Mr. HOPE. Mr. Chairman, I understand that the cooperative organizations are going to be represented here tomorrow, and I would like to suggest that we have a representative from the credit administration present.

The CHAIRMAN. I think that is a good suggestion, and unless there is objection, we will ask one of the representatives of that administration to be here tomorrow. The committee will adjourn until 10 o'clock tomorrow morning.

(Whereupon, at 11:45 a. m., an adjournment was had until 10 a. m., of the following day, Apr. 4, 1934.)

WASHINGTON, D. C., Tuesday, April 17, 1934.

The committee was called to order at 10 a. m., Hon. Marvin Jones (chairman) presiding.

The CHAIRMAN. The committee will come to order, please.

Mr. Mehl, from the Department, is here, and we will be glad to hear him. STATEMENT OF J. M. MEHL, ASSISTANT CHIEF, GRAIN FUTURES ADMINISTRATION, DEPARTMENT OF AGRICULTURE, WASHINGTON, D. C.

Mr. MEHL. Mr. Chairman and gentlemen of the committee, for the record again, my name is J. M. Mehl, Assistant Chief of the Grain Futures Administration, Department of Agriculture. I wish at this time to make it entirely clear that there is no quarrel between the Grain Futures Administration and the exchanges as regards the merits of the futures-trading system. We have never hesitated to defend that system, and we have never hesitated to place ourselves on the side of the exchanges in any controversy affecting their continued existence. We have even defended short selling, as the chairman knows, and have been "panned" pretty hard at times because of that position.

We have been willing to go a great deal further in defending the future strading system than Mr. Siebel Harris was willing to go the other day when he stated that the only justification for futures trading was as an insurance exchange. Mr. Harris is perhaps one of the best-informed men in the business, but I think he does the futures-trading system an injustice when he says that its only excuse for existence is the hedging utility provided thereby.

In the first place, when properly conducted, the futures-trading system furnishes the finest and most delicately balanced machinery for registering price opinion that could possibly be devised. It enables world opinion of price to focus in one place and enables everyone to know exactly what that opinion is. Without the futures-trading system there is reason to believe that the grain business of this country would be under control by a few large terminal elevators who would fix the price of grain to farmers.

Again, the desire to speculate, as Mr. Harris pointed out, is an inherent instinct of the American people that cannot be changed, at least not overnight. But, through the medium of futures trading, we are enabled to have organized speculation, centering in a few large market places and where, if this bill beomes a law, we can have some control over it; eliminate its abuses, and make of it something to be proud of instead of something always to be apologized for.

In appearing before this committee Dr. Duvel has put forward certain facts and figures showing the urgent need for legislation of this kind. He has done so as a friend of these exchanges, behieving that this legislation will help them attain and maintain their proper place in our economic structure and enable them to enjoy a somewhat larger measure of public confidence.

Under these circumstances we were just a little disappointed the other day in the remarks of Mr. Bob Boylan, the intrepaid vice president of the Chicago Board of Trade. We were somethat disappointed that the exchange representatives should be so quick to charge the Grain Futures Administration with bad faith and the Secretary of Agriculture with a betrayal of their interests in bringing to issue at this time the case against Arthur W. Cutten.

As Dr. Duvel will explain to you the Cutten case could not have been started earlier because it was not ready sooner. Mr. Boylan apparently overlooked the fact that the complaint itself grew out of, not what Mr. Cutten was doing back in 1930 and 1931, but out of the fact that the reports which were made to us at that time were false and we had no means of knowing what he was doing in the market in 1930 and 1931. Now, Dr. Duvel will cover that story more completely than I have attempted to cover it. However, the case was not delayed for the purpose of having Mr. Cutten tried in 1934 instead of 1930. Mr. Boylan gives the Government entirely too much credit for foresight when he intimates that it was delayed for that purpose. The case could have been delayed; it could have been delayed until Congress had adjourned. We appreciate this might have been more satisfactory to the exchange interests, but surely we do not on

This

that account need to apologize for doing our plain duty under the law. committee, I think, is entitled to have the information, especially at a time when it is considering legislation dealing with such matters.

As for the publicity given that case, everyone must recognize that the name of Arthur Cutten is news everywhere. We could not have kept it out of the newspapers if we had tried. The Department in this case simply followed the usual course of releasing a statement containing such information only as every newspaperman in Washington would have been demanding, and rightly so, within a few hours after the complaint had been served upon Mr. Cutten. By means of this release the information was given to all, at the same time, both as a matter of convenience and of plain fairness.

