decline, and that the law of supply and demand had not been violated. Short selling began before the decline in prices began and can not, therefore, be considered the cause of the decline. Asserts that in Chicago the price of wheat on the board of trade averages from 2 to 10 cents a bushel higher than the shipping or milling basis of wheat for 10 months in the year. Controverts the statement that the offerings of short sellers are unlimited, and says if that were true there would be no market. Not the short seller who frequently makes the great break in prices, but nearly always the man who is long on wheat and who gets out because his money is exhausted. "It is not the interest of the short seller to depress the prices of property except for the time being." If a man sells wheat and it declines the only way he can get out is to buy back the quantity sold; sometimes his contract is closed out by what is called an offset. He will purchase as cheaply as he can to fulfill his contract; but the short seller necessarily becomes the most earnest buyer on the market.

In the settlement of differences where no delivery is made the result is the same as if actual delivery were made, and is perfectly legal. A buyer can always get the wheat he purchases. In the trading for future delivery, No. 2 wheat is the grade in which dealings are made, and the prices of the other grades are less affected by futures than of this grade. Half the year the Chicago market is above the shipping basis, because of the freight rates east. If it were not for future dealings, the price paid for wheat by the large millers would be less than it is, because they can carry their future contracts cheaper than they can carry wheat. If the millers would only keep not to exceed thirty days' supply of wheat on hand at any one time and could not buy future contracts, the market for actual grain would not be as good as under the present system, because they would not make contracts in Europe for the delivery of flour six months hence as they do now, not knowing what the price of wheat would be when their flour contracts would mature. [At this point the chairman took occasion to criticise severely the statistics of the Agricultural Department prepared by Mr. Dodge, and said that in 1887 those statistics had been so inaccurate in respect of the tobacco crop that the tobacco growers by following them had lost 25 per cent in the value of their crops, and Mr. Dodge afterwards had officially acknowledged the inaccuracy of those statistics.]

[H. MATTULLATH, of St. Paul.]

Selling of "wind" wheat depresses the price, but buying it back does not enhance prices to the same extent, because when such buying is done the farmer has already parted with his crop and to fill the contracts less needs to be bought, many of the contracts having been settled in the meantime. "There is a law and rule of trade that every holder of a product is entitled to the whole buying capacity of the country, the whole buying propensity of the country, and anybody who robs him of the buying propensity and forestalls the market or turns off the buyer before he meets the producer robs him of his natural right." Short sellers violate this law. The legitimate short sales on the boards of trade are beneficial to the farmer, because they allow the commission merchant and the elevator man to pay him the prices that are ruling at the time, less a small commission and small fees for insurance, interest, and storage. Otherwise, he would be dealt with on very wide margins. Criticises the original Butterworth bill as being crude, and injurious to legitimate trade: criticises the license feature of that bill, which was substantially the same as in the Hatch bill, and says it would not raise any revenue and could not be enforced.

Submitted for the consideration of the committee a draft of a bill which he claimed would drive out the seller of "wind" wheat, but would not interfere with legitimate future transactions. That proposed bill was in substance as follows: It was modeled on the lines of the Hatch bill, but provided lighter penalties for violations of it. Its most distinctive features were found in its definition of "options" and "futures," and the distinction made between the ordinary "future" and a "closed future." Its first two sections are set out in full as follows: For the purpose of this act the following definitions shall apply: A future' is an agreement in writing by which one party thereto sells and contracts to deliver to the other party thereto, at a future time or within a certain future period of time, a certain quantity of merchandise of specified quality at a certain place and at a stipulated price, the other party agreeing to receive the same and pay for it, provided the party who issued the future' directly, or as principal through a broker, is, at the time of issuing such fature,' the owner of a like quantity of such merchandise as he agrees to deliver, and against which no previous option,' 'future,' or other contract to deliver has been issued, such fact being embodied in the agreement, together with the description of the place where such merchandise is stored in the United States, and remains so the owner of it until the 'future' is closed; or provided he becomes, in case of sale or consumption of the

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merchandise against which he issued the 'future,' in lieu thereof and before he parts with the possession of it, the owner of another future' or 'certificate of sale' for at least the same amount, same time and place of delivery, and holds the same until the 'future' issued by him is closed.

"A contract to deliver a specified lot of merchandise sold on sample is not a future.

666

Issuing a future' means becoming a party to a contract called 'future, who agrees to sell and deliver.

"A closed future' is a future on which full delivery has been made, or which is canceled, or the time of delivery of which has expired.

