[New York Journal of Commerce, October 5, 1914] A special London cable to the New York Journal of Commerce this morning says: "The disorganized cotton position is gradually producing a grave position in the Lancashire cotton industry. Hence demands are becoming insistent that there should be a full, unrestricted resumption of business on the Liverpool Cotton Exchange. There is slight evidence thus far that spinners are buying direct from America. The situation apparently is that spinners are loaded up with Liverpool contracts at high prices. They have hedged against these contracts in New York and New Orleans. On paper these hedges protect them fully against their severe losses on their home contracts. But owing to the closing down of business in America and the great financial risks incidental to covering American commitments under existing conditions, cotton manufacturers and traders are not likely to actively cover their commitments on your side until they have some relief from their losses on Liverpool contracts." (Reprinted from Pearsalls News Bureau, October 5, 1914.) [Boston Transcript, October 6, 1914] MEMPHIS, October 6. The absence of a contract market for hedge purposes is having a somewhat serious effect on the situation. Many cotton men hold the opinion that conditions will grow worse so long as the exchanges are closed. Bankers do not care to make full loans on cotton when the holder has no means of protecting such cotton by sales of contracts as hedges. One banker says that his institution would not loan a single dollar on cotton until the exchanges resumed and hedging was restored. Buyers are not allowed advances in the way of overdrafts unless they can show that the cotton for which they wish to pay has been sold. The banks want to be sure of immediate reimbursement if they are to put out their money for purchases of cotton. Cotton can not be sold to the mills for later delivery without hedging facilities. No buyer here is able to secure actual cotton and carry it until December or January, even if he were willing to do so, because of financial conditions and because of the extreme risk involved. If the contract markets were open, however, many buyers would not hesitate to make sales for December or January shipment. Probably the people of the South never so fully realized the advantages of exchanges as at present. Certainly never before were they so anxious for the exchanges to be in operation. [Governor O'Neal's address, Alabama State Exposition] In his opening address at the grounds of the Alabama State Exposition at Montgomery Monday afternoon Governor O'Neal, of Alabama, declared, "The greed and avarice of the spinners of New England is directly responsible for the present condition in the cotton-growing States." He charged that the closing of their spindles at this time was merely for the purpose of creating panic prices for cotton in order that they might step into the market at the psychological moment and buy up their supply for this and next year at panic prices. Governor O'Neal also said: "There is another thing that must be overcome in the minds of the general public. The people believe that cotton exchanges are merely gambling devices and gambling machines. That is not true. Cotton exchanges are absolutely necessary for the salvation of the cotton crops from year to year, and they and their existence are the salvation of the cotton planter. The teaching that cotton exchanges are gambling devices is wrong; we must recognize the vast importance they are to the cotton grower and encourage their reopening throughout the country." (Reproduced from Pearsall's News Bureau, October 15, 1914.) [Textile Manufacturers' Journal, October 24, 1914] The opening of the cotton exchange, it is believed, will exert a bullish influence on raw cotton, as there is bound to be a large amount of buying of hedges and for speculation. A futures market will afford mills a basis for contract work and will give advance orders a safer standing. [New Orleans Times-Picayune, November 14, 1914] With the cotton exchanges reopened for future trading the speculative public will be able to deal in the commodity and the producer will no longer be at the spinner's mercy. That the crop of 1914 is a very large one the largest, perhaps, ever known-is a matter of common knowledge. It follows that several million bales must be carried until a short crop or greatly improved trade creates an imperative demand for the present surplus. That either one condition, or both, will arise sooner or later is absolutely certain unless all human experience is delusory. Even if 5,000,000 bales should have to be impounded in this way, the task would not prove difficult with the vast speculative public to help. With cotton readily salable, bankers will not hesitate to lend and the problem which was recently so acute will solve itself. It remains for the farmer to do his part. Speculation might carry the entire crop at a price, but at only a price low enough to bankrupt every son of the soil. The reopening of the exchanges does not necessarily mean that the price will rise, but only that there will henceforth be two possible buyers for each bale. The lesson has been frightfully expensive, to be sure, but lasting wisdom is not acquired "on the cheap." [Shreveport (La.) Times, November 14, 1914] One thing is certain, the futures markets will open with the people of this country in general holding a better opinion of their value and their economic worth more than has ever been entertained before. To put it in the mildest terms possible, the