Now, I have listened intently to the arguments that have been advanced against this bill. I believe it is quite fair to say that those arguments have been directed, not against the provisions of this particular bill but against the idea of legislation in general. They are founded on the philosophy that legislation of every kind, touching the affairs of the exchanges, must be defeated at all costs. Stripped to the bone these arguments run something like this: "There are too many laws, and some bad laws. Therefore, we ought to stop making laws." According to that argument, Congress should have adjourned in March a year ago. Of course, Mr. Boylan told us there had been no legislation since the 4th of March 1933, but I have been unable to figure out in my own mind whether he was trying to be complimentary or sarcastic.

It has been argued that future trading cannot exist if this bill becomes a law. The same claim was made in 1921 and 1922 when the Futures Trading Act and the Grain Futures Act were being considered. In 1925, 3 years later, we had the largest volume of speculative trading on the Chicago Board of Trade ever known, namely, 28 billion bushels.

Mr. GLOVER. And how much grain was grown, actually grown, in that year? Mr. MEHL. In 1925? I do not know just what the total amount of cash grain handled on the Chicago Board of Trade was that year. It is only fair to say that this was a period of extremely large speculative trading, but that is not my point. I am not attempting to say that 28 billion bushels was too much. I am merely saying that the fears of the exchanges that the Futures Trading Act and the Grain Futures Act would stop future trading proved to be groundless. The CHAIRMAN. Mr. Mehl, the value of the exchange for hedging and insurance purposes is injured rather than helped by the extreme periods of manipulation, whether it is extremely short or long.

Mr. MEHL. I should say that is true when

The CHAIRMAN (continuing). In other words, if it is kept on a more stabilized basis, for normal activities, it will be safer for hedging purposes than if it is manipulated by the big fellows.

Mr. MEHL. I should say that is true, if the large volume of trading is brought about by the operation of large speculators. But, of course, you will have periods when, without manipulation in the market, there will be increased speculative interest on the part of the smaller traders.

The CHAIRMAN. Yes.

Mr. MEHL. And that will come in times when crops are small rather than when they are large.

The CHAIRMAN. I want to call attention in that connection to four articles by Arthur W. Cutten that appeared some months ago in the Saturday Evening Post, in the issue of November 1932, and three successive issues, in the Saturday Evening Post, in which Mr. Cutten undertakes to justify these ultralarge activities, and in these articles he discusses the tremendous fluctuations in the market, without any change in the amount of cash grain available.

Mr. MEHL. Yes.

The CHAIRMAN. And in discussing the various causes he undertakes to justify them as affording an opportunity to the miller and others to hedge their purchases. It seems to me that with proper control of these extreme periods it would be a much better and safer market.

Mr. MEHL. Yes.

The CHAIRMAN. And a safer means of insurance given to the dealer in cash grain, in which the miller could hedge his purchases and have some measure of assurance regarding the price.

He justifies all of these tremendous activities or undertakes to justify them. Mr. MEHL. Yes.

The CHAIRMAN. And the fluctuations, with a tremendous wide range, occurring sometimes two or three times a day, so that the man having an ordinary margin, put up for hedging purposes, could be wiped out, and he would have no insurance.

Mr. MEHL. Yes.

The CHAIRMAN. It seems to me that they would be much better off to have reasonable regulations in having an insurance market, an opportunity to operate

Mr. MEHL (interposing). Well, Mr. Chairman, my purpose was not to show that the 28 billion bushels traded in in 1925 was necessary in order to provide a hedging market. To the extent that the operations of the large speculators contributed to the situation you have described, they are harmful and should be placed under control. We believe this bill will accomplish that purpose. But the point I was trying to make is that the Grain Futures Administration is not at war with the exchanges regarding the futures market. We rather concede that as long as the hedging system is interwoven in the present method of handling grain it is necessary, perhaps, to have some speculation to absorb the hedges. I am simply pointing out that on that question we have never hestitated-we may be wrong, but I am simply telling you the facts-we have never hesitated to put ourselves on the side of the exchanges in saying that so long as hedging is necessary, there must also be permitted some speculative trading. Therefore, it does not seem quite fair on their part to charge us, as they have charged us here, with bad faith and a betrayal of their interest in bringing before this committee certain facts that have come to our attention during the 10 years we have been operating under the Grain Futures Act.

It has been asserted that the futures-trading system cannot endure and cannot function as a hedging facility if trading limiatations are imposed which will prevent any speculator from having more than 2,000,000 bushels of wheat futures at any one time.

As Dr. Duvel has said, there are only about eight persons in the entire United States who at any one time ever have as much as 2,000,000 bushels or more, but when they are in the market they know no limit. And they do not hesitate to take advantage of every technical situation in the market, and we believeMr. CHASE. May I interrupt you with a question?

Mr. MEHL. Yes.