"A speculative future' is a contract similar to a future, with this distinction, that the party issuing the same is at the time of issue not the owner of a like amount of such merchandise as he agrees to deliver, against which no option, future, or other contract to deliver has been issued.

"An oral agreement of the nature of a future, on which margins are put up or deliveries made or expected to be made, or differences paid or expected to be paid, is a speculative future.'

"A contract of the nature of a future issued by a broker on order of and for another party is a speculative future,' unless issued on an order in writing of the principal, setting forth that he is the owner of a like quantity of merchandise as that involved in the future, against which no option, future, or other contract to deliver has been issued, giving also the description of the place where such merchandise is stored in the United States, or unless issued on an order by telegram requesting the issue of a future against merchandise stored in a place sufficiently described in such telegram.

"A future becomes a speculative future' if at any time before it is closed the party issuing the same is not the owner of a like amount of such merchandise as he agrees to deliver, against which no previous option, future, or contract to deliver has been issued, nor the holder of another open future, against which no certificate of sale has been issued, nor the holder of a broker's certificate of sale' for at least the same amount of merchandise, same time and place of delivery as that of the 'future.'

"A certificate of sale' is a certificate issued by a licensed broker, certifying that the recipient of the same has bought of said broker a certain quantity of merchandise for future delivery within a certain period of time, at a certain place and at a stipulated price, and that the said certificate is issued against a certain future then held by said broker, and involving a stated amount of merchandise as large as, or larger than, that sold by the certificate of sale and delivered at the same place and time as that stipulated in the certificate of sale, and further setting forth that the aggregate amounts of merchandise involved in certificates of sale outstanding against such future' do not exceed the amount involved in such future.

"A broker is a person dealing in futures, speculative futures, or certificates of sale in his own behalf or as agent or employee of others.

"A dealer in futures is a person issuing futures and speculative futures (but no certificates of sale) in his own behalf only."

[HERBERT MYRICK, of Springfield, Mass.]

Opposes futures, and instanced the recent dealings in hops on the New York Hop Exchange, which, he said, were injurious to the hop trade, because brokers on the exchange were enabled to fix prices to suit themselves, regardless of the amount of the crop or the demand for the product. The seller for future delivery is interested in low prices and exerts himself to the utmost to depress them. It is easier to put the market down than to put it up. Futures create a fictitious supply of any commodity dealt in, and thus depress prices.

[JOHN W. LABOUISSE, representing the New Orleans Cotton Exchange.]

New York is not a spot market, but the leading future market, for cotton in the United States. Replying to the statements that had been made before the committee that the enormous sales of futures depressed prices, he cited statistics to show that at the time of the greatest future dealings prices were considerably enhanced, and said the law of supply and demand regulated prices entirely, in the long run. The New Orleans Cotton Exchange, which was inaugurated in 1871, commenced dealing in futures in 1880, because it was found necessary to fall into line with everybody else. The exchange is composed of over 300 members, divided into classes, as follows:

1. Commission merchants, who advance money to planters to grow cotton. 2. Exporters, chiefly foreigners, who spend the fall and winter in buying cotton for foreign consumption.

3. Spot brokers, who are experts in classifying the product, and who represent the planter in his dealings with the exporter.

4. Brokers who contract to move the cotton for people on the exchange.

5. Brokers who make contracts for future delivery, and pass their contracts on the market.

Options," which are nothing more than "puts" and "calls," are not recognized on the exchange, as they are merely bets or wagers on the price of the product at a future date.

Futures" are known on the exchange as “contracts for forward delivery," and do not partake of the nature of a wager; neither do they contain any provision for the settlement of differences between the contracting parties. Submitted a form of the contracts on the exchange, as follows:

Bought for

of

CONTRACT A.

OFFICE OF
New Orleans,

189-. 50,000 pounds, in about 100 square bales cotton, growth of the United States, deliverable from press or presses in the port of New Orleans, between the first and last days of next, inclusive. The delivery within such time to be at seller's option, in lots of not less than 50 bales, upon 5 days' notice to buyers. The cotton to be of any grade from good ordinary to fair, inclusive, and, if stained, not below low middling, at price of

cents (-) per pound for middling, with additions or deductions for other grades, according to the quotations of the New Orleans Cotton Exchange existing on the sixth day previous to the day on which the delivery is due.

Either party to have the right to call for a margin as the variations of the market for like deliveries may warrant, and which margin shall be kept good. This contract is made in view of, and in all respects subject to, the rules and conditions established by the New Orleans Cotton Exchange.

