bets or wagers, usually for small amounts, on the rise or fall of the prices of stock, grain, oil, etc., there being no transfer or delivery of the stocks or commodities nominally dealt in.

The definition as given in the Standard Dictionary is as follows:

An office where people may gamble in fractional lots of stock, grain, or other things which are bought and sold on the exchanges. The bucket shop uses the terms and outward forms of the exchanges, but differs from exchanges in that there is no delivery, and no expectation or intention to deliver or receive securities or commodities said to be sold or purchased.

There is another short statement here, I can not give you the author, but I will just introduce it as a quotation:

A "bucket shop" is a place wherein are posted, as they occur, the fluctuating prices of grains, provisions, and stocks in the great exchanges at the leading commercial centers. Under the guise of a contract to buy or sell one of these commodities, the proprietor of the "shop" will wager any comer that the price will advance before it declines, or will decline before it advances to a certain named point. Neither party "buys" anything. Neither party "sells" anything. Neither party intends either to buy or sell anything. The decision of the wager hangs upon a quotation which is made by men engaged in actual trade perhaps five hundred or a thousand miles distant, with which the bettors have nothing to do and upon which their wager exerted no influence.

The supreme court of Indiana, in the case of Pearce et al. v. Bill (149 Ind., 136), speaking through Judge Jordan, said:

The mischief and evil consequences resulting to the State from the operations of the bucket shop are almost beyond computation. It assumes an air of legality and respectability and insidiously ensnares many innocent victims before the public learn of their danger. It ought to be outlawed by statute, as its existence is a menace to society, and its operations immoral, contrary to public policy, and illegal.

Another decision of the supreme court of the State of Indiana in case of the Western Union Telegraph Co. v. the Hammond Elevator Co., contains in part the following:

We have no statute denouncing optional gambling as a crime, but contracts for the purchase and sale of commodities not to be delivered, but only to be performed by advancing and paying differences, are void at common law. The business or operation of the bucket shop have been the source of much evil, and the question of prohibiting such transactions or business, as it is generally conducted, merits the consideration of the legislature.

From the latter it will be seen that the supreme court advises the legislature to enact such legislation as will do away with bucket shops, and it would seem the legislature of no State could ask more than the recommendation of its supreme court.

I am hurrying along as fast as I can, Mr. Chairman. For the moment, anyway, until you take up questioning, I will leave the discussion, in a general way, of these questions, and I want to refer particularly, so that it may be of record, to some of the practices of my own exchange, the Chicago Board of Trade. Take first the question of penalty on off grades when delivered. We have no off grade of wheat deliverable under any penalty. The grades of wheat deliverable in our market have been explained to you by Mr. Fitch. The corn market is slightly different in that No. 3 corn may be delivered at 5 cents penalty, the intention being to very fully protect the buyer, because there is never so much market difference as that, and the board, desiring to make it as difficult as possible for anyone to manipulate the market, by vote of its membership passed that rule. In the operation of that rule you will readily see that if the seller can find it to his better interest to sell the No. 3 corn in 36387-A A B-vol 2—10—36

the open market and buy a like quantity of contract corn he may do so, and therein lies his protection; but if he is caught with a large quantity of No. 3 corn in a year perhaps when there is little contract corn then his maximum loss by being unable to comply with his contract would be covered in that way. To show you how possibly that might be the case I have a couple of market reports which my firm, in writing to me since I have been here, inclosed in their letters, not with any thought of their being offered here, but simply to acquaint me with the state of the market, and here is a statement of daily inspection of grain. Under date of February 16, the total receipts of corn inspected that day were 467 cars, of which there was but 1 car of contract corn, the other 466 cars all being below contract corn, and of course a large part of that corn had been hedged when it was bought from the farmers and sold for May or some other delivery in Chicago; but of course on the arrival of the corn the hedge was covered in the open market and the corn was sold on sample to driers or consumers for such purposes as they might buy it for.

Mr. HAWLEY. Will that 466 cars of corn be made contract corn by drying?

Mr. MERRILL. Some of it only. I am chairman of the grain committee, and it is a very active committee, having charge of all the cash grain interests of that board, and under the uniform rule now adopted by nearly all the great corn-producing States there is a rule of inspection. Inspection in our State is under a state law enacted thirty-nine years ago. It is a very perfect system, built up under the care of the State. The No. 2 corn may have a moisture content of 16 per cent maximum, and we have found that corn which has a maximum moisture content of above 18 per cent does not lend itself well to drying, because after drying it breaks to pieces badly; having been so much swollen up and enlarged with the moisture, which when rapidly taken out of it leaves it in such a condition that the ordinary running through spouts and dropping into cars breaks it, and it becomes floury; and it makes the grain dirty, which prevents it grading No. 2 and carries it into a lower grade.