carrying on of the cotton trade during the last three months and a half without the aid of the large cotton exchanges and their future rings, and what used to be called paper cotton, has not been a satisfactory experience at all to everyone concerned. The attitude of the farmers has undergone such a complete change that at one of the most important of their gatherings they passed resolutions calling upon the exchanges to reopen as soon as possible. In Congress there now appears to be almost a unanimous desire to build up the futures trade rather than destroy it, and to attempt to destroy the cotton futures markets used to be the favorite performance of statesmen and near statesmen when they thought it necessary to play to the galleries. President Wilson even went so far a short time ago as to express his wish that the cotton exchanges should reopen as soon as possible. Futures trading is apparently entering upon a new phase of its existence. Mr. RANSDELL. Here is just a brief quotation from the great cotton-producing State of Texas, from Cotton and Oil News, Dallas, Tex., September 17, 1914: [Cotton and Cotton Oil News, Dallas, September 7, 1914] The closing of the futures market has certainly eliminated the speculator or "gambler," as some are pleased to term the trader in cotton futures. Some Congressmen and some agitators among southern cotton growers have long demanded that the speculator be eliminated. Well he has been eliminated, boots, breeches, and all. The exchanges have been closed, another demand of said agitators. According to the claims and promises of these great reformers the southern cotton grower should now be reaping his profits. The mills would be buying direct from the farmers and paying the latter the big margins that erstwhile went to the exchanges and the gamblers, so called. But what do we see? Even a blind man can see that the closing of the exchanges and the elimination of speculators have closed the cotton markets and have put the cotton grower entirely at the mercy of a few spot buyers for the mills. The cotton grower is forced to accept any price offered him. The cotton mills are also handicapped since they can not go into the open market and buy cotton for future delivery by putting up a margin of about $5 per bale in cash, one-tenth of the value of cotton. Now that he is required to pay cash this buying power is paralyzed and he only purchases one-tenth the quantity of cotton he was able to buy when the exchanges were open and future trading possible. Under these conditions there is no wonder that cotton has declined and keeps declining. Our reformer friends among the farmers have simply been forced to take the physic they have been so long prescribing and it certainly should make them sick of silly and quack nostrums. Mr. SIMMONS. Mr. PresidentThe PRESIDING OFFICER. Does the Senator from Louisiana yield to the Senator from North Carolina? Mr. RANSDELL. I yield. Mr. SIMMONS. I understood the Senator to say that at a certain time the exchanges were out of commission temporarily. Mr. RANSDELL. On account of the war. Yes; it did. 6 cents a pound. Mr. RANSDELL. Mr. SIMMONS. Was there anything in the amount of cotton produced in that year or in the amount of cotton goods consumed that year or in the international relations of this country that would have accounted for that tremendous drop? Mr. RANSDELL. Not altogether. There was a large crop produced that year. As I recall, it was around 14,000,000 bales. The Senator will remember that there was such a dearth of shipping that we could not send our cotton across the sea. A great many of our men, ordinarily engaged in industry, were put into the service or at least we put them in the service in 1917. But I am talking about 1914. We all were on the qui vive. We feared the war would break out, and there were untoward conditions, but the stopping of the cotton exchanges completely closed all speculation in cotton. That is the point I am trying to reach. Mr. HEFLIN. Mr. President, if the Senator will permit me Mr. RANSDELL. Pardon me just a moment and then I shall be glad to yield. They completely stopped everything except the actual demand for the spot cotton. In spite of the war there were many people in this country with large sums of at a given time. money who felt that cotton was too low at 6 or 7 or even 8 | tution that one's cotton or corn or wheat will be worth so much cents a pound who would have gone into the exchanges and bought cotton, if they could have done so, and who did go in as soon as the exchanges opened, and cotton began to come up immediately. I now yield to the Senator from Alabama. Mr. HEFLIN. The Senator will recall that the exchanges were not closed until cotton had reached about 6 cents. The war broke the price, which was 14 cents a pound, and it went down to the bottom like an iron wedge dropped in a well. When it was down there, the exchanges were dubious themselves about whether they could handle the situation. They were not very much opposed to the matter of withdrawing. The exchanges were not opposing very seriously the closing, which was because of World War conditions being so dreadful, and they were very uncertain as to what the future would bring forth. My recollection is that they were not closed until cotton had dropped, while they were still running, from 14 cents to 6 cents, or $40 a bale. Mr. RANSDELL. I think the Senator is mistaken. The last quotations on the New Orleans Cotton Exchange, July 31, 1914, were as follows: January, 10.65; March, 10.75; May, 10.80; October 10.57; and December, 