Mr. CHASE. You say Dr. Duvel says that there are only about eight of these men?

Mr. MEHL. Well, Dr. Duvel mentioned 16, but that covers a period of about 10 years.

Mr. CHASE. Sixteen?

Mr. MEHL. Yes; if you take it through the years; the greatest number who ever get about 2,000,000 bushels is about eight. Of course, all of those are not in the market at the same time.

Mr. CHASE. Is it your thought, Mr. Mehl, that the purpose of this legislation is to control the manipulations of those 8 or 16 men?

Mr. MEHL. Yes.

Mr. CHASE. That is the primary purpose?

Mr. MEHL. No; not altogether. Of course, that 2,000,000 bushels is just a suggestive figure. When the Commission under this bill fixes the limitation, it may be 2,000,000 bushels. It may be more, it may be less. That is the figure that I am mentioning because it has been thrown out as a suggested figure.

Now, are we to believe that what has been called the greatest grain market in the world depends for stability, for liquidity, and for life itself, upon the operations, of eight large speculative traders, and that the market cannot function and cannot exist without these large speculators? If that be true we are in a bad way. Some more help from that crowd like we had last summer, and have had in times past, and the machinery of futures trading will be put out of commission for good. The trouble with the market right now is not legislation, or prospects of legislation; it is just a natural reaction from the excesses of last summer.

Mr. MARSHALL. Would you permit an interruption, Mr. Chairman?
Mr. FULMER. Yes, Mr. Marshall.

Mr. MEHL. Certainly.

Mr. MARSHALL. Regarding to that last-summer proposition: I have asked two or three witnesses about that, and from the remark you have just made I am wondering whether your idea differs from the opinion that you have expressed. In fact, some of them did not express any opinion, and I am just wondering if you can express one. It seems to me we should have had an opinion from those who are in a position to know the cause of the large fluctuations from 42 cents a bushel up to $1.28 and then back to 71.

Mr. MEHL. Yes.

Mr. MARSHALL. I take it from your remarks that that was due to the professional trader; is that your opinion?

Mr. MEHL. There were undoubtedly some excessively large accounts in the market at that time.

Mr. MARSHALL. I am just wondering whether it is your opinion that the professional trader caused that.

Mr. MEHL. Well, perhaps it is a little difficult to draw the line between the professional trader and the nonprofessional trader. But I think Dr. Duvel can tell you much more than I can about that. I have directed my testimony more along the lines of a rebuttal to some of the points that were brought out by the opponents of this bill. I do think, however, that Dr. Duvel is prepared to tell you about a line of 17 million bushels in the market iast July, during the time when the reporting requirements of the Grain Futures Administration were suspended and when our Department did not know anything about these large lines.

I would much prefer to have Dr. Duvel discuss that, because, as I say, I am better prepared to discuss other points. However, I do not wish to appear to be dodging or evading your questions.

Mr. MARSHALL. I understand; I am not desirous of embarrassing you.

Mr. MEHL. I understand.

Mr. MARSHALL. I have asked that question of two or three witnesses, and have been interested in that point. I would like to have someone give me the reason back of this fluctuation from 42 cents up to $1.28, and then back to 71.

Mr. MEHL. Yes.

Mr. MARSHALL. Do you think if we had had this legislation that fluctuation would not have taken place?

Mr. MEHL. Well, of course it is hard to say what might have happened under different circumstances, but I believe it is our honest judgment that it would not have happened; that the price would not have gone up, perhaps as high as it did under that tremendous speculative impetus, and therefore, there would not have been such a crash. That is merely our opinion.

The CHAIRMAN. Mr. Fulmer has a question.

Mr. FULMER. You stated a few moments ago, Mr. Mehl, that the course of prices at this time is not governed by legislation or of prospective legislation. Mr. MEHL. Yes.

Mr. FULMER. I notice in the market reports of yesterday, following an announcement made by the administration concerning silver legislation, that the price of wheat fell, in a short time, 5 cents a bushel. You do not think that has any effect on the market? You do not think they took advantage of those reports

to put the market down?

Mr. MEHL. Mr. Fulmer, I think perhaps my statement was misunderstood. I was not referring to prices. I was rather referring to the fear of the exchanges that this bill was going to kill speculation. I said there was no reason for that fear. There is very little speculative trading in Chicago at this time, and I said that was not due to the fear of legislation but was due to the excesses of last summer; just a natural reaction. They have to wait to get another stake.

Answering your question as to what happened in the market yesterday, I am not prepared to state, but it is reasonable to suppose that perhaps a statement of the kind you refer to might have had some effect on the market.

Mr. FULMER. And in another announcement or statement based on a report of the conference on the Bankhead bill, prices went down again. While as a matter of fact, that bill as reported out and passed by the Senate is exactly the bill as it was passed by the House.

