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Mr. HARDwick. Now, why does he buy it for protection? Mr. MANDELBAUM. Because those 500 bales may not be available in one day. It may take him a week to get them. It may take him ten days or two weeks. In bad weather it may take him four weeks to get them. Mr. HARDwick. I think that is a good suggestion. Mr. GLENNY. Mr. Chairman, I do not like to butt in on this, but I worked for an exporter for five years, and that exporter never came home in the fall of the year that he did not have from twenty to thirty, sometimes forty, and even as high as fifty thousand bales of cotton sold to the English spinner .. or to the German or Russian spinner. He could not do that and take the chance on ten points fluctuation in the cotton market against that cotton. He had, either in New York or in New Orleans, contracts bought upon which, according to this discussion, there was absolutely, no intention to take delivery, but it was done simply to prevent the gambling end of the proposition. That man could not sell that cotton ahead because he could not protect himself. No bank would have anything to do with it, and the result would be, if you will pardon me, that when the cotton crop began to move, the numbers of cotton men who do this business *...i not have provided for this amount of cotton, and it would be all forced on the market at one time, without anybody being in a position to step in and buy the actual spot cotton. The CHAIRMAN. Taking the extreme case which has just been presented, Mr. Hardwick Mr. GLENNY. Those are facts, sir, and they are not only facts, but to a very large extent more than you gentlemen probably realize. The CHAIRMAN. I was not questioning the facts. It only presents an extreme case. Mr. GLENNY. No; it does not. That is the point I want to make. It is not an extreme case. It is a case that happens every year. Mr. MANDELBAUM. I would like to ask one question of Mr. Hardwick; it affects his own town. Mr. HARDwick. I will be very glad to answer it. Mr. MANDELBAUM. Let us take the reverse of the case that I proposed to you before. Say cotton is coming in in your home town to the extent of a hundred or two hundred bales a day. Your buyer has not got the cotton sold. He can not get *ś offer from abroad or from the East to buy that cotton. Yet the cotton is coming in the town. The people want to sell it. He hedges the cotton, not in order to gamble, but because he does not want to gamble. . He sells it on .*. York or the New Orleans exchange, with no intention to deliver it there. Mr. HARDwick. Why should he not deliver it there? Mr. MANDELBAUM. One minute, please. He simply waits until he gets a satisfactory offer from a spinner or from a man in Europe who wants to buy that cotton, and can make probably a quarter of a dollar or half a dollar a bale. How would that affect your home town if the buyer could not buy that cotton at all? Mr. HARDwick. It is a very simple proposition. The exchange ought to be a mart for the jà. o New York man .# to buy it for the people who want to buy it and use it. Mr. MANDELBAUM. I am simply presenting a case that affects your home town.

Mr. HARDWICK. I understand. I understand its interest too, I think.

Mr. MANDELBAUM. I know you do. Otherwise I would not mention it.

Mr. HARDWICK. I think in any case like that it would be simple enough to require the contract to be made that there shall be actual delivery in contemplation, and then let this man look up a purchaser for that cotton. He would do it if you held the exchange down to its legitimate functions.

Mr. LEVER. Especially these men who are great cotton merchants, as they claim to be.

Mr. HARDWICK. Yes. Your exchange would be a great mart, then.

Mr. MANDELBAUM. That is what we claim.

Mr. HARDWICK. But you say you object to requiring actual delivery?

Mr. MANDELBAUM. We do not. We require actual delivery. You suggested the question, really, by the argument you made by mentioning your home buyer.

Mr. HARDWICK. Yes; but I say they ought not to object to actual delivery being required, and the exchange ought not to object.

Mr. MANDELBAUM. The exchange does not object.

Mr. HARDWICK. Many buyers say now they do not, either, to a law which requires them to have in contemplation actual delivery of this cotton and to a contract requiring it.

Mr. MANDELBAUM. Our contract requires it.
Mr. SUMNERS. They can not stand for that.
Mr. HARDWICK. Who can not?

Mr. SUMNERS. The exchanges. They do not want a contract that requires delivery of cotton. You do not want that contract, do you?

Mr. MANDELBAUM. I certainly do. We do not lose anything in the handling of cotton.

Mr. HARDWICK. Mr. Chairman, it is already after 12 o'clock and I will close. I thank the committee very much for giving me an opportunity to present my views on this question.