10.60. The quotations on the New York Cotton Exchange for the same date were as follows: October, 10.50; December, 10.75; January, 10.70; March, 10.79, and May, 11.10. I have already placed in the RECORD quotations from several papers in which I think the Senator will be interested. As I said before the Senator from North Carolina [Mr. SIMMONS] returned to the Chamber, there has been agitation for 50 years to destroy these exchanges. I stated that my great predecessor in this Chamber, the late Edward Douglas White, made a wonderfully practical address in 1892, fighting the same kind of legislation as that before us now. I stated there had been argument after argument, debate after debate, effort after effort to destroy the exchanges. I read from the report of the Committee on Agriculture and Forestry of the House of Representatives, which was headed by Mr. Lever, of South Carolina, in collaboration with the Senator from South Carolina [Mr. SMITH], when Mr. Wilson was President, in support of the Smith-Lever Cotton Futures Act, which I designated as a great piece of legislation. It was intended to cure certain bad practices in the exchanges. No friend of the exchanges has ever said they were perfect. No friend of the exchanges says they are perfect now. The Senator from South Carolina [Mr. SMITH], in a most intelligent and comprehensive manner, has been conducting hearings to ascertain whether there are any troubles at the present time in the exchanges that can be cured by legislation. have on my desk two bills which have been introduced, one by myself to prevent manipulation in cotton contracts and one by the Senator from South Carolina [Mr. SMITH] to prevent manipulation in cotton contracts. The Congressman from Georgia [Mr. VINSON] has a most comprehensive measure pending in the House to prevent manipulation in cotton contracts. All of those pieces of legislation are intended to correct what is recognized as an existing evil. But, Senators, the authors of none of these bills seek to destroy that great commercial agency which has been in existence in the country for nearly 60 years and which the ablest economists of the land have recognized as very beneficial to the cotton industry. If anyone can point out a better agency, then in heaven's name let him do so, and I for one will say "Thank you," and will push the exchange aside, if I can, by legislation, but not until something better is presented. In the meantime let us try by proper legislation to overcome what may seem to be bad. Mr. SIMMONS. Mr. President Mr. RANSDELL. I yield to the Senator from North Carolina. Mr. SIMMONS. I infer from the Senator's remarks that he interpreted my interrogation of a few moments ago as having been made in a spirit of hostility. Mr. RANSDELL. Not at all. I thought the Senator too wise a man to favor such legislation as this is supposed to be. His record is too well established in the Senate for me to suppose any such thing as that. Mr. SIMMONS. I must confess that I am not familiar with the technique of the subject. I think the Senator from Louisiana is. I think the Senator from South Carolina [Mr. SMITH] is. I am very glad for Senators to have the benefit of the discussion of this question by both of the able and learned Senators to whom I have referred. I agree with the Senator that legitimate hedging, and that is the only kind of hedging I know anything about, is not speculation. The object of hedging, as I understand it, is to secure a guaranty by a perfectly reliable and solvent person or insti Mr. RANSDELL. The Senator is right. Mr. RANSDELL. That is correct, to insure it just like one would insure his house against fire. Mr. SIMMONS. It is an insurance and a guaranty, and nothing else. Mr. RANSDELL. That is all. Mr. SIMMONS. It is not speculation, if that is correct. Mr. RANSDELL. That is my idea. Of course, some people may speculate. Some may go into the exchange who are not actually hedging, but are merely speculating. Mr. SIMMONS. A policy of insurance against fire is pure speculation on the subject of whether there will be a fire. Mr. RANSDELL. Absolutely. Mr. SIMMONS. I do not know of any cotton dealer who does not, when he buys a large lot of cotton, feel that safety and prudence require that he shall hedge against loss. I think nearly all the spinners of the country do the same thing, and I do not think they do it in a spirit of speculation at all. They do it because they want to stabilize the price of their own product, and in that way they can stabilize it by being guaranteed against a certain fluctuation in the price of the raw material out of which they produce it. Mr. RANSDELL. The Senator is entirely right; they can not stabilize it in any other way. Mr. SIMMONS. I agree with the Senator thus far, and I say that the number of bales of cotton that are actually produced in excess of the demand of the cotton mills does not measure the extent of the legitimate transactions in cotton. We have got to take in these other transactions that do not contemplate actual delivery, but contemplate a guaranty of a certain price. When those are taken in, I think we shall have taken in a large part-I do not know how much; I have never estimated it; the Senator from Louisiana probably has the proportion; but I think it will be a considerable part, to say the least-of the transactions that take place on the exchanges. That is the only place where we can go to get this guaranty. Mr. RANSDELL. That is correct. Mr. SIMMONS. Eliminate that and we should have no place to go to get it, and no person and no institution or corporation