Mr. MEHL. Yes. We will all admit that those things occur.

Mr. FULMER. I would like to know if there is anything in this bill that would prevent that type of speculation, on a story of that kind, by which they run the price of wheat up and down 5 or 10 cents.

Mr. MEHL. Mr. Fulmer, frankly, I do not believe that the bill can operate to iron out and straighten out every price curve. We all know that with a commodity so subject to change and subject to varying speculative opinion as wheat, affected as it is by so many different factors, it is too much to expect that from any bill. And we would not want to remove all flexibility in the market, the ability to respond to change in conditions or change of opinion

Mr. FULMER (interposing). Do you think it is a good thing for business if a few speculators can, on some rumor, put grain prices up or down 5 or 10 cents a bushel?

Mr. MEHL. No; I think that is a bad thing. But while we favor this bill, I would not want to say that the passage of this bill would prevent a change in price, such as took place yesterday. I do not know.

114603-35—SER B- S

Mr. DOXEY. May I interrupt to ask if you mean to say, in response to Mr. Fulmer's question, that the suggested legislation would not limit that conditionMr. MEHL. I do not know.

Mr. DoXEY. You do not know?

Mr. MEHL. I would not undertake to say. What we hope to accomplish by this bill is to eliminate the fluctuations and the drastic changes in price that come about through operations of the large speculators, who have no interest in the market and who have no interest in agriculture, but who are in the market for just what they can get out of it.

Mr. DOXEY. Could you legislate to prohibit all forms and kinds of speculation? Mr. MEHL. I doubt very much if you could do so. I have always contended that without a futures trading system, you would still have speculation in the cash commodity.

Mr. DOXEY. In other words, speculation is an instinct in human nature. Mr. MEHL. And wheat, by the very nature of the commodity-universally used as a food-is bound to be a subject of speculation. That condition will exist always.

Mr. MARSHALL. May I ask a question right along that line?
Mr. MEHL. Yes.

Mr. MARSHALL. I notice that the report of yesterday shows corn itself dropped along with wheat. And what surprises me is that it is below the amount the Government is loaning on corn in the West.

Mr. MEHL. This bill is not in any sense a price-fixing measure. We do not think it is intended to eliminate every fluctuation from the market, although we hope it will eliminate those fluctuations that come about by artificial and unnatural means; that is one thing we hope for it.

Mr. MARSHALL. The fact that the price of corn has gone below the amount the Government is loaning on corn would tend, I suppose, to have a depressing effect, because it could be assumed that the Government will have corn on its handswill have to take over some of the corn.

Mr. MEHL. Well, possibly that is true. I could not answer that question.
Mr. BOILEAU. May I ask a question, Mr. Chairman?

The CHAIRMAN. Mr. Boileau.

Mr. BOILEAU. You stated awhile ago, Mr. Mehl, that you did not expect this bill to result in a perfect system?

Mr. MEHL. Yes.

Mr. BOILEAU. Is it your opinion that this bill takes care of all the abuses that now exist?

Mr. MEHL. Well, that is a rather large order. I should say that it takes care of those abuses which during the 10 years of our experience under the Grain Futures Act we have been able to point out as abuses that should be eliminated from the market.

Mr. BOILEAU. What I am trying to get at, and I am only trying to get information, is this: I would like to find whether you people think this is the best bill that can be devised, or whether it is possible to devise a better method for regulating the marketing of grain, or just what is your opinion about it?

Mr. MEHL. In the futures-trading system?

Mr. BOILEAU. Yes; the future trading, with these various proposed changes in the law.

Mr. MEHL. I think it is.

Mr. BOILEAU. What I really want to know is, do you think that the amendment that you have suggested to the proposed bill would do all that you think can be done at this time?

Mr. MEHL. At this time, in the light of present information; yes.

Mr. BOILEAU. That is what I mean.

Mr. MEHL. But it is not a perfect system.

Mr. BOILEAU. It is not a perfect system, but as perfect as you can make it now? Mr. MEHL. Yes.

I thank you.

Mr. BOILEAU. That is what I was trying to find out. Mr. MEHL. Yes. Now, with reference to the 2,000,000-bushel limit which has been mentioned in these hearings as a purely suggestive figure, it should be borne in mind that a commission, consisting of the Secretary of Agriculture, Secretary of Commerce, and Attorney General, will fix these limits according to what appears to be reasonable under all circumstances. It may be more than 2,000,000 bushels or it may be less; but in fixing a definite limitation the Commission is going to act advisedly and with caution, and in this respect the law, this bill, is more flexible than the margin provisions of the Grain Exchange Code.