The report I have here is of the 19th instant, on which day the receipts of corn were 344 cars, of which again only 1 car was contract corn. The crop of 1908 was of fine quality and a large percentage of it graded No. 2, and there was so little No. 3 in it that it sold all year within to cent of the No. 2; but of course when the quantity of it is so great that it can not be graded, or dried into No. 2 corn, it of necessity raises this question of the possible delivery of No. 3. Under such conditions the discount would be more because of the greater quantity of No. 3; and I would say, further, that whenever the off grade is delivered the warehouse receipts can not be mixed in with other receipts covering No. 2 corn. On a sale for future delivery of 5,000 bushels we could not deliver 2,000 bushels of No. 2 and 3,000 bushels of No. 3; we would have to deliver the whole 5,000 bushels of No. 3, so that a miller getting it would not get a mixed lot.

With respect to the banker's position in hedging, I heard D. R. Forgan, of the National City Bank of Chicago (deposits $22,000,000), state at a large meeting of the Association of Commerce and Board of Trade of our city, that he would not loan money to anyone on grain;

that is, would not loan it at the usual percentage advance, which is nearly the market value, except to an Armour that was not hedged. There was a question asked by some gentleman of the committee the other day about the increased amount of money that would be required in case the market went up and margins had to be put up. I think some of you gentlemen asked such a question, and it is a good understanding of the facts that you want, so that perhaps if I just recite the modus operandi from start to end, going through with the bank part of it, it may be valuable. If A buys 100,000 bushels of wheat for $1 a bushel, he takes the warehouse receipts over to the bank and leaves the warehouse receipts and the insurance policies with the banker; he will also tell the banker that it is hedged. If the banker has the slightest disposition to question his word, he will ask him to bring the hedging contracts, which he will be furnished with. The banker then knows that he has the property and he has the contracts covering the hedge, and all that has to be done to make those contracts good all the time is to call margins from the people to whom the wheat is sold if the market should go down, so that the wheat would be protected against loss through their failure to receive and pay for it.

On the other hand, if the market should go up and the man owning the wheat should be required to put up margins, he would go to the banker and say: "The market is up 10 cents and I am called $10,000 on this wheat." The banker having the wheat and the contracts and knowing that it will be delivered if he deposits the margins, and thereby protects the contract-because if he did not deposit the margins the people who had the contract would enter the market and buy it for the account of A-will very readily advance the margin money. Of course he takes an ordinary promissory bank note for it and passes the money to the credit of A, and A immediately gives a check for the margin. This is written in two certificates, an original and a duplicate, and it states on the face of those certificates the names of both parties to the contract, and it also states that the money can not be released from deposit for the margin purposes until the margin certificate is returned bearing the indorsement of both parties to the contract. By that process you will see that the bank does not subject any of its money to being checked out into another bank, the bank being, as almost all of the large banks are, denominated by the board of trade as a depository for the deposit of money for margin purposes.

So that the hedging of the grain becomes an absolute certainty to the banker, under those circumstances, which are those which prevail in our market; whereas to hold 100,000 bushels of wheat without a hedge and the market going down 10 cents would involve, of course, a loss of $10,000, it would be pure speculation, and A might not be financially able to sustain such a loss, and the banker would find himself with the wheat certificates in hand, worth less than the amount of money he had advanced, and with no contract against them. I have gone this far, and you immediately say, "The Scott bill does prohibit that." I am aware of that; but suppose it is No. 3 wheat, and there is a parity of a cent; I can go to my bank with 100,000 bushels of that No. 3 wheat, and if it is No. 3 it can not be delivered on a contract, and the banker knows that I can not deliver it, but he knows that I have these contracts on an equal quantity of No. 2, and,

the market moving up and down, the most I could suffer would be a variation of that parity between the two grades, and that that would not be at any time a material sum of money; it might be a cent a bushel, $1,000 on 100,000 bushels, or, at 2 cents, $2,000, and the amount being small, he would rely upon A as being sufficiently able to take care of that.