to which we might go. Mr. RANSDELL. Certainly; it is the only cotton insurance association that we have. We can not go to a fire insurance company, for they will not give the guaranty to us; we can not go to a life insurance company, for they will not do so. The cotton exchanges are the price insurance associations, just as Lloyd's in England is the great marine insurance association; they are of the same character. Mr. SIMMONS. Mr. President, I was very much interested in the statement of the Senator from Louisiana a little while ago about the tremendous drop in the price of cotton that occurred while the operations of the cotton exchanges were suspended. I asked the Senator the question I did because if there was no circumstance connected with the production of cotton in that year, or in the general domestic and foreign uses of cotton, the figures the Senator gave were very convincing. I asked him the question for the purpose of ascertaining those facts. Now, what I am interested in hearing the Senator upon is this: If we shall destroy the cotton exchange, for the same reason we should destroy the wheat exchange; for the same reason we should destroy any speculative organization in stock and bonds; for the same reason we should destroy or discourage, whichever the case may be, by placing upon it a handicap or a burden dealing in livestock on the stock exchanges of the country, especially in Chicago. If all of those exchanges as a result of that burden that we place upon them or propose to place upon them, are destroyed-I do not say they will be, but if they are destroyed-what will be the effect upon the standardization, if I may use that term, of prices? People produced in the hope of securing a certain price; that is certainly true of certain lines, for instance, in the manufacturing industry, and it ought to be true in the growing of cotton, but circumstances are such that it can not be altogether so. However, if we destroy these exchanges, will we or will we not bring about a state of chaos as to prices in this country? When we want to know the price of hogs, we go to Chicago to find the price. When we want to know the price of cotton, we go to the quotations of the New York market. Mr. CARAWAY. Mr. President, will the Senator permit me just a moment? Mr. RANSDELL. I decline to yield. I will yield to the Senators one at a time. Mr. CARAWAY. I merely want to ask the Senator a question. Mr. RANSDELL. I decline to yield to any other question until the pending one is disposed of. Mr. SIMMONS. If these institutions from which we get our quotations of prices shall be destroyed, then what will be the condition with respect to prices generally in this country? Will they not depend almost entirely upon local conditions? Will the price be reflected by world conditions to any particular extent? Mr. RANSDELL. Is that the Senator's question? Mr. SIMMONS. That is my question. What I fear is it might bring about a general collapse of stable prices in the products of this country. I am not expressing an opinion definitely one way or the other, but I want to hear the Senator, who, I think, has given a great deal of study to this question. Mr. RANSDELL. I thank the Senator for his courteous question, and I will endeavor to answer it as well as I can. Mr. SIMMONS. The Senator from Arkansas [Mr. CARAWAY] tells me privately that there is no future market with reference to hogs and livestock. Mr. RANSDELL. He is right; but there is a future market with reference to the products of hogs, lard, and so forth. Mr. SIMMONS. Possibly the Senator from Arkansas is right about that technically. with the Bremen exchange, with the Havre exchange, and I Suppose we did not have these exchanges. How could the Mr. RANSDELL. There is no future market in hogs them- here in North Carolina, and I believe cotton is going to go selves on the foot, but there is in the products of hogs. Mr. SIMMONS. But it is a fact that the livestock market in Chicago fixes the price upon livestock, whether hogs or cattle. Mr. RANSDELL. product. Not on the foot but in the finished Mr. SIMMONS. I thought it was also on the animal itself. Mr. RANSDELL. I do not so understand, but of course the price of the animal is gauged by the price of the finished product. Mr. SIMMONS. Probably it is; they fix it by the price of the finished product, and the price which they fix is the price at which that product is now being sold throughout this country. Mr. RANSDELL. That is right. Mr. SIMMONS. To illustrate: I know something about the hog business; at one time we started, in certain sections of my State at least, a great movement to raise hogs, but when we had raised them we had no market for them; we found we could not sell them; the local demand would not take the product. Certain local concerns, one located in Richmond, advertised that they would pay for any number of hogs that might be brought to them the Chicago price. That meant the price fixed on the Chicago stock market, I presume. Mr. RANSDELL. The price as reflected on that exchange. Mr. SIMMONS. That price, as I have reason to believe, was very much in excess of the local price at which the hogs were selling in my community and in my section of the State. Mr. RANSDELL. Of course, it would be necessary to add transportation charges. Mr. SIMMONS. Of course, transportation charges would be added. The result was that, although the movement for the raising of hogs had been halted by the fact that there was no local demand, when the producers found a market in which they could sell their hogs for a fixed price, the