(The witness was sworn by the chairman.)

The CHAIRMAN. Mr. Sumners, while I do not want in any way to direct the course of your remarks, yet I am sure from your standing as an attorney the committee would particularly appreciate a discussion of the matter from a legal standpoint. Mr. SUMNERS. I will discuss it very briefly, Mr. Chairman.

In my judgment, this bill prohibits hedging. We want to be entirely candid in the discussion of so important a matter as this. I shall read no more of the bill than that part of it which relates to that subject. The bill provides:

That it shall be unlawful for any person or association to send or cause to be sent from one State or Territory of the United States or the District of Columbia to any other State or Territory of the United States or the District of Columbia or to any foreign country, or knowingly to receive or knowingly to cause to be received in any State or Territory of the United States or the District of Columbia from any other State or Territory of the United States or the District of Columbia, or from any foreign country, by a telegraph or telephone line, any message relating to a contract for

future delivery of grain, cotton, or other farm products, without intending that the grain, cotton, or other farm products so contracted for shall be actually delivered or received

That stops hedgingor relating to a contract whereby a party thereto, or any party for whom or in whose behalf such contract is made, acquires the right or privilege to demand in the future the acceptance or the delivery of grain, cotton, or other farm products, without being thereby obligated to deliver or accept such grain, cotton, or other farm products.

I would like to study that a little. It may be that broadens it out somewhat. I doubt it. Now, I do not know whether it was the intention of the drafter of the bill to make that provide for hedging or not.

Mr. BURLESON. There are certain phases of hedging that would not be prevented by this bill. There are certain phases of hedging that would be prevented by it.

Mr. SUMNERS. Yes. Let me read that last clause again, or other farm products so contracted for shall be actually delivered or received, or relating to a contract whereby a party thereto or any party for whom or in whose behalf such contract is made, acquires the right or privilege to demand in the future the acceptance or the delivery of grain, cotton, or other farm products, without being thereby obligated to deliver or to accept said grain, cotton, or other farm products.

Now, gentlemen, with reference to the power to legislate upon a subject of this sort, it is my judgment that Congress does not have a right under the interstate-commerce clause to legislate upon a purely moral proposition as such. At least, I know of no decision by the Supreme Court of the United States which now gives it that power, but in my judgment the time is not far distant when Congress will legislate upon that subject. This thing is true, as was shown in the lottery case which has been referred to by the gentleman who just spoke to you. Congress goes further, and will go further in the regulation of an interstate matter, where there is a question of public morals involved, than it will go where such a matter is not involved.

That seems to me to be very clear from the lottery case. That case was decided by a divided court. There were five judges who decided in favor of the constitutionality of the law and four of them against it.

There is no question in my mind but that this proposed legislation is entirely constitutional. I shall not go into the details of that discussion. I believe that Congress has a right to legislate with regard to any interstate transaction which affects commerce among the States or between them and any foreign nation.

In a prosecution under this bill, in order to sustain a conviction it would be necessary for the prosecuting attorney to show the interstate transaction in the first instance. Then it would also be necessary, in order to sustain this legislation, to convince the judges, or rather to prevent their being convinced to the contrary, that the transactions against which it is leveled themselves affect interstate commerce. I believe that the connection is so close between the matter against which this proposed legislation prohibits and the commerce affected thereby that the courts will hold that their connection is sufficient to authorize Congress to legislate with regard thereto.

There are only one or two features in connection with this general proposition that I desire to discuss.

In the first place, with regard to the hedging proposition. It may be that I am wrong about that, but I want to suggest for your consideration, in the event you redraft the bill, that if you draft a bill authorizing hedging, as that system is now applied, it is going to be practically impossible for a prosecuting attorney to secure a conviction for a violation of the provisions of that bill unless you are extremely careful in its language and its provisions. It is one thing to declare a given act illegal and another thing to write the law so that it can be enforced; I do not think it is wise to draw fine distinctions or to enter the realms of a man's intentions in order to determine the corpus of a given offense.

The members os the exchanges at one time denied that the expressed intention to deliver upon hedging contracts was a fiction. Now they recognize that it is a fiction of the mind where a man says he intends to deliver on such contracts. It is clearly shown by the record of this hearing, and practically by the admission of gentlemen here that when a merchant goes into the market and buys a hundred bales of cotton and sells a hedge against it on New York or New Orleans, he has no intention of making a delivery on the contract, yet their own contract provides that the delivery be made.