A few words on the intention of the commission merchant to receive and deliver, as set forth by Justice Holmes. I am particularly anxious to elucidate this thought because of the questions which Congressman Beall has asked of some of the witnesses about his friend down in Alabama who would buy or sell. You will have gathered from what the Supreme Court has said, that there is always, without any exceptions or variations, an intent on the part of the commission merchant in Chicago when he receives that order, if it is to buy, to receive that grain for the account of the man who sends the order, and when he sells it to deliver it for his account, unless there should be a set-off, as Mr. Justice Holmes says, which is equal to delivery. If, buying that corn for the man in Alabama for May, and May 1 comes and he has not sold it, the corn will be delivered to me as the commission merchant, in warehouse certificates. I immediately insure

I advise him that it has been delivered, that it has five days to run free of storage, when storage will begin at the rate of one-fortieth of 1 cent a day, or 1 cent in forty days, one-fourth of a cent for each ten days-only it does not run in fractional parts thereof as it does in some markets. We formerly had it that way, but we deemed it to be somewhat unfair, so that it is now fixed as I have said. We would continue to carry it for his account until such time as he should order it put on the cars and shipped and sold out in the market. we sold it out on the market, immediately on selling it we would deliver it and render an account of sale, and if he should order it sold before the 1st of May that would not interfere at all with the receipt of the corn by us and its delivery just the same; having both the purchase and the sale for his account we are willing to send him an account of sales when he orders it sold, because our position is then defined.

If

We do not have to wait a minute on delivery. The delivery is made during certain hours when the delivery clerks are all assembled in one room and the delivery is consummated very rapidly; enormous quantities of grain may be delivered in few minutes. So that whatever may have been the intent of Mr. Beall's friend in making that order, for whatever purpose he may have wished to buy that grain, he has done a perfectly legitimate thing, according to the same decision of the Supreme Court, which I have not with me, but which you gentlemen are all familiar with, in which the Supreme Court has said that it is a perfectly legitimate reason for the buying of grain to buy it for the sake of the rise. A man does not have to have a mill or a bunch of steers to consume it, or he does not have to buy it for any other reason than that he believes it is good property to own, no matter whether he is mistaken in that belief or not; so that, knowing that our Mississippi friend has a perfect right even as a speculator to buy that grain, if he deposits with us a sufficient security we will give to him credit for the rest and will buy the grain for him and will handle it for him in that way; and knowing that we are thoroughly upheld by the law. And on that point, I suppose, the Scott bill is intended to

stop that kind of trading. I am not a lawyer, gentlemen, but the language of the Supreme Court is so clear that we fail, of course, to understand how such a law could be held constitutional. But that is not the point. We are not here to discuss law questions, we are here primarily discussing the ethical side of it because we believe we are entirely right, that this increment of the undesirable which attaches itself to us is very greatly enlarged upon whenever it comes to the surface and is recognized by the newspaper fraternity, and is featured a great deal more than it should be. The broad, silent, deep-flowing stream of commerce, of a thousand times more importance and volume, is not noticed; but the ripple on the surface, when one occurs, is made a great deal of, and I presume some of you gentlemen have had some experience with the newspapers when they have written up something you have said or done, and you have appreciated what gross exaggeration at times is indulged in, not because they wished to misrepresent, but because in many instances their sources of information are not reliable. However, we have expressed a great deal of concern about that, and realize that we are not half so black as we are painted, and that our good qualities, if we possess them, and we know we do-we may be allowed to say it-are little noted, and that you gentlemen here, with all due respect to you, are attaching too much importance altogether to this public notoriety attaching to this increment. We know that this undesirable increment attaches, and it always has, to men in all fields of human activity or endeavor, legislators, ministers of the gospel and everybody, and that it would be a vain and idle attempt to seek to eliminate it wholly from the grain trade. The speculator or speculation fills a gap between the buyer and seller of the grain, the producer and the consumer. That part I will not go into any further.

A scalper is but another speculator, but the scalper is hardly worthy of a moment's thought on your part or mine, because he does not do any harm or does not accomplish anything. He is an individual in every market; I have seen him in every market; that is, in the market of every commodity. I have seen him in the lumber market in Chicago buying cargoes of lumber when we used to get a good many schooners loaded with lumber, before the pine of Michigan and Wisconsin had disappeared; we were, as you may know, the largest lumber market in the world. We no longer hold that position. I have seen them buying live stock out at the yards, hogs and cattle by the carload, and horses, and I have seen them buying iron. In fact, John W. Gates, with whom I have been well acquainted for many years, made his first $30,000 scalping in iron. But the scalper exercises no influence on the exchanges. He is trading for the next fluctuation; that is all he is doing. What he buys this minute it is known that he is going to sell in the next two or three minutes, and when a man has bought a thing and is going to sell it again immediately, and he buys and sells it back and forth, it cuts no figure and has nothing to do with disturbing values from either the farmer's or the consumer's standpoint.

Gentlemen, I guess the rest of what I have to say to you may best be brought out by your questions. I assume that you have some questions to ask.

Mr. HAWLEY. In this matter you referred to a moment ago, let me make an illustration. A man buys 100,000 bushels of wheat,