Respectfully,

Per

In regard to delivery under the contract, the seller has the option to deliver at any time between the first and last of the month by giving the buyer five days' notice of his intention to deliver. In regard to margins, if the market advances the seller is required to deposit the amount of the advance in a designated bank, but if the market goes down the buyer must make such deposit, to make good the contract. The contracts are kept margined up to the contract price to insure the faithful execution of the contract at its maturity. A man who fails to carry out his contracts in the exchange is expelled. Answering the question. "How could 21,000,000 bales of cotton, which was the amount of futures in New York and New Orleans in a given time, be delivered on the exchanges," he replied that the men who sold the contracts often repurchased them from the parties to whom they had sold, and if they could not buy their contracts back they would be "squeezed." Under the system of futures the market is more stable, referring to statistics to prove the statement. Present low price of cotton attributable to overproduction, and the fact of failure of grain crops abroad, by reason whereof the consumers of cotton abroad could not afford to buy clothing, but had to spend their money for food. If the exchanges in New York and New Orleans were closed the future business would be carried on in Liverpool, Havre, and Bremen. The price is fixed by supply and demand. The exchanges register the price. The trouble with the people of the South in respect of cotton is that they buy, instead of hedging on the crop, and then they blame the market; illustrated this statement by reference to a certain planter who, at one time, could have hedged against his crop and received 10.30 cents per pound for it, but afterwards sold at 8 cents. The abolition of futures would bring the whole export trade of the cotton crop to a "dead halt." because at least 90 per cent of the cotton which is sold to spinners is sold before it is bought. Exporters keep in touch with the foreign markets every night by cabling Liverpool, Bremen, and Havre. They do not own the cotton, but buy as they need it to fill their contracts abroad, and thus the cotton crop of the United States is moved. Without futures the crop would at times glut the market, forcing prices down; at other times there would be a great scarcity, perhaps, with the cotton bought cheap in the hands of big owners, thereby forcing prices up, thus making the market very irregular. The spot market governs the future market, and is in turn governed by the law of supply and demand. The price of cotton has not gone down relatively as much as that of many other products. Submitted a diagram prepared by the British Royal Commission showing a general decline in

the prices of all farm products since 1874, which that commission attributed to the demonetization of silver by the States of the Latin Union and the United States about that time. Referring to statements theretofore made that such a man as Pardridge was bigger than the wheat market, and could swing the market either up or down at his pleasure, he said he was astounded at his moderation in that he did not at once make himself a twenty times millionaire. The whole cottontrade world, spinners, manufacturers, and all, would be glad to see cotton advance. The annual consumption of cotton in the world is about 12,000,000 bales. The average surplus carried over from one year to another is from 1,000,000 to 1,500,000 bales.

While about 3 per cent of the corn crop, and 25 to 30 per cent of the wheat crop, are exported, at least 70 per cent of the cotton crop is exported, and without futures, prices would be fixed entirely by the markets of Europe, and would be lower than at present.

[JOHN G. HAZARD, of the New Orleans Cotton Exchange.] Advanced the same views as the preceding witness, but added nothing to his argument.

[HENRY T. KNEELAND, of the New York Produce Exchange.]

Presented a memorial of the exchange which opposed the contemplated legislation, excepting those features of the bill relating to options, and set forth with much detail various benefits conferred by the system of dealing in futures" upon all persons and classes engaged in any way in raising or handling the products dealt in on the exchanges. These asserted benefits may all be summarized in the statement that futures" widen and broaden the market for actual products, reduce the risks of handling them, thus increasing the price paid to the producer, facilitate the movement of our leading staples, and prevent monopolies and trusts from getting control of the products of the farm.

He opposed the bill as class legislation; showed how it was possible on the exchange to have a claim of legitimate transactions growing out of one lot of produce so that the sum of all those transactions reported might show dealings many times over in that one lot of produce, and compared such dealings to the transactions of the banks as settled in the clearing house; and explained that "the settlement of differences between contracts" on the exchange was a method of settlement of produce contracts on the principle of the clearing house of the banks, devised by the exchange to do away with the risks of a failure of any one of the parties to a produce contract to meet his obligations promptly, and to also do away with the risks of large checks, which sometimes had failed to be met when presented. He said "puts" and "calls" were gambling transactions, but did not believe legislation could entirely eliminate them from the business without doing great injury to legitimate trade and commerce. The "bucket shops" ought to be suppressed.

[CHARLES W. IDE, president of the New York Cotton Exchange.]

The law of supply and demand regulates prices, but they may be slightly affected temporarily by speculation. Futures bolster up prices. The foreign consumers are anxious for the bill to pass, as they believe the result will be to lower prices.