industry was revived and became a very extensive one and is to-day a very extensive one in that section of the country. The hogs are brought to a certain distributing point; they are there placed on cars and sent to Richmond, Va., and sold at a staple price. That has been a very great encouragement to the production of livestock in my State. Mr. RANSDELL. And the Richmond people gave a price based upon the Chicago market. Mr. SIMMONS. Exactly. Mr. RANSDELL. Now, I will try to answer the Senator's question applying it to cotton. In the first place, the cotton exchanges do not make the prices but merely reflect them; the transactions between the buyers and sellers of the world are reflected on the exchange; a record is kept of them, and every morning in the State of the Senator from North Carolina those who buy cotton and who deal in cotton, be they mills or cotton merchants, receive quotations from the New York market, the Chicago market-I am speaking about the Chicago cotton market now and the New Orleans market. Those markets in turn get quotations from every place in the United States and abroad where cotton is bought and sold. Those cotton exchanges are clearing houses for the whole world, and they reflect the prices at which cotton is dealt in. They are in close touch with European countries which consume our product. They are in close touch with the great Liverpool exchange, Mr. RANSDELL. It actually was during the time when we Mr. SIMMONS. I meant to ask this question: The Senator Mr. RANSDELL. Substantially-leaving out of consideration transportation charges, of course. Mr. SIMMONS. Yes; omitting those from the question altogether, as a matter of course. Now, if the institution which has brought about this condition is destroyed, or is so handicapped by taxation that it can not function, would it not follow that the price of cotton would range differently in different sections of the country, in different States, and possibly in different sections of the same State? Mr. RANSDELL. It surely would. Another thing, Mr. President, I do not know that the Senator from North Carolina heard the first part of my argument. In the first part of it I tried to show that the speculators, by going into the market, had a steadying and a buoying effect on it. Suppose cotton is pretty low, as I tried to say, when we did not have the exchanges, in the World War. It went down to 6 cents a pound. There were a great many people in the United States who knew that cotton was intrinsically worth a good deal more than 6 cents. They might have to hold it for a year or two, but they knew it could not be produced at 6 cents. There were no exchanges for three months on which they could buy cotton. They were closed. Of course these speculators who lived in Paris, London, Brussels, Rome, Madrid, Calcutta, Tokyo, or some other place, could not go down into North Carolina and buy the actual spot cotton. They could say, however, Cotton is too low; I am going to load up"; and they would load up; and as soon as the exchanges began to operate they began to buy cotton and buy cotton and buy cotton; and that immediately steadied the price, and it went up and up and up. It was a wonderfully steadying factor and raised the price materially, to the benefit of the producer. Mr. President, what makes prices? Demand for the product. There may be a great supply of anything, but if there be no demand you can not get much for that product. In addition to the legitimate hedging which I tried to describe and which, according to Mr. Marsh, former president of the New York Cotton Exchange, constitutes from 80 to 85 per cent of all the ! business on the exchange, there is a considerable speculative element; and I do not know that it is wrong to speculate. I have done some speculating in real estate myself at times. I paid only a little money down. I have speculated in various things. I would make a small cash payment and get credit on the balance, hoping that the product would go up and I could sell it at a nice little profit. Mr. SIMMONS. Mr. President The PRESIDING OFFICER (Mr. HARRIS in the chair). Does the Senator from Louisiana yield to the Senator from North Carolina? Mr. RANSDELL. I yield to the Senator from North Carolina. Mr. SIMMONS. I have not understood the Senator as antagonizing the elimination, if it were feasible, of purely speculative dealing in cotton or any other agricultural product. I think everybody is agreed that if there is any way by which that can be done without at the same time destroying these exchanges, or placing upon them such a serious handicap as would probably prevent their functioning as they should in the interest of business and in the interest of maintaining and stabilizing and steadying prices in the country, we ought to adopt that legislation, if anybody can present it here in a form that will be accepted as accomplishing that purpose and not going farther than that. I understood, however, that the Senator was making the point that if this heavy burden were placed upon a part of the operations of cotton exchanges, it would probably destroy the exchanges. Mr. RANSDELL. Not only in my judgment, Mr. President, but in that of a great many others, it would have that result. I understand that as a practical proposition you can not use them for the legitimate insurance business without the possibility of their being used for speculation. It is all so blended that you can not separate it. The exchanges would be destroyed if a tax of this kind, which amounts to $50 a contract, were imposed. It would completely destroy the