For years and years they resisted prosecution on the ground that they actually intended to deliver. In the famous Scales case, that went up from Texas, Scales went on the stand and said that so far as he knew, in every single transaction that was made through his warehouse on the New York exchange, delivery was actually contemplated; and it was impossible for the prosecuting attorney to enter the realm of Scales's mind and show what he really intended. You will find the same difficulty when you come to prosecutions under this bill. If you are not extremely careful, when you come to the proposition of providing for a system of hedging, the prosecuting attorney will be confronted with the man's own sworn statement that in the particular transaction upon which the prosecution is based it was intended to make delivery. In such a case, what is the prosecuting attorney to do? What is the jury to do? They can not go into the realm of the man's mind and prove that he is swearing to that which is not true.

The character of case which would arise under a law such as is proposed here would be almost entirely different from the ordinary criminal case where criminal intention is presumed from acts proven, in that the same act under this bill may be either legal or illegal, depending upon the intention of the actor, which intention is not necessarily disclosed by anything done or omitted by him. It would practically nullify the law to make the proof of the corpus of offenses under it depend upon the Government's ability to reveal the secret workings of the defendant's mind.

Now, I want to discuss with the committee briefly the proposition of hedging.

It seems to be almost conceded in this hearing that the systein of hedging is the one thing connected with this whole proposition that must be preserved. It is conceded, too, that the bucket shop itself is a thing baneful in its influence, and that it ought to be destroyed. Now, I do not mean nor do I for a minute desire to reflect upon the good purposes of the members of the New York exchange, but I make this statement, Mr. Chairman, that institutionally there is but the slightest difference between the New York exchange and a bucket shop, and I am prepared to support that proposition. What is a

bucket shop? A bucket shop is a place where men pretend to buy and sell a commodity without intending to deliver. The man who sells does not intend to deliver and the man who buys does not intend to receive. Those are the fundamentals upon which a bucket shop rests. That is how you determine whether or not an institution is a bucket shop.

I grant you that the gentlemen connected with the New York exchange are personally very high-class men. Those whom I know are men whose personal responsibility is greater, perhaps, than the personal responsibility of men who are connected with the bucket shops. These men have been connected with the New York exchange so long that present conditions have grown up around them, and they do not appreciate the real sort of business in which they are now engaged. My father, who lived down in the South, opened his eyes on the institution of slavery, and he never questioned it. I do not claim to be a better man than my father. Perhaps I am not as good, but I to-day can not appreciate how any man on earth was able to indorse the institution. The day will come when Congress will smile that it ever seriously considered this proposition, and the day will come when persons connected with the New York exchange will realize the character of the business in which they are engaged.

What does the evidence in this case show? It shows that delivery is not made on New York contracts. In isolated cases deliveries are made, but only on such you could hedge in a bucket shop before bucket shops were destroyed. They match the sales in the New York exchange. I do not use the word “match” technically, and they used to match them in the bucket shops. One man will send in an order to buy. I do not care whether they go through one man or two men. The facts are the same within the institution. A man sends an order to the bucket shop to buy a hundred bales of cotton and another sends in an order to the same man to sell a hundred bales of cotton, and those two transactions meet. They say they will not permit that in the New York exchange. What is the difference, in so far as the institution is concerned? You send in an order to Mr. A, a member of the exchange, to buy a hundred bales of cotton. Another man sends in an order to another member to sell a hundred bales of cotton. Those two men meet there within the institution and both orders are executed; the transactions are the same in so far as the public is concerned.

What is the difference? Of course, I know theoretically there is a difference, but in so far as the actual practical effect is concerned, what is the difference? They say that they can demand delivery on the New York contract. I want to show to you, gentlemen of the committee, that delivery is economically impossible, and the day will never come when it will be economically possible for the New York exchange to make deliveries there on its contract. When through bills of lading were established the possibility of New York being a spot market for cotton was destroyed. It takes from 75 to 100 points to take cotton into New York. Its contract provides that delivery must be made in the warehouse of New York.

I do not care what the other provisions of the contract are, there is an economical barrier that prevents the New York exchange ever having a contract upon which it can deliver in New York. Men will not go there to buy cotton. This statement is borne out by the

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