. I will not take them. The questions were asked here this morning in regard to $500 being put up. I would not take that account. I want something more. I want to know the man that I work for. It is not his $500; it does not take that long to go. I neither exact nor put up margins in my business. That is a broad statement to make, but it is so.

The CHAIRMAN. What is your business?
Mr. CUSHING. It is just like the rest of them.

The CHAIRMAN. I meant to ask whether you limited your operations to grain, or whether you handled all kinds of produce ?

Mr. CUSHING. It is mostly grain.
Mr. Sims. May I ask him a question, please ?
The CHAIRMAN. Yes.

Mr. SIMs. You stated that you thought it legitimate and proper to eliminate manipulation, if it could be done, by law. I want to ask you if it is possible to eliminate manipulation if you do not eliminate the persons or character of business that make possible manipulation?

Mr. CUSHING. I do not know that I exactly understand that. I say if you could eliminate manipulation by law it would be desirable. My opinion is that the exchanges themselves can make laws, rules, against manipulation better than anybody else.

Mr. SIMs.' Is it not a fact that manipulation, when it does take place, usually is promoted or caused by the dealing in futures by parties who are not particularly anxious for the spot business, but are doing what they call "playing the market?”

Mr. CUSHING. I do not know. I never ran a corner, so that I can not answer your question.

Mr. SIMs. I am not talking about a corner, but about manipulation of futures; buying, and selling out before the day of delivery arrives.

Mr. CUSHING. I will answer in this way, that Mr. Patten, who has of course attracted a great deal of attention lately, is eminently a merchant, and deals in the actual produce, and that is the reason why he has been so successful.

Mr. SIMs. I am not asking for a particular instance; but the very way that you put it, “if manipulation could be eliminated, of course leaves us to conclude that there is some manipulation. Is not that manipulation, whatever it is, conducted and engineered and brought about by the speculative dealer who deals in contracts, rather than the execution of the contracts by delivering or receiving the product itself?

Mr. CUSHING. Not always. Sometimes it comes about naturally. Mr. SIMs. Manipulation is a natural product?

Mr. CUSHING. Now, you are talking about the effect of manipulation. I have seen squeezes in some of the hardest places come about naturally. The market just went around that way, naturally.

Mr. Sims. The market might take a natural course and a man might get squeezed if he was in it; but I am talking about manipulated squeezes. A bear raid is not a corner, is it?

Mr. CUSHING. I never heard of a bear making a corner.
Mr. Sims. I say a bear raid.
Mr. MERRILL. A bear raid, breaking the market down.

Mr. CUSHING. I never heard of a corner being made by a bear. I have heard of it being made by a bull.

Mr. Sims. You have heard of bear raids being made and organized, and that is manipulation ?

Mr. Cushing. Yes; it is manipulation. But I think that the exchanges themselves can legislate against exchange manipulation. They can legislate against manipulation becoming operative, as they have done by that rule.

Mr. Sims. They can, by permitting members after they have contracted to violate their contracts or not to execute them, according to the terms of the contracts.

Mr. CUSHING. Well, when the exchanges make those rules they are doing all they can to prevent manipulation.

Mr. Sims. There is a rule which permits the exchange to relieve a man from the terms of his own contract if he be the victim of manipulation?

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