[JAMES O. BLOSS, vice-president of the New York Cotton Exchange.]

Presented protests against the proposed legislation from the New York banks and the New York Cotton Exchange. The substance of the first of these protests was that, as bankers, they considered it less risky to advance money on the products dealt in on the exchanges since the inauguration of futures than it was before. The substance of the protest of the Cotton Exchange was an argument in favor of future dealings covering practically the same ground as that of Mr. Labouisse before the committee, heretofore abstracted.

If short selling invariably has the effect of reducing prices, why is it that, during the last twenty years when such dealings have been in force, prices of the articles traded in have not reached zero? Greater fluctuations in the market and lower prices at times prior to the system of futures. For every sale there is a purchase. "Margin" is simply a pledge that the party to it will fulfill the engagement he has entered into, and is in the nature of earnest money deposited by a buyer to bind a real estate transaction. The advantage of future dealings to the producer is, that the surplus of all products must be taken care of by the capital of the world pending the time when that surplus is needed, and this system prevents that degree of depression that otherwise would take place in the articles

produced, because human nature is always hopeful, and, the world over, is inclined to be "bullish." The result is that, after an article has made a moderate decline, many people come into the market who believe it will advance, and they constitute a buying power which lifts the weight of the surplus off of the immediate market. New York carries an immense amount of the cotton surplus from year to year, keeping it out of the immediate market, thus maintaining prices. This system was the outgrowth of an evolution of trade, and was made necessary in order to keep pace with the rapid advances in other lines of business. Speculation doubtless exerts a passing influence upon values, but it is just as likely to be for an advance as for a decline. The proposition that future contracts might be made only to the extent of the crop traded in is absurd, because under such an arrangement every producer would have to find an actual consumer. The world is too large for such primitive notions of commerce. Hard to tell just what are legitimate and what illegitimate transactions; they are so interwoven that one can not be destroyed without destroying the uses of the other. The prices for futures are based on the present cash price plus the expenses that would accrue-storage, interest, insur ance, loss of weight, etc. Futures have preserved the equilibrium of prices. Expenses of future system do not come out of the crop or the business, but out of the speculator.

[MELVIN J. FORBES, representing the Duluth Board of Trade.]

Opposes the bill and indorses the views of Mr. Kneeland (supra). Futures are necessary to the grain trade at Duluth, because the receipts there in the fall are greatly in excess of the demand from consumers, and the only way to take care of those receipts and keep up prices is to sell futures against them. Deliveries in Eastern markets must be made during the period of water navigation, when freights are cheap, although the wheat may not be needed until in the winter, and those purchasers can then protect themselves against a decline in price by selling futures against their purchases. The decline in the price of wheat is not due to futures, but has come about largely from the increased production all over the world, especially in the Northwest. Speculation tends to advance prices. The contract grade of wheat at Duluth is "No. 1 Northern;" all other grades are sold on the basis of this grade. It is next to "No. 1 hard," which is the best wheat in the world and is used by the mills. The man who owns the wheat, who has to take delivery of it at the time it can be used, is the only man who is entitled of right to sell futures against it; but the bill will not permit him to do so. Opposes "puts" and "calls" as gambling transactions and injurious to the wheat trade. Cost of futures does not come out of the farmer.

[WILLIAM P. HOWARD, of St. Louis.]

Made a bitter attack on "futures," which he denominated as gambling of the most pernicious kind; said they were demoralizing to trade and were ruining the country generally; and alleged that they depressed prices of all products. [His statement was almost wholly assertion, and an analysis of it would serve no useful purpose.]

[JAMES O. BLOSS, vice-president of the New York Cotton Exchange.]

Stated that the Texas Wool Growers' Association had written several letters to the New York Cotton Exchange requesting it to adopt rules and regulations for future dealings in wool, believing it would benefit the trade in that article. Thinks a method might be adopted to handle wool the same as cotton, as there are no more grades of it than of cotton.

The chairman combats that idea, and says all wool is sold by sample, and can not be sold otherwise.

[CHARLES D. HAMILL, president of the Chicago Board of Trade.]

Presented a protest from his organization against the contemplated legislation, which explained the growth of the future system and claimed for it a large share in the wonderful commercial development and growth of the South and West, and maintained that speculation in Chicago enhanced prices there and made it the best market for the producer. Chicago is the clearing house of the world in grain and provisions, and the markets there are, a large part of the year, above the shipping point; that is, relatively higher than foreign markets. This would not be so if futures depressed prices, because more futures in grain and provisions are sold in Chicago than anywhere else. Futures not in the interest of millers, because