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a certain number of bales of cotton at a certain price and at a specified time. It is identical in principle with a contract for the purchase and sale of any other commodity or thing, or an obligation to do a certain thing at some specified future time. It shows the date upon which the trade is made, the number of bales of cotton bought and sold, the price to be paid per pound, the time of delivery, the terms and conditions agreed upon by both buyer and seller, and is signed and secured and delivered by the parties thereto or their agents. When thus drawn, signed, secured, and delivered, the contract is enforceable, not only under the rules of the exchange in which the same is made, but in the courts of law. The contract thus becomes an item of personal property which the owner may hold, and at maturity demand and enforce specific performance of its terms, or if he finds some one who wishes to assume his place in the contract, he may, if he so desires, transfer the contract to such person for whatever consideration he is willing to accept, just as he could transfer any other item of personal property. The transferee then stands in the place of the original party to the contract and assumes the latter's rights or obligations, and can hold and demand performance, or negotiate the contract to another party as in the first instance. There is nothing nefarious or spurious about the legitimate contract for future delivery. As an item of property it is as valid as a promissory note and, under different rules, as lawfully transferable. We will ask, therefore, for the sake of following our argument and appreciating our point of view, that you consider the contract for future delivery as a contract, legal and binding and transferable, as it truly is, and not as a knavish invention or a memorandum of a bet, either or both of which, unhappily, a number of earnest but uninformed or misinformed persons assume it to be. If we thus consider the future contract itself and disassociated from the abuses that are ascribed to it, we will be able to form a juster estimate of its value and importance to legitimate business. After this just estimate has been fixed, we can more wisely and with less danger of doing harm, undertake to proceed against the abuses.
CONTRACT IS AN INSURANCE POLICY.
The contract for the future delivery of cotton is an intrinsic part of the modern system of marketing the crop and distributing the manufactured product. It is not an incident or experiment; it is an elemental factor. To the dealer in cotton and to the manufacturer of cotton goods it is an insurance policy, protecting him from loss by reason of fluctuations in price, just as his fire or marine insurance policy protects him from loss by fire or water. His fire or marine policy protects him from the loss of his property; his future contract protects him from the loss of his profits. His fire or marine policy protects his invested capital; his future contract encourages him to invest his capital. His policy insures the assets of his business; his contract insures the assets of his enterprise. Under this protection the cotton trade has grown to its present enormous proportions; upon the surety of this protection has been built the great modern system of forward trading, whereby the market has been broadened, production stimulated, and consumption enlarged. If the future contract should be suddenly eliminated from the American markets, our trade system would be disorganized; both merchant and manufacturer would be cast from their long-used moorings adrift; the American traders, and the American traders alone, would be emasculated and bound, and our entire cotton trade would suffer the same in essence, differing only in extent and degree, what the general business of the country would suffer if suddenly all underwriters in America were prohibited from issuing policies of insurance, and all Americans were prohibited from securing this protection from those whose country permitted them to sell it.
If the future contract should be eliminated from the American markets, these evil effects would fall primarily upon the American trade and would force our traders to go without protection, or else to depend for such protection upon foreign markets, whose interests are the reverse of the producers' interests.
Such an interference with the cotton business would be destructive. When we consider that the cotton crop of the United States represents more than $600,000,000 of created value each year, and from the exports of this crop we receive annually $400,000,000 of foreign wealth in exchange; when we consider the tremendous amount of capital invested in the cotton manufacturing industry both in the North and South, and the hundreds of thousands of employees whose livelihood is dependent upon this industry; when finally we consider the vast army of cotton-land owners, producers, and laborers whose welfare is directly dependent upon the price of cotton and the stability of the market therefor, we must be impressed with our heavy obligation to regulate our courses by wisdom and prudence, lest we lay a reckless hand of hurt upon our people and our country.
We have made the statement that the future contract is a beneficial and even an indispensable factor in the modern cotton and cottongoods trade, and that the elimination of such contract would be followed by serious and far-reaching injury. It is therefore incumbent upon us to apprise you of the reasons why this statement is true. We will not go exhaustively into the details of this relation, but will content ourselves with a brief review of the salient functions and operations of the future contract.