exchanges, both grain and cotton. Mr. SIMMONS. I understand that the purpose of the Senator from Arkansas is to prevent, by imposing a tax, these speculative transactions on exchanges. The question to my mind is whether he has not fixed the penalty so high that it might possibly be too serious, and might accomplish more than he has in view. Mr. RANSDELL. As I understand, in trying to cure the disease he would kill the patient. Mr. SIMMONS. I do not know whether that would be so or not. Mr. RANSDELL. That is absolutely so, in my judgment. Mr. SIMMONS. I understand that to be the contention of the Senator. Mr. RANSDELL. That is my contention, without a doubt. Mr. SIMMONS. I think it is a very serious question. Mr. RANSDELL. And does not the Senator think we ought to go very slowly in destroying or in endangering a great agency of commerce that has existed for nearly 60 years, that is used so extensively by so many people engaged in the agricultural business? Unless we are certain we are right, had we not better go slowly? Had we not better follow the lead of the senior Senator from South Carolina [Mr. SMITH), for instance, in the bill which he has just introduced to-day seeking to correct some possible evils? Had we not better follow the bill which I introduced, seeking to correct similar evils; or the bill which the Congressman from Georgia introduced, seeking to correct some evils instead of destroying the whole thing, instead of pulling down the house on its inmates? Mr. SIMMONS. I understand that that is the question in difference between the Senator from Arkansas and the Senator from Louisiana. The Senator from Arkansas contends that it will not destroy the exchanges. I do not understand it to be his object and his purpose to destroy the exchanges. The Senator from Louisiana contends that it will. That is where I want enlightenment. Mr. RANSDELL. If I may just put it in this way, the difference between the Senator from Arkansas and the Senator from Louisiana is this: The Senator from Louisiana stands by the existing institutions, by something that has been used for years and years and years. The Senator from Arkansas wants to destroy them. He wants to put in something else. "He who asserts must prove" is a principle of law with which the great Senator from North Carolina certainly is familiar. I am not seeking to do anything here except to maintain the status quo; that is all. I do not want to do a thing but let these exchanges alone. Is not that a different position from his? I think it is very different. Now I want to proceed, because I have taken up too much time already. I was trying to place in the RECORD some news According to the claims and promises of these great reformers the southern cotton grower should now be reaping his profits. The mills would be buying direct from the farmers and paying the latter the big margins that erstwhile went to the exchanges and the gamblers, so called. But what do we see? Mind you, this is a great Texas paper. There are no future exchanges in Texas. Even a blind man can see that the closing of the exchanges and the elimination of speculators have closed the cotton markets and have put the cotton grower entirely at the mercy of a few spot buyers for the mills. I hope every Senator who contemplates voting for this amendment will consider that sentence. Mr. President, without reading, I ask to be permitted to place in the RECORD the statements of two Secretaries of Agriculture in opposition to this identical bill, or a bill so near it that it is just as dangerous-Secretaries Wallace and Jardine both addressed to the chairman of the Committee on Agriculture and Forestry of the Senate, expressing the utmost opposition to this bill and saying that it would not be right to pass it. Here is the closing sentence of Mr. Jardine: DEAR SENATOR NORRIS: In compliance with the request of the clerk of your committee, I submit herewith the department's comment on S. 626, entitled "A bill to prevent the sale of cotton and grain in future markets." The general purpose of the bill is to prevent the offering to make, or the making, of any contract for the purchase or sale of cotton or grain for future delivery, without intending that such cotton or grain shall be actually delivered or received, and to impose upon the purchaser of such a contract the obligation to accept delivery. To accomplish this purpose the seller is required, before transmitting any message offering to make or enter into such a contract, to furnish an affidavit stating among other things his intention to deliver such cotton or grain, and the buyer is required to furnish an affidavit that he has the intention to receive and to pay for such cotton or grain. It penalizes with fine or imprisonment any person sending or causing to be sent any message offering to make or enter into a prohibited contract and any person owning or operating any telephone or telegraph line, wireless telegraph, cable, or other means of communication, or any agent of such person, who knowingly uses or allows such property to be used for the transmission of a prohibited message. It also prohibits the use of the mails for carrying any written or printed matter tending to induce or promote the making of a prohibited contract and penalizes any person who knowingly uses the mails for the transmission of such matter, or any person who knowingly takes or causes such matter to be taken from the mails for the purpose of circulating or disposing of it. The bill is based upon the power of Congress to regulate interstate commerce. During the past 50 