Future trading releases the producer from the disastrous alternative of carrying the surplus of the crop himself, or else of forcing it upon the spinner at the price fixed by the latter, because it makes possible and creates a demand intermediate between the producer and the spinner, and thereby provides a more even and gradual transfer of the crop to the spindle from the field.
Future trading sustains and enlarges the market for cotton and cotton goods, and thereby stimulates both consumption and production, because through such trading the dealer in cotton and the manufacturer of cotton goods may each provide himself with an insurance against loss by reason of the fluctuations of the market, and each is thereby encouraged to extend and press his business by soliciting orders, not only for the present, but to be filled in the future. From these propositions follow the important corollary that future trading increases the price paid to the producer for his
to the consumer thereof. The price to the producer is increased, because the protection afforded by the future contract enables the cotton merchant to bid for cotton a price in which is figured only his profit or commission, and he is relieved of the necessity of bidding a lower price in order that he may be protected against any decline in the market that might occur between the time he bought the cotton and time he was able to dispose of it. The price of the manufactured product is decreased to the consumer thereof because, by reason of the protection afforded by the future contract, the spinner can contract to sell to the cloth merchant who supplies the wearer of the goods, at a price covering only the cost of manufacture and the spinner's profit, without the necessity of adding thereto a sufficient margin of protection against an advance in the price of the raw material before he could provide himself with the same wherewith to fill his contract with the cloth merchant. Future trading used as an adjunct of the cotton business is not speculative; it enables the trader in actual cotton to avoid speculation, and makes his business stable and safe.
PRACTICAL OPERATION ILLUSTRATED. The practical operation of the future contract under the foregoing propositions is illustrated as follows: The spinner solicits orders from the cloth merchant to supply the wants of the latter for a long period ahead. He has neither the goods nor the raw material in hand with which to fill the order solicited. The cotton which he proposes to spin for the order is probably not yet planted. The cloth merchant asks for the price at which the spinner will contract to deliver the goods at the times stated. The spinner consults the quotations of the future market for the several months and finds that he can buy contracts for the desired amount of cotton at certain figures. To these figures he adds the cost of manufacture, the expenses, and his profit, and names the resultant price to the merchant. When the contract between the spinner and the merchant is closed, the former gives his broker an order to buy future contracts for enough cotton to fill his contract with the merchant. When these future contracts are bought the spinner is protected, and it matters not to him or to the cloth merchant to whom he has sold, whether the price of the raw material advances or declines. As he needs the cotton he generally goes into the spot market and buys, for the reason that he can there make his selection and get the exact grade and staple desired. When he has thus made his purchase he orders his broker to sell his future contract, it having performed its mission of insurance. The broker sells the contract to some one who may be either a cotton dealer wanting the same protection that the contract has given the first, or a speculator who believes that the price of cotton will advance. If, on the other hand, future trading was not permitted, the spinner in the instant case would be deterred from contracting with the cloth merchant on the basis of the then price, unless he was willing to take a speculative chance that the price of the raw material would decline or would not advance. But the chances are that he would not con
tract ahead at all unless at a price high enough to cover not only the cost of manufacture, expenses, and his profit, but also a supposable advance in the price of the raw material between the time at which he made his contract and the time at which he would be able to buy the cotton with which to fill the same. Future trading, therefore, broadens the market, increases consumption, and makes the price of manufactured article lower to the consumer.
Or take the case of the cotton merchant who buys from the producer and sells to the spinner. This merchant may solicit orders from the spinner for specific grades and staples for delivery in the future. The cotton which he proposes to deliver to the spinner might not yet be planted; yet, under the protection afforded by the future contract, he could name a price which on the market would cover his commissions and profit. When he closed the contract with the spinner he would protect himself against an advance in the market by buying a future contract. When the spinner was ready to take the cotton, the merchant would go into the market and buy the specific grades and staples, at the then market price, if he had not bought them already. When he had so bought the actual cotton the protective mission of the future contract would have expired, and he would sell it to some one who probably wanted to use it as he had used it. The producer reaps à share of benefit from the protective feature of the future contract in the imperative forward demand thus created for his cotton long in advance, possibly, of the planting of his crop.
Or take the case of the cotton merchant who had no forward contract with the spinner and no present orders for specific grades. He could still supply a market to the producer and pay the maximum price, provided he could protect himself with a future contract. He would consult the future market quotations, and would bid for the cotton a price which on these quotations would allow him his profit or commissions and a margin for expenses. If his bid were accepted, he would at once sell a future contract to cover the amount of his purchase, and hold the cotton in entire security until such time as his spinners came into the market again. Upon the sale of the cotton to the spinner he would buy back his future contract, its protective mission having expired. But if such merchant were prohibited from selling a future contract as a protection against his purchase of spots, he would not buy the spots unless he was willing to take the speculative chance that prices would advance. And he would not take the chance at all, unless he could buy the cotton at a price low enough to assure him not only of his commissions and expenses, but low enough to protect him against a supposable decline in price that might occur between the time at which he bought the cotton and the time at which he could place it with the spinner. Future trading therefore enlarges the demand for cotton, distributes the burden of carrying the surplus, and makes the price higher to the producer.
These are the elemental benefits of future trading conducted on legitimate lines. We have heard no denial, and there can be no denial, that these results follow legitimate trading. The beneficial office of the legitimate contract is not debated, and it is not debatable. The system is in danger because the good of it and the importance of it are overlooked or purposely ignored.
Up to this point we have asked you to consider only the good that is in future trading, and to refrain from passing judgment upon the good and evil in an indiscriminate admixture or average. We ask this because we are sure that by considering the good and the evil separately, we can arrive at a more accurate estimate of the nature and importance of each, and of the relationship between the two, and their dependence upon or independence of each other.
That there are evils in connection with future trading, and that iniquities and wrongs have been committed under the name and in the practice of future trading, we freely admit. We earnestly condemn these evils and wrongs. We are not only willing, but anxious, to join hands with all who are endeavoring to destroy these evils and correct these wrongs. We find no fault with the motives of the legislators of the several States of the South, nor with the motives of the gentlemen who are proposing the legislation here, in so far as these motives move toward the destruction of the evils and wrongs of speculation. But we do find fault with and oppose indiscriminating legislation which, in a laudable effort to destroy the bad neglects to take account of the fact that a great good is likewise threatened; which does not perceive, or refuses to perceive, that the two are easily separable, and that not only is it entirely feasible to destroy the evil without injury to the good, but that it is necessary that the evil shall be destroyed in order that the good may survive.
The evils that have become associated with future trading are three in number—the bucket shop, excessive speculation, and the uncommercial contract. These three abuses have brought the system into disrepute and have provoked the attack that is threatening the life of the system itself. The system is attacked not because the evils are inherent, not because the evils can not be eliminated without destroying the system, but because the aggravating character of the abuses has aroused a feeling of resentment so furious that for the time being discriminating justice has been blinded and silenced.
THE BUCKET SHOP.
A bucket shop is a place where wagers, not contracts, are made. Nothing is ever bought or sold in a bucket shop and no legal or enforceable trades are made there. It is a gambling proposition simple and without qualification. The keeper deals a game against his victims and what they lose he wins. Millions of bales of cotton may be ostensibly bought and sold in a bucket shop, with absolutely no effect upon the market or trade. The sole and only excuse for associating the bucket shop with the future-trading system is because the bucket shop has selected the fluctuations of the future market as the issues upon which it makes its bets. The sole and only responsibility of the future-trading system for the bucket shop lies in the remote suggestion that the former, in legitimate business conduct, makes quotations which the latter steals and manipulates for the purpose of fleecing its victims. No legitimate trader or decent merchant willingly tolerates the bucket shop. Unfortunately, because of a misunderstanding of the nature of the bucket shop and because