years many bills have been introduced in Congress which would prohibit the sale or purchase of contracts for the future delivery of grain or cotton not providing for the actual delivery thereof. None of these drastic bills passed, because evidently Congress reached the conclusion that such legislation would substantially impair, if it would not actually destroy, the valuable hedging facility which is furnished by the making of the vast number of contracts on and through the exchanges in which deliveries are contemplated rather than actually assured. In rejecting these bills it seems that Congress wisely refused to deprive the producers, the merchants, and the manufacturers of these use the mails for the transmission of such matter or any person who knowingly takes or causes such matter to be taken from the mail for the purpose of circulation. farm products of the benefit of this insurance against price fluctuations. I promote the making of prohibited contracts and penalizes persons who However, congressional study of the subject matter led to the passage of laws designed to regulate and supervise future trading in cotton and grain, for the purpose of eliminating excessive speculation, market manipulation, dissemination of false information, and other known injurious practices which attended the operation of exchanges in the conduct of their business in future trading. The legislative thought on this subject crystallized into the cotton futures act and the grain futures act. The Since the passage of the cotton futures act in 1914, its reenactment in 1916, and its amendment in 1919, it may fairly be claimed that the quotations for cotton have more accurately reflected the value of spot cotton than was previously the case. As the future quotations have functioned on the value of spot cotton, the market has offered a better opportunity for the making of hedges than was previously the case, when futures sold at a much larger discount compared with spots. requirement which the act makes of settlement on ascertained commercial differences, rather than on arbitrary differences which were fixed by the exchange rules, has resulted in settlements of such contracts which are much fairer to the buyer. Since ascertainment of commercial differences and the classification of cotton by the department there has been much less opportunity for unfair manipulation of the future market by powerful traders. Practically all interests directly concerned in future trading in cotton agree that the law has been of great benefit, and many of those which formerly strenuously opposed the enactment of the law have accepted it and are operating under it without complaint. The grain futures act of September 21, 1922, comprehensively places under the supervision of the Secretary of Agriculture the exchange whereon there is future trading in grain. It prohibits the dissemination by an exchange of any of its members of false, misleading, or inaccurate reports concerning crop or market information or conditions that affect or tend to affect the price of commodities, and prohibits manipulation of prices or the cornering of grain by the dealers or operators on the exchanges. This requires the keeping of memoranda and the filing of reports with the Secretary of Agriculture showing the details and terms of all transactions entered into on the board. The Secretary now requires that such reports be made daily. The law has not been in force long enough fully to demonstrate its effect. It is apparent, however, that it has resulted in restraining the dissemination of false or misleading market information, the manipulation of prices, and corners, and has had and is having a stabilizing influence upon the price of grain in that it seems that violent price fluctuations have disappeared. The law has been very helpful, notwithstanding exchange resentment, which has hindered and delayed the full accomplishment of its purpose. While this act permits the buying and selling of contracts for the future delivery of grain under the rules of the exchange which do not provide for actual delivery, nevertheless it has and will restrain the excessive selling or purchasing of such contracts on the part of powerful sinister interests. Therefore, I am inclined to believe that Congress should give the grain futures act and also the cotton futures act more time to demonstrate their worth before it resorts to far-reaching legislation proposed by S. 626, because I am convinced that the insurance facility is of great value and is largely dependent for its existence upon public speculation in grain and cotton contracts, and this hedging privilege should not be destroyed until these industries find some better way to insure themselves against price fluctuations. In view of the foregoing considerations, it has not been thought advisable to enter upon a discussion of the legal phases of the bill. Sincerely yours, Hon. G. W. NORRIS, HENRY C. WALLACE, Secretary. DEPARTMENT OF AGRICULTURE, Washington, January 13, 1926. Chairman Committee on Agriculture and Forestry, United States Senate. DEAR SENATOR NORRIS: In accordance with your letter of December 9, I wish to submit the department comment on S. 454, entitled "A bill to prevent the sale of cotton and grain in future markets." This bill, which is based upon the power of Congress to regulate interstate commerce, is intended to prevent the sale of cotton or grain for future delivery without intending actual delivery of the product and to impose upon the purchaser the obligation to accept delivery. The seller is required before transmitting any message offering to enter into such a contract to furnish an affidavit stating, among other things, his intention to deliver the product and the buyer is required to furnish an affidavit that he intends to receive and to pay for such cotton or grain. It penalizes any person sending or causing to be sent any message offering to make or enter into a prohibited contract and any person owning or operating any telephone or telegraph line, wireless telegraph, cable, or other means of communication, or any agent of such person, who knowingly uses or allows such property to be used for transmission of prohibited messages. It likewise prohibits the use of the mails for carrying any written or printed matter tending to From time to time a great many bills have been introduced to prohibit the purchase and sale of contracts for the future delivery of agricultural products not providing for actual delivery thereof. Congress, however, evidently concluded that such legislation would impair or destroy the hedging facilities which are furnished through trading on the exchanges, and thus far it has refused to deprive the producers, merchants, and manufacturers of these farm products of the benefit of such insurance against price fluctuations. Study of the subject matter, however, has led to the passage of laws providing for the regulation and supervision of future trading in cotton and grain for the purpose of eliminating undue speculation and other injurious practices which had crept into the business of future trading. You will recall that the cotton futures act, which was first passed in 1914, was reenacted in 1916 and amended in 1919. It is believed that the cotton futures markets now offer better opportunity for the making of hedges than was previously the case. The requirement which the act makes of settlement on ascertained commercial differences rather than on arbitrary differences which were fixed by the exchange rules has resulted in settlements of such contracts which are much fairer to the buyer. Since ascertainment of commercial differences and the classification of cotton by the department, there has been much less opportunity for manipulation. Practically all interests concerned in future trading in cotton agree that the law has been of great benefit. The grain futures act regulates to some extent trading in grain futures. It prohibits such transactions unless (a) the seller actually owns or is the grower of the grain or either party to the transaction is the owner or renter of land on which the grain is to be grown or is an association of such owners, growers, or renters, or (b) the contract is made by or through a member of a board of trade which has been designated as "a contract market." One of the conditions precedent to such designation is that the governing board shall make provision against manipulation of prices and the cornering of grain. The act requires the keeping of memoranda and the filing of reports with the Secretary of Agriculture showing the details and terms of all transactions entered into on the contract markets. It prohibits the dissemination by any person of false, misleading, or inaccurate reports concerving crops or market information or conditions that tend to affect the price of grain. While the law has not been in force very long, it is believed that its enforcement has had a wholesome effect. Some of our best-known economists have pointed out that future trading is a field which, though large and important, has had comparatively little economic exploration. It is my feeling when called upon to consider any question connected with our future markets that intelligent disposition would be much facilitated if there were more sound information available. In the administration of the two statutes above mentioned, the department is actively studying the available data, with the hope of being able to offer from time to time suggestions of a more constructive nature for the treatment of problems of this kind. In the meantime, it feels that the hedging function of the future exchanges is of real necessity in the present-day developments of our markets for cotton and grain, and that it should not be destroyed until other means of accomplishing the same end are discovered and established. There The legal advisor of the Department of Agriculture has expressed the opinion that the drastic provisions contained in section 2 of this bill are unconstitutional. It is true that the solicitor was discussing the Candler bill introduced in the Sixty-third Congress (1913-1915) when he wrote that opinion, but I have gone to the trouble of comparing section 2 of the Caraway bill with section 2 of the Candler bill and they are identical, even down to the punctuation, with this exception: In the Caraway bill the words "or grain" are added wherever cotton is referred to, and the penalty is increased from $1,000 to $10,000. fore the opinion of the legal advisor of the Department of Agriculture applies to this bill. Here is what he has to say about section 2: "Under the bill, as drawn, the prohibition in section 2 extends to the sending of messages by telegraph, telephone, wireless telegraph, cable, and other means of communication. It is not clear just what the phrase other means of communication' would include. Under the rule of ejusdem generis it would probably be construed as confined to any possible agencies of communication, other than three specifically mentioned, which are based on, or which apply the scientific principles of, the telegraph and telephone. But if the phrase be held to include |